Positive Market Signs on the Horizon, says Report (2024)

The California housing market is showing some optimism for the medium term and the long term, according to a recent report by the California Association of Realtors (CAR).

An increase in the statewide population over the next few years, coupled with a strong desire for many renters to buy in the near future should help push housing demand to a higher level in the next few years, said the report.

A new report from the State Department of Finance’s demographics unit says that after four years of population loss, California gained a tiny bit in 2023, “driven by decreased mortality and a rebound in legal foreign immigration.”

California gained 67,000 residents, said the report, bringing California’s population to 39,128,162. What is known as “natural growth” – births minus deaths – increased from 106,700 in 2022 to 118,400 in 2023, said the report, largely because the death rate dropped after spiking upward during the pandemic.

Across the state, 31 counties increased in population, with positive growth largely in the Bay Area, Central Valley, and the Inland Empire. Along with the increase in population, California also added more housing units in 2023. The statewide housing growth improved to 0.79% last year, as 115,933 units on net were built, including 22,802 accessory dwelling units.

As the remote working trend continues to stabilize and net domestic migration recedes to the lowest levels of the 2010s, said the CAR report, California’s population is expected to increase further at a slow pace in the near future.

At the same time, said CAR, persistent inflation and elevated interest rates in recent weeks have continued to present challenges for buyers and sellers in the near term, resulting in slow home sales activity so far in the homebuying season.

Housing consumers have been gradually adjusting however, said the CAR report, despite being in an environment where rates stay higher for longer.

Sales of newly constructed homes in the U.S. dropped in April by 4.7% month-over-month and 7.7% year-over-year. Meanwhile, according to the U.S. Census Bureau and the Department of Housing and Urban Development. It was the first yearly decrease in 13 months and the dip was the largest since March 2023.

New home sales are showing that homebuyers still want to buy if they can find a way to get back into the market. More buyers should reenter the market in the later part of the homebuying season, said CAR.

For now, renters are unsure whether now is the right time to buy but many plan to buy in the next five years, according to the newest Bank of America Homebuyer Insights Report (HBIR) (PDF), conducted in partnership with Bank of America Institute.

Many prospective homebuyers fear the long-term consequences of renting, said the B of A report, including 70% who feel they’re not making a long-term investment in their future, and 72% who worry that rent increases could affect their current and long-term finances.

However, the report added, with higher interest rates and home prices, uncertainty over whether to keep renting or to buy a home in the current market has grown. Today, 57% of respondents are unsure whether it’s a good time to buy, compared to 48% at this time last year. This trend is even more prevalent among first-time homebuyers, as 62% shared they’re unsure what to do.

Finally, despite a decline in the average 30 year fixed-rate mortgage (FRM) in the latest weekly Freddie Mac’s survey, Mortgage News Daily suggests that rates actually went up last week.

Federal Reserve officials have reiterated that the central bank remains cautious and will wait to ensure that inflation is back on track to its 2% target before cutting rates, CAR noted.

The average 30-year FRM wrapped up last week with an increase of 7 bps from the prior week, said CAR, adding that, “as the market continues to speculate on the next Fed’s rate move and its outlook on future rate cuts, interest rates will likely remain volatile in the coming month.”

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