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Could Lower Rates Energize the California Housing Market in 2024?

For much of 2023, higher mortgage rates have had a cooling effect on the California real estate market. The same is true for the rest of the U.S.

On the demand side, higher interest rates have reduced affordability among buyers, leading to a reduction in home sales. They’ve also contributed to the so-called mortgage rate lock-in effect that has made some homeowners reluctant to list their properties.

In short, higher mortgage rates have reduced buyer demand and housing market inventory levels in California, but for different reasons.

The good news: mortgage rates have been trending downward over the past few weeks, and some analysts expect this trend to continue in 2024. If interest rates decline further, it could loosen up the California real estate market in 2024.

California Housing Market Cooled by Higher Rates

Earlier this month, the California Association of Realtors (C.A.R.) published an updated housing market report with data for the state as a whole along with individual metro areas.

According to that report, home sales declined in October 2023 compared to a year earlier, partly due to higher mortgage rates.

“A sizable jump in interest rates kept home sales constrained in October and will likely hamper home sales for the remainder of the year,” said C.A.R. President Jennifer Branchini.

As their report explained, elevated interest rates have kept many home buyers and sellers on the sidelines during 2023. This has led to an overall decline in sales activity within the California real estate market.

A similar trend has played out in housing markets across the U.S.

Now, as we approach the last month of the year, many home buyers and sellers in California are looking ahead to 2024. And a lot of them are wondering the same thing:

What will mortgage rates do next year, and how might that affect the California real estate market in 2024?

Mortgage Rates Have Eased a Bit

Last year, the average rate for a 30-year fixed mortgage loan more than doubled, rising from the low-3% range to nearly 7% by the end of 2022.

In 2023, mortgage rates in California bounced around a bit and then began another upward climb during the second half of the year. In late October of 2023, the average rate for a 30-year fixed home loan hit a 20-year high of around 7.8%.

But for the past three weeks, mortgage rates have been trending downward again, which bodes well for California home buyers. Analysts expect this trend to bring more buyers into the real estate market, especially if it continues going forward.

According to a November 16 report from Freddie Mac:

For the third straight week, mortgage rates trended down, as new data indicates that inflationary pressures are receding. The combination of continued economic strength, lower inflation and lower mortgage rates should likely bring more potential homebuyers into the market.

At their last policy meeting, Federal Reserve officials decided to pause interest rate hikes due to easing inflation. The Fed’s policies tend to have an indirect impact on mortgage rates.

So their recent policy shift could put downward pressure on home loan rates over the coming weeks.

Jordan Levine, the chief economist for the California Association of Realtors, said recently that further improvements in mortgage rates “would alleviate some pressure on both the buy and sell sides of the housing market in 2024.”

A More Active Real Estate Market in 2024?

While no one can predict future real estate market trends with complete accuracy, the prospect of lower mortgage rates is a positive sign. If rates decline further in 2024, as some have predicted, it could increase activity among buyers and sellers alike.

Yesterday, the Mortgage Bankers Association published a revised forecast for the housing market stretching through 2024. They expect 30-year mortgage rates to average around 7.1% at the start of 2024 and gradually decline throughout the year.

For sellers, lower mortgage rates could reduce the general reluctance when it comes to listing their properties. This could bring more homes onto the market next year.

For buyers, lower mortgage rates could improve affordability and make it easier to purchase a home. This could lead to increased demand and more sales in 2024, especially in California’s more competitive real estate markets.

Home Prices Starting to Rise Again

As we wrote in a previous report, home prices across California have begun to rise again. This comes after a brief downturn in prices that affected much of the nation over the past year or so.

California home buyers should pay close attention to this trend as well. While mortgage rates are expected to decline in 2024, home prices in California could creep upward for the foreseeable future.

According to the state’s Realtor association, the median sale price in California rose to around $840,000 last month, marking a 5.3% increase from a year earlier. The latest figures from Zillow also show a steady rise in prices over the past few months.

As you can see, there’s a lot going on here. So it will be interesting to see how the California housing market changes in 2024. Overall, we will probably see a more active real estate scene compared to the past year.

Need financing? Bridgepoint Funding serves home buyers all across the state of California. As a mortgage broker, we are able to offer a broad range of home loan options, including some with very flexible criteria. Please contact us with your mortgage questions or to apply for a loan!

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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