Will California Home Prices Fall? The Spring 2023 Market, By the Numbers

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Why this week's show is on a Thursday

Welcome to Mortgage Mom Radio. I'm Debbie Marcoux, the Mortgage Mom, and today is Thursday. I'm usually on Wednesday, but we've had a lot going on in the family, so we're a little off this week and I apologize for that.

Last week I didn't run a show at all, so some of you may be wondering where I was. On Easter Sunday we had the unfortunate situation with our dog — a little cocker spaniel named Mary Jane. She was 14, so we knew it was coming, but she woke up very sick that morning, and on Monday we had to put her down. When a pet has been with you and in your family for 14 years, it is like losing a member of the family, so we had a difficult week and I took some time off. We did end up getting a new pup, his name is Buck, and now we're right back to potty training and infancy. That first month with a puppy feels like having a brand new baby. So we've been a little busy and a little crazy, and I apologize for the change in the day and time.

If you're subscribed to my text messages, you knew I just went live even though it isn't my normal Wednesday. Text the word MOM to 844-935-3634 — that's 844-WE-LEND-4 — just the word MOM, nothing else, or it won't subscribe you. I promise I won't spam you. You won't get more than one message a week, and I'm never going to try to sell you anything. I'm just letting you know I've gone live and usually what we'll be talking about.

Today's topic

Housing starts just came out. My job here is to make sure I'm educating you and keeping you in the loop on everything going on in real estate and mortgage. So we have a lot of information back about where we are today: how does housing look in April, how are prices looking, are things starting to pick up? It's spring season. What's the forecast, what's the outlook for 2023?

Obviously things can shift very quickly, so what they expect and what actually happens are two different things. But it gives us a good place to make decisions from — is this the right time for me to buy, should I be looking right now, do I need to get my pre-approval started, is this a good time to list my home for sale? If you're a homeowner or hoping to be one, those are important things to be in the loop on.

Spring buying season: the national picture

I sent out a newsletter about spring buying season, and I'll read part of it. As the nation comes out of its winter hibernation, potential home buyers are zeroing in on spring buying season, now almost in full bloom — and there are some positive signs.

I've mentioned over the last couple of shows that we're starting to see a pickup. We feel it in the phones, in the applications, in the closings. We went through a time where things were very slow, very quiet — scarily slow, it was scary for a minute — and things are starting to pick up, which is fabulous.

The National Association of Realtors recently reported that properties typically remained on the market for 34 days in February, up from 33 days in January and 18 days in February of 2022. And though still in the winter months, after 12 months of declines, February existing home sales jumped from January. Total housing inventory at the end of February was up solidly, though small, from a month and a year ago. However, low inventories continue to plague the sector. And speaking of inventories, after five straight months of declines, total housing starts surged in February from January.

This is really good news. We have been in a time where inventory has been very, very low — so even though there hasn't been much movement, and there haven't been nearly as many applications or buyers out looking, when you did find a home priced right in the right neighborhood, there were multiple offers on it and properties were going over and beyond their list price. So it's good to hear more inventory is coming to market. That makes it easier for new buyers to get into a home.

Home buyer borrowing costs have come down from the multi-year highs we saw last November, though they're still double what they were in January of 2022.

California by the numbers

California is what I really want to focus on today, because my show is on radio here in California and the majority of my listeners are Californians.

The latest housing stats from the California Association of Realtors show single-family house prices dropped 2.1%, despite a rise in sales of 17.6% in February. As I mentioned, we're getting busier — the phones are ringing, applications are coming in, more people are getting pre-approved — and you can see it in those numbers. Up 17.6% in February is a very big jump. No, we're not at the numbers we were at in 2020, 2021, 2022. But for having hit the lull we did and coming back this aggressively, it's going to be a very good spring.

The February statewide median home price fell $16,000 on average — down 2.2%.

Hmm. Not a really huge drop, right? Everybody's been sitting around thinking, I'm going to wait, I'm not going to buy, I'm going to wait for housing prices to just drop out from underneath us, I'm going to get this killer deal. Well — you saved yourself $16,000. But you've had no tax write-off. You've been a renter. You might have been asked to move because your landlord wanted to sell. Or they told you they're increasing your rent, because as we've talked about in shows months ago, rents here in California are skyrocketing. They were held off, they weren't allowed to be moved or changed, landlords couldn't evict, and now they're finally able to increase rents — and they were given a much larger percentage they're allowed to increase by this year, and I believe next year as well.

So if you've been waiting around for a massive drop in home prices: you got $16,000, interest rates are higher, and you've lost out on homeownership. Hopefully you're hearing the scolding from Mom — it is time to get off the fence, get your application started, find out if you can buy, and get out there and start looking.

The median home price in California at the moment is $735,480. If anyone's been wondering what that median number is, that's where we're at — and that's all of California, not just LA County or Orange County.

The California Association of Realtors suggests the drop in year-over-year sales may be due in part to the effects of the atmospheric river event; continued difficulty finding buyers and getting sales done would likely contribute to lower prices.

Days on market: 28 days is not a buyer's market

The median number of days it took to sell a California single-family home tripled to 28 days in February, from 9 days one year ago. If you remember, a year ago a property went on the market — sometimes it didn't even make it to market — and it already had multiple offers. We are not in that market anymore. That market is gone.

Nationwide, homes are taking about 34 days to sell. California right now is averaging 28 days listed before you're in escrow. Not bad at all. I've been in this business a very long time — I started selling real estate in '94 and got into mortgage in 2002 — and over all those years, an average time for a home to be listed is really more like 60 to 90 days. So we are still very, very low on how long it takes to get a home sold.

Some people aren't selling, but that's because they haven't come to the reality that things have shifted. You're not going to list your home way above what the last sale was and get an interested buyer. You need to be competitive right now. If you're a seller, you need to be listed at the right price and offering the right incentives to get your home sold in a decent amount of time.

Q&A: where do I start?

Leticia asks: “Hello Debbie, I'm interested — where do I start to purchase a home?”

Great question, and a lot of people need to know this. The best way to get started is a phone consultation. Schedule an appointment on the website, or call in — there's a very good chance one of us is available right away to talk to you immediately. If we're all tied up, you can schedule an appointment maybe 20 or 30 minutes out, same day, or pick a day and time on the website that works around your schedule.

Start with the phone consultation. It's the very best way to know where you stand. Are you ready? How much will you need for a down payment? We're going to talk about your credit, your income, and get you on the right path. If you're not ready right now, we're going to help guide you to get ready. If you are ready, we'll have you do your loan application, start your pre-approval, and tell you what documents to submit.

I always tell everybody to start with a phone call. It's that simple. We don't bite. We're very nice. We'll take you through everything you need to know and devise a plan that works best for you, and if it's the right time to apply, we'll urge you to do that.

Why spring is always the busy season

Right now is the season — the buying season and the rental season. This is when everybody's looking to make a move. Why? Kids are out of school in June, and it's easier to move over the summer when they're not in school. Maybe you're trying to get into a certain school district, or you want them to finish the year before you change districts, or you just need the house set up and it's easier when you're not also getting kids off to school in the morning.

It's also usually the best weather of the year. People don't want to move in the rain, and if they're in the Midwest, they don't want to move in the snow. Best weather, most convenient timing — so seasonally we're always busier now than at any other time of year.

On top of that: we were so busy in 2020, 2021 and 2022 because rates were so low and everybody wanted to take advantage. Then we went through that lull and got freakishly quiet. Rates doubled, more than doubled, very quickly, and everybody got scared. What's happening, what's taking place with the economy, what's going to happen to home values, maybe I should wait. That's a very reasonable thought process — if rates go up really high, prices have to come down, and I don't want to buy at a high price and a high rate. So a lot of people hit the brakes.

Rates are stabilizing

Well, things are stabilizing now. They truly are. We're not seeing massive increases every day. I'm not walking into the office with a higher rate sheet, higher rate sheet, higher rate sheet, day after day. Mortgage rates are starting to stabilize, and with the banking sector having some problems, I believe they'll continue to.

The Federal Reserve has said they're more than likely going to increase again when they meet next in May. But that increase is not directly connected to mortgage rates. It changes what happens in the market, it affects stocks, and it directly changes your credit cards and your home equity lines of credit, because those are directly tied to the prime rate. It does not directly connect to mortgage rates.

Mortgage rates have their own orbit. They're based on mortgage-backed securities, the treasuries, the 30-year bonds, the notes, the yields — and on investors, and where investors want to put their money and where they feel most confident locking up funds with the least risk of loss. Right now a 30-year mortgage is a safe bet. It's a lot safer than the stock market, which has been very volatile recently, or Bitcoin, which has been more volatile still. A 30-year mortgage note is more stable. So the more people who get scared in other areas and shift money into mortgage-backed securities, the more that helps stabilize mortgage rates.

We saw a nice dip in mortgage rates from where we were back in October, so we're definitely doing better. We're maybe a tiny bit higher than last week, but we're in the range of about the best rates we've had in the last couple of months. January gave us a nice dip, they came back up, and now they've sort of stabilized.

My crystal ball — which is a guess and isn't always accurate — tells me we're stabilizing, and rates hover around where they are now. I could be totally wrong; some announcement could shift things on a dime. But based on what I'm reading and the forecasts, it looks like stabilization. And if rates stabilize while we continue to see historic lows in inventory — which is why we're at 28 days on market instead of a standard 60 to 90 — I think things really start to pick up, with people coming back out and saying, okay, it's time, we're not going to get that massive fallout everybody was anticipating.

The rental market is its own bidding war

If you've been thinking about buying, you're truly putting yourself out by waiting. We're going to talk a lot next week about where rents have been going.

I have a good friend who's been trying to rent a place. She isn't quite in a position to buy right now — obviously that would be the first thing I'd tell her to do — but she's been looking for a rental, and it is competitive. She fills out the application, walks into the home, and there are people all over the place. It's crazy how many people are interested. She's having to offer more than what the owner listed the property for in monthly rent, and she's still not getting accepted. She's having a really difficult time getting into a rental.

Which is why I think it's important for you to understand how key owning a home is for your stability. Nobody can tell you to move — as long as you're making your mortgage payments and your property taxes, nobody comes to the door and says we need you to move, or we're increasing your rent. You have that security, and the pride of ownership. You can fix it, make it what you want, build it up, garden, do what you want. On top of that there are tax benefits and long-term benefits.

And I'm talking to you assuming property values do drop. Real estate is for the long haul. If you buy a home and stay five to ten years, which is about how long people stay in a property on average, you're going to have equity in that property that you would never have had as a tenant. Please take that to heart.

Nora writes in: “Yes, the apartments are asking for perfect credit, and it's hard to find a decent rental. I've been looking for about two weeks.” Thank you for giving us your experience — that's the ongoing story I've been hearing from a lot of people. And apartments are a lot easier to rent than a single-family home, a townhome, a duplex, or an ADU in somebody's backyard.

The rental market right now is really tough. They want very good credit. They want a couple of months of rent up front. They want the security deposit. And what I've seen especially from big apartment complexes is they want to see you making about three and a half times the monthly rent. They're still qualifying you — making sure you can pay the rent, making sure your credit is there.

Q&A: if I qualify to rent, could I buy?

So think about it. We have down payment assistance programs that can help you get into a property. We're in a market where you can ask a seller for a credit to cover closing costs. And in a rental market where you have to come up with first, last, and security — that money could very well be your 3% or 3.5% down payment.

If you're in a position where you can rent — you've got the credit, you've got three and a half times the rent, you can prove your income, and you've got the security deposit, the first, the last, the pet deposit and everything else — you should be calling us to find out. Could I be buying instead of throwing my money away, making somebody else richer? Could I be putting money into something for me that eventually becomes a retirement vehicle?

Nora replies: “Yes, but in that case we would be looking to buy instead of renting.” Exactly — that's what I'm saying. If you've got perfect credit, deposit money, and verifiable income, why would you not double-check whether you could buy?

There are down payment assistance programs. The last couple of weeks we talked about the California Dream program from CalHFA. I warned everybody that money was probably going to go very, very fast, that you all needed to jump on it right away. I tried so hard to stress that urgency. Well — it's run out. The money is gone. That program is gone.

But that does not mean there aren't other down payment assistance programs. There are, and we have numerous ones. CalHFA still has its own standard down payment assistance program — just not the Dream For All shared appreciation program — and we have others we can talk to you about. So if you've been thinking about renting and you know you can qualify to rent, why would you not start with a phone call? Book an appointment, give us a call, let's go through your numbers and see if it's something you can afford. It is not cheap to rent a place. You're making the move anyway, you're paying the moving expenses either way. There's a very good chance there's a possibility of getting you into a home.

The 2023 California forecast, read and challenged

Let's talk about the 2023 California forecast: will home prices fall? This is one article, so take part of it with a grain of salt — but this is what's coming out of a lot of places.

It asks whether it's a good time to buy a home or rental property in the Golden State, and suggests most millennial-age Californians will prefer to keep renting until there's more economic certainty and the numbers justify buying. The biggest factors in its forecast: rising interest rates, growing another 1% — though I think that's outdated, since as you've heard me say, I'm pretty sure things are stabilizing. Home prices likely continuing to decline slightly — and again, we heard the great news that prices fell $16,000, or 2.2%. Supply continuing to grow — and we are starting to see more homes come to market, which is good, but we're still very low. I want you to hear that even if a big article says we have more homes listed, we still don't have enough. We'd literally need to triple or quadruple the number of homes currently listed before we'd see any kind of big bust in value. And tech sector uncertainty weakening demand, which would be Northern California.

Where Californians are moving

California has the highest percentage of people looking to buy elsewhere. The top five states home buyers searched to move from were California, New York, the District of Columbia, Massachusetts and Illinois. The top five they searched to move to were Florida, Texas, Arizona, Maryland and South Carolina.

The California exodus is pushing prices up elsewhere — California is being blamed for fast-rising housing prices in states like Utah and Idaho. An exodus of people and businesses might sound threatening, but it may be that this state's housing market is invincible. People want to live or rent in California. There are always buyers for California properties in any of its cities. If high taxes, regulations, fires, floods, inflation and high prices can't scare buyers away, what could?

The article notes that calls for a recession and a flat 2023 sales year would have most experts seeing reduced sales and prices in California, which is watching businesses and residents leave for more tax- and cost-friendly states like Texas and Florida.

Basically, the gist: people always want to live in California. People leaving California are making Texas more expensive, Florida more expensive, Idaho and Utah more expensive. But even with the mass exodus we've had, we are still short on housing. We don't have enough housing for the number of bodies we have in this state — and I'm not talking about properties listed for sale, I mean housing in general. That's why it's difficult to find rentals, that's what's driving the rent market up, and that's why we don't have enough listings for the number of people who need to buy.

Her own rate forecast

So I don't think we're going to see any kind of massive fallout in prices. I think we might see a bit more decline — maybe another 2%, maybe 4%. But what is that over time, when you hold a home for five or ten years? Like all things in real estate, it will turn. Property values will go up, and you'll be thanking yourself down the road that you pulled the trigger.

I do believe we'll see rates come back down in the future. For right now I think we stabilize. I don't think they come down much further than where they are — the mid-sixes is really about an average rate. In October last year we were in the mid-sevens, so we actually feel really good about six and a half. And we can easily buy those rates down into the fives. I just funded a VA deal at 4.875% — they got help from the seller to buy the rate down and threw in a little of their own money to buy it down further, and they're in a 30-year fixed at 4.875%, which I think is a historically low number.

You have to remember that the numbers we saw during the pandemic were not sustainable. That was never going to stay around forever, and I don't think we see those numbers come back. Again, I could be wrong — something could trigger it. But until inflation is in check, I think we see rates stabilize in the mid-sixes. I think it's very easy to get into the fives, and it's possible to get into the high fours depending on how you negotiate. Finding the right real estate agent to help you is phenomenal. And if you don't have the money to buy the rate down, that's okay.

Over probably the next 12 to 18 months I think we'll see rates float back down — six and a half moving to five and a half, and we might even see high fours, where you could refinance and drop that payment. But the value you get in owning the property is worth every penny.

So if you're out there trying to find a new rental right now, it might be worth just a phone call to explore whether you could buy instead. And if you explore it and it isn't the time, then you go rent and sign a one-year lease — and we give you the tools, the roadmap, the game plan to get where you need to be to buy when that lease comes up a year from now. You've got to start somewhere, and the first place to start is that phone call.

The free calculator tool, and why listing-site payments lie

I haven't talked about my phone app in ages, and it's a great tool for exploring on your own if you're a little too nervous to call.

There are two different things, and people mix them up. There is a Mortgage Mom Radio app in the App Store and on Google Play, but that one is for somebody who's actively applying — it's where you apply, sign disclosures once you're under contract, and upload documentation. That is not the tool app.

To get the tool app, text the words PHONE APP — two words — to 844-935-3634. You'll get a link you can save to your home screen. In it you can book a phone consultation, email or call me or anyone on my team, and watch the show live. But more importantly, there's a calculator, and it does several things.

If you've been thinking about refinancing — you have a home equity line tied to the prime rate, the rate went up, your payment went up, and you're wondering whether to consolidate your first mortgage and the equity line into one — it runs refinance payments, which gives you an idea of whether it's worth picking up the phone.

For purchases, you can run a real monthly payment, and this is very different from what you get on a listing site. It pulls mortgage insurance if you're under 20% down. It runs the payment for a VA loan, an FHA loan, or a conventional loan. You enter the sales price, your down payment, what you think your credit score is, whether you're a first-time buyer, your property taxes and homeowners insurance. And if you don't know what numbers to use, there's an email button right in the app — write to me saying you're a first-time buyer and have no idea what to enter, and I'll reply and tell you what rate to use, or what to put for insurance or property taxes.

There's also an affordability calculator, which is nice if you're trying to figure out how much home you might qualify for. Trust me, we can get much more aggressive when we're working a real application with you directly. The calculator is deliberately conservative, because everyone's scenario is different — a jumbo loan allows a different debt ratio than FHA, which is different from VA, which is different from conventional. But you put in your monthly income and monthly debts and it generates an approximate number, which gives you the idea. Then, if you call the office and we can push you a little further to a higher sales price, you might actually be able to do this.

Here's why the payments on those listing sites aren't accurate. Number one, property taxes. In California, when you buy a home, your property taxes are reassessed based on your sales price. The payments shown to you online are based on the seller's current taxes — and if they bought that property five or ten years ago, their taxes are significantly lower than yours will be at today's price. So it's always off. Number two, it isn't calculating mortgage insurance. If you're not putting 20% down and you're coming in with 3%, 3.5% or 5%, that monthly mortgage insurance isn't in the number you're being shown. And number three, the interest rate it uses tends to be very off.

So as you're window-shopping through listings, open the app and get the real monthly payment you can expect. It's the best tool you could have at your fingertips.

Wrap-up

Book your phone consultation, get on the phone with us, and let us help you determine whether you're in a position to buy. Go to mortgagemomradio.com and click the appointment button, or call the office at 844-935-3634 — that's 844-WE-LEND-4 — and see if you can get an immediate transfer. If you're listening by radio on the weekend, we have somebody picking up the phones, and if you get a voicemail, that's okay — leave a message, we call people back even on Saturday or Sunday.

If you're still a little too shy to pick up the phone, that's okay. I'm an email girl and I'm more than happy to answer any question that comes my way — use the contact form on the website and it comes straight to me. You're going to get me, the Mortgage Mom. Sometimes a scenario is complicated and we'll ask if we can call you, but many times I can answer simply, get you what you need for that minute, and you come back when you're further along.

And one more thing: I'm going to be at Stagecoach. This show is pre-recorded, so by the time it airs on radio it'll be Stagecoach weekend. If you find the Mortgage Mom in the crowd and walk up and say “you're the Mortgage Mom,” I owe you a drink. That's on me. So see if you can find me out there.

These shows run a bit behind, so if you want to do this with me live instead of being a week and a half behind on radio, get on YouTube and watch me do it in the studio. I hope you all have a fabulous rest of your week. Talk to you all real soon.