Navigating the 2024 Southern California Real Estate Landscape

The holiday season is upon us, and while many are busy planning their Christmas shopping lists, others find themselves preoccupied with the question of what the real estate market in Southern California will look like in the coming year. In this article, we'll explore key insights and predictions for the 2024 Southern California real estate market

1. The Housing Bubble Myth Persists

One topic that keeps resurfacing is the fear of a housing bubble burst. Surprisingly, this concern remains on the radar for 2024. However, it's worth noting that the market performed better than expected in 2023, despite high home values and rising mortgage rates.

2. Gradual Mortgage Rate Adjustments

Last year's prediction of rapidly dropping mortgage rates in 2023 didn't quite materialize as expected. The U.S. economy demonstrated resilience in the face of the Federal Reserve's interest rate hikes. However, current data suggests that mortgage rates may ease in 2024 as inflation and economic growth show signs of slowing down.

   "I must admit that last year's projection of earlier and faster rate drops in 2023 didn't pan out as anticipated."

3. Anticipated Rise in Listing Activity

2023 witnessed a shortage of sellers in the market due to a reluctance to part with their current mortgage rates. In 2024, we expect a slight uptick in the number of sellers. As rates approach the levels homeowners currently enjoy, more may consider listing their homes for sale.

   "Recent data indicates that 80 percent of mortgaged homeowners have rates at or below 5 percent."*

4. Steady Growth in Home Prices

Contrary to some forecasts, home prices remained stable in 2023 due to limited inventory. In 2024, we anticipate modest growth of approximately 1 percent.

   "However, this growth will be modest, at around 1 percent—lower than in previous years but still growth."

5. Recovery of Previously Struggling Markets

Affordable markets across the country that experienced significant price fluctuations during the pandemic have surprised us with their swift recovery. In 2024, we expect these markets to either match or surpass their 2022 price highs.

   "In 2024, I expect most metropolitan areas to reach or exceed their 2022 price peaks."

6. New Construction Takes Center Stage

Despite tepid growth in new home construction, builders are gaining market share in both sales and listings. However, this comes at a cost, with some builders lowering prices and offering sales incentives.

   "A recent report from the National Association of Home Builders reveals that 32 percent of builders have reduced home prices, and 62 percent are offering incentives like mortgage rate buy-downs."

7. Affordability Continues to Decline

While material costs have eased somewhat, builders still struggle to meet housing demand. In 2024, affordability is expected to erode further due to stagnant home prices and rapidly rising borrowing costs, affecting younger first-time homebuyers the most.

   "Younger first-time homebuyers will find it increasingly challenging to take their first steps onto the housing ladder as affordability worsens."

8. Government Action on Housing

Governments at various levels are increasingly addressing housing issues, with more expected in 2024. This includes easing land use policies, streamlining permitting processes, and reevaluating builder fees, all aimed at reducing costs passed on to homebuyers.

   "We hope to see more cities and counties make quantifiable changes in 2024, not only easing land use policies but also streamlining the permitting process and reducing fees."

9. Foreclosure Activity's Limited Impact

The end of forbearance programs did not result in a flood of homes hitting the market. While foreclosure starts have increased slightly, they remain below pre-pandemic levels. Delinquency levels are expected to rise in 2024 but will align with the longer-term average and are not a significant concern.

   "Foreclosure activity is not expected to have a major impact on the market, as delinquency levels return to historical averages."

10. Sales Activity Expected to Improve

2023 was marked by the lowest sales activity since the 2008 housing bubble burst. In 2024, we anticipate a modest improvement in existing home sales, driven by increased listings and more favorable mortgage rates. However, demand is likely to outpace supply, favoring sellers.

   "While we expect a rise in existing home sales in 2024, sellers will continue to hold the upper hand due to demand surpassing supply."

As we peer into the future of the Southern California real estate market in 2024, it's evident that both challenges and opportunities await. While some positive trends are anticipated, affordability and supply constraints continue to shape the market's dynamics. Stay tuned for further updates on Southern California's evolving real estate landscape.