With sandy beaches, seemingly eternal sunshine, and many attractions nearby, Southern California is one of the best places to live in the U.S. To that end, the Southern California housing market has been white-hot for a long time now, leading to high home prices and a competitive landscape.
That said, in 2023, home prices fell slightly, potentially illustrating a downward trend. While prices won't likely tumble down in double-digit percentages, the market in California is cooling. So, what does that mean for 2024? Well, it might be easier to buy a new home, provided that you can secure a high-enough mortgage loan. Even though housing market trends are slowing, the median sale price for Southern California is still around $800,000.
If you’re thinking about purchasing or selling a home in 2024, keep reading to discover valuable information that can empower your decision in the ever-evolving Southern California real estate market.
Trends in California's 2023 Real Estate Market
As with most housing markets across the United States, the California real estate market had something of a tumultuous 2023. While demand was high for the year, house prices fluctuated throughout. For example, in May, prices were down five percent from the year before, but by December, they had risen to 10 percent from 2022.
By the end of the year, the median home price in Southern California was $790,000. In addition to higher prices, other trends that marked 2023 included:
High-Interest Rates
The Federal Reserve raised interest rates in a bid to curb inflation, and for the most part, it worked. As of Q4 2023, home buyers were stuck paying an average of 7.4% interest on a mortgage loan, which is a huge difference from the standard 3.5 percent of just a few years ago.
These rates are preventing many buyers, especially first-time buyers, from entering the market. Even though a new homeowner can refinance their loan once rates go back down, the prospect of a higher monthly payment is enough to turn many people off.
Low Inventory
According to the California Association of Realtors, the number of homes sold in Southern California was the lowest in 16 years. Overall, there was about a 5.6% decline from 2022. A big reason for this downward trend is the lack of new construction and older homes being sold. On average, SoCal has about two months of supply. This means that if no additional homes come to market, the existing crop of properties will be sold in just two months.
Another problem is the high price of an individual home. Not as many buyers can qualify for a $800,000 mortgage, let alone make a 20% down payment of $160,000 upfront. So, it's harder for new buyers to get sufficient funds to pay for an expensive property.
Regional Shifts
Los Angeles experienced a significant downturn in home sales, with a 15.6 percent decrease in sales compared to 2022. However, by comparison, Orange County saw an increase in sales by 3.2 percent. Other areas like San Diego and Ventura saw similar declines.
Areas that are seeing growth and increased sales include Oxnard (outside of Ventura), Sacramento, Riverside/San Bernardino, and Bakersfield. Because major metropolitan areas like Los Angeles County and San Diego are too expensive, residents are moving further out to find more affordable housing.
The Future of California's Real Estate in 2024
So, what is the overall forecast for the Southern California housing market in 2024? According to the likes of Redfin and Norada Real Estate Investments, it could be more of the same of 2023. Home prices will likely increase due to higher competition and fewer houses available. Also, residents will continue moving outward to places like Pomona or Rialto to better their odds of mortgage approval, according to the San Bernandino Sun.
That said, another factor could influence housing market trends in Southern California during the next 12 months. After its December 2023 session, the Federal Reserve indicated it would lower interest rates, which could make it easier for new buyers to get into the game. However, that will only drive prices higher as inventory will continue to be limited.
When it comes to new inventory, areas like LA are already oversaturated, so it's hard to build new houses when there are already buildings and people everywhere. For that reason, the top two cities for new housing developments are Sacramento and Riverside/San Bernardino County, according to Norada Real Estate Investment. Since there's more open land in the Inland Empire, developers are taking advantage.
According to the Department of Finance, the whole state of California accumulated over 123,000 new homes in housing inventory. However, while that number is certainly huge, it does little to bridge the gap between supply and demand.
On the other side of the equation, California has seen a population decline in the past few years. Unfortunately, the number of people leaving California doesn't offset the number of houses that still need to be built. Nor will 2024 see a massive boom in construction or a mass exodus of residents.
Overall, high prices and limited inventory are here to stay. For most California residents, the best option for affordable housing is the Inland Empire or Central Valley. Even smaller cities like Yucaipa and San Jacinto can be within reach.
Price Trends Analysis
So far, we've been discussing California real estate in somewhat abstract terms. If you're hoping to buy a house in the current Southern California housing market, you need hard data to make an informed decision. So, let's break down median prices and factors in multiple areas, including Los Angeles, Orange County, Riverside/San Bernardino, San Diego, and Ventura.
Los Angeles
- Median Home Price - $1.2M (up 16 percent)
- Number of Homes Available - Roughly 6,600
- Price Variation - $100,000 to $195M
- Buyer's or Seller's Market - Neutral
Orange County
- Median Home Price - $1.2M (up 19 percent)
- Number of Homes Available - Roughly 4,000
- Price Variation - $170,000 to $89M
- Buyer's or Seller's Market - Seller's
Riverside/San Bernardino
- Median Home Price - $640,000 (up 2.4 percent)
- Number of Homes Available - Roughly 700
- Price Variation - $126,000 to $14M
- Buyer's or Seller's Market - Seller's
San Diego
- Median Home Price - $939,000 (up 4.5 percent)
- Number of Homes Available - Roughly 1,800
- Price Variation - $300,000 to $40M
- Buyer's or Seller's Market - Seller's
Ventura
- Median Home Price - $1M (up 24 percent)
- Number of Homes Available - Roughly 200
- Price Variation - $130,000 to $27M
- Buyer's or Seller's Market - Seller's
As you can see, California home prices are up across the board, but the most affordable place to live (out of these areas) is Riverside/San Bernardino. Also, even though Los Angeles has the highest number of homes for sale, it's still experiencing one of the sharpest downturns of homes sold.
Forecast and Market Stability
Whether you're planning on buying or selling a home in California in 2024, what can you expect in the months ahead? Based on the data and evidence we've reviewed so far, here's our breakdown of the forecast.
For Buyers
- Wait Until Interest Rates Go Down - As a home buyer in California, you have two things going against you—high-interest rates and high home prices. These two factors can contribute to a substantial monthly mortgage rate, so it doesn't make sense to pay up to seven percent interest. Instead, it may be better to wait for the Federal Reserve to lower rates so you can have a more affordable loan.
- Build Your Down Payment - Most buyers can't afford a 20% down payment, especially when median home prices are close to (or exceed) one million dollars. So, if you can put more money down than another prospective buyer, you may be able to secure a property more easily.
- Search for New Construction Homes - The primary advantage of buying a new home is that you usually don't have to haggle for the price or enter a bidding war. Developers sell their properties as-is, and they're move-in ready. As we mentioned, the Inland Empire is seeing the most new development, so you should try buying a new build home in Pomona or Riverside.
- Don't Be Afraid to Haggle - Just because the listed price is high doesn't mean you have to buy the house for that amount. For example, in Ventura, the median listing price is $1M, but the median sale price is $858K. Similarly, in Los Angeles, the median listing price is $1.2M, with a median sale price of $950K.
- When In Doubt, Refinance - If you're ready to buy, and you find the perfect home, don't wait to purchase it. Because demand is so high, you may miss out on a golden opportunity. Remember that you can most likely refinance your mortgage loan once rates go down, helping you save money in the long run.
For Sellers
- Price High, Then Negotiate - Most homes in Southern California are listed for much more than they sell for. Typically, adding about 10 percent to the market price gives you a nice buffer in which to negotiate. If all goes well, you may be able to get more than you expected from the deal.
- Fix Minor Issues - While demand is high, buyers are more willing to close a deal if the house is move-in ready. So, if some minor repairs or renovations need to be done, you should take care of them before showing the property. In most cases, the money you'll make from the sale can help cover these expenses.
- Plan for After - With home prices so high, you may want to take advantage as quickly as possible. However, if you're just planning to use the money to buy another house in Southern California, you need to be prepared. Pay attention to how much equity you've built and whether it will be sufficient for a housing upgrade.
- Consider Commission Rates - Real estate agents typically charge three percent, and when you sell the house, that means a total of six percent of the sale price. If you want to avoid such high commission rates, you can list the property yourself. However, consider how much time and effort it may take to sell the property. In some cases, hiring an agent is worthwhile.
The Future of Southern California Real Estate
According to Norada Real Estate Investment, the Southern California housing market will likely stay the same for the foreseeable future. As long as demand exceeds supply, home prices will continue to rise, and certain areas will become virtually unaffordable for some home buyers, increasing migration into more affordable areas. Additionally, this trend may mean there will be more renters than ever, even as rental rates rise accordingly.
We can also expect to see more people moving outside of the coastal region in search of affordable housing. The Inland Empire and Central Valley will see higher growth and development than areas like Los Angeles or San Diego. That said, it's unlikely that the bigger cities will decrease their populations significantly. Instead, they will likely remain relatively stable while other cities and regions increase their numbers.
Hopefully, new construction will help narrow the gap between supply and demand, but it will likely take years or more than a decade for it to have a significant impact.
The Bottom Line of South California’s Housing Market
Living in Southern California is rewarding, but you need to know how to navigate the hurdles of the housing market. If you can qualify for a high enough mortgage, you should find the home of your dreams. However, you may need to move outside the greater LA area.
Looking for your dream home in Southern California? Here at Century Communities, we have new construction homes with exceptional amenities to fit your needs. Start your search for the perfect home today!