California just turned in its first 2022 housing market report card and it suggested that the momentum from the past two years was being carried forward into the new year. It is encouraging to see a buoyant market in January, with buyers returning from the holiday season to take advantage of the still favorable lending environment before rates climb further. With consumer spending seemingly back on track and inflation expectation easing for the first time in months, the economic recovery should also remain on course in the first quarter. Despite the positive signs, the recent surge in interest rates and the lingering supply shortages in home building remain concerns to the market, as they could create affordability challenges for buyers and curtail demand later this year.
California Housing Market Remains Resilient Despite Rising Rates: The California housing market kicked off the new year with a bounce back from a 4-month low, with sales of existing single-family homes reaching 444,450, registering a month-to-month increase of 3.4% in January. Sales continued to decline on a year-over-year basis, but the dip was less than 10% and was the smallest in six months. California home prices continued to decelerate as the seasonal slowdown continued, with the statewide median price declining 3.8% from December to $765,580 in January, but still improving from a year ago by 9.4%.
Housing Affordability Shows Signs of Improvement at Year-end: Housing affordability in California inched up in Q421 as the statewide median price dipped on a quarter-to-quarter basis for the second straight quarter. The monthly mortgage payment for a median-priced home (including taxes and insurance) declined slightly from Q321 despite interest rates rising by more than 20 basis points from the previous quarter. The state housing affordability index increased by a percentage point from the previous quarter but fell 2 percentage points from the same quarter of last year to 25% in Q421. A solid increase in the state’s median household income also improved the affordability outlook temporarily at the end of 2021. With home prices and interest rates expected to be higher in 2022, however, the affordability level will likely decline this year.
Builder Confidence Slips but Home Building Maintains Momentum: Builder confidence dipped as shortages of building material and labor continued to raise construction costs and delay projects. Despite the index falling one point to 82 in February, it continued to stay above the 80-point high mark for the fifth consecutive month. The high level of builder confidence is reflected by the strong number of building permits in January, which climbed 0.7% to 1.9 million units. The increase was driven up primarily by single-family units, which jumped 6.8% month-over-month, but declined 5% on a year-over-year basis. Housing starts fell 4.1% in January with single-family dropping 5.6% and accounted for much of the overall drop. Even with the decline, single-family starts remain even with last year’s pace.
If you're ready to discuss today's market and whether now is a good time for you to buy or sell, give me a call at (562) 900-9430.
