The California real estate market has had a record-breaking year in 2021, and we still have five months to go. Home prices in the Golden State have risen to all-time highs over the past year or so.
This is largely due to an ongoing supply shortage within the real estate market. There are plenty of buyers out there, but not enough properties to satisfy demand. Sound familiar?
But a recent forecast from the California Association of Realtors suggests that the real estate market might “downshift” a bit, as we finish out 2021 and move into 2022.
Their forecast did not make specific predictions for the California housing market in 2022. Rather, it offered an outlook for the rest of 2021. Still, it gives us some insight into what the California real estate market might be like next year.
Highlights from California Housing Forecast
In July 2021, the California Association of Realtors (CAR) published a housing market forecast extending through the rest of 2021. Among other things, CAR’s researchers expect the California real estate market to cool down and “normalize” over the coming months.
And wouldn’t that be a refreshing change of pace.
Their outlook echoes other forecasts for the California real estate market stretching into 2022. The general consensus seems to be that the state’s overheated housing scene might be headed into a cooling period later in 2021 and 2022. In fact, we are already seeing signs of such a trend in the form of reduced home-sales activity.
Getting back to the CAR forecast for the California housing market, here are some key takeaways:
- More properties. The CAR report pointed out that new property listings have increased in recent months. Essentially, that means there are more homes coming onto the market across California. This is an important trend, considering the California housing market has suffered from extremely low supply levels for well over a year.
- Fewer sales. CAR’s latest housing market forecast for California also mentioned a decline in pending home sales. Statewide, pending sales actually declined in May of 2021. This could be due to a number of factors, including the rapid rise of home prices across the state. There have been numerous reports showing that California home buyers are getting frustrated and fed up with the hyper-competitive real estate market.
- Prices cooling. CAR’s California real estate market report explained that home prices in the Golden State might finally be “normalizing.” Over the past year, home prices in most California cities rose by double digits. Some of the hottest markets posted year-over-year price gains of more than 20%. That’s miles above historically “normal” price growth, and such trends are generally not sustainable over time. CAR’s forecast for the California real estate market predicts that home prices will continue to moderate and normalize as we approach 2022.
And speaking of normalization…
Real Estate Scene Is ‘Normalizing’ and ‘Slowing’
Much of the CAR housing market forecast for California highlighted the fact that the statewide real estate market might be cooling at long last. This reflects some of the 2022 housing forecasts issued by other industry groups and analysts, which suggest that a slowdown is coming.
In the PowerPoint version of CAR’s real estate forecast for California, there was a lot of verbiage that reiterated this idea of a general cooling trend.
Here are some quotes from the presentation to illustrate that point:
- “List prices also suggest price growth normalizing”
- “Pendings show sales moderating from 15-year highs”
- “Sales expected to slow but remain solid”
- “Forward looking indicators suggest 2nd half of ’21 will slow”
- “More inventory, but also sightly less demand (rates & fatigue)”
- “More ‘normal’ growth for prices and sales going forward”
Burt Don’t Expect a Buyer’s Market in 2022
This and other California housing market forecasts suggest that a 2022 cooling trend could be likely. But that doesn’t mean the market will shift away from favoring sellers to buyers.
The California real estate scene might “slow” and “moderate” and “normalize” in the months ahead, as it is predicted to do. But it probably won’t turn into a classic buyer’s market any time soon.
Despite the recent uptick in new listings, housing supply across the state continues to fall short of buyer demand. There just aren’t enough homes on the market relative to the number of buyers who are seeking them. In addition to fueling competition, this kind of imbalance puts upward pressure on home prices.
We might see a lessening of this imbalance through the rest of 2021 and into 2022. But a complete reversal seems highly unlikely.
In other words: Despite the “cooling” and “normalizing” language found within many California housing market forecasts for 2022, real estate conditions will probably continue to favor sellers for the foreseeable future. It will take a lot to change that, including significant inventory growth.
Disclaimer: This report contains stats, trends and predictions offered by third parties not associated with the publisher. The Home Buying Institute makes no claims about future conditions within the housing market. Real estate forecasts are the equivalent of an educated guess and thus far from certain.