When will house Prices drop in California?
Here are the common questions we are getting today. Our home prices are going to come down. Will the housing market crash? Is there a housing bubble? Well, let’s analyze one question today: our prices are coming down, whether it’s in An Hills or in Orange County or California. So stay tuned and let’s look at what’s going to happen.
Before we can answer that question or analyze this question, let’s see what has happened in the last couple of years or the last six months. Home prices are still going up gradually, one or 2%. In fact, in the last twelve months, they have gone up almost 20%. There is still a shortage of homes. Yes, home sales activity and the number of home sales are down. Interest rates are up, although in the last week or so they have come down. But compared to a year ago, they have come down. There’s a shortage of homes, but the inventory is going up slowly. So let’s look at some of the factors behind what’s happening in the next few months.
One thing is certain: housing demand has slowed, and as it does, home prices may suffer. But then again, it also depends on the supply and demand because there is still a supply issue. Rents are still down, rents are very high, and rates are around 5%, but it’s still better than 10%, 12%, or 8%. So there is still activity out there. According to a report by Redfin, the housing index, demand has dropped by 12% year over year. What that means is that the number of people looking for homes, searching for homes, has dropped. So that is a big number to look at. Before I move on to the second reason why there is a shift in the housing market, I wanted to introduce myself. I’m Mike Patel with First Team Real Estate right here in Adam Hills, and I appreciate your watching my videos and visiting my channel.
. If you could subscribe to my channel and make some comments and share them, I would really appreciate it. I come up with new videos every week, possibly twice a week, and I’m glad you’re here. So the next point is, as you may know, 90% of home searches begin online. Whether you go to Zillow or Realtor.com or First Team Website or open any website that you go to, Most buyers begin their search online six months or a year in advance. But according to the Google search terms, when they search for homes for sale, that search term is down 10% from almost a year ago. So that tells you that fewer people are searching for homes at this time. Of course, that could change in a couple of months, but that tells us that web traffic for searching for homes is down. Now it could be because the rates are high. People are just scared of what’s going to happen. We don’t know. Inflation is high, so they’re just holding back. So let’s see if those buyers, many of you, or 90% of the buyers, come back and start their search. So let’s wait until the end of the year to see what happens, and then we can analyze. But as of now, search traffic is down by 10% on Google.
And as you know, Google is a big search engine, so a 10% reduction is a big reduction, or a reduction to take into consideration. The third point where demand is shifting is going to be slower already. The slower right now is that open house traffic is down. Well, I think it’s obvious if the Google search is down, if fewer people are searching online, fewer people are coming out and looking at homes. So, compared to early January 2021, or February, March, and April, when activity was much higher than it is now, and it is August 2. It’s mid-year already. The open house traffic is down too. When we used to have homes for sale and they had open houses on Saturday, usually on Saturdays, we used to have 10, 20, 30 groups of people coming in. I’ve noticed myself in the last couple of months, or actually the last couple of weeks, I’ve been going by myself to visit these open houses because previously there were hardly any open houses because the homes were sold. Now I’m seeing homes in my neighborhood. I live in Anaheim Hills near the golf course, and I’m seeing open houses not only on Saturday, with a lot more signs, but I’m also seeing the same open houses on Sunday. So there are more open houses out there this Saturday and Sunday for two or three weeks in a row. And there’s less traffic at these open houses. So that may affect the buyer demand for houses, and I’m not sure if that will affect home prices, but let’s wait and see.
The other very good reason why housing demand is less right now compared to six months ago or a year ago is that it is actually taking longer to sell a house now in the Orange County area and I’m in the Hills of Orange County area in 2021. The days on the market What we call the Dom was eight days. This means when the house comes on the market, It went into escrow within eight days. According to the statistics, according to the CRMLS MultipleListing Service, of which I’m a member, which I just checked yesterday, and you can see the chart, the days on the market are currently in 2022 as of August. In the last few months, it has actually been 13 days. So what that tells me is that it’s taking twice as long to sell a house on average as a year ago. So that’s a big shift in demand as well. What else adds to the slower housing demand and the slower pace of housing prices going up? Well, we’ve noticed that the search is down, open houses are down, and it’s taking longer to sell.
But the other thing that’s happening, and it’s very critical, is that when homes come on the market in the last few months, the home sales are not as high as they were six or seven months ago. What do I mean by that? Well, last year, in 2021, homes were selling at 103.1% of the list price, which means that if there’s a house for sale, let’s say in Nihils, a house was for sale for a million dollars. It actually sold for a million and $30,000, which is $30,000 higher than the list price currently in 2022. If you look at the stats in the last few months, according to CRMLS, which is the California Multiple Listing Service, which again, I’m a member, they’re only selling at 100%. So homes are selling at pretty much full price, but they’re not selling at higher prices. I’ll give you an example. I just closed an escrow last week. The house was listed for 1.3 million.It was on the market for three weeks.
And then I noticed that the listing agent was thinking of dropping a price because I talked to him. So we made an offer at 1.2 and ended up getting the house at 1.25. If the property or house is not listed at market value, it’s going to sell for less than the market value. And if it’s priced right, it’s going to sell at that market price. So if a house is listed for a million dollars and that’s the market value, it’s going to sell for a million dollars. I just opened up another escrow yesterday in the City of Orange in Sarana Heights. The home was listed for 1.5 million dollars. It’s been sitting on the market for two weeks. Wow. Two weeks? Yeah, That is long in this market. It used to be that they used to sell within eight days. So the house was listed for 1.5. Then we noticed. We went to the open house and the agent told us that she was going to drop the price to 1.45, which she did. So we did write an offer, and the offer was accepted at 1.45. What that means is that it was listed as $50,000 higher than the market price, and now we’re in escrow and we should close in 30 days.
So the bottom line is that homes are selling at market value. On one hand, we are seeing a shift where demand is getting slower and slower, which should indicate that as few home sales as they take longer and as few buyers are out there, the prices should drop. On the other hand, prices are actually increasing. According to that report, companies like MBA, Mortgage Bankers Association, Freddie Mac, Fannie Mae, CoreLogic, and the National Association of Realtors, predicted home price increases in the next two to three years.
And the average price increase, according to these companies, is anywhere from two to 3% per year for the next two or three years. So, on one hand, we are seeing a prediction of a price increase. On the other hand, we are seeing less demand. Time will tell in the next two to three months. The summer has been a little bit slow. Let’s see what happens in the fall and what’s happening with inflation and the interest rate. They are down a little bit this week from a few weeks ago. So that’s the good news. And let’s pick up this conversation again in a couple of months. Thanks for watching.