What will SLO County housing market look like in 2024? Realtors predict a change

After seeing high interest rates suffocate home sales in the California housing market for much of this year, the California Association of Realtors is predicting a bounce-back in 2024.

According to CAR’s annual housing forecast, slower economic growth and lower inflation will begin to slow down mortgage interest rates in 2023, potentially creating a more favorable market.

After months of lower home sales and largely stagnant housing prices, local Realtors said they’re ready for a change.

Lindsey Harn, a San Luis Obispo Realtor with Christie’s International Real Estate Sereno, said that easing mortgage rates could bring more buyers back into the market next year, while limited inventory will continue to keep demand high locally.

“All those people need places to live and honestly, the builders can’t build fast enough,” Harn said. “Even though (builders) had built some new homes, they have not built to the extent of the demand of people wanting to live here.”

Local Realtors largely agreed with CAR about how the market will react to interest rate changes, but questioned the group’s analysis on some key points.

What is in store for California housing market?

According to CAR’s annual housing market forecast, home sales and prices are expected to climb in California, while affordability is projected to remain flat.

The report predicted that slower economic growth and cooling inflation may bring down mortgage rates somewhat in 2024.

On Oct. 26, 30-year fixed-rate mortgage rates reached their highest peak since 2001, reaching 7.79%, according to Freddie Mac.

CAR’s analysis predicted that interest rate will settle around 6.7% this year, with a rate of 6% projected in 2024.

With slightly more manageable mortgage rates, more buyers may be ready to purchase a home in 2024, the report found.

According to the CAR report, the California housing market is on track to finish 2023 with the lowest number of resales for single-family homes in the past seven years.

The group is projecting about 266,200 resales by the end of the year.

That means home resales declined 22.2% compared to 2022, when 342,000 single-family homes were resold.

Median housing prices are also projected to rise, the report found.

CAR predicted 2023 will end with a median home price of $810,000, compared to $822,300 the previous year.

The median home price is expected to grow 6.2% in 2024, reaching $860,300, CAR found.

Despite the growth in prices, CAR predicted housing affordability rates would hold steady at 17%, according to the report.

Housing stock will remain low, the report said, even with a projected increase of 10% to 20% in active real estate listings.

“With the economy expected to soften in 2024, the Federal Reserve Bank will begin loosening its monetary policy next year,” CAR senior vice president and chief economist Jordan Levine said in the report. “Mortgage rates will trend down throughout 2024, and the average 30-year fixed rate mortgage could reach the mid-5% range by the end of next year.

“Buyers will have more financial flexibility to purchase homes at higher prices, which could generate increased housing demand and result in more upward pressure on home prices.”

Local Realtor: SLO County market could improve slowly

With most Realtors were predicting a recession sometime in 2023, many would-be sellers were hesitant to put their homes on the market, Harn said.

“What causes a recession is when a ton of people have to sell because those people can cut their prices and take a loss,” Harn said. “What we’re experiencing right now is nobody really has to sell.

“People have good interest rates and good equity, so they’re holding out or staying put for now.”

That lack of pressure to sell was compounded by high interest rates in 2023, which have not been lower than 6% since September 2022, she said.

With interest rates climbing through 2023, established home owners were unwilling to subject themselves to the high mortgage rates that can come with buying a new home, Harn said.

“It makes more sense that people are hanging on to their homes and not wanting to make a move,” she said.

The Central Coast region remains popular with out-of-town home buyers and investors, Harn said.

“I had a new Cal Poly volleyball coach move here who can’t find a decent rental for ... less than $3,000 or $4,000 a month,” she said, forcing that would-be rental to look at buying a home instead.

While the “massive exodus” from large cities to the Central Coast is over, Harn said, “We continue to still be a place people are drawn to and see the value of investing or relaxing or vacationing here.”

SLO Realtor: CAR sales predictions are likely too high

Graham Updegrove, a San Luis Obispo Realtor with California Coastal Real Estate, said he disagrees with CAR’s sales predictions for the coming year.

“CAR is forecasting an increase (in sales), presumably because of an expectation that interest rates will be lower,” Updegrove said. “That doesn’t solve the supply side issue, and doesn’t account for this ‘lock-in effect’ that most homeowners have of not wanting to trade in their 3% mortgage for higher rates, or the fear of finding a new home that’s suitable to what that buyer wants.”

While there is some new home construction in the pipeline in San Luis Obispo, it’s not “creating a big enough dent” to meaningfully impact demand, he said.

Updegrove identified the length of time people are living in their homes as another factor keeping housing transactions low locally.

He cited a Redfin study that found the length of time that Americans live in a home has risen significantly over the past two decades.

While U.S. homeowners used to live in a home for 6.5 years on average before moving, the study found, home owners spent 12.3 years in a home on average in 2022.

That means home owners are getting older while retaining their properties and are less likely to sell, limiting the number of homes for newer buyers, Updegrove said.

“People are owning their homes longer, partially because we’re utilizing our houses more between stay-at-home offices or remote offices, and for recreational purposes,” Updegrove said.

What should would-be home buyers do in 2023?

Both Harn and Updegrove said if interest rates fall by as much as 1% next year, it could bring more local buyers back into the housing market.

Updegrove predicted interest rates would hover in the range of 6% to 8% over the next two to five years, assuming a recession doesn’t change the complexion of the market.

Harn said interest rates would soften in the next year.

She cautioned against waiting too long to buy, because a decline in interest rates could lead to a real estate buying frenzy, driving up home prices.

“If the right property comes up at a price and a payment you can afford, consider doing that,” she said. ”Your biggest regret will be not taking action and having a $600,000 house today (that will cost) $700,000 or $750,000 in a year from now.”