2022 was a whiplash year for SLO County’s housing market. Here’s what to expect in 2023
While the roller coaster of the 2022 housing market recedes into the past, Realtors, home buyers and builders are turning their attention to what the new year holds for San Luis Obispo County’s housing market.
At the start of 2022, the housing market barreled out with a full head of steam, coming off two straight years of surprising growth during the COVID-19 pandemic.
Then, inflation and skyrocketing interest rates hit, putting a damper on the housing market.
One year later, 2023 looks more like a reprieve from the dramatic increases in inflation that halted 2022’s seemingly runaway growth over the summer.
SLO County Realtor Graham Updegrove said 2023 will likely be more calm than last year, but warned that accurate predictions are difficult to make.
“There is a popular saying in real estate as well — the best time to buy a home is always 5 years ago,” Updegrove said. “The longer-term outlook a buyer has, the less emphasis should be placed on trying to time the market.“
Market enters 2023 with slow start
The California Association of Realtors December 2022 sales report’s data painted a muddied picture of falling sales and declining prices.
California’s housing market ended 2022 with a median home price of $774,580 in December, the report said.
Some 240,330 existing homes sold in the final month of 2022, a 23.1% decrease from December 2021.
Unsold inventory is spending more time on the market, too, the report said, with the average rising to 28 days, a 133.3% year-over-year increase.
Furthermore, the unsold inventory index — which measures how much housing stock is available to meet the monthly demand — similarly increased to 2.7 months, a 125% year-over-year increase.
On the Central Coast, the number of existing home sales and the average price on existing homes similarly declined.
Though average home price here dropped to $869,860, down 3.3% year-over-year, existing home sales plunged 45.9% year-over-year and 29.1% year-to-date.
SLO County Realtor Kathy Fissori said a “slight decline” in prices throughout the county could continue.
“Home prices are still higher than they were before the pandemic, but now prices are accelerating at a much slower pace, which is easing the buyer competition and bidding wars that previously drove prices up,” Fissori said.
In other measures, the Central Coast was closely aligned with the rest of the state, maintaining 2.7 months of unsold inventory and a median of 27.5 days on the market.
Home sales “remain suppressed in all price points,” the CAR report said, and the share of homes sold above the asking price essentially returned to normal by the end of 2022 at 20.6%.
Interestingly, SLO County’s market remains more friendly to buyers than that of the state, with the share of homes sold above the asking price settling just above 15%.
Inflation, interest and rent appear to soften in new year
Several SLO County Realtors said their predictions for the coming year assumed inflation would continue to decline nationally, which would in turn cause the Federal Reserve to implement lower interest rates.
Those rate improvements could be on the horizon; Freddie Mac currently places 30-year fixed-rate mortgages at 6.13%, while the CAR housing forecast provided a wider range of options.
According to CAR’s housing outlook, a mortgage rate that spikes to 8.5% is the worst-case scenario for 2023, 5.4% is the best case and 6.7% is a likely resting spot, should a recession fully begin.
“While the current global uncertainty makes it difficult to project where mortgage rates will go this year, experts do say that rates will likely remain high as long as inflation does,” Fissori said. “If inflation puts us into a recession, history shows that mortgage rates will go down.”
This year will be less volatile, Fissori said, but that won’t prevent the market from being more difficult for the average buyer.
“I’d call it gridlock as sellers don’t want to take less and buyers are willing to see what happens,” Fissori said.
SLO County Realtor Barry Brown was more optimistic about the effect lowered mortgage rates could have on the local housing market.
Brown said some buyers “may see some relief” under lowered mortgage rates, but there’s only a small chance for lowered home prices.
This is largely because new housing stock isn’t predicted to jump much in the next year, Brown said.
“If interest rates improve as predicted due to getting inflation under control and an improving stock market, affordability will improve,” Brown said.
As for the rental market, median prices for units of all size across the country are trending downward after peaking at $2,053 in August 2022, a new report from Rent.com said. That represented a 12.2% increase from 2021.
Ultimately, that figure would eventually settle in December 2022 at $1,979 — up 4.77% from that time the previous year, but still 1.41% lower than the previous month.
In California, that story was slightly different, as the median rent settled at $2,955.
Again, it represented a relatively small 2.21% increase from the median rent in December 2021, but declined 1.06% November 2022.
What’s in store this year?
CAR vice president and chief economist Jordan Levine said housing demand and home prices will “soften throughout 2023 in CAR’s market outlook.
“As the housing market continues to cool, the U.S. economy will moderate further and is expected to slip into a mild recession in the first half of next year,” Levine said. “High inflationary pressures will keep mortgage rates elevated, which will reduce buying power and depress housing affordability for prospective buyers in the upcoming year.
CAR predicts a “baseline” decline in existing single-family home sales of 7.2% next year, while the median home price is expected to fall 8.8% to $758,600.
Fissori said the Federal Reserve’s policy choices in how much they adjust rates will dictate how mortgages will perform this year.
Mortgage rates have come down in these first two weeks of 2023 following the news that inflation is continuing to show signs of slowing,” Fissori said. “Many forecasts expect rates to begin to fall substantially by spring and predict that 30-year fixed rates will trend down throughout 2023 and 2024.”
Some factors that sweetened the pot for buyers looking to move to the Central Coast — like the widespread adoption of remote work and the flexibility it affords — are expected to relax in 2023.
CAR’s housing outlook found that remote work will see a slight decline in 2023 (42% of prospective buyers intend to work remotely full-time, compared to 47% last year), but SLO County Realtor Graham Updegrove said SLO’s desirability as housing location will keep remote work home demand high.
“I believe we’ll continue to see an increase in the number of local residents who work entirely online and this will continue to put pressure on the housing market, making homes less affordable for locals who don’t have incomes more in line with metropolitan areas,” Updegrove said.
Another less tangible factor — buyer and seller confidence in the market — will likely regain some ground this year, Brown said.
“Buyers and sellers have needed adjustments in their expectations due to the dramatic increase in interest rates and the slowing of sales velocity,” Brown said. “If some confidence and stability is returned to the market, a normalization if you will, we will see less dramatic price fluctuations.”
Despite those fluctuations, though, Fissori said the strong seller’s market 2022 started with has survived due to the simple fact that high demand for homes never really changed in California.
“We have sellers that want to sell, but with the low inventory of homes on the market, they are having a difficult time finding a replacement property to buy,” Fissori said. “In other words, they would like to sell, but have nowhere to go.”
The question of how SLO County — along with the rest of California — will fill its need for new housing units has a less clear answer, Pacific Midland Builders chief operating office Jim Moresco said.
It’s been about 20 years since SLO County has experienced a “normal” housing market, Moresco said.
“Hopefully the trend going forward is ‘stability,’” Moresco said. That term “has only been mentioned with housing when talking about the myths and legends of our forefathers,” he said.
However, Moresco said the criteria for a successful year in the construction industry isn’t exactly the same thing as a successful thing for the housing market.
“A successful year for the construction industry is fast government approvals, available labor so we can build homes as fast as we can (with no more cost increases), and sufficient demand to buy the homes as fast as we can build them,” Moresco told The Tribune. “I think the latter two are possible. And looking at the glass half full, two out of three ain’t bad.”
This story was originally published January 30, 2023 at 5:30 AM.
