California home sales suffered the largest drop in 2023 since the Great Recession

Lower mortgage rates will help, but sales could struggle throughout the year

California home sales plummeted last year to the lowest level since the Great Recession, as high mortgage rates and a severe shortage of listings hurt the still-struggling market.

Home sales tumbled to 257,630 homes in 2023, a 24.8% decline compared to the 342,530 homes in 2022, the largest drop since 2007, according to the California Association of Realtors. December sales fell to a seasonally adjusted annualized rate of 223,940 homes, basically flat compared to November and off 7.1% from a year ago (see table below for regional data).

It was a brutal ending to a challenging year. 

“The housing market had a tough year in 2023 as a shortage of homes for sale and high costs of borrowing continued to have a negative impact on housing inventory and demand,” says CAR president Melanie Barker. “With mortgage rates expected to come down in the next 12 months, home sales will bounce back as buyers and sellers return to a more favorable housing market. Home prices should see a moderate increase in 2024 as well.”

FEW HOUSEHOLDS CAN BUY, EVEN WITH A 20% DOWN PAYMENT

Affordability dropped to a 16-year low during the third quarter, with the high mortgage rates and near-record home prices. Only about one of every seven (15%) households could afford to buy – and they would need to earn at least $221,000 to qualify for a long-term mortgage.

“The improvement is expected to be gradual as tight housing supply will remain the norm in 2024.”

Jordan Levine, chief economist for the California Association of Realtors

Affordability has improved slightly in recent months. Mortgage rates climbed to almost 8% in late October, but have dropped almost a full percentage point during the past three months, according to Freddie Mac. The decline cuts the monthly mortgage payment by about $500, though rates are more than double than two years ago.

The Federal Reserve expects to cut interest rates at least three times during the year, a positive sign for mortgage rates. However, it’s important to note that Fed actions and mortgage rates don’t always move in lockstep.

“Easing inflationary pressure and soft economic outlook suggest that we will see some interest rate cuts in the upcoming year, which bode well for a housing market recovery,” says Jordan Levine, CAR senior vice president and chief economist. “With rates declining to a seven-month low in late 2023, Americans are feeling more positive about the market and we could begin to see some increase in market activity … The improvement is expected to be gradual as tight housing supply will remain the norm in 2024.”

“LOCKED-IN” EFFECT HAS LOCKED OUT MANY HOME BUYERS

California’s housing market has stalled with the highest mortgage rates in more than two decades. Many homeowners are dealing with the so-called “locked-in effect,” reluctant to sell and give up their 3%-range mortgage rates and pint-sized payments. Almost nine of every 10 homeowners have rates of less than 6%, greatly reducing the number of homes on the market, according to Redfin.

The critical housing crunch – just check any homebuying app like Redfin or Zillow – has hurt the market, though home prices have increased as the demand easily outpaces the supply.



California’s median home price – meaning half the homes sold for more, the other half for less – declined to $819,740 in December, a 0.3% dip from November but up 6.4% from a year ago. It’s the largest year-over-year price increase since May 2022.

The Bay Area, as always, was the highest-priced market at $1.18 million in December, a 12.6% increase compared to a year ago. The Central Coast, from Santa Barbara to Santa Cruz, was the second-priciest market at $979,000, also a 12.6% increase from a year ago.

The Central Valley, from Bakersfield to Sacramento, and the Far North – think Chico to Crescent City, were the most affordable markets at $462,000 and $364,500, respectively.

Home prices and sales in December compared to a year ago

RegionMedian home price% gain or loss vs. a year agoHome sales vs. a year ago
California$819,740+6.4%-7.1%
Bay Area$1.18 million+12.6%-11.4%
Central Coast$979,500+12.6%-4.0%
Central Valley$462,000+5.5%-14.8%
Far North$364,500+4.1%%-8.2%
Inland Empire$570,000+6.5%+1.3%
Los Angeles$760,000+6.1%-3.5%
Southern California$790,000+6.3%-6.2%

Source: California Association of Realtors