2023 California Housing Market Forecast

The Economy, Inflation, and Interest Rates
In 2023, the economy will face two main issues: inflation and interest rates. Fortunately, inflation is expected to slow down, following the trend of the last six months. On the other hand, interest rates are expected to remain high, with a prediction of two more hikes before the middle of the year. The Federal Reserve’s aggressive monetary policy will wind down around mid-summer, depending on monthly inflation reports and the banking sector’s status. The California housing market’s base forecast includes two scenarios: a mild recession and no recession. However, if the labor market weakens more than expected, employment gains will be limited, and unemployment rates will rise. Despite this, the job market will slowly recover, and the unemployment rate will likely remain below 5.0 percent.

Job Market Forecast
In 2022, the Ventura County unemployment rate averaged 3.7 percent, expected to fall slightly to 3.5 percent in 2023. However, the unemployment rate may rise toward the end of the year and exceed 4.0 percent in 2024. The Ventura County population declined in 2021 and 2022, and the labor force is expected to grow slowly due to the ongoing decline. In 2023, the job growth rate is predicted to be 1.3 percent, compared to 3.7 percent in 2022. The demand for workers will remain high, particularly in healthcare and hospitality sectors. As a result, average salaries are expected to rise by 3 to 4 percent, but the increase will not offset inflation.

Housing Market Forecast
More housing developments are expected to occur in 2023, with apartment production dominating the sector. However, the weak demand for existing housing due to high mortgage rates will continue. Additionally, the recession in housing will persist throughout the year, leading to a modest decline in housing values. Due to the austerity of supply, the available inventory has decreased significantly, and sellers do not want to sell their homes in a declining market.

Downside Risks
A general economic recession was not predicted last year, but the risk of a recession is higher in 2023 due to inflation and the Federal Reserve’s aggressive actions to address it. The downside risks include the unresolved war in Eastern Europe, a teetering banking sector, credit restrictions, consumers becoming more restrained, and layoffs leading to less demand for goods and services, including housing.

Office Market Forecast
In 2023, remote workers will gradually shift to in-person work, but the office market will not significantly improve. Nominal salaries will rise in 2023, but average wages will decline for the second consecutive year when adjusted for inflation. During 2022, workers lost an average of $1,600 in purchasing power, and they are predicted to lose another $300 in 2023.

Ventura County Housing Market
The median price for all homes in Ventura County was $750,000 in February 2023. A year ago, in April, it was $670,000. Home values are forecast to decline modestly this year due to the austerity of supply. The total number of home sales was up 13 percent in 2022. This year the pace of sales will be dictated by rising mortgage rates and declining affordability.

Office Market Forecast
• The vacancy rate was up 20 basis points in 2022 and is forecast to rise another 30 basis points this year, eclipsing the 10 percent level.
• Net absorption was negative 180,000 square feet last year and will be modestly positive in 2023, with a gain of 75,000 square feet.
• Asking rents for Class A office space declined slightly last year and will decrease slightly this year, as a result of the limited growth in the employment base.
• A forecast recession this year would push the vacancy rate up significantly more, and cause rents to decline further.

Conclusion
The California housing market in 2023 is expected to face several challenges, including high-interest rates, inflation, and the possibility of a recession. The labor market is at full employment, and while moderate growth is expected, the risk of recession looms. Ventura County is expected to continue to experience elevated job openings, with healthcare and hospitality being notable sectors. The housing development is expected to persist, with apartment production dominating the market. While some industries may face headwinds, the market is expected to remain stable, with only modest declines in housing values and office rents.

Read the Full 2023 Ventura County Economic Outlook Report