Homes in Newport Beach will continue to appreciate based on low supply and high demand. However, in the 1st quarter of 2023 home prices are projected to decrease 3 to 4 percent resulting from the Feds increase in the interest rates by the 4th quarter of 2022.
This forecast is based on the Chapman University Annual Economic Forecast provided in December, the California Association of Realtors Chief Economist, and my extrapolation based on the market activity in our neighborhoods.
According to Chapman, the Federal Funds Rate will go up from .2 to about .6 basis points in the 4th quarter of 2022. 2.5% interest rate for 10-year and 3.9% for a 30-year mortgage. As interest rates go up home; prices go down.
As one of the most desirable locations to live, Newport Beach typically lags the housing market's economic disruptors when compared to the rest of Orange County. Chapman is forecasting Orange County housing prices to decline at 3 to 3.9 percent in the 4th quarter of 2022.
Keep in mind that home prices have dramatically increased in the Newport Beach area at about 20 to 30 percent within the last year. Just this last December, a record number of homes have sold above asking price with Newport Coast at the top. Currently, there is an unprecedented number of homes from December to date that have fell out of Escrow and Back on the Market. Buyers have jumped to grab a home because of the low inventory and may not have been 100% purchasers and decided not to buy the home.
Recession in 2022? No, not until 2023. Why? We are experiencing Inflation right now. It is the rubber band affect. When prices spike; prices will drop just as fast.
Why again? According to Chapman there are 3 distinct reasons:
1) Historically, Fed’s fund rate increase during inflations and every time is has; it has led to a recession.
2) Fiscal policy matters. US government is on the books to spend $10 trillion from 2020 to 2023.
3) The real wage rate has dropped by 1.9% lowering consumer purchasing power.