The Federal Reserve's recent decision to pause its aggressive rate-hiking program could offer a lifeline to the struggling California housing market, an expert told Newsweek.
After raising interest rates 10 consecutive times since March 2022, the Fed announced last week that it would leave its key rate unchanged, as it waits to assess the full impact of its policies on the U.S. economy.
The move, said Jordan Levine, senior vice president and chief economist for the California Association of Realtors, could help release pressure on the California housing market, which has suffered some of the deepest home price plunges since the start of the housing market correction that began last summer.
Last year, home prices reached skyrocketing heights across the country due to a combination of lack of inventory, bidding wars between homebuyers, and low mortgage rates. But as mortgages became more expensive following the Fed's interest rate hikes, home buying became unaffordable for many, demand started dropping—and so did home prices.
Across the country, the home price decline was modest. But in big metros where homes were significantly overpriced, many of which are in California, prices dropped by over 5 percent in recent months.
In San Francisco, home prices plunged by 9.92 percent year-on-year in April, according to Zillow. In San Jose during the same period, they dropped by 9.46 percent, and in Sacramento by 6.85 percent.
Average home prices in California peaked at over $900,000 last year, but had dropped by 18 percent from their peak by February of this year. But prices have recently bounced back in the state, reaching above $800,000 "for two months in a row since last year," Levine said.
What's driving this comeback? A lack of inventory—which is