‘Major roadblock in the long run is a shortage of homes for sale’
California’s sprint-like housing market took a bit of a breather in February, largely because of higher mortgage rates and a severe shortage of homes on the market.
Active listings plummeted 53% in February compared to a year ago, the eighth consecutive month of a 40%-plus drop in home listings from the previous year, according to the California Association of Realtors.
The dramatic decline in supply coupled with the hard-to-keep-up-with demand is having a huge impact on the median home price that reached $699,000 in February, basically flat compared to January but up 20.6% compared to a year ago. It’s the first back-to-back 20% gains in consecutive months compared to the year earlier since February 2014 (up 21.7% in January).
‘Mortgage rates will likely slow the pace of price growth’
All seven regions reported at least 15% price gains in February compared to a year ago, except for the Far North, which still tallied a respectable 11.7% increase.
The Bay Area had the largest increase at 26.5% to $1.15 million. Five Bay Area counties exceeded the million-dollar mark with San Mateo and San Francisco leading the way at $1.9 million and $1.8 million, respectively.
“The upward movement in rates has called into question whether the market will sustain its momentum going into the spring homebuying season,” says Jordan Levine, CAR vice president and chief economist. “While rates are off their record lows, they are still relatively low by historical standards. Recent increases in mortgage rates will likely slow the pace of price growth in the coming months but will motivate those who truly want to buy to enter the market before rates start moving further up.”
Long-term, fixed mortgage rates have climbed five of the past six weeks to 3.05% for the week ending March 11, according to Freddie Mac. Rates were at 3.36% a year ago.
While higher mortgage rates are a concern, the “major roadblock in the long run is a shortage of homes for sale,” says CAR president Dave Walsh, vice president and manager of the Compass San Jose office.
‘Market will soften … if we don’t see enough homes come on the market to meet demand’
February home sales declined 4.5% compared to January to a seasonally adjusted annual rate of 462,720 — a 9.5% increase compared to a year ago. But the almost 10% sales gain was the smallest increase during the past seven months.
Home sales increased in six of the seven regions in the state compared to a year ago — including a 22.4% pop along the Central Coast, from Santa Barbara to Santa Cruz counties — but dipped 0.3% in the Central Valley.
But the sales gains could slow in recent months with the inventory shortage. The available supply of homes plunged to the lowest level in a decade in all seven regions of the state. The Central Coast, Central Valley and Southern California endured 55% drops compared to a year ago. The average home entered escrow in 10 days, compared to 23 days in February 2020.
“With inventory dropping more than a half from a year ago, the market will soften in the second half of 2021 if we don’t see enough homes come on the market to meet demand,” Walsh says.
Ron Trujillo
Longtime business journalist-turned-communications executive who enjoys reporting on residential real estate in his spare time.