Fewest homes sold since April 2008
California’s fast-moving housing market hit a significant slowdown in June, primarily because of higher mortgage rates.
It’s bad news for homeowners looking to sell — and the best news in a long time for those looking to purchase.
Sales plummeted to an adjusted annualized rate of 344,970 in June, down 8.4% compared to May – and off a staggering 20.9% from a year ago, according to the California Association of Realtors. Home sales were down a hard-to-imagine 91,000 homes from a year ago, falling to the lowest level since June 2008.
Five of the state’s seven regions had home sales decline by more than 26% in June, including a 27.5% drop in the Inland Empire, considered one of the more affordable housing markets in the state (see chart below for regional data).
‘HOUSING MARKET CONTINUES TO MODERATE’
Higher mortgage rates are the likely cause of the slide. The Federal Reserve is expected to increase interest rates for the third time in late July. Mortgage rates are already at the highest level since 2008, as the Fed attempts to combat the highest inflation rate in 40 years.
Affordability – fueled by higher mortgage rates and recent record-high prices – has become a major concern for consumers. The average monthly mortgage payment has increased by a record 40% in three months.
“California’s housing market continues to moderate from the frenzied levels seen in the past two years, which is creating favorable conditions for buyers who lost offers or sat out during the fiercely competitive market,” says CAR president Otto Catrina, a Bay Area broker. “With interest rates moving sideways in recent weeks and fewer homes now selling above the listing price, prospective buyers have the rare opportunity to see more listings coming onto the market and face less competition that could force them to engage in a bidding war.”
SALES ARE EXPECTED TO DECLINE 14.4% FOR THE YEAR
Less competition is good. “Favorable conditions” is a stretch, especially as mortgage rates have increased from 2.6% to 5.5% during the past year, according to Freddie Mac. But consumers should keep in mind that home prices generally have a greater effect on mortgage payments than interest rates.
And California’s median home price is falling. The median price was $863,790 in June, a 4% decline from the record-high of $900,170 in May – but up 5.4% from a year ago. The Bay Area had the largest month-to-month drop at 7%.
Blame million-dollar homes more than entry-level and move-up homes for the price reduction. Million-dollar-plus home sales dropped 8.3% in June compared to May, and $2 million-and-over home sales were off 17.9%. CAR analysts expect the high-end housing market to continue to struggle.
“With inflation remaining high and interest rates expected to climb further in the coming months, the market will normalize further in the second half of the year with softer sales and more moderate price growth,” says Jordan Levine, CAR senior vice president and chief economist.
With the decline in home prices and sales in June, CAR economists revised their housing forecast for the year. Sales are expected to fall 14.4% compared to a year ago and prices should increase 9.7% to $863,390. Mortgage rates should climb to at least 6.25% by the end of the year.
CALIFORNIA HOME PRICES, SALES IN JUNE COMPARED TO A YEAR AGO (RANKED BY PRICE)
|Bay Area||$1.4 million||+3.7%||-26.8%|