California home sales slowed for the fourth consecutive month in July, as higher interest rates and near-record-high prices are affecting affordability and causing more home shoppers to hold off.
Sales tumbled to an adjusted annualized rate of 295,460 homes in July, a 14.4% decline compared to June and off a staggering 31.1% from a year ago, according to the California Association of Realtors.
It’s the fewest homes sold since May 2020, when sales were greatly affected by the arrival of the COVID pandemic that prompted the statewide lockdown.
‘BUYING OPPORTUNITIES’ AHEAD
Home sales have also dropped 13 consecutive months compared to the year prior, the latest evidence that the once red-hot housing market has cooled with the Federal Reserve’s interest rate hikes that have led to a historic run-up in mortgage rates. All seven regions endured a huge drop in sales, with the Inland Empire falling the most at 38%.
“In the midst of the peak home-buying season, high home prices and rising interest rates depressed housing affordability to the lowest level in nearly 15 years, which in turn dampened home sales,” says CAR president Otto Catrina, a Bay Area real estate broker. “However, buying opportunities remain in the coming months for those who have been waiting on the sideline as more listings become available, competition continues to cool off and rates begin to stabilize.”
Perhaps, but those higher mortgage rates – 5.13% for the week ending Aug. 18 compared to 2.86% a year ago – and still hefty home prices are putting the brakes on sales. Only 16% of households in California could afford to buy a house in the second quarter and would need to earn almost $200,000 to qualify for a mortgage, according to CAR.
PRICES INCH HIGHER, WITH THE SMALLEST ANNUAL GAIN IN MORE THAN TWO YEARS
The declining demand has made homes remain available for much longer, with more than half listed for 30 days or more in California, according to Redfin. CAR estimates the average home enters escrow in 14 days, compared to eight days a year ago.
With the declining demand and the increase in homes available – the supply has swelled to more than three months – prices have stalled.
The state’s median home price – meaning half the homes sold for more, the other half for less – declined 3.5% to $833,910 compared to June, and slipped 2.8% from a year ago. It’s the smallest annual gain in more than two years.
“Home sales have taken a trouncing as the market has shifted in response to the recent surge in interest rates, and pending sales suggest that the market could remain soft in August,” says Jordan Levine, CAR vice president and chief economist. “The pace of sales declines is expected to slow in the coming months, however, as rates continue to stabilize, market volatility begins to subside and supply conditions further normalize.”
A BUYER’S MARKET RETURNS
Or, in other words, it’s becoming more of a buyer’s market, with an abundance of homes to choose from and less competition for those listed.
Six of the seven regions reported home price increases compared to a year ago, with only the Bay Area ticking a fraction lower.
The Bay Area, as always, boasts the highest median price at $1.3 million, with six of the counties in the region with $1 million-plus prices. However, no county exceeded $2 million, a recent threshold.
The Far North, such as Chico and Redding, remains the most affordable region of the state at $405,000, followed by the Central Valley, from Bakersfield to Sacramento, at $480,000.
Home prices and sales in July vs. a year ago
|Bay Area||$1.3 million||+0.1%||-37.2%|
Source: California Association of Realtors