A short break between fast-rising mortgage rates cracked open the door and made buying a home more affordable for a few weeks in August, and on-the-fence home shoppers jumped at the opportunity.
Home sales improved 6.1% in August compared to July, the first monthly increase in five months, according to the California Association of Realtors. But even with the one-month boost, home sales were off 24.4% from a year ago, as consumers deal with the highest interest rates since 2008.
And the Federal Reserve will likely increase interest rates again this upcoming week, the latest effort to curb the highest inflation rate in 40 years. Mortgage rates topped 6% for the week ending Sept. 15, the highest level since late 2008 – and almost double the rate from a year ago, according to Freddie Mac.
PRICES INCREASE AT THE SMALLEST PACE IN MORE THAN TWO YEARS
The higher rates have doubled monthly mortgage payments for new buyers, causing many wanna-be owners to tap the brakes on purchases. But a brief decline led to some fast-paced selling in August, says CAR president Otto Catrina.
“While homes are taking slightly longer to sell, the share of homes seeing price reductions has also stabilized to near pre-pandemic levels,” says Catrina, a broker in the Bay Area. “In fact, price growth in August actually picked up on both a monthly and annual basis, and pending sales suggest a bounce-back for homes priced $2 million and above.”
California’s median home price – meaning half the homes sold for more, the other half for less – inched higher to $839,460, a 0.7% increase compared to July and up 1.4% from a year ago. It was the smallest year-over-year gain in more than two years.
The slight price increase is partially attributed to a 6.8% increase in million-dollar home sales in August compared to July, likely because there are more $1 million-plus properties in the state, according to multiple reports.
BUYERS WILL CONTINUE TO GRAPPLE WITH THE RISING COSTS OF BORROWING
Across the state, year-to-year home price increases were much lower from just a few months ago. Only the Inland Empire and the Central Coast – from Santa Barbara to Santa Cruz – had annual price increases of 5% or more.
The Bay Area, where six counties boast million-dollar home prices, had the highest median price at $1.25 million, down 1.2% from a year ago. The Far North is the most affordable at $380,000, which includes a median price of $199,000 in Lassen County – less than one-fourth of the statewide median.
The big question for the current month (September) focuses on the Federal Reserve and the likelihood of another round of raising rates.
“Although we do not expect a rapid bounce-back because the Fed is expected to continue raising interest rates to get inflation under control, the monthly increase in closed and pending sales suggests that the market may have already priced in most of the rate increases to date,” says Jordan Levine, CAR vice president and chief economist. “Still, buyers will continue to grapple with the rising costs of borrowing, which will keep homes below the 350,000 annual pace for the remainder of the year.”
Home prices and sales in August vs. a year ago
|Bay Area||$1.25 million||-1.2%||-29.1%|