California home sales plunge to a 14-year low in October
Home sales were super-scary in October, falling to the lowest level since 2008 – and were off at least 30% for the third time in the past four months.
Fast-rising mortgage rates are to blame, as the Federal Reserve’s inflation-cutting moves make homes – and their monthly loan payments – significantly more expensive for potential buyers.
So, many buyers are standing on the sidelines and homeowners – many who saw bidding wars and competition for homes several months ago – are hesitant to sell as prices slide, especially if they need another mortgage that will be at double the rate from a year ago.
Basically, it’s the great standoff, with the highest mortgage rates in two decades.
(See the table below for regional data on home sales and prices.)
LARGEST SEPTEMBER-TO-OCTOBER DROP SINCE 1979
Adjusted annualized sales plummeted to 274,040 homes in October, down 10.4% from September – and off a staggering 36.9% from a year ago, according to the California Association of Realtors. Home sales have declined for 16 consecutive months on a year-over-year basis, and the September-to-October drop was the largest since 1979.
It was across-the-board pain regardless of the price range, with $750,000 to $1 million homes suffering a 41% drop in sales, the largest of any price range in the state. High-end homes, often more insulated because of deep-pocketed buyers who either pay with cash or are less worried about interest rates, tumbled 34% from a year ago.
And six of the seven regions endured at least a 35% drop in home sales in October compared to a year ago, including a 44% plunge in the Inland Empire (Riverside and San Bernardino counties), the most affordable housing market in Southern California. Again, 7%-plus mortgage rates were the culprit, since homebuyers in the Inland Empire are more price- and payment–sensitive than many other regions.
If there was one saving grace, the Far North, think Chico to Crescent City, had only a 19% drop in home sales, the smallest in the state. Otherwise, the statewide home sales decline could have been more dismal.
‘MARKET BOTTOM COULD BE IN SIGHT’ – OR A WAYS AWAY
New CAR president Jennifer Branchini, a Bay Area agent, says the hard-hit housing market could be reaching the floor.
“While October’s sales and price results were weaker than what we’ve experienced in the past couple of years and could slow further in the upcoming off-season, the market bottom could be in sight,” she says.
Or the so-called bottom could be a few months – or even a couple of years – away, according to other housing experts looking at mortgage rates that have made buying a home much pricer and slamming the door on many possible buyers.
“Excluding the three-month pandemic lockdown period in spring 2020, October’s sales level was the lowest since February 2008,” says Jordan Levine, CAR vice president and chief economist. ‘With pending sales showing a 50% drop from a year ago, we can expect additional tempering in housing demand as we previously forecasted.”
HIGHER RATES DEMAND HIGHER INCOMES FOR MORTGAGES
The primary reason for the slowdown is simple: Fewer than one of every five households in California can afford to buy a median-priced home and those able to must earn at least 35% more today to qualify for a mortgage with a 5% down payment than a year ago, according to Redfin.
With fewer buyers and fewer homes on the market, prices have dipped but are far from the 10% to 20% drops some housing experts have predicted. Or small month-to-month declines could last for quite some time, and lead to a large price correction.
California’s median home price – meaning half the homes sold for more, the other half for less – declined to $801,190, a 2.5% dip compared to October and a paltry 0.3% higher than a year ago, according to CAR. It was the smallest annual price gain in 29 months, and the fifth consecutive month of single-digit price increases from the year earlier.
By the numbers
- Inventory of homes: 3.3-month supply in October vs. 1.8 months a year ago.
- The number of days to enter escrow: 23 days in October vs. 11 days a year ago.
- Sales price to list price: 97.3% in October vs. 101.5% a year ago.
The Central Coast, from Santa Barbara to Santa Cruz, had the largest annual price gain at 8.3%, followed by the Far North at 6.5%. The small gains could give way to overall price declines, which many markets are already reporting in the state, according to Redfin and Zillow.
Home prices will “moderate further over the next several months as interest rates remain elevated in the near term and seasonal factors come into play,” Levine says.
But even with much smaller price gains or even some price reductions, higher mortgage rates are stopping financially strapped – and maybe recession-wary – buyers.
“There is definitely a belief that home prices will go down,” says Ali Wolf, chief economist of Zonda. “So consumers are saying, ‘Why would I buy now if prices are lower in two months’ time or three months’ time.’”
Home prices and sales in October vs. a year ago
| Region | Price | % Gain/Loss | Sales |
|---|---|---|---|
| California | $801,190 | +0.3% | -36.9% |
| Bay Area | $1.25 million | -2.0% | -37.3% |
| Central Coast | $937,500 | +8.3% | -38.8% |
| Southern California | $773,810 | +3.2% | -40.8% |
| Los Angeles | $742,570 | +2.4% | -40.8% |
| Inland Empire | $550,000 | +4.8% | -44.1% |
| Central Valley | $450,000 | 0% | -36.4% |
| Far North | $394,000 | +6.5% | -19.1% |
