High-end home sales are slowing significantly, with higher interest rates and a near-bear market on Wall Street affecting deep-pocketed buyers, the latest evidence of a seriously struggling housing market.
Luxury home sales – considered the top 5% based on market value – plummeted a record 38.1% for the three-month period ending on Nov. 30 compared to a year ago, according to Redfin.
California had four of the five housing markets with the most significant sales declines nationwide, with San Diego, San Jose, Riverside and Anaheim off at least 55%. Nassau County in New York had the largest drop at 66%.
While a change in the high-end market affects few buyers, it’s often a barometer for the overall market, real estate experts say. The CEO of a fast-growing small business or the lawyer with her name on a well-known downtown law firm holding off on a multimillion-dollar home purchase can serve as a warning sign for the rest of us.
BLAME THE ECONOMY, THE FED AND WALL STREET
Well-heeled buyers are generally less mortgage rate-sensitive – quite a few buy homes with cash – but they are often hesitant to make big moves amid uncertainty and volatility. And the current market has gone sideways with the Federal Reserve’s interest-rate hikes to address the fastest inflation rate in more than 40 years.
With concerns about the economy, especially the dismal performance on Wall Street during the past year, high-end home sales are slowing and there are more luxury homes available.
According to the California Association of Realtors, the number of $1 million-plus homes on the market more than doubled in November compared to a year ago. However, the figure comes with a caveat: Almost one of every four homes sold for more than $1.25 million in 2022.
Redfin has determined high-end homes on the market increased by 5.2% for the three-month period ending in November, the largest boost since 2016.
In comparison, the number of non-luxury homes – basically the other 95% – on the market has declined 5.7% over the same period.
High-end home sales Sept.-Nov. 2022 vs. the same three-month period a year ago
|Drop in sales vs. Sept.-Nov. 2021
|Median price of high-end homes
|Percentage of median price vs. Sept.-Nov. 2021
Fannie, Freddie boost loan limits that now top $1 million in some California regions
With the new year comes a little more help from Uncle Sam.
The Federal Housing Finance Agency has raised the conforming loan limit values for mortgages to be acquired by Fannie Mae and Freddie Mac to at least $726,200 nationwide, a $79,000 – or 12.2% – increase from $647,000 in 2022. Higher-cost areas nationwide, such as the Bay Area and Orange County, have a higher limit of almost $1.09 million.
The reason for the increase? The national average home price has increased 12% during the past year.
The boost in conforming loan limits will help more homebuyers, many of whom are facing near-record home prices and the highest mortgage rates in more than a decade as The Federal Reserve fights inflation.
The conforming loan limit determines the maximum mortgage Fannie Mae and Freddie Mac can buy or “guarantee.” Non-conforming loans, also known as jumbo loans, often have tighter underwriting standards and may carry higher mortgage rates, increasing monthly payments and making homes less affordable, especially for first-time buyers.
A HELPING HAND AS BUYERS GET SLAPPED WITH HIGHER MORTGAGE RATES
The new conforming loan limits – the first time above $1 million – will close more deals and open more doors for homeowners.
The California Association of Realtors “applaud the FHFA for its continued commitment to homeownership by increasing the conforming loan limits,” says CAR president Jennifer Branchini, a Bay Area REALTOR. “The higher limits will help make homeownership more accessible to Californians across the state and provide homebuyers with more financing opportunities.”
And every advantage – and dollar – matters.
Fewer than one of every five (18%) of households was able to buy a median-priced home in California during the third quarter, according to CAR. The affordability rate was down from 24% a year ago, and far from the modern-day record of 56% in first-quarter 2012.
CAR’s affordability rate is based on a 20% down payment, an amount few, especially first-timers, can meet.
And even with such a hefty down payment, the household income needed to qualify for a mortgage was from about $86,000 in Bakersfield to more than $385,000 in San Francisco. Almost half of the state’s 38 largest counties required income of at least $150,000 per year with a 20% down payment, according to CAR.
FHFA’s conforming limits vary, so consumers should check the limit in their respective counties.
For example, Fresno and San Bernardino counties have loan limits of $726,200, while Sacramento County and nearby Placer County are at $763,600. Santa Barbara County has a maximum of $806,000, while Sonoma County is at $861,350. The Bay Area and much of Southern California are at $1.09 million, while San Diego is slightly less at $977,500.
Seven cities earn HCD award for housing efforts
Six cities in California were recently honored for their far-reaching efforts to develop policies and practices that remove barriers to housing – and they can compete for almost $26 million for preservation and production.
Citrus Heights, Fontana, Oakland, Roseville, San Diego, and West Sacramento have earned the state’s Prohousing Designation from the California Department of Housing and Community Development (HCD). The cities – from the Bay Area to about 20 miles north of the Mexico border – join the City of Sacramento, which received the designation in early 2022.
The seven cities are aggressively addressing their housing challenges, state officials say.
“These communities have stepped up to implement policies that aggressively eliminate bureaucratic obstacles and drive the growth of housing throughout the state,” says Gov. Gavin Newsom. “This is one of many innovative approaches the state is taking to create greater accountability and reward municipalities willing to do their part to help collectively tackle the need for more housing. This is the right approach and I look forward to seeing more communities join in this effort.”
CREATING A HEALTHY HOUSING MARKET
From pre-approval of accessory dwelling units in Citrus Heights to streamlining environmental reviews in Oakland, the communities’ efforts are “creating a healthy housing market that offers stability and opportunity …” says Housing Secretary Lourdes Castro Ramirez with Business, Consumer Services and Housing Agency. “Incentivizing housing and making it a priority will lead to a reduction in poverty, income inequality, and enable (lower- and middle-income residents) to find a place to live within a reasonable commuting distance and improve their quality of life.”
The seven cities are eligible for community development resources through the new Prohousing Incentive Pilot (PIP) Program. The competitive program offers $25.7 million in additional funding to Prohousing cities to boost housing production and preservation.
“Housing is the solution to homelessness, a key strategy for climate action and a path to economic opportunity for all – and we’re doing everything we can to build more homes at prices our residents can afford,” says San Diego Mayor Todd Gloria. “I want to thank the State of California for validating the hard work we’ve done in San Diego to be a state leader in expanding housing opportunities near transit and high-opportunity areas like job centers and college campuses.”