A holiday gift for buyers in December: Lower rates and price cuts
A decline in mortgage rates coupled with a dip in home prices encouraged more buyers to enter the market in December and end a three-month sales skid.
It was a better-than-expected gift in what has become a rather cool housing market, where many buyers are waiting for more clarity on long-term mortgage rates and possible price declines – and more sellers are playing the waiting game amid the uncertainty.
About 240,000 homes sold in December on a seasonally adjusted annualized rate, a 1.1% increase compared to November but off 44% from December 2021, according to the California Association of Realtors. (See chart below for home sales and prices by region.)
The current annual sales pace is the second-consecutive month below 250,000 homes – and much less than the 429,860 homes a year ago.
‘THE NEW NORMAL’
Falling interest rates – currently at 6% vs. almost 7% just a few weeks ago – lured more wanna-be buyers who are enjoying some negotiating power with concessions and lower prices from sellers.
“It’s encouraging to see an uptick in December’s home sales as buyers took advantage of a slightly more favorable lending environment that provided them with a window of opportunity to enter the California housing market,” says CAR president Jennifer Brancini, a Bay Area REALTOR. “As buyers and sellers gradually adapt to the new normal, we are seeing a shift toward a more balanced market. With both sides slowly adjusting their expectations, it’s hopeful that we’ll see sales ratcheting higher as market conditions improve further through 2023.”
Perhaps, but buyers are still coming to grips with mortgage rates that have more than doubled from a year ago and prices that have dipped lower but could fall even more in the next year, according to the CAR forecast.
California’s median home price – meaning half the homes sold for more, the other half or less – dropped for the fourth straight month in December, and the sixth time in seven months. The statewide median price was $774,580 in December, a 0.4% decline from November and 2.8% lower than a year ago. It’s the second consecutive month with an annual price drop, the latest evidence of a changing market.
The Bay Area – a collection of nine counties, from Sonoma to Solano counties – had the largest annual price decline at almost 10%, while the Far North had the second-largest drop at 7.7%.
“Home prices are holding up relatively well, despite rising interest rates and falling housing demand in recent months,” says Jordan Levine, CAR vice president and chief economist. “Tight housing inventory was a primary factor preventing prices from free-falling as new active listings continued to dip to reach the lowest level in at least the past five years.”
FEWER ‘FOR SALE’ SIGNS, BUT THEY’RE STAYING UP TWICE AS LONG
The state’s unsold inventory index dropped to about 2.4 months in December, lower than the 3.3 months in November. The average home on the market entered escrow in 28 days vs. 12 days a year ago, an indication that buyers and sellers continue to play a waiting game.
And potential buyers holding off in hopes of lower mortgage rates and more price cuts could hurt the housing market.
“While depressed inventory will preclude major price declines beyond the 8.8% we forecast for this year (2023), it will also slow sales growth and prevent the housing market from having a rapid recovery,” Levine says.
Home prices and sales in December vs. a year ago
| Region | Price | % Gain/Loss | Sales |
|---|---|---|---|
| California | $774,580 | -2.8% | -44.1% |
| Bay Area | $1.08 million | -9.6% | -37.4% |
| Central Coast | $869,860 | -3.3% | -45.9% |
| Southern California | $743,180 | -0.9% | -48.3% |
| Los Angeles | $716,500 | -0.5% | -49.4% |
| Inland Empire | $535,000 | -0.9% | -54.0% |
| Central Valley | $430,000 | -4.4% | -39.3% |
| Far North | $350,000 | -7.7% | -38.3% |
