Lower mortgage rates prop up home sales in February
Home shoppers enjoyed a “window of opportunity” in February, thanks to a dip in mortgage rates and prices, lifting sales for the third straight month.
Existing home sales totaled a seasonally adjusted 284,100 in February, a 17.6% increase compared to January but off 33.2% from a year ago, according to the California Association of Realtors. The boost in sales is a good sign for a housing market hard hit by the Federal Reserve’s interest-rate increases in an effort to combat the highest inflation since the Reagan administration.
Home sales increased for the third straight month in February, but remained below the 300,000-home pace for the fifth straight month. By comparison, a seasonally adjusted 425,000 homes were sold in February 2022.
“A brief interest rate reprieve and softer home prices during January created a window of opportunity for homebuyers to dip their toes into the home-buying waters, which helped boost home sales to the highest level in five months,” says CAR president Jennifer Branchini. “A shift toward more home sales in the lower-price segments is expected to continue to further soften home prices.”
HOME PRICES ARE OFF 18% FROM THE RECORD HIGH
Indeed, the Central Valley, from Bakersfield to Sacramento, had the largest month-to-month sales increase at 24%, followed by a 16% gain in the Inland Empire. Both are among the more affordable housing markets in the state and boast lower-priced homes. Only the Far North region – think Chico to Eureka – had a monthly decline at 3%.
The state’s median-home price –meaning half the homes sold for more, the other half for less – declined for the sixth straight month, falling 2.1% to $735,480 from January. Home prices are down 4.8% compared to a year ago.
Home prices have plummeted 18% since the record $900,000 in May 2022. And home prices will likely continue to decline during the spring home-buying season, primarily because of affordability concerns prompted by the highest mortgage rates in about 15 years.
The Bay Area had the largest annual price drop at 19%, falling to about $1.05 million for the nine-county region. The Central Coast had the second-largest decline at 6% compared to a year ago.
HIGHER RATES LEAD TO FEWER HOMES ON THE MARKET
Recent bank failures, especially of Silicon Valley Bank, could cause “an unexpected drop in interest rates, which could offer an opportunity in the near term for homebuyers who have been waiting on the sidelines to lock in a lower rate,” says Jordan Levine, vice president and chief economist for CAR. “However, any decline in rates is not likely to be sustainable since inflation remains high and the Federal Reserve is willing to take some calculated risks in order to keep inflation under control.”
But don’t bet that higher rates will necessarily lead to an ongoing drop in prices, even with fewer households able to purchase a home. The state’s housing inventory slipped to the lowest level in four months.
Many homeowners are hesitant to list their homes, especially since a majority have mortgage rates below 4%.
“With the availability of homes remaining extremely tight and housing supply conditions not expected to improve any time soon, prices should find a bottom later this year as interest rates stabilize,” Branchini says.
Home prices and sales in February vs. a year ago
|Bay Area||$1.05 million||-19.2%||-32.0%|