But a limited supply of available homes continues to affect the market
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Slightly lower mortgage rates gave a much-appreciated boost to the housing market in May, with the most homes sold in eight months – and the median price rising to a nine-month high.
But the critical supply of homes listed is also contributing to the rebound – maybe even more than lower rates – and skewing the closely watched stats, according to housing experts.
California’s active listings dropped to about two months in May, compared to 2.5 months in April, according to the California Association of Realtors. A balanced market has three months or so of active listings.
Being in balance may take several months or a few years. Redfin says nationwide listings are off 40% compared to June 2018, and many markets in California are following the trend.
With few homes available, wanna-be buyers are competing for homes – and pushed up the statewide price to more than $800,000 for the second straight month.
“Even with reduced homebuyer demand, California still has more homebuyers than homes to put them in,” says Jordan Levine, senior vice president and chief economist for CAR.
BAY AREA BLUES
A seasonally adjusted annualized rate of 289,460 homes sold in May, a 9.8% increase compared to April but down 23.6% from a year ago. It’s the eighth straight month below the 300,000-home threshold.
The Bay Area had the biggest annual sales decline of the seven regions at 24%, with the Central Coast the only market escaping a 20%-plus tumble (see table, below).
California’s median-home price – meaning half the homes sold for more, the other half for less – climbed to $836,110 in May, a 3% increase compared to April but off 6.4% from a year ago. The state’s annual median price has declined for seven consecutive months, but the current drop is among the smallest.
The Bay Area, again, was the hardest-hit market with an 11.3% price drop from a year ago. Several factors, including a challenging job market, are affecting the region. San Francisco and San Jose have been battling widespread layoffs during the past several months, from Facebook parent Meta Platforms to Alphabet-owned Google.
The Central Coast, from Santa Barbara to Santa Cruz, eked out a 0.5% price increase compared to a year ago, the only market in positive territory.
‘THE HOUSING MARKET IS STABILIZING’
Despite the annual decline in prices and the far-from-great sales, some housing experts are upbeat.
“The bounceback in May’s home sales and price shows the resilience of California’s housing market, and is a testament to the value that consumers place on homeownership,” says CAR president Jennifer Branchini, a Bay Area REALTOR. “The housing market is stabilizing and even showing signs of improvement as competition is on the rise again. Nearly half of all homes are selling above asking price, fewer sellers are reducing listing prices and homes for sale are going into pending status in just two weeks compared to more than 30 days earlier this year.”
However, higher-end home prices and stiff competition for homes, regardless of price, are inflating prices and prompting quick sales, housing experts say.
“While home sales rose solidly in May, we don’t expect to see rapid recovery because of the lock-in effect that’s keeping prospective sellers with low-interest rate mortgages from listing their home on the market and keeping inventory tight,” Levine says. “Consequently, we expect prices to continue to rise on a month-to-month basis for the next few months because of the shortage of homes for sale.”
‘HIGH MORTGAGE RATES ARE A DOUBLE-WHAMMY’
The “lock-in effect” is having a dramatic impact on the market nationwide – and in California, says Redfin deputy chief economist Taylor Marr.
A large majority of homeowners considering selling are staying put, with mortgage rates at the highest level since the Great Recession, even with a modest drop in May. More than nine of every 10 homeowners with a mortgage have rates of 6% or less – and about two of every three owners enjoy rates of 4% or lower, according to Redfin.
So, only a small fraction of homeowners are selling, and then primarily because of a life-changing event such as a career opportunity that forces a move or a divorce.
“High mortgage rates are a double-whammy because they’re discouraging both buyers and sellers – and they’re discouraging sellers so much that even the buyers who are out there are having trouble finding a place to buy,” Marr says. “And the lock-in effect is unlikely to go away in the near future. Mortgage rates probably won’t drop below 6% before the end of the year, and most homeowners wouldn’t be motivated to sell unless rates dropped further. Some of them simply don’t want to take on a 6%-plus mortgage rate and some can’t afford to.”
WHAT’S A BUYER TO DO?
So, the often-busy spring and summer homebuying season will be likely lukewarm at best.
The best advice for buyers? If you’re financially able and ready to buy, and you find a home that checks many of the boxes, consider making an offer.
“People who are sitting on the sidelines, waiting for mortgage rates to decline, should know that’s unlikely to happen in the foreseeable future,” says Chen Zhao, Redfin economics research lead. “If a home that’s in your price range and has everything on your wishlist hits the market, there’s no good reason to wait.”
Home prices and sales in May vs. a year ago
|Bay Area||$1.3 million||-11.3%||-23.8%|
|Central Coast||$1.0 million||+0.5%||-17.3%|
Source: California Association of Realtors