As mortgage rates continue to rise and inventory slides, home sales were like a dud sparkler in July.
And with long-term mortgage rates reaching the highest level in more than two decades on Aug. 17, many homeowners remain hesitant to sell and most home-shoppers are finding few homes on the market. The supply-and-demand challenge that has cooled the market for much of the year could continue until interest rates ease.
According to the California Association of Realtors, an adjusted annualized rate of about 269,000 homes sold in July, a 3% decline compared to June – and off 9% from a year ago. The state’s home sales were below the 300,000 level for the 10th straight month, the latest evidence that the ongoing “lock-in” effect by homeowners who want to hold on to their 3% mortgage rates remains (see regional data on prices and sales in the table below).
“Many in the market aspire to become homeowners and are actively looking to buy, but the shortage of homes for sale and elevated mortgage rates remain challenging headwinds for them,” says CAR president Jennifer Branchini, a Bay Area REALTOR.
HIGHER RATES = FEWER BUYERS AND SELLERS
Add higher home prices and those headwinds have the housing market off course. Fewer than one of every five households (16%) could afford to buy a home during the second quarter, the lowest figure in about 17 years, according to CAR.
Blame mortgage rates – almost 2 percentage points higher than a year ago – and the competition for the few homes listed for the median home price topping $800,000 for the fourth straight month.
The Federal Reserve’s interest-rate hikes have cooled the market, but the critical shortage of homes because of a lack of sellers has prices close to their record-high levels in most regions, except for the Bay Area and Far North, which had the largest annual drop at 7%.
The median home price – meaning half the homes sold for more, the other for less – was $832,340 in July, a 0.7% dip from June but up 0.2% from a year ago, the first year-over-year gain since last fall.
‘HOUSING DEMAND REMAINS RESILIENT’
Solid job growth, even with some high-profile layoffs in the tech industry, and a severe shortage of homes listed should keep prices stable during the remainder of the year, says Jordan Levine, senior vice president and chief economist for CAR.
“Housing supply continued to be tight in California as rates remain well above levels in 2020-21, when homeowners locked-in their long-term mortgages,” Levine says. “While home sales have been negatively impacted by the shortage of homes for sale during this year’s homebuying season, home prices continue to stabilize and have provided consumers with some confidence that market conditions are still solid. Interest rates should moderate later this year if inflation eases further, and home sales could see improvement in the winter season.”
Perhaps, but with better-than-expected economic data in recent days, which often boosts inflation, mortgage rates could remain in the 7% range for a while.
“Treasury rates were elevated again last week following mixed data on inflation and more indication of resiliency in the economy, which may pose a challenge to the Federal Reserve’s efforts to lower inflation,” says Joel Kan, vice president and deputy chief economist for the Mortgage Bankers Association.
So, higher mortgage rates and plenty of competition for homes will likely continue.
“Despite slowing home sales in the past couple of months, housing demand remains resilient and the market continues to be competitive,” Branchini says.
Just like the housing market has been for almost a year.
Home prices and sales in July vs. a year ago
|Bay Area||$1.26 million||-0.3%||-14.2%|
|Inland Empire||$575,000||No change||-18.4%|
Source: California Association of Realtors