Sales cool, prices heat up in September as mortgage rates rise

Prices increase for the third straight month

As mortgage rates climb to the highest level in almost a quarter-century, home sales are “being tested,” falling for the fourth consecutive month in September.

And with fewer homes on the market, home prices increased for the third straight month, including the largest year-over-year jump in 15 months, according to the California Association of Realtors.

It’s a seesaw-like story that has dominated the market since the Federal Reserve started hiking interest rates in spring 2022 to combat the highest inflation rate since the Reagan administration in 1981.


Home listings have plummeted to a 13-year low nationwide, as many homeowners are holding on to their 3%-or-lower mortgage rates – and few home shoppers can afford the much higher monthly payments. The average homebuyer in California had a $4,000-plus mortgage payment during the first quarter, according to ATTOM Data.

“Buyers have been in a bind all year,” says Chen Zhao, economic research lead for Redfin. “High mortgage rates and still-high prices are making it harder than ever to afford a home, shutting many young people out of homeownership and causing homeowners to reevaluate whether 2023 is the right time to move. Mortgage rates are staying high longer than anticipated, keeping away everyone except those who need to move.”

The latest CAR data details that few folks need to move. Annualized sales fell to 240,940 homes in September, a 5.4% drop from August and off 21.5% from a year ago.

All seven regions endured a 20%-plus drop in sales from a year ago, including a state-worst 25% in the Inland Empire (Riverside and San Bernardino counties), Southern California’s most affordable housing market.

But with the higher mortgage rates and near-record prices, fewer than one of every five households could afford to buy during the second quarter, according to CAR.

“Mortgage rates continued to approach 8% this week, further impacting affordability,” says Freddie Mac chief economist Sam Khater. “In this environment, it’s important that borrowers shop around with multiple lenders for the best mortgage rate. With research showing the down payment is the single largest barrier to first-time homebuyers attaining homeownership, borrowers should also ask their lender about down payment assistance.”

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Santa Cruz County was one of the few counties where home prices inched lower in September compared to a year ago, falling 4.3% to $1.17 million. The county is one of the most expensive in California./ADOBE STOCK


CAR president Jennifer Branchini agrees, adding that those able to afford the bigger mortgage payments – up about 40% from two years ago – are enjoying less competition and more concessions from sellers. 

“With the market being less competitive, there are greater opportunities for consumers who need to purchase a home for personal reasons or those who can qualify to purchase at today’s interest rates,” Branchini says. “More sellers are making concessions as homes are taking longer to sell, fewer homes are selling above asking price, and there are more homes to choose from.”

But home prices are still a steep hill for many shoppers. 

California’s median home price – meaning half the homes sold for more, the other for less – reached $843,340 in September, down 1.9% from August but up 3.2% from a year ago.

The Bay Area boasted the biggest annual price gain at 6.6% to $1.3 million, easily the most expensive market in the state. The Bay Area had become more affordable in the past several months, thanks to falling prices and solid wage gains during the past few years.

Higher mortgage rates and high home prices will continue to be a one-two punch to a housing market that could have the fewest home sales since the Great Recession.

“As mortgage rates surge to new highs not seen in more than two decades, home sales are being tested and are likely to remain tepid for the next few months,” says Jordan Levine, CAR senior vice president and chief economist. “With the Fed planning on holding rates higher for longer, the cost of borrowing will remain elevated and may not come down much in the near term. Housing affordability will continue to hinder sales activity for the rest of the year, especially in the low-and mid-price range.”

Home prices and sales in September vs. a year ago

RegionPrice% Gain/LossSales
Bay Area$1.3 million+6.6%-23.7%
Central Coast$950,000+3.3%-20.8%
Southern California$820,000+4.7%-21.7%
Los Angeles$780,000+4.0%-20.8%
Inland Empire$550,000-2.2%-24.8%
Central Valley$481,000+3.4%-22.5%
Far North$385,000+1.4%-22.3%

Source: California Association of Realtors