Higher mortgage rates, lower home sales in October

Largest annual gain in home prices in 17 months

Higher mortgage rates cooled home sales in the first full month of fall, as payment- and price-conscious buyers and sellers played the ongoing waiting game in October.

A seasonally adjusted annualized rate of 241,800 sold in October, a slight 0.3% bump from September – and down 11.9% from a year ago, according to the California Association of Realtors. It’s the second consecutive month below the 250,000 mark, and the 28th straight year-over-year drop, the latest evidence that higher mortgage rates have stalled the market.

The most affordable and price-sensitive markets of the Central Valley and the Far North had the largest sales drops. Only the Central Coast eked out a small annual increase in sales (see table below).

“A sizable jump in interest rates kept home sales constrained in October and will likely hamper home sales for the remainder of the year,” says CAR president Jennifer Branchini, a Bay Area Realtor. “Despite rates remaining elevated, many other factors have swung in favor of buyers recently, including more properties staying on the market longer before selling and fewer homes selling over list price, which could motivate more sellers to offer concessions.”

LONGER TIME ON THE MARKET HAS LITTLE EFFECT ON PRICES

The average home entered escrow in 20 days in California, two days more than September – but a week faster than a year ago. Homes in the Far North, from about Chico to Eureka, took almost twice as long as the rest of the state. 

More than one of every three home sellers nationwide offered some form of concessions during the past three months, including almost half in Los Angeles and Sacramento and 60% in San Diego, according to a recent Redfin report.

Despite more homeowners offering concessions and longer times on the market, home prices continue to increase, as the demand – even with mortgage rates above 7.5% – easily exceeds the supply of homes on the market. 

Active listings have declined seven consecutive months, and have plummeted more than 20% six straight months compared to a year ago. And the housing inventory, basically how long it would take to sell the current homes on the market, dipped to 2.7 months compared to 3.1 months a year ago.

STILL-STRONG DEMAND LIFTS PRICES EVEN WITH FEWER BUYERS

Home prices increased for the fourth consecutive month compared to a year ago, with the largest year-over-year gain in 17 months. The median home price – meaning half the homes sold for more, the other half for less – was $840,360, a 0.4% dip from September but up 5.3% from a year ago.

The Central Coast had the largest annual increase at 12%, while prices in the Far North dropped 4.3%, the only of the seven regions in the state with a decline.

The Bay Area was the most expensive market at $1.27 million, followed by the Central Coast – from Santa Barbara to Santa Cruz – at $1.05 million. The Far North was the cheapest at $376,000.

Real estate officials expect home price increases to slow in the next few months, especially during the often-slow holiday season and as more potential buyers and sellers reassess the housing market – and, perhaps more importantly, mortgage rates.

“With the Federal Reserve pausing rate hikes at the last … meeting and recent economic news pointing to a slower economy, mortgage rates have been coming down in recent weeks, says Jordan Levine, CAR senior vice president and chief economist. “If inflation continues to cool, we could see more improvement in mortgage rates than the Fed is currently projecting for next year, which would alleviate some pressure on both the buy and sell side of the housing market in 2024.”

RegionMedian home price% gain or loss vs. a year agoHome sales vs. a year ago
California$840,360+5.3%-11.9%
Bay Area$1.27 million+5.7%-3.9%
Central Coast$1.05 million+12.0%+1.9%
Central Valley$473,000+4.0%-11.3%
Far North$376,000-4.3%-2.3%
Inland Empire$561,410+2.1%-9.3%
Los Angeles$785,000+5.8%-7.6%
Southern California$820,000+6.5%-7.4%

Source: California Association of Realtors