Fast-rising home prices cooled and sales remained sluggish in June, as higher mortgage rates continue to have a far-reaching effect on the housing market.
Home sales declined to a seasonally adjusted annualized rate of 270,200, a 0.8% dip from May and off 2.7% from a year ago, according to the California Association of Realtors. (If you prefer to avoid the annualized rate figure, about 22,500 homes were sold in June).
Home sales have been below the 300,000 threshold – considered the minimum level for a heathy market – for 21 straight months.
All seven regions had home sales decline in June, with four markets reporting double-digit drops, including a 16% tumble in the Far North, from about Chico to Eureka. Southern California, especially the Inland Empire and Los Angeles, had 11.5%-plus sales drops.
FED FIGHT AGAINST INFLATION GAINS GROUND
Blame higher mortgage rates, which have doubled during the past two years. As the Fed continues to battle the highest inflation rates in 40 years, consumers – especially those looking to purchase – are taking it on the chin.
But mortgage rates have dropped in recent weeks, as inflation eases and job-growth slows. The rate for a 30-year mortgage was 6.77% on July 18, down a full percentage point from the latest peak reached in fall 2023, according to Freddie Mac. In comparison, a fixed mortgage was 2.88% in June 2021.
“With interest rates coming down to the lowest level since February and the availability of homes loosening up further in the last few months, the housing market is gearing up for another run in the second half of the year,” says CAR president Melanie Barker. “We could see a pickup in market momentum at the start of the third quarter if rates decline in a more sustainable way in the coming weeks and buyers decide to take advantage of lower costs borrowing.”
$900,000 FOR THE THIRD STRAIGHT MONTH
Perhaps, but affordability continues as a major challenge for consumers. Fewer than one of every five households could afford to buy the median priced home during the first quarter, according to CAR.
And even with a decline in mortgage rates, the median home price remained above $900,000 for the third straight month – but down from new records reached in April and May. CAR reports 36% of homes sold topped $1 million in June, the largest percentage in at least five years.
The state’s median home price was $900,720 in June, a 0.8% decline from May but up 7.5% compared to a year ago.
The annual gain was the 12th straight increase, but the smallest since January, the latest evidence that buyers may be gaining some ground in the market.
All seven regions reported price gains from a year ago, including a 9% increase in the Central Coast, from Santa Barbara to Santa Cruz. The Bay Area boasts the highest median price at $1.4 million (see table, below).
The median home price increased 9% during the past year to $1.07 million on the Central Coast. SHUTTERSTOCK
“Home sales pulled back in June as interest rates remained volatile at the end of the second quarter,” says Jordan Levine, CAR senior vice president and chief economist. “While it will take a couple of more reports for the Federal Reserve to begin cutting rates, housing affordability for qualified buyers should begin to see some improvement in the coming months.”
Home prices and sales in June compared to a year ago
| Region | Median home price | % gain or loss vs. a year ago | Home sales vs. a year ago |
|---|---|---|---|
| California | $900,720 | +7.5% | -2.7% |
| Bay Area | $1.4 million | +5.8% | -1.1% |
| Central Coast | $1.07 million | +8.9% | -9.7% |
| Central Valley | $503,000 | +4.8% | -5.5% |
| Far North | $409,000 | +7.6% | -16.3% |
| Inland Empire | $600,000 | +5.3% | -13.2% |
| Los Angeles | $835,000 | +7.7% | -13.5% |
| Southern California | $875,000 | +7.4% | -11.5% |
Source: California Association of Realtors
