A big drop in mortgage rates helped jump-start sputtering home sales in July, while home prices dipped below $900,000 for the first time in three months.
Lower-than-expected inflation and weak job growth have pushed mortgage rates to the lowest level in more than a year, and generated optimism that the Federal Reserve will follow with rate cuts in the coming weeks – and maybe for a few months.
The decline in mortgage rates was just the glimmer some home shoppers needed.
Home sales totaled a seasonally adjusted annualized rate of almost 280,000 in July, a 3.6% increase from June and up 4.1% from a year ago, according to the California Association of Realtors. (If you prefer to think of how many sales per month, the figure is around 23,300 homes – or about 5,800 per week.)
BAY AREA BOOM
Better but far from great. Housing experts say at least 300,000 sales is the goal, providing a better balance between buyers and sellers. Monthly home sales have been below the 300,000 threshold for 22 consecutive months.
Six of the state’s seven regions enjoyed an increase in sales, including double-digit gains in four markets.
The Bay Area, where prices have bounced all over the place the past several months, had a state-leading 19% increase in sales (see table, below). Only the Far North, from about Chico to Eureka, had sales decline, a barely noticeable 0.5% drop.
The tick up in sales, thanks to lower mortgage rates, is a positive for what has been a rather lackluster market.
Bay Area home sales jumped 19% in July compared to a year ago. UNSPLASH
“California’s housing market kicked off the second half of the year with a moderate increase in home sales in July as interest rates continued their downward trend,” says CAR president Melanie Barker, a Yosemite-area REALTOR. “Despite transitioning into the off-season, the market should remain vibrant in the coming months if the availability of homes for sale continues to improve and mortgage rates moderate further in the third and fourth quarters.”
BACK BELOW $900,000, BUT YEAR-OVER YEAR PRICE GAINS CONTINUE
Falling home prices likely also helped lure more home shoppers, some who moved forward on purchases.
California’s median-home price – meaning half the homes sold for more, the other half for less – dropped to $886,650 in July, a 1.6% drop from June but up 6.5% from a year ago. Home prices have dropped two straight months.
The annual gain was the 13th-straight month of price increases, but the smallest since January.
All seven regions reported price gains, including a leading 8% increase on the Central Coast, from Santa Barbara to Santa Cruz.
MORE THAN ONE OF EVERY THREE HOMES SOLD IN JULY TOPPED $1 MILLION
Million-dollar home sales are becoming more the norm, with almost 35% of homes topping the mark in July. Ten counties had a median home price of $1 million or more, including $2.1 million in San Mateo County.
“As the economy showed more signs of cooling in the past couple of months, mortgage rates continued to come down, reaching the lowest level in 15 months,” says Jordan Levine, CAR senior vice president and chief economist. “This improvement in lower borrowing costs could motivate homebuyers on the sidelines to reenter the market, especially since home prices begin to soften at the tail end of the homebuying season.”
Falling mortgage rates and home prices will help the affordability rate, which dropped to near a modern-day record low of 14% during the second quarter, according to the California Association of Realtors. The average buyer needed to earn at least $237,000 to purchase a median-priced home with a 20% down payment.
The affordability rate will certainly improve with the lower mortgage rates and prices.
But is the latest mortgage rate drop “enough to motivate buyers,” says Altos Research president Mike Simonsen, who added price cuts nationwide reached a decade-high in June. “Hopefully, we can reach back to pre-pandemic levels.”
Home prices and sales in July compared to a year ago
| Region | Median home price | % gain or loss vs. a year ago | Home sales vs. a year ago |
|---|---|---|---|
| California | $886,560 | +6.5% | +4.1 |
| Bay Area | $1.3 million | +3.6% | +19.2% |
| Central Coast | $1.06 million | +8.0% | +5.8% |
| Central Valley | $500,000 | +2.2% | +10.3% |
| Far North | $386,450 | +3.1% | -0.5% |
| Inland Empire | $600,000 | +4.3% | +15.2% |
| Los Angeles | $849,000 | +7.5% | +11.8% |
| Southern California | $881,000 | +6.1% | +11.4% |
Source: California Association of Realtors
