August home sales heat up as mortgage rates drop

Prices rebound after three months of declines

Lower mortgage rates helped jump-start sputtering sales in August, as the housing market may have “found a short-term balance between supply and demand.”

The Federal Reserve’s much-anticipated quarter-point cut earlier this month prompted mortgage companies to lower their rates during the past several weeks. Mortgage rates recently dropped to a one-year low before inching higher in recent days.

Buyers have gained the upper hand, as more homes are available, prices dip and sales slow. 

‘A BOUNCE BACK’

An annualized rate of about 264,200 homes sold in August, a 0.9% increase from July but down 0.2% from a year ago, according to the California Association of Realtors. It was the fifth consecutive month of annual declines, and the 35^th straight month below the 300,000-home benchmark – considered the level for a healthy market.

The Bay Area and Los Angeles had 4%-plus declines in sales from a year ago, likely because of affordability and ongoing concerns about a weakening economy. The Far North – from about Chico to Yreka – had a 2.9% increase in annual sales, the largest in the state.

“Despite a softer-than-expected home buying season this year, a bounce back in pending sales last month is an encouraging sign that sales could improve the rest of the year,” said CAR president Heather Ozur, a Palm Springs-area broker. “Many prospective homebuyers have been holding out in hopes of lower mortgage rates, and the declining trend in rates observed in the last few weeks could be the nudge that draws them back to the market.”

PRICES RISE, SNAPPING A THREE-MONTH DECLINE

Maybe, but affordability, always a concern in California, remains a huge challenge for a large majority of would-be buyers. Fewer than one of every five households could afford the median-priced home in the second quarter, and the figure is the lower-teens in some coastal communities, according to CAR.

Home prices reached $899,140 in August, a 1.7% increase from July and up 1.2% from a year ago. The bump ended three months of declining prices. Prices on the Central Coast – Santa Barbara to Santa Cruz – increased 6.3%, the most in the state. Prices dipped in the Central Valley and Far North, the most affordable markets in California. 

“Soft sales demand led to a steady decline in California’s median-home price for three consecutive months through early summer,” said Jordan Levine, chief economist for CAR. “However, with a slight uptick in the median price in August and stabilization in the number of reduced-price listings last month, the market appears to have found a short-term balance between supply and demand. If mortgage rates maintain their current levels or decline further before year-end, positive year-over-year home price growth may continue in the next few months.”

MORE HOMES AVAILABLE AND LONGER TIMES ON THE MARKET

Perhaps, but home-shoppers will continue to have more choices – and time – before purchasing. 

Active listings increased almost 24% in August compared to a year ago, but that was the smallest year-over-year gain since March 2024. Listings reached an almost seven-year high in July. 

Homes entered escrow in 31 days in August, compared to 22 days a year earlier. But that figure could decline as more buyers enter the market with the lower rates. 

“The tug-of-war in today’s housing market may actually be creating an opening for both buyers and sellers,” said Redfin senior economist Sheharyar Bokhari. “With more inventory available, intense bidding wars are in the rearview mirror, so buyers have room to negotiate. At the same time, sellers who price their homes realistically are still finding buyers, and overall, prices are holding steady. This middle ground could leave a window of opportunity open for both sides.”