Homes Sales and Prices in California May Have Hit an Affordability Tipping Point

It may be that California, where home prices have
exploded over the last few years, has jumped the shark when it comes to
affordability.  CoreLogic’s Andrew LePage
writes in the company’s Insights blog
that September home sales in the state were the lowest in the country since September2007.

The sales report comes in the wake of reports from
several sources showing an abrupt slowdown in home price growth in many of the state’s
largest metros.  CoreLogic says the state’s
annual gain of 4.1 percent in the median home price statewide was the lowest in
more than two years.  Coupled with higher
mortgages rates, the lack of affordability appears to, in LePage’s words, have knocked some would-be buyers to the
sidelines, unable or unwilling to buy.

Sales do historically fade in September as school
starts, and inventories typically shrink. 
This September there were 33,886 homes sold statewide, a 21.9 percent
decline from August sales.  The average
change from August to September since 2000 has been 9.9 percent.  September’s sales were down 17.2 percent from
September 2017, the largest annual rollback since a 23.3 percent negative
change in October 2010. Sales have fallen on an annual basis in four of the
last five months.  The fifth month,  July, saw an annual increase of only 1.2



The author says California’s housing
slowdown isn’t a case of falling demand given its current economic and
demographic trends, but a growing lack of affordability and what he calls a gradual
shift in buyer psychology. “The sense of urgency among many would-be buyers
subsided in recent months as sales slowed and listings rose. Inventory –
especially more affordable inventory – remains relatively tight in some markets
but many areas have transitioned from a seller’s market to a neutral market
where neither buyers nor sellers have a distinct advantage.”

The chart below, showing historical patterns
of sales prices in the state since the turn of the century might be a little
disturbing to those who remember the housing crisis and recognize that California
is often considered to be a harbinger of nationwide trends. However, the
overall economics today as well as underwriting standards are quite different
than 11 years ago
, and many  experts have
forecast this boom to experience a gradual slowdown in sales and price
appreciation rather than any bursting of a bubble.



LePage says that none of the state’s
major regions has escaped the cooldown
. The San Francisco Bay area, Sacramento
and Central Valley areas, Central Coast and Southern California posted
year-over-year sales declines ranging from 15.5 percent to 18.9 percent.  Even adjusting for the fact that this
September had one less business day for recording sales transaction than the
previous one, the annual number is down 13 percent, still one of the largest in
several years.

For example, September sales in the
six counties that make up the Southern California region September sales were
down 17.7 percent year-over-year while prices rose 3.6 percent to a median of
$523,000, the smallest annual gain for any month in more than three years.

Similarly, sales were down 18.9 percent
to a total of 5,970 new and existing homes in the nine counties in San
Francisco Bay. The median sale price of $815,000, up 9.3 percent year over year
– reflected the smallest annual gain in 15 months.

The median price paid for all new
and existing houses and condos sold statewide in September 2018 was $485,000,
down 1.7 percent from August and up 4.1 percent from September 2017. In nominal
terms the median hit an all-time high of $500,000 this June. Adjusted for
inflation, however, the median has not returned to its pre-housing-bust peak in
March 2007, and this September’s median was 16.3 percent below that peak. 



Even with the slowdown in appreciation,
the 4.1 percent annual gain was the lowest since June 2016, buyers still face
large affordability challenges.
monthly principal and interest payments on a median priced home purchased in
September was up three times the rate of appreciation – 12.8 percent – because of
approximately an 80 basis point gain in mortgage rates over that period.

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