Soaring mortgage rates have brought California homebuying to a record low.
Take a look at the insights my trusty spreadsheet uncovered while analyzing the statistics from the California Association of Realtors, which track August purchases and pricing for single-family existing homes, available at this link. The Federal Reserve’s battle against inflation, primarily through high interest rates, coupled with stubborn pricing, is discouraging numerous house hunters.
During the 12 months ending in August, California houses were purchased at an average pace of $271,800 per year. How stagnant has this extended decline been?
- Sales have dropped by 32% compared to the previous 12-month period.
- This figure is 38% below the 33-year average.
- It represents the slowest 12-month period of homebuying since January 1990 when the database begins.
- This new low breaks the previous record set in April 2008 during the early days of the Great Recession. Yes, it’s THAT slow!
This decline in sales has affected all regions of the state almost uniformly. Southern California has seen a decline of 33% in homebuying, followed by the Bay Area, Central Valley, and Central Coast, all experiencing a 30% decline, and the northernmost counties of the state, which have seen a 29% decline.
Now, some may argue that August’s median sales price of $859,800, the third-highest on record, is an indication that the market is still stable. However, one must question whether a record-high price is a sign of resilience or a part of the problem. Let’s be honest: only a rare few can afford today’s pricing.
Nevertheless, this small group of capable buyers seems to be competing for a limited number of homes on the market.
The Realtors estimate that California’s supply of homes for purchase is equivalent to 2.4 months of sales for August. This represents a 4% decline from the previous month and a 14% decline from the previous year, and is 58% below the 33-year average.
Furthermore, we must consider the impact of these high prices on buyers’ wallets, particularly when taking into account the changes in mortgage rates.
The Realtors’ affordability index for the second quarter reveals that only 16% of California households qualify to purchase a median-priced single-family home. And this challenge has only worsened during the summer.
Remember, the 30-year fixed-rate mortgage averaged 7.1% in August, up from 6.8% in July and 5.2% from the same time last year. Assuming a 20% downpayment and a loan at 7.1%, a California house hunter would face a $4,610 monthly house payment.
This represents a 6% increase from the previous month and a 25% increase from the previous year. In fact, it’s the highest payment ever recorded.
By the way, since February 2020, just before the economy was disrupted by the coronavirus, this estimated house payment in California has skyrocketed by 122%. Something has to give. Will it be prices? Rates? Or will homebuying remain limited for years to come?
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at [email protected]
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