August might have given home buyers a brief respite in an otherwise cooling housing market, thanks to a one-month dip in mortgage interest rates.
Home prices and sales, which had been dropping from one month to the next this past summer, leveled off or increased from July.
But that reprieve could be short-lived as inflation, Federal Reserve rate hikes and a rebound in home-loan borrowing costs push sales and prices lower in the months ahead.
Bidding wars remain scarce. Buyers still are sidelined by a 47% jump in the typical house payment. And discouraged owners are shying away from the market as homes take longer and longer to sell.
“The train kind of left the station as far as over-bidding on properties,” said Gail Anderson, an agent with Inet Realty in Irvine. “For $750,000 properties, we were getting offers close to $900,000. That’s not happening anymore. … There no longer are multiple offers. … No more lines at open houses.”
Southern California had 17,698 home sales in August, up 7.9% from July, according to CoreLogic numbers released by DQNews on Monday, Sept. 19.
The median price of a Southern California home – or the price at the midpoint of all sales – was $740,000, unchanged from July.
That’s a turnaround from previous month-to-month declines after 30-year mortgage rates dipped to 5% in July and early August.
Nonetheless, last month’s sales still were down 28% year over year, dropping to the second-worst tally for an August in records dating back 34 years. It was the smallest number of sales for an August since 1992.
The region’s median home price, meanwhile, was up a mere 8.8% from a year ago, tied for the smallest appreciation rate since the pandemic lockdowns all but halted sales in the spring of 2020. Southern California home values had been rising an average of 15% for the previous two years.
“The market’s taking a downturn,” said Juan Zarate, an agent for The Real Estate Shoppe in Murietta. “We’re seeing a slight increase in inventory, decrease in prices and a little more flexibility with sellers. … We’re in a different market than we were as little as six months ago.”
Lofty home values coupled with a near doubling of the 30-year fixed mortgage rate boosted the typical payment on a median-priced home by $1,055 a month.
Zarate and others said sellers eager to close deals now are offering to help buyers pay closing costs or to pay points on a loan to lower their monthly payments. Others are cutting their prices.
“What we’re seeing happen is a price decrease and sellers willing to work with the buyer,” Zarate said. “Negotiations are higher for the buyer than they were previously.”
One example was a 112-year-old house Anderson sold in Anaheim on Aug. 31. A month after listing the home for $889,000, the owners had just one offer for $20,000 less than their asking price.
“They ended up accepting that offer, and that’s what’s happening almost everywhere now,” Anderson said.
The typical Southern California home took at least 38 days to sell in August, or about a week to 12 days longer than in the summer of 2021, Redfin figures show.
Sale listings, meanwhile, are up dramatically from the start of the year. As of August, the number of homes for sale in Los Angeles, Orange, Riverside and San Bernardino counties had jumped to 28,286 listings, up 61% from December, Redfin figures show. But mostly, homes are taking longer to sell, and fewer owners are putting their properties on the market. New listings dropped 30% from a year ago to just under 13,000 in August.
“As mortgage rates approached 6%, almost everyone left the party,” Redfin Chief Economist Daryl Fairweather said in a statement on Friday, Sept. 16. “The bottom line is that homeowners don’t need to sell in this environment. They locked in rock-bottom mortgage rates last year and are sitting on piles of equity. The jobs market remains very strong, so there’s little risk that mortgage delinquencies or foreclosures will rise significantly.”
The historic low rates of 2021 — some as low as 2.25% — caused what economists call “the locked-in effect,” meaning owners with low rates are likely to stay put rather than move for years to come.
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“One of the challenges moving forward is that so many homeowners are in these low fixed-rate loans,” said Jordan Levine, chief economist for the California Association of Realtors. “That is going to be a big disincentive for folks to move.”
Shannon Shue, an agent with Keller Williams Advisors in Marina del Rey, said today’s market has two types of buyers that didn’t really exist a year ago. One is the buyer who is willing to pay today’s housing costs but doesn’t want to get sucked into a bidding war. The other is saying, I’m already paying higher mortgage rates, so the sellers have to give.
“So, the sellers are going to give,” Shue said. “The ones who want to sell do. The ones that don’t (give) sit, and the (average number of) days on the market are starting to go up.”
Some housing economists now are forecasting year-over-year price drops. State Realtor economists are revising their forecast to predict 2023 prices will be lower than this year’s average, with declines in the single digits.
“Part of that is because the market continues to shift away from (luxury housing at) the very top end, which was pumping up some of that price growth that we were seeing last year and earlier this year,” Levine said. “But we also expect prices to moderate anyway. And in terms of sales, we expect sales to remain relatively low.”
— SCNG business columnist Jonathan Lansner contributed to this report.