As a large housing market, typically, California is one of the best predictors for the rest of the country. This past June, home sales in Southern California hit the brakes, hitting the lowest levels for that month in four years. Sales for new and existing homes dropped nearly 12% year-over-year with prices at a record high.
I spoke to one of our experts here at Plus Relocation and Kelly House, (Hah, great name for a Manager of Real Estate Services, right?) gave us some great insights.
"Inventory constraints along with the combination of rising mortgage rates, all time high home prices and moderate wage growth appear to have hit the limits of acceptability for some buyers in CA.
The affordability index for home ownership in CA is at 31% vs 57% for the U.S. as a whole. The affordability index is the percentage of households that can afford to purchase a median-priced home (graph below). Obviously, not a good stat to support buyers.
To improve affordability and entice "would be" buyers back into the market, one of the following, if not all of these indicators would need to swing back to the buyer's favor:
- Mortgage rates to level off or come back down.
- Median home price to level off or come back down. Median home price year-over-year increased 7.3%.
- Wage growth needs to increase to match the rate of home price appreciation. Currently, home prices are appreciating at double the rate of wage growth."
This is going to be interesting to watch and a challenging market to educate buyers and sellers. As we have seen, buyers are not as active (those requesting home tours dropped 6.1% according to Redfin) and there were 15% fewer offers made on homes. So, likely we will see fewer bidding wars and pricing will need to reflect what is happening in the market. "We're still selling most every home, but now it's usually with just one or two offers over the 10 to 15 offers we were seeing earlier in the year," said David Fogg, an agent at Keller Williams Realty.
Sales of both new and existing houses and condominiums dropped 11.8 percent year over year, as prices shot up to a record high, according to CoreLogic. The median price paid for all Southern California homes sold in June was a record $536,250, according to CoreLogic, a 7.3 percent increase compared to June of 2017. In the past, California, one of the largest housing markets in the nation, has been a predictor for the rest of the country.