Southern California homebuying remains on ice with sales nearly halved in a year to a record-breaking slow pace.
Buyers closed 13,201 sales of existing and new single-family houses and condos in April, down a stunning 46% in a year, according to CoreLogic. It was the third biggest, year-over-year drop in records dating to 1988.
The local housing market continues to be throttled by high mortgage rates, suffering its slowest-selling April in 35 years. It was also the 18th-worst sales total of any month over that same timeframe.
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Consider how widespread this cooldown runs across the region’s six counties in terms of April’s one-year sales drop. San Bernardino was off 68%, Ventura 59%, San Diego 52%, Los Angeles 39%, Orange 35% and Riverside 39%.
Please note that my trusty spreadsheet tells me this slump was no short-term dip.
In the year that ended in April, 182,593 Southern California homes sold – the lowest 12-month total since the 2008 market crash. Only seven other 12-month periods – all during the 2007-08 market crash – had fewer sales in the past 35 years.
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So why so few sales? Let’s look at five reasons behind the drastic dip.
#1: Too costly
Home prices – at least as measured by the median selling price – remain stubbornly high.
April’s six-county median was $735,000 – up 4.3% in a month. It’s only down 2% in a year and off 3% from the record high of $760,000 set in May 2022.
Consider April’s one-year dips by county: San Bernardino was down 8% to $455,000, Los Angeles down 7% to $800,000, Orange down 6% to $988,000, Riverside down 4% to $549,500, Ventura down 4% to $774,000 and San Diego was down 2% to $805,000.
#2 Pricey mortgages
In March 2022, the Federal Reserve started its efforts to use pricey financing to chill an overheated economy. So mortgage rates skyrocketed.
Think about what that means to a typical homebuyer’s house payment.
April’s pricing equals a $3,655 monthly cost, assuming the average 6.34% mortgage rate and a 20% downpayment. That’s up 14% from a year ago when rates were 4.98% – and a budget-busting jump of 88% from December 2020 when rates hit the historical low of 2.67%.
#3 Low affordability
Surging costs have pruned the number of people who qualify to buy.
A Southern California household in the first quarter needed to earn $178,400 annually to buy a median-priced, single-family house, according to the California Association of Realtors affordability index. If that eye-catching estimate of local homebuying’s income requirement isn’t painful enough, consider this: it’s up 22% in a year.
As a result, only 19% of Southern Californians can afford to buy – down from 24% a year ago and 29% in 2021. And put an eyeball on affordability, county to county: Orange (12%), San Diego (15%), Los Angeles (17%), Ventura (17%), Riverside (22%), and San Bernardino (30%).
#4 Little to buy
House hunters have few options for a host of reasons.
Many homeowners aren’t selling because they can’t afford another house, or don’t want to give up the low mortgage rate they got during the Fed’s cheap money days of the pandemic era. Or owners decided to rent out a home they might otherwise have sold.
Thin inventory, as measured by a Realtor supply index, equals Southern California with 2.5 months’ worth of single-family houses for sale for every house bought — 34% below average since 2008.
San Diego’s supply shrunk the most, down 54% from the norm. Then came Ventura and Orange off 50%, Los Angeles off 37%, Riverside off 36%, and San Bernardino off 28%.
#5 Building bust
Builders’ inventory of ready-to-sell houses was gobbled up in the winter, so developers now scramble to catch up with demand.
Across Southern California, just 1,038 new homes sold in April, a 39% drop in a year. New homes remain a small slice of what’s bought – with just 7.9% of all sales for the month, down from the 8.6% share averaged in the past 10 years.
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That slip was true everywhere but in Riverside County where new homes’ 14.3% share in April was up from its 13.7% 10-year average.
Elsewhere, Orange County’s 10.2% share was below its 11% average, San Diego’s 7% was down vs. 7.7% average, San Bernardino’s 8% vs. 10.3% average, Los Angeles’ 3.8% vs. 4.8% average, and Ventura’s 3% vs. 5.4% average.
Southern California homebuying continues to run extremely chilled.
Yes, the few homes put up for sale move quickly and at prices near all-time highs. But Southern California closings run at a historically lethargic pace because demand has crashed.
First-time buyers are financially challenged. The “move-up market ” – current owners seeking a new place – have too many reasons to stay put. And investors are on the sidelines thanks to pricey financing and iffy appreciation opportunities.
This dynamic won’t change anytime soon.
Think about pending sales, a solid yardstick of future closed sales counts. In April, 11,682 sales contracts for existing homes were signed in the six-county region, according to Zillow. That’s 19% below a five-year average.
Now San Diego’s 1,909 was only 4% below average, but Ventura County’s 471 was 26% below par.
In Los Angeles and Orange counties, 5,622 new deals were 22% below average while in Riverside and San Bernardino counties, 3,680 pending deals were a 19% drop from the norm.
And remember, this is supposedly prime homebuying season.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at firstname.lastname@example.org
Source: Orange County Register
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