2022 was the year of the “big shift” for Southern California’s housing market, starting out last January with quick sales and rising prices, then abruptly freezing up amid soaring interest rates.
Home sales fell to a 14-year low of 211,046 transactions in 2022, vs. an average of 277,500 deals a year, according to CoreLogic figures released Thursday, Jan. 26. Just three of the past 35 years had fewer sales.
Then, a decade-long, upward price spiral changed course, and values fell $76,000 in seven months.
High prices and the swift rise in mortgage rates were at the heart of the big shift, choking off demand as house payments soared out of reach, California Association of Realtors Chief Economist Jordan Levine said.
“It was kind of the one-two punch,” Levine said. “Higher rates and the fact that prices have grown by roughly 35% since 2020 … contributed to the slowdown.”
December was emblematic of that slowdown.
CoreLogic numbers show the median price of a Southern California home — or the price at the midpoint of all sales — fell from the month before for the seventh time in a row, dropping to $686,000 from a peak of $760,000 last spring.
Last month’s median was up a mere 0.7% from the year before, following a 20-month bout of 10%-20% annual gains that lasted through last June.
Sales for the month fell to 12,751 transactions, down 46.6% year over year to the smallest tally for a December on record.
“The surge in mortgage rates from 3% to 7% took a huge bite out of homebuyers’ purchase power, reducing it as much as 30%,” Selma Hepp, CoreLogic’s chief economist, said in a statement. “That means that a family … that could afford a home priced at about $770,000 at 3%, can now afford a home priced at about $540,000 at 7%.”
Zillow figures show it now takes five to six weeks to sell a Southern California home, compared with less than two weeks a year ago. According to Redfin, just over a fourth of last month’s home sales sold for more than the seller’s asking price, compared with 59% a year earlier.
“A year ago, you had to jump on a house the moment it came on the market,” said Phil Schaefer, an agent with Seven Gables Real Estate in Tustin. “Now (buyers) can think about it for two or three weeks.”
Flip flop
Flip flopSlowing sales and falling prices may be good news for homebuyers hunting for bargains. But it’s bad news for real estate providers like brokers, lenders and termite inspectors.
And it was bad news for Leonard Leichnitz, 60, a Newport Beach real estate investor whose flip went flop during the market’s big shift.
Leichnitz believed he could double the price of a three-bedroom Riverside house he bought in 2021, provided he could reverse a city order to tear down a backyard ADU, or granny flat. He won the appeal, but it took six months.
“By the time I rehabilitated it and got it on the market, it was now August. Much later than I was hoping,” Leichnitz said.
It took five months and a $40,000 price cut to find a buyer. He had to shell out an additional $30,000 for repairs and buyer’s closing costs. Taking into account his expenses, he made less than $10,000 on the deal, if that.
“People say real estate is all about location, location, location,” he said. “I think it’s timing, timing, timing.”
Buyers had their problems, too. Surveys showed that 15-20% of buyers who bought during the frenzy had regrets, believing they overpaid for their homes.
A January 2022 survey by the WAV Group, a Central California-based real estate consultant, found that 49% of respondents said they felt rushed to make an offer, and 34% felt they overpaid because they got into a bidding war. A Nov. 30-Dec. 5 survey commissioned by Lending Tree found that a fourth of buyers said they opted out of getting a home inspection, among other concessions.
“They were in a buying frenzy, so they were doing things that weren’t logical,” said Marilyn Wilson, WAV founding partner.
Case-Shiller Index co-creator Robert Shiller, a Yale professor emeritus of economics, said many home shoppers rushed to buy during the 2020-21 frenzy because of “FOMO,” a fear of missing out on record-low mortgage rates.
“Buyers felt psychological time pressure to lock in rates,” Shiller wrote in a recent New York Times commentary. “FOMO may be triggered by the thought … that we may have just missed a once-in-a-lifetime opportunity to afford the dream house.”
Challenging year ahead
Although mortgage rates came down a bit in recent weeks, experts still expect 2023 will be a challenging year for the housing market.
Buyer demand will remain soft due to high prices and mortgage rates averaging about 6% this year, said Levine, the Realtor economist. Owners will be reluctant to sell since moving would mean giving up a “sweetheart mortgage rate” from the pandemic era.
The lack of homes for sale “will help prop up prices,” Inland Empire real estate developer Randall Lewis told the West End Real Estate Professionals in Rancho Cucamonga on Friday.
But, he added, “real estate is a cyclical industry, and right now we are probably entering a slower part of the cycle.”
Here’s a county-by-count breakdown of December medians and sales totals, with annual percentage changes:
— Los Angeles County’s median fell 3.1% to $775,000; sales were down 47.8% to 3,984 transactions.
— Orange County’s median fell 0.5% to $933,500; sales were down 39.9% to 1,788 transactions.
— Riverside County’s median rose 2.4% to $549,000; sales were down 47.6% to 2,589 transactions.
— San Bernardino County’s median rose 3.2% to $490,000; sales were down 47.5% to 1,800 transactions.
— San Diego County’s median rose 2.4% to $756,000; sales were down 46.1% to 2,119 transactions.
— Ventura County’s median fell 2.9% to $738,000; sales were down 51.2% to 471 transactions.
Source: Orange County Register
Be First to Comment