Interest Rate Reprieve Boosts California Home Sales to Highest Level in Eight Months, C.A.R. reports

Existing, single-family home sales totaled 289,460 in May on a seasonally adjusted annualized rate, up 9.8 percent from April and down 23.6 percent from May 2022.
May’s statewide median home price was $836,110, up 3.0 percent from April and down 6.4 percent from May 2022.
Year-to-date statewide home sales were down 35.1 percent in May.

LOS ANGELES (June 20) – California’s housing market rebounded in May as home sales surged to the highest level in eight months and the statewide median price notched above $800,000 for the second straight month, the CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.) said today.

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 289,460 in May, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2023 if sales maintained the May pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

May’s sales pace was up 9.8 percent on a monthly basis from 263,650 in April and down 23.6 percent from a year ago, when a revised 378,640 homes were sold on an annualized basis. Sales of existing single-family homes in California remained below the 300,000-unit pace for the eighth consecutive month.

“The bounceback in May’s home sales and price shows the resilience of California’s housing market and is a testament to the value that consumers place on homeownership,” said C.A.R. President Jennifer Branchini, a Bay Area REALTOR®. “The housing market is stabilizing and even showing signs of improvement as competition is on the rise again; nearly half of homes are selling above asking price, fewer sellers are reducing listing prices, and homes for sale are going into pending status in just two weeks compared to more than 30 days early this year.”

California’s median home price exceeded $800,000 in May for the second straight month, increasing 3.0 percent from April’s $811,950 to $836,110 in May. The statewide median price continued to rise and reached the highest level in nine months. Tight housing supply and more high-end homes being sold relative to prior months continued to put upward pressure on prices. Despite the improvement from early 2023, the median home price in California dipped 6.4% on a year-over-year basis for the seventh consecutive month from $893,200 in May 2022. The price drop seems to be stabilizing but more negative annual price changes will be observed in the coming months as rates are expected to remain high in the third quarter of 2023.

“While home sales rose solidly in May, we don’t expect to see a rapid recovery because of the lock-in effect that’s keeping prospective sellers with low interest rate mortgages from listing their homes on the market and keeping inventory extremely tight.” said C.A.R. Senior Vice President and Chief Economist Jordan Levine. “Consequently, we expect prices to continue to rise on a month-to-month basis for the next few months because of the shortage of homes for sale. Even with reduced homebuyer demand, California still has more homebuyers than homes to put them in. It is this imbalance between supply and demand that continues to put upward pressure on home prices and nudge the median price up month over month since the beginning of the year.”

Other key points from C.A.R.’s May 2023 resale housing report include:

Sales declines moderated at the regional level, with sales in all major regions falling less than 24 percent from the same month last year. The San Francisco Bay Area experienced the biggest sales drop at -23.8 percent from a year ago, followed by Southern California (22.3 percent) and the Far North (21.8 percent). The Central Coast (-17.3 percent) and the Central Valley (-20.0 percent) were the only regions that recorded a drop of 20 percent or less from last year.
Forty-nine out of 51 counties tracked by C.A.R. registered a sales decline from a year ago in May, with 36 counties dropping more than 20 percent year-over-year and nine counties falling more than 30 percent from the same month last year. Mariposa (-51.5 percent) had the biggest sales dip in May, followed by Siskiyou (-45.5 percent) and Mendocino (-44.3 percent). Tehama (2.6 percent) was the only county with a year-over-year sales gain.
Despite mortgage rates rising sharply since mid-May and peaking late last month at the highest point in six months, the number of pending sales recorded in May remained steady and only dipped slightly by less than 2 percent from the prior month. The consistent level of open-escrow sales suggests that the California housing market will register closed sales in June at around 275,000, a level between what was recorded in April and May.
The Federal Reserve met earlier this week and decided to pause rate hikes in their latest FOMC meeting. While the Committee held the fed funds rate steady this time around, Fed Chairman Powell suggested that they are prepared to raise rates couple of more times, or another 50 bps, this year to tame stubborn inflation. Next year, Fed officials see interest rates falling by 100 basis points as economic growth slows further. This is the first time since January 2022 that the Fed made no rate change following a policy meeting. Before the Fed’s announcement, the bond market generally priced in one more 25 bps rate increase by the end of 2023. Interest rates have been moving side way since the announcement but will stay elevated longer than what the market previously anticipated.
At the regional level, all but one major region registered a dip in its median price from a year ago in May, with two regions dropping more than 10 percent year-over-year. The San Francisco Bay Area (-11.3 percent) continued to post the biggest drop of all regions, with four of its nine counties declining by double-digits from a year ago. The Far North (-10.6 percent) recorded the second largest drop in its median price, followed by Southern California (-5.3 percent) and the Central Valley (-4.9 percent). The Central Coast region was the only major region that registered a median-price gain from a year ago, and it was the first time in six months that the region registered a positive year-over-year price growth.
More than 80 percent of all counties experienced a decline in their median home price from a year ago in May, with 12 counties sliding more than 10 percent on a year-over-year basis. Siskiyou (-30.4 percent) had the biggest drop of all counties, followed by Plumas (-29.6 percent) and Lassen (-25.7 percent).
The number of counties recording a median-price gain from last year dropped in May to eight from 12 counties in April. Most of the increases were mild, with Santa Barbara (41.7 percent) and Lake (10.6 percent) being the only exceptions. The price surge in Santa Barbara was attributed primarily to a shift in the mix of sales in the region in May.
Thirty-three counties posted an increase in their median price from April 2023 to May 2023, with four of them surging more than 10 percent month-over-month. The high number of counties with a price improvement from earlier this year is an encouraging sign that housing values are stabilizing as the market moves further into the home-buying season.
Housing inventory in California dipped in May after a brief bounceback in April, as sales improved while supply remained tight. The statewide unsold inventory index (UII) in May 2023 was flat from last year and declined 16 percent on a month-over-month basis. Assuming a softer sales level in June, there could see a minor inventory improvement in the upcoming month, but the upward adjustment would be entirely due to a change in the demand side.
None of the price ranges except the $1 million and higher price sector recorded an increase in UII from a year ago. The unsold inventory index remained flat in the $500,000-$749,000 price range (0 percent) but dipped year-over-year in the $750,000-$999,000 sector (-9.1 percent) and the sub-$500,000 (-4.3 percent). The $1 million and higher sector recorded a gain in UII by 21.1 percent from last May.
The median number of days it took to sell a California single-family home was 17 days in May and 11 days in May 2022.
C.A.R.’s statewide sales-price-to-list-price ratio* was 100 percent in May 2023 and 103.4 percent in May 2022.
The statewide average price per square foot** for an existing single-family home was $409, down from $434 in May a year ago.
The 30-year, fixed-mortgage interest rate averaged 6.43 percent in May, up from 5.23 percent in May 2022, according to Freddie Mac.