Although California home sales dropped to the lowest level in nine months they will likely improve, as the market enters the final quarter of 2024, according to a recent report from the California Association of Realtors (CAR).
The number of opened escrows once again exceeded last year’s levels for the third consecutive month in the latest sale & price report, and point to an increase in home sales in October.
The median home price in California continued growing for fifteen consecutive months, but at a more moderate pace, and will continue to moderate through the end of the year..
With prices expected to soften and rates likely to normalize by the end of the year, the fourth quarter is likely to see new homebuyers on the sideline re-entering the market. Nationwide, housing starts have dipped 0.5%, with single-family construction holding steady while multifamily development slowed, according to the CAR report.
At the same time, the economy remains solid with retail sales showing strong growth, said CAR, despite concerns about consumers’ financial wellbeing and a slowing job market.
Closed escrow sales in September for existing single-family homes in California dipped 3.4% month-over-month and reached an annualized rate of 253,010, the lowest sales level in nine months.
This development is with mortgage rates falling below 6.5% for the first time in over a year in August when most sales opened escrow. Mortgage rates have been trending down since mid-July, when they started to fall from 7%.
The Federal Reserve’s first rate cut of the year in September also helped to bring rates down.
On a year-over-year basis, said the CAR report, sales rose by 5.1% and nudged the year-to-date sales figure up 0.9% through the first nine months of the year. Meanwhile, statewide pending sales surpassed last year’s level for the third consecutive month, suggesting an increase in closed sales in the month ahead.
The rebound in mortgage rates since early October, however, CAR noted, could slow sales’ growth pace and may result in softer-than-expected housing demand in the fourth quarter.
The statewide median home price in September continued to grow year-over-year for fifteen consecutive months, with an increase of 2.9%, which was the smallest gain since July 2023. On a month-to-month basis, prices dropped 2.3%, which is larger than the historical seasonal decline observed in more than five decades, the report pointed out.
A smaller share of higher-priced homes in the mix of sales could be a contributing factor on the slower growth in the overall statewide median price, according to CAR, but housing inventory, on the other hand, has been improving steadily in recent months as the market enters the off-peak homebuying season which also might have applied downward pressure on home prices.
With home prices expected to ease further in the coming months, the fourth quarter may present a good buying opportunity for those who have been on the sideline, especially since interest rates are expected to gradually move back toward their historical norms before the end of the year.
Mortgage rates have risen sharply since early October as hopes for a big rate cut by the Fed continues to fade after the release of a strong job report. Rates have gone up from near 6% in mid-September to almost 7% for top-tier 30-year fixed loans, as Mortgage News Daily reported.
This marks one of the largest rate increases in recent months, said CAR, “particularly on a day without a major economic catalyst.”
Rate fluctuations could continue until after early November. The upcoming jobs report, the presidential election, and the Federal Reserve’s rate announcement could all affect the market.
In September, overall housing starts dipped 0.5%, reflecting a pullback from August’s significant rise. Single-family construction, however, remained resilient with its second consecutive increase, primarily due to its three-month uptrend in permits. Lower mortgage rates, driven by the Federal Reserve’s easing cycle that began in September, are expected to further boost single-family development despite ongoing financing challenges, said CAR.
In contrast, multifamily construction continues to struggle, with declines in both starts and permits as higher vacancies and reduced credit access weigh on new projects.
Southern California shows stronger activity in multifamily permits due to population growth, the broader trend for multifamily development remains weak.
Meanwhile, the NAHB/Wells Fargo Housing Market Index in the US rose to 43 in October of 2024 from 41 in the previous month, the highest since June, and slightly ahead of market expectations of 42.
The gauge for current sales conditions rose by 2 points to 47, while sales expectations in the upcoming 6 months rose by a sharper 4 points to 57, supported by expectations that rate cuts by the Fed would stimulate housing demand.
Accordingly, said CAR, the gauge measuring traffic of prospective buyers rose by 2 points to 29. In the meantime, the share of builders that are cutting prices was loosely unchanged from the prior month at 32%.
