Goldilocks Housing Season - Good Time to Buy and Sell?
The housing market in California remained soft in March with sales dropping and prices leveling off at the end of the first quarter. Home sales have been declining on a year-over-year basis for 11 consecutive months and the average decrease over that time frame was 8.3 percent. The state housing market, however, retained some of the momentum that we observed in February, as the decline in sales remained moderate for the second straight month. Compared to last year, home sales in March dropped 6.3 percent and registered a seasonally-adjusted annualized rate of 397,210 units. The sales figure was virtually unchanged from February as it only dipped 0.2 percent month-over-month.
The bounce back in sales in February and March suggests that the declining trend in interest rates that started at the end of 2018 is having a positive impact on housing demand. Mortgage rates had been trending down, reaching the lowest point since January 2018, before bouncing back in recent weeks. The average 30-year fixed-rate mortgage (FRM) reported by Freddie Mac in March 2019 was, in fact, 0.2 percent lower than that observed in the same month of last year.
Meanwhile, the growth in home prices continued to decelerate and registered the smallest year-over-year increase in seven years. The state housing market recorded a median price of $565,880 for existing single-family homes in March, an increase of 5.9 percent from the prior month but only a 0.2 percent increase from March 2018. The flattening in home prices was anticipated as price growth has been softening since it reached its recent peak in mid- 2018. With the statewide median price growing less than two percent each month in four of the last five months, home prices in California could hit a plateau before the end of the spring home buying season.
The current housing market condition is good news for home buyers. Prices leveling off, coupled with interest rates hitting the level last seen since early 2018 improves housing affordability and provides an opportunity for people who want to buy. The monthly mortgage payment of a median-priced home in California fell 1.8 percent from last year's level and was the first year-over-year drop in 32 months. Homebuyers took notes and some have already seized the opportunity, as pending home sales rose for the first time since January 2018.
Homeowners who are eager to sell should also feel enthusiastic about the lower-rate environment, especially if their houses have been sitting on the market for a longer-than-expected time period, and they had to make any price concessions. As costs of housing remain relatively low, the increase in home buying power will lead to greater market potential for sales. With interest rates expected to remain below last year's levels in the next few months, housing demand should improve in the short term as buyers who had given up on homeownership are motivated to re-enter the market.