California’s Year Over Year Drop in Home Sales Largest in Eight Years

Sales Decline Affected Coastal and Many Inland Areas, Spanning the Price Spectrum

By Andrew LePage Housing Affordability, Real Estate

California home sales downshifted harshly in December 2018, reflecting a seven-year high for mortgage rates the prior month, more stock market volatility and a continued hold-out by some would-be buyers who are hoping it will pay to wait. The 2 percent annual gain in the median sale price in December was the smallest in nearly seven years.

California Home Prices

An estimated[1] 30,697 new and existing houses and condos sold statewide in December 2018 (Figure 1), the lowest sales tally for a December in 11 years. December 2018 sales fell 8.4 percent from November 2018 and fell 20.2 percent from December 2017, CoreLogic public records data show. Sales typically rise between November and December and since 2000 the average change between those two months is an increase of 9.2 percent. Sales have fallen year over year in six out of the last seven months. Last December’s 20.2 percent year-over-year sales decline was the steepest for any month since October 2010, when sales fell 23.2 percent.

The drop in sales occurred at all price levels. December 2018 sales below $500,000 fell 22.3 percent year over year, while sales of $500,000 or more declined 18.8 percent and $1 million-plus deals fell 16.5 percent. Sales of $2 million or more fell 22.1 percent in December 2018 compared with a year earlier. Stock market volatility creates a headwind for high-end activity. Market corrections can spook high-end buyers and leave some with inadequate funds to cover down payment and closings costs.

California Homes

The median price paid for all new and existing houses and condos sold statewide in December 2018 was $475,000 (Figure 2), down 3.1 percent from November and up 2.0 percent from December 2017. The 2 percent annual gain in last December’s median was the lowest for any month since March 2012, when it rose 0.4 percent. In December 2017 the state’s median rose 8.4 percent year over year. The median’s annual growth rate has gradually ratcheted down since last spring as home sales have slowed and inventory has risen. The relatively small annual gain in the December 2018 median also reflects a change in market mix over the past year, where more expensive deals have accounted for a lower share of total activity.

In nominal terms California’s median sale price hit an all-time high of $500,000 in June 2018. Adjusted for inflation, however, the median has not returned to its pre-housing-bust peak in March 2007, and the December 2018 median was 17.2 percent below that peak.  

Annual Gain

The 2.0 percent annual gain in the December 2018 median sale price (Figure 3) understates the affordability challenge many would-be buyers face. Compared with December 2017, the monthly principal-and-interest mortgage payment on the state’s median-priced home in December 2018 was up 10.7 percent because of a nearly 0.7-percentage-point gain in mortgage rates over the prior year.

Other December 2018 highlights:

  • In the six-county Southern California region, 15,781 new and existing houses and condos sold in December, down 20.3 percent year over year. December’s median sale price was $515,000, up 1.1 percent year over year.
  • In the nine-county San Francisco Bay Area, 5,341 new and existing houses and condos sold in December 2018, down 21.6 percent year over year. December’s median sale price was $785,000, up 4.6 percent year over year.
  • Some of the state’s more affordable counties logged annual gains in total sales or relatively small annual declines in December 2018. Some examples: Shasta (+9.1 percent), Sutter (+8.9 percent), Yuba (+2.7 percent), Merced (-5.3 percent), and Fresno (-5.7 percent). However, there were also some relatively affordable counties that experienced annual sales declines more in line with the coastal regions, including the following counties: Stanislaus (-19.3 percent), San Bernardino (-21.4 percent), Yolo (-21.6 percent), and Sacramento (-22.5 percent).

[1] Because of late data availability, December 2018 sales were not complete in some counties.

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