The impact of lower mortgage rates and a flattening of home prices has helped to revive the Golden State housing market. Home sales this May rose nearly twice as much as they normally do from April and the decline from a year earlier was less than 4% for the first time since last August. May’s statewide median sale price rose slightly – 0.8% – from a year earlier but in the San Francisco Bay Area the median fell nearly 2% year over year and in Southern California it inched up just 0.2%.
An estimated 43,848 new and existing houses and condos sold statewide in May 2019 (Figure 1), up 12.6% from April 2019 and down 3.5% from May 2018, CoreLogic public records data show. Sales this May were the lowest for that month in three years, since 43,095 homes sold in May 2016.
Sales normally edge higher between April and May, and since 2000 the average change between those two months is a gain of 6.8%. Sales have fallen year over year for the last 10 consecutive months.
The recent pick-up in market activity stems largely from the uptick in inventory and the impact this year’s lower mortgage rates have on the monthly mortgage payments would-be buyers must qualify for. In May last year the principal-and-interest mortgage payment based on the state’s $495,000 median sale price was nearly 16% higher than a year earlier, driven up by sharp gains in both mortgage rates and home prices. This May, the monthly payment on the median-priced home ($499,000) was 5.3% lower than a year earlier thanks to minimal price growth and a roughly 0.5-percentage-point drop in mortgage rates.
May 2019 sales declined at all price levels but the decreases were largest in the lower ranges. Deals below $300,000 fell 12.8% year over year, while sales under $500,000 fell 5.3% and sales of $500,000 or more declined 2.7%. Sales of $1 million-plus fell 5.6% year over year and $2 million-plus deals fell 1.8%.
The median price paid for all new and existing houses and condos sold statewide in May 2019 was $499,000 (Figure 2), up 0.8% from both April and May 2018. An uptick in the median sale price between April and May is normal for the season and on average since 2000 the median has increased 1.7% between those two months. This May’s 0.8% annual gain was down from an annual increase of 7.6% in May last year (Figure 3), and it was the second-lowest increase, behind 0.4% this March, in more than seven years.
Last month’s $499,000 median neared the Golden State’s all-time high median of $500,000 – in nominal terms – reached in June 2018. Adjusted for inflation, however, the median has not returned to its pre-housing-bust peak in March 2007, and the May 2019 median was 14.7% below that peak.
Unlike the last housing cycle, when many buyers overcame the challenges of waning affordability by stretching to their financial max with very risky financing, the current cycle lost momentum last year as would-be buyers struggled with higher prices and interest rates, and a very tight inventory. That double whammy of rising prices and interest rates meant the mortgage payments buyers faced in 2018 had risen significantly more than prices alone and had far outpaced income growth. Some potential buyers simply got priced out in 2018 but there was also a psychological shift where some shoppers became discouraged by the cost of what little was on the market and concerned about buying near a price peak.
Other May 2019 highlights:
 Because of late data availability, May 2019 sales were not complete in some counties.
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