Seasonal home sales slowdown particularly harsh in 2016
Both the data and the anecdotes demonstrate a noticeable and significant slowdown in home sales. Is it merely seasonal?
I am moving out of my current rental and back to Orange County (more on that later). I agreed to allow my landlord to market the property for sale over the last month while I still lived there. I was worried about aggressive buyers peeking in my windows, but that isn’t what happened. So far, very few people came to tour the property.
I spoke with the agent (my landlord’s sister) about what was going on, and she provided a remarkably candid assessment. She said it was like buyer interest fell off a cliff in August. She said there are three model matches available in the neighborhood, and none of them are getting any traction. She also noted there was an overall abundance of inventory in the community.
A certain amount of slowdown is expected in August as those families trying to get in before the beginning of the school year already made their purchases. But over the last few years with low mortgage rates and an improving economy, sales didn’t drop off much during the off season. This year appears to be different — at least so far.
CALIFORNIA, AUGUST 18, 2016 – California single-family home and condominium sales were 37,823 in July, falling 10.4 percent for the month and down 12.8 percent from July 2015. Taking a longer-term view, year-to-date sales (January through July 2016) totaled 244,035 properties, down 2.0 percent from the same time period in 2015.
“At first glance, it looked like July sales fell off a cliff,” said Madeline Schnapp Director of Economic Research for PropertyRadar. “Looking closer at the data, we noted that July 2016 had two fewer business days than July 2015. That calendar quirk was enough depress July sales. When the missing days were taken into account, the sales decline was approximately 3.0 percent for the month and 5.0 percent for the year, in line with expectations.”
Whose expectations where those exactly? I fail to recall anyone predicting a 5% decline in year-over-year sales. With an improving economy and near record low mortgage rates, the predictions and expectations were for another banner year.
“With or without July’s calendar distortions, sales were tepid this past month,” said Schnapp. “June sales will likely represent the peak of the 2016 season and are expected to retreat from here on out.”
The number of homeowners in a negative equity position fell to 472,000, or 5.4 percent of all California homeowners. Since July 2014, the number of negative equity homeowners has fallen more than 50 percent. Currently, one in 18 homeowners are underwater, down from one in eight 24 months ago.
With fewer homeowners underwater, MLS inventory should increase. The lack of move-up equity will still keep the inventory down, but not as badly as the last few years.
The July 2016 median price of a California home was $438,000, down 0.7 percent, from a revised $441,000 in June. On a year-ago basis, median home prices were up 5.0 percent from $417,000. …
“The good news for California home buyers is that median prices fell in more than half of California’s largest counties,” said Schnapp. “Despite July’s pullback, we forecast prices are more likely to trend sideways rather than materially decline.”
With very low mortgage rates and little financial distress, a noticeable decline in home prices seems unlikely.
Home Sales – Single-family residence and condominium sales by month from 2007 to current divided into distressed and non-distressed sales. Distressed sales are the sum of short sales, where the home is sold for less than the amount owed, and REO sales, where banks resell homes that they took ownership of after foreclosure. All other sales are considered non-distressed.
This was not expected.
Foreclosure Notices and Sales – Properties that have received foreclosure notices — Notice of Default (green) or Notice of Trustee Sale (blue) — or have been sold at a foreclosure auction (red) by month.
Both notices and inventories dropped significantly in 2012 as lenders aggressively can-kicked bad loans rather than foreclose on delinquent borrowers starting in 2011.
Foreclosure Inventory – Preforeclosure inventory estimates the number of properties that have had a Notice of Default filed against them but have not been Scheduled for Sale, by month. Scheduled for Sale inventory represents properties that have had a Notice of Trustee Sale filed but have not yet been sold or had the sale cancelled, by month. Bank-Owned (REO) inventory means properties sold Back to the Bank at the trustee sale and the bank has not resold to another party, by month.
I see no reason to believe the unexpected drop in sales is anything more than a seasonal phenomenon; however, the economy is improving, and mortgage rates are near record lows. Given those circumstances, for sales to be lower this year than last, something is holding back the market.
What’s the most likely culprit? High prices.
Without affordability products and lower mortgage standards to qualify more marginal buyers, rising prices are hurting sales. If mortgage rates were to rise, sales would decline further. Let’s hope that doesn’t happen.