California Real Estate Market Remains in Flux
The California market has leveled out but still remains strong.
In the Sacramento region, home sales may still be on the rise – The real estate website Redfin sees searches that homebuyers make that are looking for homes show Sacramento is the nation’s major metro area with the highest net inflow of searches with more users looking to move here from out of town than are trying to move to other parts of the state.
Redfin observed that out of about 1 million total searches, there were 5,879 more users looking to migrate to California’s capital than those users seeking homes elsewhere in the fourth quarter of 2018. That’s an increase of 1,300 users from the previous year, a 28 percent increase.
Additionally, 42 percent of Redfin searches for homes in Sacramento came from outside the region – nearly double the 2017 figure (22 percent). Redfin says Sacramento has ranked No. 1 or No. 2 in every edition of the quarterly report, which started in 2017.
Where are they coming from? It’s not a trick question. The most common source of Sacramento’s out-of-area home searches are from San Francisco, the study says, and the most popular source of potential movers to Sacramento from outside the Golden State is Seattle.
Those inflow numbers are dwarfed by the outflow in the San Francisco Bay Area. As one might expect, Sacramento is their most popular search destination.
The biggest thing is the affordability of homes here, especially compared to markets like the Bay Area because the market there has softened but not as much yet in Sacramento, so buyers are moving here to capitalize on their equity and put a substantial down payment or even pay cash.
The report looked at 87 popular metro areas from October through December. In general, 25 percent of hopeful homebuyers across the board were looking outside of their current metro area, up 2 percent from the same time in 2017.
This influx to the Sacramento region aligns with some other recently released data. Moving truck rental company U-Haul said earlier this month that Sacramento-Roseville metro area topped its customers’ list of top one-way destinations.
In Southern California, the housing market's chill grew colder in December, as sales plunged and home prices barely rose. The number of closed deals fell 20.3 percent compared with a year earlier, hitting the lowest level for a December since the start of the Great Recession and marking the sharpest percentage drop since 2010, according to a report out Wednesday from CoreLogic.
The Los Angeles six-county region's median price, meanwhile, inched up 1.1 percent from a year earlier, to $515,000. The 12-month price increase is the smallest since prices started their steady upward climb in April 2012, after declining slightly a month earlier. And December's median price is now $22,000 below June's all-time high of $537,000.
Although the median – the point at which half the homes sold for more and half for less – can fluctuate month to month, Wednesday's report is the latest indication of a substantial market shift as buyers balk at the high cost of housing and the affordability issue is finally taking its toll.
The S&P CoreLogic Case-Shiller index, for example, provides a delayed look at home prices but is widely considered to be the gold standard of measurements. On January 29th, data for November were released, showing prices in Los Angeles and Orange counties rose 4.4 percent in November – also the lowest rise since 2012.
The slowdown has multiple causes, agents and economists say. Some potential buyers can simply no longer afford a home after years of steady price increases. Others can still swing a mortgage at today's prices but worry about buying at the top. As sales decline, inventory is swelling, further limiting the ability of sellers to command top dollar.
For California as a whole, despite the cooling market, economists generally don't expect a housing market crash coupled with plunging prices, pointing to strong job growth and a rate of home building that's below historical levels. Some experts, however, do think values could dip under current economic conditions, arguing home prices have simply outpaced incomes for too long. The Realtors group predicts prices across the state will be essentially flat this year, falling 0.2 percent from 2018.
The market is going to settle out and you are seeing a just a pause and this can be seen throughout the state. Still, there was enough demand to send prices a bit higher in all counties.
Many first-time buyers would be thrilled to see declines, not just slowing price appreciation. But it's unclear if that will happen. A clearer picture should emerge in the traditional spring buying season. And some agents say demand is already seeing a bit of a boost after a recent pullback in mortgage rates.
December's report, with its large sales decline and meager price appreciation, reflects sales that closed escrow in December. That means many buyers signed contracts in October and November, when rates for a 30-year fixed mortgage were at recent highs. Since the peak, rates for a 30-year fixed mortgage have fallen by 0.49 percentage point to an average 4.45 percent last week, according to Freddie Mac.
The Federal Reserve's announcement Wednesday that it would be "patient" in enacting additional rate increases may help prevent mortgage rates from drifting higher. But at the same time, there are concerns over global growth and the cost of housing is already too high for many.
Where do we go from here? The spring selling season will be a very important indication. Buyers are still willing to pull the trigger if a home isn't significantly overpriced. Buyers are going to be careful because they are tired of paying for more than a house is worth.