California Housing Market Cools

LOS ANGELES, CA — California's housing market is showing signs of slowdown as affordability limits demand. In July, the market backpedaled with slowing sales and price drops in swaths of the state. It was the third consecutive month of year over year declines as higher interest rates and rising home prices edge buyers out of the market, the California Association of Realtors said Thursday.

Statewide, the median home price decreased to $591,460 in July, down 1.9 percent from $602,760 in June and up 7.6 percent from a revised $549,470 in July 2017. At the same time, single family homes sales were down about .9 percent statewide from the revised 410,800 level in June and down 3.4 percent compared with home sales in July 2017 of 421,460, according to information collected by C.A.R. from more than 90 local Realtor associations and multiple leasing services statewide.

Rising interest rates and the reduction of home-ownership incentives that went into effect with the Republican tax overhaul have taken a toll on affordability according to the experts.

"In the midst of the peak home-buying season, high home prices and rising interest rates combined to crimp housing affordability, which in turn is subduing home sales," said C.A.R. President Steve White. "Some of the reluctance by buyers appears to be driven by fears that the market may be peaking. Additionally, the lack of a federal tax incentive for homeownership could be at play given that much of the weakness is in the lower-priced, first- time buyer segment of the market."

Home buying on the upper end of the spectrum — houses priced above $1 million — continues to see gains. It's the lower end of the market that appears to be softening. The Bay Area continues to see prices climb ever-higher with many markets experiencing double-digit growth in closed-sale prices, according to C.A.R. San Francisco, Santa Clara, and Alameda – all counties where more than half of the homes sold were over $1 million – each saw prices rise by more than 10 percent from last year. Home prices in Southern California continued to rise as well, despite posting lackluster sales.

"While home sales continued to decline in recent months, the softening of the market is more indicative of a market shift rather than a major market correction," said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. "Despite the slowdown, there were some silver linings in the market in July. For example, homes priced between $500,000 and $1 million posted modest gains of about 5 percent in July thanks to growing inventory. Additionally, every price segment above $1 million continued to enjoy double-digit sales gains."

On a non-seasonally adjusted basis, sales in the Bay Area fell 7.1 percent monthly and increased 2.0 percent annually. Sales in the Inland Empire declined 6.1 percent from June and were up a nominal 0.1 percent from a year ago. Sales in the Los Angeles metro region dropped 11.3 percent from June and were essentially flat from a year ago.

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City News Service contributed to this report. Photo: Shutterstock