California Reopens – What Does It Mean for Housing?

Jamie Duran, President of Coldwell Banker Realty throughout Southern California made the following observations about the June housing market as California has officially begun its long-awaited reopening.  Duran said, “as the market continues to pull away from the pandemic it appears as if demand has levelled off at a point that still marginally exceeds new supply continuing to put upward pressure on prices. Additionally, price increases have slowed but not yet reached the tipping point where buyers become resistant and sellers flood the market”.

The facts are simply as follows:

  • The number of homes available to purchase is finally starting to rise.
  • Demand, the number of new escrows over the prior month, is on the decline after reaching its peak in early spring. 
  • Closed Sales are at their highest levels since 2005 on a rolling twelve-month average.
  • Fewer homeowners are opting to list their homes for sale. 
  • Pressure is building for mortgage rates to rise which will impact affordability and demand.

Data from the Southern California MLS revealed key economic indicators in June of 2021.

ALL HOMES

  • Active inventory began the month with 34,255 available homes for sale in Southern California and ended with standing inventory of 36,217, a modest increase of 5%. This was the first month to month increase since January of 2020.
  • An additional 27,398 homes were listed in June, down from the 30,748 new listings in May. 
  • Closed sales in June totaled 25,245 which was consistent with the 25,031 number of closings in May. 
  • Pended sales or new escrows declined 24% from the prior month from 25,370 in May to 19,164 in June.  This marked the third consecutive month new contracts have declined after peaking in March at 27,275.
  • These economic factors resulted in Average Days on Market declining from 19 to 18 days.
  • Average sales prices marginally dropped 2.4% from May to June, $1,042,877 to $1,017,860. This is the first month in 2021 that average sales price has declined.
  • Closed sales volume in June also declined to $51.3 million from $51.6 million in May for the second straight month after peaking at $54.8 million in April. 

HOME OVER $10,000,000

  • There were 116 closings in excess of $10 million and the average rolling 12-month number of these closings rose to 992. 
  • This was the 13th month in a row that the rolling 12-month number increased after bottoming out in May of 2020 at 223 sales.
  • New escrows on homes above $10 million dropped for the second consecutive month to 57 off a high of 92 in April. 
  • This ended a twelve-month run that the rolling 12-month number increased after bottoming out in May of 2020 at 417 sales.

In summary, Duran agrees with CAR economist positions that rising interest rates and red-hot market competition appear to be beginning to take a toll on the housing market.  While new and existing home sales continue to outperform last year’s levels, a gradual slowdown in housing demand is reflected in the month-to-month sales declines in Southern California.  As tight supply remains an issue and home prices have surged significantly, many would-be buyers continue to face affordability challenges that are beginning to be difficult to overcome.  With the reopening of the state, the economic outlook will no doubt improve further in the second half of the year.  On the other hand, the housing market could potentially slowdown off its torrid pace in the coming months as buyer fatigue kicks in and costs of borrowing remain on the rise.