California Home Sales Volume continued to decline in June 2022, down from the previous month and the previous year. This is the third consecutive month of declining sales, atypical for the spring sales cycle.
Sales volume typically moves from an annual low in January to a mid-year high. Therefore, another month of declining sales volume is a wake-up call for sellers – and future prices.
39,900 new and resale home transactions closed in escrow California in June 2022. The number of homes sold in June was 2% lower than the previous month and 24% lower than the previous year, or 13,000 fewer sales.
Year-to-date (YTD) Home sales volume can be a good predictor of annual sales volume. In June 2022, the year-to-date sales volume is 13% lower than the previous year.
For reference, the rapid pace of sales recorded in California since 2020 began to decline in the second half of 2021, to continue in 2022.
Due to the unusually large increase in annual sales volume that occurred in early 2021 – fueled by buyers’ fear of running out (FOMO) on low inventory and buyers taking advantage of historically low interest rates and Stimulus measures – typical year-over-year comparisons are not as useful today. Instead, consider comparing today’s sales volume to the last “normal” year we had: 2019.
Here we see the trajectory of home sales volume in 2019 (the black line) alongside the sales volume so far in 2022 (the orange line). The dotted lines show the abnormal years of 2020-2021, which have been distorted by Pandemic economy.
While sales volume started 2022 at a faster pace than 2019, after peaking in March, it quickly declined to fall below 2019 levels. So after two years of erratic home sales volume , expect 2022 sales volume to end the year slightly below 2019, tempered by rising interest rates, a still-recovering job market and more sober homebuyers .
Pandemic-era government efforts to close the gap are waning
On an annual basis, 2021 ends with 536,600 annual home sales in California. This is 97,400 more home sales than in 2020, an annual increase of 22%.
However, this increased performance follows several years of flat declining sales volume (the bumpy tray recovery after the foreclosure crisis and the financial crash of 2009).
Editor’s note – Despite recent gains, the strong year 2021 for home sales volume was still 29% lower than the record year for sales volume in 2005.
Why have home sales volume and home price increases in 2021 been so strong compared to recent years?
The federal government has introduced a number of measures to create a bridge for consumers, to get them from the time of the 2020 recession until the end of the pandemic response. The result has been a buoyant housing market, with low interest rates and extra liquidity providing a launch pad for renters, buyers and investors to make the real estate leap.
Government measures included:
- keeping artificially low interest rates in 2020-2021, held back by the Fed’s purchase of mortgage-backed bonds (MBBs) and a zero rate on its benchmark interest rate;
- a moratorium on evictions and foreclosuresthat allowed renters and landlords unable to make housing payments to stay in their homes (and kept those homes off the market, keeping inventory under control);
- individual stimulus checkswhich fueled consumer spending not just for those who lost their jobs during the 2020 recession, but for consumers of all incomes;
- a continuous pause on student loan repayments, which also boosted consumer spending, supporting the economy; and
- establish and extend the Paycheck Protection Program (PPP) and an economic disaster loan grant program to help small businesses stay afloat at the start of the pandemic.
All of this federal action has helped drive up enthusiasm (and prices) not just for real estate, but for assets of all types.
However, while the government has created a bridge to carry consumers through the pandemic-era recession, the bridge has also delayed the inevitable. As government stimulus was winding down, the economy was on its way back to recession.
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California home sales in 2022 and beyond
Home sales will continue to decline in 2022, due to:
- rapidly rising mortgage interest rateswhich caused buyers’ purchasing power to decline by 26% year-on-year in June 2022;
- The expiry in 2021 of the moratorium on foreclosureswhich has resulted in a backlog of forced sales in the market, creating a further drag on house prices and discouraging buyers;
- lower owner turnover as the FOMO buyer turns to restraint in the face of rising rates and rising inventories; and
- the ongoing recovery of job losses of 2020, of which more than 232,000 are still absent from the labor market in May 2022.
As the Fed continues its measures to calm inflation, the second act of the 2020 recession has technically (albeit officially) arrived after two consecutive quarters of decline Gross Domestic Product (GDP) in 2022.
The housing market will see a decline in sales volume in 2022-2024, with prices bottoming around 2025. Watch for a return of property speculators to provide a boost during the coming crisis, with a sustainable recovery taking off with the return of end buyers around 2026-2027.
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To Read more on home sales trends and the first tuesday analysis, see graphs of California home sales volume.