So far, the traditionally strong spring home buying season is off to a not-so-great start.
A pair of reports from DataQuick revealed that home sales in Northern and Southern California were at six-year lows in March, despite a strong seasonal uptick from February.
In SoCal, a total of 17,638 new and resale homes and condos sold in March, up 25.7% from February, but down 14.3% from the 20,581 sales recorded last March.
And that near-26% jump is actually bad news, seeing that the average gain from February to March since 1988 has been 36.3%.
Still, we’re a lot better off than we were six years ago, when March sales bottomed out at a total of just 12,808 in 2008. The high was a staggering 37,030 in March 2004, followed by a pretty epic housing slide.
But Southland sales have now fallen for six consecutive months on a year-over-year basis, and last month’s sales were the second lowest March in nearly two decades.
Similar numbers can be seen in the red-hot Bay Area, where March home sales were the lowest since 2008, and 27.2% below the average March since 1988.
Why So Few Home Sales This Spring?
DataQuick says the culprit is low inventory, fewer investor purchases, higher home prices and mortgage rates, and the reluctance of move-up buyers to abandon their ultra-low rates.
Let’s talk about home prices for a moment. In SoCal, the median price has risen on a year-over-year basis for 24 consecutive months.
It climbed to $400,000 last month, up 4.4% from February and 15.8% from a year earlier, and is at its highest point since February 2008.
However, the 15.8% year-over-year gain last month was the lowest increase for any month since September 2012, a sign things might be topping out for the moment.
In the Bay Area, the median sales price hit its highest point since December 2007.
It climbed to $579,000 last month, up 7.2% from $540,000 in February and 23.2% from a revised $470,000 a year earlier.
So it’s clear that home prices may have gotten a little overheated, and investor demand in down in both regions both month-to-month and year-over-year.
Investors are shying away simply because housing isn’t a bargain anymore. That doesn’t mean home prices have peaked, it just means you can’t make a killing anymore.
Low Mortgage Rates Are a Spring Surprise
One silver lining is unexpectedly lower mortgage rates. After climbing higher and higher since hitting an all-time low back in late 2012, rates have been getting a lot of help from geopolitical and economic uncertainty, despite QE3 tapering.
The crisis in the Ukraine has helped push mortgage rates lower, with any potential escalation enough to push investors out of stocks and into safer assets like bonds.
Additionally, there has been a so-called “Flight from Momentum” of late, with stock traders dumping big speculative winners in favor of blue chips and other safer securities.
There’s also the sense that investors are simply taking profits after a huge run. It makes you wonder if hedge funds will start taking some profits from their stable of single-family homes.
Home prices have surged as well, so it would make sense, especially seeing that these investors don’t actually want to deal with the everyday hassle of owning a home (and renting it out).
All of this has led to a huge stock selloff, which has benefited mortgage rates immensely. The going rate on a 30-year fixed mortgage has fallen from around 4.625% at the end of March to closer to 4.25% today.
If rates hold, or the carnage in the world/stock market continues, potential home buyers are in for a welcome surprise this spring.
And it could also motivate move-up buyers to give up their current mortgages for a new, larger mortgage with a not-so-much-higher rate.
Additionally, first-time home buyers could find solace in the fact that they can still snag a very low mortgage rate, even if they missed the housing bottom.