California house payment hits record $4,332 a month
That's why California homes were bought at only a 277,490 annual pace in June – the 20th slowest month since 1990.
“Numerology” tries to find reality within various measurements of economic and real estate trends.
Buzz: California’s homebuying is comparatively frozen as sales run near record lows because a typical buyer’s house payment hit $4,332, a record high.
Source: My trusty spreadsheet reviewed the June homebuying report for existing single-family houses, crafted by the California Association of Realtors, and included 33 years of history for perspective.
Fuzzy math: How can prices be rising when few are buying? Or is it, who can afford to buy with mortgage rates and prices so high?
Topline
How cold? June marked the 20th-slowest homebuying pace since 1990s, or among the bottom 5%.
Yes, the 277,490 annual sales volume is up 15% in six months amid a modest springtime house-hunting revival. But purchasing is down 20% over 12 months and is off 34% since February 2020, the last month before the pandemic era began.
Historically speaking, sales are down 32% vs. the 33-year average of 409,000 a year. Homebuying has only been more sluggish in a few months in the early 1990s, amid the market crash of 2007-08, and earlier in the pandemic era.
Details
Let’s make it simple: California homes are simply too expensive.
Sleepy sales come with a median home price of $838,260 in June – the sixth-highest in Realtor records. This cost benchmark is up 8% in six months during a recent surge. However, it’s down 2% over 12 months due to late 2022’s market tumble.
Still, this California price yardstick is up 45% in the pandemic era.
The sticking point is mortgage rates, pushed up sharply from 2021’s record lows by a Federal Reserve seeking to cool an overheated economy’s cost-pf-living headaches.
Rates for 30-year loans averaged 6.71% in June, according to Freddie Mac. That’s up 0.35 percentage points in six months, up 1.2 points in a year, and 3.2 points higher than February 2020.
Dare I mention that mortgages have averaged 5.96% since 1990? Or that they bottomed at 2.7% at the end of 2020?
So consider what rising rates have done to a house hunter’s buying power.
For every $1,000 borrowed, homebuyers in June got $154,813 – a loan that’s 4% smaller in six months, down 12% during the year, and 31% less than February 2020. It’s also 10% below the 33-year average buying power.
Buyers in this crazy market must have deep pockets. Ponder how rising rates and home prices pumped up house payments.
A median-price homebuyer with 20% down in June is staring at a $4,332 monthly payment, the highest since at least 1990.
This cost is up 11% during the past year. Worse, house payments are up 109% in the pandemic era. Yes, they’ve more than doubled.
So a Californian needed an annual income of $188,400 to buy in the first quarter – up 19% in a year, says the Realtors’ affordability index.
Caveat
Some real estate gurus will point to the skimpy numbers of houses for sale and say, “You can’t sell what you don’t have” or the like.
Yes, statewide inventory equaled just 2.2 months of sales in June, according to Realtors. It’s been lower only 9% of the time since 1990. Supply is down 8% over the year, off 39% in the pandemic era, and 62% below the 33-year average of 5.7 months.
Why so low? Typically, a big chunk of sellers are owners who’d be buying another residence. This “move-up market” is dead.
Why? Few owners can afford to buy at today’s inflated prices and rates. Or they’re unwilling to give up their low mortgage rate. The median rate on an existing home loan is 3.5% nationwide.
To me, owners staying put isn’t much of a problem – minus the loss of transactions. It cuts both supply and demand.
Bottom line
Do not ignore jobs, a lightly discussed factor helping to keep California homebuying afloat, even at this lethargic pace.
The state job market is robust and those paychecks can create house hunters. Unemployment in June was 4.6%. It’s been lower only 11% of the time in the past 33 years.
Now, hiring is cooling slightly this summer – across the state and nation – a trend consistent with the Fed’s inflation-fighting plan.
California’s unemployment is up 0.7 percentage points in a year, seeding some economic uncertainties that don’t help house hunting. But do not forget how good it remains for workers: Unemployment has averaged 7.1% since 1990 – 2.5 points above today’s jobless rate.
Please recall the three keys of real estate: Jobs. Jobs. And jobs.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com