Bursting bubbles
2022 has been a lesson in gravity for California’s real estate agents, as they learn the hard way that what goes up…
Home sales volume peaked unseasonably early this year, in March 2022. The unsustainable sales volume trend which saw 2021 sales rise to a peak was tipped over the edge by 2022’s historic jump in mortgage interest rates, fed by recession fears and the collective realization that the housing market was only at the beginning of a long, downward spiral.
Nov 2022 | Nov 2021 | YoY change | |
| California home sales volume | 19,800 | 35,300 | -44% |
Here in California, home sales volume during the single month of December 2022 was down 44% from a year earlier, and down:
- 44% from a year earlier in Los Angeles;
- 41% from a year earlier in Orange County;
- 46% from a year earlier in Riverside;
- 44% from a year earlier in San Diego;
- 45% from a year earlier in San Jose; and
- 40% from a year earlier in San Francisco, according to Redfin.
Nationally, sales volume was down a smaller — but still significant — 33%.
While year-end sales reports are not yet in for the state as a whole, 2022 year-to-date (YTD) California home sales volume is down 22% from the prior year as of November 2022 — and down 8% from 2019, the last “normal” year for the housing market.
No plans to sell
Watch for home sales volume to remain down in the next two-to-three years. Without the support of a steady rush of home sales, home prices have already begun to plummet from their May 2022 peak, ranging from 7% below the peak in the low tier to 10% below the peak in the mid and high tiers as of October 2022.
As home prices continue to fall, many of California’s mortgaged homeowners are slipping into negative equity. In fact, 5% of mortgages originated in 2022 are underwater as of September 2022, and an additional 19% of those mortgaged homes have less than 10% equity.
Sellers in 2023 will need at least 10% equity to cover the 5%-6% broker fees plus any repairs, improvements and concessions demanded in a buyer’s market. Thus, turnover by this chunk of owners will be restricted.
Burdened by a negative equity status, these homeowners cannot sell and relocate to purchase another home because their homes are worth less than the debt encumbering them. To rid themselves of the home — and the debt — they will need to endure damaged credit resulting from a short sale or foreclosure. The desire to avoid this embarrassment takes most of these homeowners out of the home buying market for years.
Related article:
Press Release: Buyer Purchasing Power Index ends 2022 31% below a year earlier
What’s a real estate agent to do for income in the lean years ahead?
If you haven’t already, begin implementing recession-proof strategies to boost your real estate income, which is undoubtedly suffering without the consistent presence of traditional sales. This includes taking advantage of the contacts you already have in real estate by finding side gigs within the industry, such as becoming a:
- notary public;
- mortgage loan originator (MLO);
- property manager;
- real estate syndicator;
- real estate exchanger; and
- foreclosure/short sale expert.
Agents with traditional buyer and seller clients: prepare to assist in the types of sales more common during a recession, including buying and listing:
- homes at trustee’s sale — foreclosures;
- short sales; and
- real estate owned (REO) properties.
The last big recession for California real estate saw the departure of 94,000 active real estate agents and brokers who were either unwilling or unable to endure during the long recovery from the 2008 recession. But creative and hard-working agents will find there’s still time to avoid becoming a statistic during this recession.
Read more tips on surviving the housing market downturn by signing up for firsttuesday’s free weekly newsletter, Quilix.
Related article:
The recession is imminent — for real estate, more of 2022; Monthly Statistical Update (January 2023)
