California home sales volume continued at a slow pace in November 2023, still down significantly from 2022. This latest decrease follows a weak seasonal bump which struggled to build momentum during the (usually) busy spring buying season.

Just 18,800 new and resale home transactions closed escrow in California during November 2023, down 14% from the prior month and down 7% from a year earlier, when sales volume downturn was taking root.

Continuing the declining trend, year-to-date (YTD) sales volume (and broker fees) are a fee-killing 23% below 2022 as of November 2023. Also, agent fees based on a percentage of the sales price were hit with flat-to-declining sales prices.

Critically, the classic year-over-year comparisons are short-sighted due to the uncharacteristically steep annual sales volume rise that occurred early in 2021 — a distortion fed by:

  • homebuyers taking advantage of historically low interest rates,
  • homebuyer fear of missing out (FOMO)due to very low inventory, and
  • the financial boost from stimulus cash given to most individuals and businesses.

Instead, compare today’s sales volume to the last pre-pandemic year: 2019.

Compared to 2019 — the last “normal” year for real estate sales and rents before the Pandemic Economy took control — home sales volume in 2022 was 12% lower. As of November 2023, sales volume year-to-date (YTD) is a more severe 28% below 2019 — and falling.

The Pandemic bridge; an on-ramp to the advancing recession

Since 2019, home sales volume has been on a roller coaster of distorted ups and downs.

Behind the volatility was the shutdown of commerce with the onset of the 2020 pandemic followed by government action to buoy the housing market with record-low interest rates, an eviction and foreclosure moratorium and extra cash deposited directly into the pockets of renters and homebuyers.

All this federal and state action artificially drove up enthusiasm — prices — not just for real estate, but for assets of all types. Everyone was suddenly wealthier, for the moment. Tenants and buyers gave it up; landlords and sellers took it in.

As a result, consumer inflation — rent — and asset inflation — property prices — skyrocketed and personal savings plummeted to a decade’s low, leaving households unprepared for the coming financial discomfort.

We are now reaping the consequences. The government’s stimulus measures came to an end in 2022. Even then, the economy was on the return path towards recession, which in 2023 worked its worst magic on California’s housing market, and likely to linger well into early 2026. Fallout from negative equity will continue for a few years into a recovery.

Related chart:

Negative equity and foreclosure


Home sales in 2024 and beyond

Home sales will continue to fall back in 2024 due to:

  • today’s high mortgage interest rates, which have slashed buyer purchasing power (BPPI) by reducing the capital buyers can borrow to fund the maximum purchase price they are able to pay for property, down 10% from a year earlier and, more instructive, down 29% from 2019 as of December 2023;
  • lower homeowner and tenant turnover as buyers face the dual dilemma of mortgage rates which limit the amounts borrowed as purchase-assist capital, and sellers’ sticky asking prices as yet-to-adjust to buyer capacity to fund, while inventory increases to melt away any buyer FOMO; and
  • the broader economic recession, now anticipated to bring job losses by mid-2024 in spite of current stimulus for energy efficiency and infrastructure replacement.

The result: home sales volume and prices won’t begin a recovery from the California downturn until the years following 2025, most likely 2026. By then, our economy will be heading into its next sustainable expansion.

In the meantime, home sales volume will continue its decline in 2024, not expected to bottom out until 2025-2026.

Related article:

Press Release: Negative Buyer Purchasing Power Index (BPPI) casts a shadow over home prices

Without the support of a steady rush of home sales since early 2022, home prices have plummeted, causing recently mortgaged homebuyers — including those who purchases with minimal down payments from 2019 through 2023 — to slip underwater at increasing frequency.

Unable to complete a traditional sale, more of these homes will head toward foreclosure. Initially, many will become real estate owned (REO) properties held by servicing agents of the remote mortgage holders for lack of their experience managing defaults in a market of declining prices.

The REO issue will resolve itself by the appearance of short sales dependent on the negative equity homeowner locating a buyer, not the REO servicer. Thus, they will be sold in non-conventional sales platforms, and likely to pile up in excess inventory due primarily to job loss causing otherwise ready homebuyers to become very cautious.

Expect a return of real estate speculators in 2025-2026 to provide a “dead cat” bounce to bring an end to the ongoing sales slump.  A sustainable recovery will take off with the return of end user homebuyers around 2026-2027. That will produce a flipper’s paradise unless we have a long-encouraged, now state enforced coastal surge in residential construction of all types.

Read more RPI analysis, see California home sales volume charts.