16,900 new and resale home transactions closed escrow in California during February 2023. Home sales volume was up slightly from January — which is not saying much since this month saw the lowest monthly sales volume since the Great Recession. Sales volume year-to-date (YTD) is a fee-crushing 36% below a year ago.
Annual home sales in 2022 experienced a 24% decrease from 2021. More critically, sales volume in 2022 was 12% below 2019 — the last year to experience a typical seasonal sales cycle.
During 2021, historically low interest rates and buyer fear of missing out (FOMO) escalated housing market sales activity, cannibalizing future sales while inflating prices. With the pandemic fuel depleted, sales volume collapsed in early 2022. Sales volume will experience a slight upturn as the spring 2023 buying season emerges and causes sales to rise on a monthly basis, peaking mid-year.
However, 2023 will be a year of overall weakening for California home sales volume as today’s supply of homebuyers was exhausted during the pandemic buying spree. Other buyers know the math and will only buy when prices stop dropping.
Watch for home sales volume to continue trailing in 2023. 2024 sales volume will depend on how steeply prices drop in 2023. Without the support of a steady rush of home sales, home prices are plummeting from their May 2022 peak, causing recent mortgaged homebuyers to slip underwater. Expect a return of real estate speculators in 2024 to provide a “dead cat” bounce during the ongoing sales slump, with a sustainable recovery taking off with the return of end user homebuyers around 2026-2027.
Updated March 23, 2023. Original copy posted March 2009.
Chart 1
Chart update 03/23/23
Feb 2023 | Feb 2022 | YoY change | |
| California home sales volume | 16,900 | 25,000 | -32% |
Home sales vary from month-to-month for a variety of reasons, most significant being homebuyer demand. This demand is influenced by several factors constantly at work in California’s homebuying market, including:
- seasonal differences [see Chart 2];
- changes in home prices;
- mortgage interest rates;
- consumer confidence;
- the presence of investors and real estate speculators in the market;
- negative equity status;
- the quantity and quality of jobs held by homebuyers; and
- homebuyer saving rates.
Seasonal differences in annual sales volume
It’s normal for home sales volume to rise in the first half of the year and fall after June, generally speaking.
Chart 2
Chart update 02/02/19
Chart 2 shows average home sales as experienced from 2011-2018. As depicted, the most homes are regularly sold each year in June. Another small increase takes place in December, as homebuyers seek to wrap up their financial activities before the end of the year.
Therefore, real estate professionals are not to worry when they hear of falling sales volume in the latter half of the year. This is a normal seasonal progression. What to watch for is year-over sales comparing a month or other period (such as year-to-date) this year with the same month or period last year.
The ongoing recovery for home sales volume
Annual real estate sales numbers since the Great Recession of 2008 have been characterized by a continuing bumpy plateau in home sales volume, now experienced for over a decade. As a rule, current market action, whether up or down, is reflected first in sales volume, followed by prices, and both fluctuate from month to month mostly going in opposite directions or just standing still.
2021 was the first year to see a significant increase in annual sales volume, rising 22% over the prior year. However, 2021’s sale numbers still pale in comparison to the peak year for sales volume experienced in 2005, 29% below this peak year.
Chart 3
Chart update 01/30/23
| 2022 | 2021 | Annual change | |
| Annual home sales volume | 330,900 | 435,200 | -24% |
To set the stage for a forward look, a review of sales volume in the recent past is helpful:
- Mid-2005 saw sales volume peak for all types of real estate in California, with nearly 754,000 homes sold that year;
- Nearly 30% fewer sales were recorded in 2006 than in 2005, while sales dropped an additional 30% in 2007;
- sales bottomed in 2008 and were artificially inflated in 2009 due to subsidy-induced purchases and speculators jumping on the momentum, but remained 40% below 2005;
- 2010 saw a decline from the year earlier in both sales volume and prices;
- 2011 increased slightly in sales volume while decreasing in sales prices, a normal price adjustment condition;
- 2012 saw sales volume increase marginally and home prices jump significantly by year’s end, supported primarily by massive speculation;
- 2013 home sales volume stagnated, while home prices continued to increase rapidly, not a good sign for the immediate future; and
- 2014 saw home sales volume decrease throughout the year, ending the year 7% below 2013.
- 2015 ended 9% higher than 2014 — in other words, just about level with 2013. [See Chart 4]
- 2016 and 2017 sales volume continued a flat trend in sales which began in 2015;
- 2018 saw sales volume decrease rapidly in the fourth quarter, ending the year 4% below 2017;
- 2019 home sales volume decreased slightly from the prior year; and
- 2020 home sales were extremely volatile, dropping as much as 30% mid-year, but bouncing back sufficiently enough by Q3 and Q4 to make up for the loss, ending 2020 roughly level with 2019.
- 2021 home sales volume rose 22% over the prior year, spurred on by low interest rates and buyer fear-of-missing-out (FOMO) following a year of pandemic-slowed sales.
- 2022 home sales lost all ground gained in 2021, ending the year 24% below 2021 and 12% below 2019, the last “normal” year for home sales before the pandemic upended traditional market dynamics.
Chart 4
Chart update 03/23/23
| Feb 2023 | Feb 2022 | Feb 2021 | |
| Home sales volume year-to-date | 31,700 | 49,600 | 54,100 |
Video update: February 2023
Year-to-date (YTD) home sales volume continues to fall back in recent months, following a 22% annual jump in 2021. As of February 2023, YTD home sales volume is 36% below a year earlier. Compared to 2019 (the last “normal” year for housing before the Pandemic Economy took over), home sales volume YTD is 22% lower as of February 2023.
Home sales volume will fall back in 2023 due to:
- lower homeowner turnover due to rising mortgage interest rates;
- reduced home inventory across the state; and
- the 2023 recession, which is as yet undeclared, but is already being felt across the housing market.
Home prices have leveled off in mid-2022 and will soon fall, dragged down by significant cuts to buyer purchasing power.
When home prices fall, some California mortgaged homeowners will fall underwater. Thus, turnover by this chunk of owners will be restricted. 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 have to endure damaged credit resulting from a short sale or foreclosure. The desire to avoid this embarrassment takes most of these 3.2% homeowners out of the home buying market for years.
Home sales in the coming years
The forward trend in California home sales is mixed for both buyers and seller. Homebuyer income is going further and doing more than anytime during the past 15 years due to increased borrowing capacity brought on by low interest rates, at historic lows in May 2020.
first tuesday forecasts home sales volume will languish in 2020-2021, the result of an unstable jobs market. The peak sales volume last seen in 2004, inflated by speculator acquisitions and excessive mortgage money, is unlikely to return for decades, when interest rates cyclically peak.
Relocating Baby Boomers going into retirement in the coming years will be the primary propelling force in both selling homes and buying replacements. Their Generation Y (Gen Y) children will add to the sales volume at the same time as they find jobs at better pay levels and become first-time homebuyers. Gen Y influence will peak in sales volume at the end of this decade as they complete their shift from renting to owning.
Once California’s job market rebounds from the current recession, their confidence about the future will improve. They will once again be willing to invest in the economy since the expectations for tomorrow are projections based on yesterday’s most recent experience. Only then will occupying homebuyers – end users – return in sufficient numbers for sales volume to swell significantly.
Employment and labor force participation finally exceeded their 2007 peak in 2019, but what took over a decade to recover was lost in a matter of weeks due to COVID-19-induced lay-offs. Expect home sales volume to decrease along with jobs through the rest of 2020 and 2021.
Trends to be concerned about
Many long-term unfavorable market conditions restrain the rise of home sales volume:
- the weakest homebuyer demographics in 15 years;
- failed savings for a down payment as high rents squeeze potential first-time homebuyers out of saving;
- buyer borrowing power no longer enlarging the funds they can borrow as interest rates inevitably rise, reducing funding for purchase-assist financing and dampening property prices;
- the public’s increasingly anti-business and pessimistic attitude about American economics, wealth inequality and national politics no matter the outcomes; and
- tightened loan standards as lenders are forced to apply forgotten fundamentals of sound mortgage lending practices (20% down payment on non-FHA/private mortgage insured loans, lower income ratios, risk-free credit scores and full documentation of income, funds and collateral value).
The competitive broker
What’s a broker to do until home sales volume takes off?
SFR brokers and agents might consider adding SFR-related services to supplement their income. Those who do add related services will restructure their practice as “all-service brokers.” Transaction-related services will be integrated into their office operations to maintain solvency and grow.
Related article:
These services include:
- escrowing their in-house transactions under the broker’s license;
- entering into or expanding property management services;
- negotiating equity purchases for investors from underwater owners on the chance of a short sale discount or who have a positive equity;
- specializing in sales and leasing of a particular type of commercial property, other branch office locations and alternative marketing approaches (aside from social media);
- providing mortgage loan broker services for business-investor loans made by private lenders and secured by the borrower’s residence (no mortgage loan origination (MLO) endorsement required);
- arranging carryback financing and the take over/assumption of existing mortgages, and buying and selling those carryback trust deed notes;
- negotiating options to buy, or lease with option to buy when inventories expand as the shadow inventory of speculators returns to be sold;
- exchanging properties with equity to help owners relocate their wealth held in real estate tax free; or
- using barter credits in lieu of greenbacks, etc.
Prudent brokers will insist their prospective buyers commit to exclusive representations by the broker and agent to locate a home (or other property). By signing an exclusive right-to-buy listing agreement, buyers commit to employ brokers and agents just as sellers commit to employ brokers and agents, the obverse side of the same employment coin. This will ensure time spent with a buyer produces a closing and a fee.
thanks
The wisest policy for growth has been shot down over and over. The idea is logical: require higher density building around transportation hubs. Incentivize more people to use public transport. Reduce wasteful commuting and expansion of the highway system. Blaming low inventory on regulations is a shallow, threadbare shibboleth. Developers want tax breaks, freedom to cut corners, and the right to ignore environmental impacts. They are not victims. Californians who move to Texas will not put up with the Medieval regime of the extreme right, the destruction of marsh lands, and the flooding that results when concrete covers every available space. They will not put up with the backward assault on women’s rights. California is still the nation’s innovation hub. California is moving forward, and rumors of its demise are just plain wrong.
There’s always speaks and valleys in housing and consumer cycles. sometimes people make more income and other times they don’t,some of it does have to do with wealthier people overpaying for homes on the coast.
I had some horrible experiences with Real Estate agents in the past, therefore would never sign an exclusive right to buy with an agent. So, if an agent insist I do that, I would just carry on to the next agent and first agent would lose a potential sale with me.
Treat me right, and I will treat you right.
Too many hungry agents out there for me to need you.
I learned the hard way.
That’s really how other Virginia Ganskie agents exploit us just to sell. but someone recommended my agent and he was also an advisor and I witnessed how sincere he was. not only so that he can sell but he also wants to satisfy his client and be happy.
Please update the article, it has stale information.
so im thinking to hold onto my fathers house til 2024? looks like market is spiraling slowly to me and if i sold now id take a loss…
Inventory is climbing, but very slowly because California makes it SO hard and SO expensive. The permit fees, the school fees and their processes are not reasonable. They make it so hard for contractors to turn a profit because they want it all. It’s very discouraging and demoralizing to many small and mid-sized residential builders. In some cases they want nearly twice the value of a given lot, just in permit fees. So a guy might look at a lot, and think… okay, that lot is probably worth $150k, building costs, escrow/title, etc…, and they might think they can turn a reasonable profit for their time and risk. But wait… then the government comes in and tells them they want upwards of $60,000 or more…. there goes all of the builder’s profit and there goes another house that CA needs. Instead of worrying about rent control, I cannot understand why CA doesn’t just make it easier and more affordable… they already get so much in property taxes. Why do they have to take so much from each house BEFORE it even gets built. Very exasperating….
You really have to wonder with all the aggressive lending 5-percent down up to $2.5 million, second mortgages making a come back at higher loan to values, and no tax returns loans down to 500 credit scores that when sales volume decreases it’s an ominous sign.
January 2008 was not in the midst of a great recession. The recession didn’t start until fall of 2009.
Everything is very open with a very clear
clarification of the issues. It was definitely
informative. Your site is extremely helpful. Thank you for sharing!
Great Article, it is great to know what the statistical data says but statistics are interpreted in multiple ways. Owning a home is an individual choice in response to individual circumstances and needs so sales continue regardless of what the market is doing. If people were willing to once pay rates upwards of 10% to own a home, they’ll continue to do so, especially now with rates still under the highest average rate of 6.19% according to another “statistic”, rents continue to rise, most new construction are apartments and live/work developments where everyone it’s crowded living, people want their own piece of America. Many people are also taking advantage of higher loan limits in high cost areas $679,650 and Down Payment Assistance Programs that cover the down payment and closing costs up to that amount, without having to be a first time buyer!!
Is there a difference between Northern and Southern California markets concerning vulnerability? I have been under the impression that if the economy dips, SoCal prices drop sooner and faster than NorCal prices because there is more supply down there. Isn’t that what happened in the early 90s? And is the desert more vulnerable than the rest of SoCal?
I ask because we are hoping that our home in the Sacramento-Tahoe region will hold its value and that the desert prices will drop first so we can retire to Palm Springs with an advantage. We would like this to happen in about 5-8 years from now.
This next crash is coming much sooner than 5-8 years…
When the Governor, himself, plans to ration water to 50 gallons a day per person, can you really expect people to pay premium prices to live in such a state? A man made drought dries up home sales and the California economy
There was a decline, starting in 2008, along the I-5 corridor of the Central Valley, as environmental issues effected home sales. The shut down of the Harvey O. Banks Pumping Plant, which delivered water for 400 miles of homes and farmland created housing market chaos as over 50 towns lost water for showers and toilets, businesses, hospitals, schools and prisons. Unemployment increased to 40%. (Search online , Dead Harvest, Devin Nunes for details) Valley Farm prices and land values predictably dropped, as water prices increased to $2000 per acre foot.
Dust bowl conditions and migration out of the valley continued as the Federal government, faced with litigation, turned the problem over to the State. Major cities found lower cost housing prices rising due to an influx of displaced agricultural workers and industries. As the state’s tax base eroded, necessary college tuition increases created more interest in low cost rental properties in campus cities.
Shortages of low cost rental property and homes, including trailer parks developed as an influx of new immigrants pushed moderate cost homes to continue raising in value in the major cities. Wild fires, made possible by laws controlling the clearing of underbrush, effected populations along the mountain ranges and in the northern portions of the state.
Displaced home owners were greeted with a housing shortage and increased prices. Drug cartels attempting to control marijuana farms also contributed to the fire danger. The northern portions of the state, were affected by mandated water control issues, while, at the same time, dams and reservoirs were removed to limit hydroelectric production and promote the state’s goal of windmills and solar panels sales. The mandated requirement for homes to buy into solar panels prior to resales, pushed prices up.
Laws requiring state wide rationing of drinking water in less than 2 years will have a predictable impact. The newly mandated water divisions, recently mapped by Sacramento, with ability to add unlimited taxes on properties, within these divisions, should impact home sales between L.A. and San Francisco along the coastal valley and Salinas River. The scheduled removal of the Diablo Power Plant which serves much of California is predicted to have a heavy impact especially in SLO County.
It’s crazy how much home values differ from east coast to west. We are on the Atlantic side of the US and have the same issues but our home prices are much less. Funny to see everyone has problems
Great resource. Thank you.
Statistics can be interpreted in many ways but it’s important to at least start with hard data and not just opinion.
Just another bubble, worse than the others – and I’ve witnessed quite a few.
When THIS one goes, it will be ugly.
~ Occams
Based on what? The real estate market is much stronger and more stable compared to 2006-2007.
Based on what you just said. I’m sure you asked and said the same thing back in 2006-2007, that you think the real estate market was much stronger and more stable compared to the previous recession.
The real estate market will be surprised when rates rise causing a drop in prices. Rates can’t stay this low forever. Even with a recession due t Biden’s more regulatory policies will bring back a Jimmy Carte economy.