Current home sales

In September 2024, 21,822 escrows closed in California for new and resale home transactions. September home sales volume was down 12% from the prior month, not a surprise due to the annual sales cycle. Significantly, September 2024 sales volume was unchanged from the same month a year earlier.

Further, year-to-date (YTD) sales volume for September 2024 did not change from a year ago. However, compared to 2019 — the last normal year before the economic tsunami of the 2020 pandemic — sales volume YTD is 27% lower. A real estate recession by most standards.

Recent home sales trends

Annual home sales in 2023 experienced a 22% decrease from 2022. More critically, sales volume in 2023 was 30% below 2019 — the last past year in a typical sales cycle. 

The Homebuyers available for 2023 were cannibalized by the preceding pandemic-driven buying spree. Further, today’s buyers know their math for income-to-mortgage leveraging. Also, they are less inclined to buy until sellers adjust prices downward to reflect their reduced borrowing capacity brought on by high mortgage rates which have been rising over the past decade.

Wages of buyers have only kept pace with recent inflation, nearly fully offsetting pandemic induced inflation. However, the “taxation by increased interest rates” has eliminated pay increase advantages for homebuyers needing mortgage funds.

Today’s sales volume strikes at pricing

Watch for home sales volume to further tail off in 2025 before and after what will be a lackluster annual spring increase is sales numbers. Without the support of a steady rush of homebuyers, home prices do begin to decline.

When home prices decline across all pricing tiers, recently mortgaged homebuyers with little downpayment will see the equity in their home slide underwater. This pricing event did not occur in 2024 and is not likely to begin until H2 of 2025. However, the very low rate of mortgage foreclosures is trending steadily upward which will eventually force some owners to sell.

Expect a return of real estate speculators by 2027 producing a “dead cat” bounce in both sales volume and pricing. 

Within 12 months following the speculator driven market bounce, home prices historically bottom. It is then that a sustainable sales volume and pricing recovery will take over with the return of end user homebuyers, likely around 2027-2028.

Updated November 2024.

Chart 1

Chart update 11/22/24

Home sales fluctuate from month-to-month for a variety of reasons. The most significant reason is the volatility of homebuyer demand. Several factors constantly move California’s homebuying market, including:

• seasonal motivational differences, an annual cycle [see Chart 2];
• job market fluctuation;
• mortgage interest rate movement;
• home pricing sought by sellers;
• Investor and speculator opportunity perceptions;
• negative equity property financials;
• turnover rates for tenants and owners; 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 peaking around June.

Chart 2

Chart 2 shows average home sales volume experienced from 2011-2018, a recovery period. As depicted, the most homes sold monthly during a year close escrow in June. Another upturn takes place in December, as homebuyers seek to wrap up their financial activities before the end of the year.

Real estate professionals need not fuss when they hear of falling sales volume in the latter half of the year. It is a normal seasonal progression taking place. What to watch for is year-over sales, to compare one month this year, or other period such as year-to-date, with the same month or period last year.

The recurring recovery for home sales volume

Annual real estate sales numbers since the Great Recession of 2008 were characterized as a bumpy plateau in home sales volume. This period ended in 2020 with the Covid pandemic.

As a rule, current market activity, whether up or down, is reflected first in sales volume, followed in nine to 12 months by price adjustments. Both sales volume and prices fluctuate from month to month. However, they trend in opposing directions like a seesaw.

Chart 3

Chart update 09/19/24

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;
• sales bottomed in 2008 and were artificially inflated in 2009 due to subsidy-induced purchases and speculators prematurely jumping on that momentum, but remained 40% below 2005;
• 2011 increased slightly in sales volume while decreasing in sales prices, a normal price adjustment condition;
• 2013 home sales volume stagnated while home prices increased rapidly some 30+%, not a good set of signs for the immediate future; and
• 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
• 2022 home sales volume peaked early in March and lost all ground gained in the pandemic year of 2021, ending the year 24% below 2021, but only 12% below 2019, the last “normal” year for home sales before the pandemic upended market dynamics.
• 2023 home sales lost a further 22% over the prior year, further wiping out the ground gained in 2021.
• 2024 home sales have stabilized from the prior year, with a slight downward trend. This will likely remain the norm until mid-2025.

Chart 4

Chart update 09/19/24

Year-to-date (YTD) home sales volume in 2024 rose slightly compared to a year prior. As of September 2024, YTD home sales volume is 2% above a year earlier. Compared to 2019 (the last “normal” year for housing before the Pandemic Economy took over), home sales volume YTD is 27% lower in 2024 as of September.

Home sales volume remains steady rising slightly in 2024, due to:

• high mortgage rates lowering homeowner turnover;

• a greater percentage of all-cash buyers undeterred by interest rates;

• home inventory across the state increasing slowly; and
• the 2024 shadow recession, yet to be declared, but well underway throughout our housing markets.

Home prices steadily increased in the first two quarters of 2024 and will soon fall, dragged down by significant cuts to buyer purchasing power.

Home sales in the coming years

The forward trend in California home sales is mixed for both buyers and sellers. Homebuyer income is growing but only keeping up with inflation, more so than any time during the decade before the pandemic. The increased borrowing capacity brought on by lower mortgage rates ended in 2013, but those historic lows were matched by many buyers and homeowners in 2020 through early 2022.

first tuesday forecasts annual home sales volume will remain the same as 2023 in the 2024-2025 periods, the result of new construction and lowering drift in FRM rates.

Relocating Baby Boomers going into retirement in the coming years will be the primary propelling force by both selling homes and buying replacements. Their Generation Y (Gen Y) age group will add to the sales volume when they find jobs at better pay levels permitting them to borrow and become first-time homebuyers.

Trends to be concerned about

Many long-term market conditions restrain the rise of home sales volume:

1. the weakest homebuyer demographics in decades;
2. failed savings for a down payment as high rents squeeze potential first-time homebuyers from saving, even though personal income since 2016 has risen at a pace slightly above the rate of consumer inflation during the period;
3. buyer borrowing power no longer enlarging the funds they can borrow as interest rates have trended higher since 2013, the pandemic period an exception, reducing funding for purchase-assist financing and dampening property prices;
4. the public’s increasingly anti-business and pessimistic attitude about American economics, wealth inequality and national politics no matter election outcomes; and
5. tightened mortgage 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 growth.

Related article:

https://journal.firsttuesday.us/how-to-survive-the-next-recession/68413/

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 takeover/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.

Buyers brokers are mandated to commit to exclusive representations with buyer-clients for all types of property.

Buyers, on entering into an exclusive right-to-buy Buyer-Broker Representation Agreement, commit to employ a broker and their agent. This representation is the obverse side of the same employment sellers commit to when employing a broker and their agent.

The representation agreement clarifies the broker is assured time spent with a buyer produces a closing and a fee when the property is available in the market.