7.4% fewer California homes closed escrow in February 2019 compared to the same month a year earlier, according to CoreLogic. This continues the negative year-over-year trend which began in summer 2018.
Housing market trends emerge after months of related activities begin to affect buyer behavior. Most recently, mortgage interest rates began to increase at the end of 2017. Home sales volume began to falter about nine months later, the result of reduced buyer purchasing power and enthusiasm.
Home prices were also quick to fall, as California home prices began to decline on a month-to-month basis in August 2018 However, due to the increases experienced earlier in 2018, home prices are still just above where they were a year ago as of January 2019, but just barely.
|Feb 2019||Feb 2018||Feb 2017|
|Home sales volume||26,102||28,181||27,662|
As depicted in the chart above, the highest sales volume regularly occurs around mid-year as homes listed during the busy spring-nesting season close escrow. Another small increase takes place in December, as homebuyers seek to wrap up their financial activities before the end of the year. Home sales bottom during the slow winter months of January and February.
Therefore, month-to-month sales volume trends are not usually good indicators of the direction the real estate market is trending. For example, real estate professionals are not to worry when they hear of falling sales volume in the latter half of the year, as this is a normal seasonal progression. And don’t get excited about spring highs as a trend.
What’s more important to watch is year-over sales comparing a month or other period (such as year-to-date) with the same month or year-to-date period from the prior year.
Thus far in 2019, the number of homes that sell each month continues to run below the previous year. first tuesday expects this trend to continue for most of the next two years, through 2021. Eventually, the return of speculators will put an end to declining sales volume and pricing, much like occurred in the 2012-2013 period.
In order to encourage significantly more homebuyers to return to the housing market and grow sales volume, home prices will first need to find a clear bottom. As our market heads into the next recessionary period, expected in 2020, history tells us that prices won’t bottom until the recession ends and confidence in the economy returns, likely in 2021.
The good news is that, unlike recent history when sales volume plummeted in the months leading up to the 2008 recession, this dip in home sales volume is not expected to be as steep. California home sales volume never truly recovered from the losses experienced during 2006-2008, as sales volume has been stuck — mostly flat — since 2009.
Thus, expect sales volume to decline through 2019-2020, but not in a market-devastating way. Sales volume will next begin to rise significantly in 2021-2022.