The tech boom in Silicon Valley and the entertainment industry in Los Angeles have long made California’s markets a desirable place to own a home, but according to data compiled by the California Association of Realtors, those housing markets are showing signs of stalling.
Pending home sales—notoriously volatile but considered a sign of where a housing market is headed—dropped 2.6 percent in October compared to a year ago in California, the ninth time in 10 months the state saw a decline, including four straight months.
“After a solid run-up of closed sales in May, June, and September, a continued scarcity of housing inventory—which drove up home prices—may squeeze the market heading into the closing months of the year.”
The San Francisco Bay area saw the largest decline in pending home sales at 10.5 percent, while Southern California dropped 7.3 percent. The Central Valley actually gained 5.1 percent.
In the same report, CAR surveyed realtors across California, and housing affordability and rising prices remained the primary concern for home-sellers in the state. In San Francisco, home prices have ballooned well beyond their peaks before the financial crisis; in Los Angeles, prices are just below those peaks, according to the S&P CoreLogic Case-Shiller National Home Price Index.
At first glance, sky-high prices and precipitous drops in home sales suggest that home prices are higher than the market is willing to pay, and that a decline in prices might follow as sellers try to move available inventory.
But the problem is that the inventory remains low. The CAR survey showed that available inventory is the next concern for brokers after rising prices. Homeowners aren’t selling their homes because they have little upward mobility. If they sold their homes, it would likely be a sideways move at best.
So even though sales are down, they’re outpacing the supply, which will likely continue to push prices higher. This means homeowners will continue to stay put, and renters will continue to be priced out of homeownership.
“Home sales relative to the number of new listings coming on line each month to replenish that sold inventory—or market indicator of future price appreciation—suggests that there continues to be upward pressure on home prices through the fall,” CAR wrote in its report. “Home sales continue to outstrip new listings coming online to restock sold units.”
There was a glimmer of hope in the CAR report for prospective homeowners though. Pending home sales that sold below the asking price inched up from 44 percent a year ago to 46 percent in October, and the average price below the asking price jumped from 9 percent a year ago to 12.