California’s crazy home prices: Down 18% then up 14%, all in one year

“Numerology” tries to find reality within various measurements of economic and real estate trends.

Buzz: Deep discounts on California homes shrank this spring – especially to the south – as the purchasing pace is almost historically sluggish.

Source: My trusty spreadsheet reviewed May’s homebuying report from the California Association of Realtors.

Fuzzy math: Is the springtime price surge really a California housing rebound?

Topline

The median sales price for an existing California single-family house was $836,110 in May. That’s down 6.4% from a revised all-time high of $893,200 in May 2022. Prices fell in 42 of the 53 counties tracked.

But it’s been a pricing rollercoaster in the 12 months since the pandemic’s bubblish peak.

Start with the statewide median crashing 18% from May 2022 through February 2023 to $735,500. That $157,500 drop was tied to rising mortgage rates, which pushed many house hunters away and convinced numerous homeowners not to sell.

Since that recent bottom, this home-value yardstick rebounded by 14% – or $100,500 – in the three months through May 2023. Stabilizing mortgage rates, a traditional springtime buying rush, and limited options for house hunters bolstered pricing.

That leaves the median $57,000 off the all-time high, or 6.4%

All this turmoil stymied sales, as homebuying dropped 24% in these 12 months to an annual pace of 289,640. Purchases were down in all but two counties.

How slow is that? Well, my spreadsheet found only 37 months since 1990 had a sleepier sales pace than May – that’s just 9%.

Details

The crazy gyrations are by no means level from a geographical standpoint.

Yes, prices are lower just about everywhere – except for pricey coastal markets between Los Angeles and San Francisco. But the dips are larger the farther north you look. And sales drops were widespread.

Look across California, when sliced into five regions …

Far north: May’s $380,000 median is down 11% in a year after a 3% rebound since February. Sales fell 22% in 12 months.

Bay Area: $1.3 million median was off 11% even after a 24% rebound the last three months. Sales down 24%.

Southern California: $800,000 median was off 5% after a 7% rebound. Sales dropped 22%.

Central Valley: $485,000 median was off 5% after a 8% rebound. Sales dropped 20%.

Central Coast: $1 million median was up 0.5% after a 17% rally. Sales fell 17%.

Or ponder the state’s 10 most populous counties, ranking but their year-long price dips …

Alameda: $1.26 million median for May – off 17% in a year even after a 15% three-month rally. Sales down 27% in the year.

Contra Costa: $888,000 – off 11% (17% rebound) with sales down 28%.

Santa Clara: $1,788,000 – off 7% (19% rebound) with sales down 15%.

Sacramento: $535,000 – off 7% (7% rebound) with sales down 20%.

Los Angeles: $744,770 – off 7% (2.5% rebound) with sales down 21%.

San Bernardino: $455,000 – off 7% (after a 2.5% drop past three months) with sales down 23%.

San Diego: $935,000 – off 4% (7% rebound) with sales down 24%.

Orange: $1,256,500 – off 3% (8% rebound) with sales down 22%.

Riverside: $629,000 – off 3% (6% rebound) with sales down 23%.

Fresno: $420,000 – flat in a year after a 9% rally. Sales were down 17%.

Bottom line

So, who can afford a home at today’s prices?

Only a relatively small handful of first-time house hunters and not many current owners. That’s why sales activity is lethargic, similar to the economically stagnant early 1990s and the financial meltdown days of the mid-2000s.

Look at the Realtors’ affordability index. It suggests a Californian needed a $188,000 income to buy the median-price home in the first quarter. So only 20% of Golden Staters could afford to buy at the start of 2023 by Realtor calculations.

Yes, that’s dismal. But stunningly it was up from the 15-year low of 16% in 2022’s first quarter. And, FYI, this affordability marker has averaged 32% since 1991.

Now think of the rare Californian who can qualify to buy, then look at these recent price hikes. Add in mortgage rates – which dipped down to the 5% range early this spring – now near 7%. Affordability is abysmal.

And that’s why California homebuying will stay listless for an extended period.

Post script

Some folks prefer Case-Shiller price indexes to medians, claiming they’re a better appreciation yardstick.

To me, they’re just different math, comparing long-term gains vs. sales pricing – and using smoother, three-month averages.

But even with these calculations, we see a wild ride for the three California markets tracked by Case-Shiller, looking at the freshest data for the year ended in April …

Los Angeles and Orange counties: Down 8% from peak to January, then rallying by 4% to April. So a 3% drop over 12 months.San Diego: Down 11% to January, then up 6% to April for a 6% decline over 12 months.San Francisco: Down 17% to January, up 6% to April for an 11% dip over 12 months.