“Payment Pulse” looks at the budget-busting reality of Southern California homebuying. It’s really about the size of the monthly check to the lender, not the headline-grabbing median sales price.
Buzz: Southern California’s homebuying market collapsed this summer to the slowest sales pace on record. And it’s no stunner considering the typical house payment jumped by almost 50% in a year.
Source: My trusty spreadsheet looked at what’s become a market-icing mix: high home prices (monthly sales counts and median from DQNews dating to 1988) and rising mortgage rates (average 30-year deals from Freddie Mac). Those figures generate a hypothetical monthly home-loan payment, assuming a 20% downpayment. We didn’t account for property taxes, association dues or insurance.
Rate watch: The 30-year rate averaged 5.38% in the three months ended in August vs. 2.9% a year earlier. So a house hunter’s borrowing power has fallen 26% in a year.
From June through August, 54,416 residences were sold in the six-county region. That’s 20% below the same period in 2021, and the lowest count since at least 1988.
That’s even slower than the bubble-bursting days around the Great Recession, and it’s slower than the often-forgotten deep homebuying slump of the early 1990s.
The summer’s house hunters balked as the typical Southern California monthly payment rose by $1,055 in a year — a 47% jump — to $3,318 on the $740,000 median-priced residence. Please note that the median price, by itself, is up 9% over 12 months.
Buyers are holding the line on prices, too.
Looking at monthly changes in the region’s median, since April prices have been either been flat or fallen. Since 2009, four-month streaks without price appreciation happened only twice (October 2015 and January 2021).
And do not forget that this math assumes a buyer had a 20% downpayment of $148,000 — a financial hurdle that’s $12,000 higher over the year.
The financially painful math within the counties …
Los Angeles: $3,677 hypothetical payment on the $820,000 median. The payment has risen $1,064 in a year, or 41%. The median price is up 4% over 12 months. August sales were the slowest for any August in 35 years.
Orange: $4,412 payment on the $984,000 median — up $1,417 or 47%. Prices are up 9% over 12 months. And 20% down is $196,800. August sales were the third-slowest since 1988.
Riverside: $2,607 payment on the $581,500 median — up $860 or 49%. Prices are up 11% over 12 months. August sales were the 10th-slowest in 35 years.
San Bernardino: $2,242 payment on the $500,000 median — up $694 or 45%. Prices are up 8% over 12 months. August sales were the fifth-slowest since 1988.
San Diego: $3,583 payment on the $799,000 median — up $1,170 or 48%. Prices are up 10% over 12 months. August sales were the fourth-slowest in 35 years.
Ventura: $3,508 payment on the $782,250 median — up $1,043 or 42%. Prices are up 6% over 12 months. August sales were the fifth-slowest since 1988.
Consider how the long-running trend of cheaper mortgages messed with home values.
The six-county median has risen at an average 5.2% annual pace from $133,500 in early 1988 — when mortgage rates ran 10.6% — to $740,000 today.
Meanwhile, the typical house payment for a buyer rose by only an average 3.6% yearly thanks to those cheaper financing rates.
That translates to the rate decline equaling $278,000 of the $606,500 price increase since 1988, or 45%.
It’s certain we won’t see rate drops like we’ve seen in the past 35 years any time soon. What’s uncertain is how high mortgages will go as the Federal Reserve uses rate hikes as its major weapon in the battle against the worst bout of inflation in four decades.
Think about how unaffordable housing was this summer — and the sharp sales slowdown. And then wonder what September’s mortgage rates — nearing a full percentage point higher — will do to this market.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at [email protected]
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