A combination of rapid mortgage rate increases and decreased affordability, San Diego County home sales collapsed 17.5% to the lowest level in 11 years last month, in the first meaningful sign that one of the country’s hottest real estate markets could be at a turning point, real estate tracker CoreLogic reported Tuesday.
In September, 2,942 homes were sold in the county, down from 3,568 sales last year. This was the lowest number of sales for the month since the start of the financial crisis when 2,152 sold in September 2007.
CoreLogic said median home prices dropped in the region to $575,000, the first decline since January, after hitting a record high of $583,000 in August.
Some experts blamed the slowdown on rising mortgage rates, which have drastically increased the per month debt servicing payments for potential new homebuyers.
“The double whammy of higher prices and rising mortgage rates has priced out some would-be buyers and prompted others to take a wait-and-see stance,” said Andrew LePage, a CoreLogic analyst, in the release. “There was one caveat to last month’s sharp annual sales decline — this September had one less business day for recording transactions. Adjusting for that, the year-over-year decline would be about 13 percent, still the largest in four years.”
On a monthly basis, sales declined 22% in September compared with August. Cyclically, sales tend to drop 10% from August to September, but this time, it seems that industry is experiencing late cycle stress.
The report also said sales of newly built homes are suffering more than sales of existing homes because home builder production remains below the historical mean. New home constructions come at a premium. Sales of newly built homes were 47% below the September average dating back to 1988, while sales of existing homes were 22% below their long-term average.
The S&P CoreLogic Case-Shiller San Diego Home Price NSA Index (data via Reuters Eikon) shows a potential double top with 2005 high. Lifetime high occurred in July 2018 of 259.69, with the index now fading into the Fall period.
Additional S&P CoreLogic Case-Shiller San Diego Home Price data
“Price growth is moderating amid slower sales and more listings in many markets,” LePage said. “This is welcome news for potential home buyers, but many still face a daunting hurdle – the monthly mortgage payment, which has been pushed up sharply by rising mortgage rates.”
Last month, Bank of America Called It: “The Peak In Home Sales Has Been Reached; Housing No Longer A Tailwind.” It seems that the San Diego real estate market woes are more evidence that storm clouds are gathering over the broader U.S real estate market.