California Home Sales Volume fell in April 2022, down from the previous month and the previous year. This month-over-month decline was atypical for the spring sales cycle, as sales volume typically moves from an annual low point recorded each January to a mid-year high.
42,300 new home and resale transactions closed in escrow California in April 2022. The number of homes sold in April was 5% lower than the previous month and 10% lower than the previous year, or 7,200 fewer sales. For reference, the rapid pace of sales recorded in California since 2020 began to decline in the second half of 2021, continuing into 2022.
The large annual increase in sales volume that occurred earlier in 2021 was due to homebuyers taking advantage of historically low interest rates and stimulus measures. Homebuyers were also influenced by the fear of missing out (FOMO) from a low inventory of homes for sale.
Historically low inventories continue into 2022. But as the effects of the 2020 and 2021 stimulus measures are now behind us and interest rates are rising rapidly with the Federal Reserve (the Fed) actions aimed at cooling an overheated economy, homebuyers have quickly slowed and sales volume is plummeting.
Along with a significant reduction in home price potential, rapidly rising interest rates in 2022 are stagnating sales. In response to a recent first tuesday survey, 34% of readers report escrow cancellations due to the recent rise in interest rates.
2022 rate hike reduces homebuyers’ buying power
Pandemic-era government efforts to close the gap are over
2021 ended with 536,600 annual home sales in California. This is 97,400 more home sales than in 2020, an annual increase of 22%.
However, this increased performance follows several years of flat declining sales volume (the bumpy tray recovery after the foreclosure crisis and financial crash of 2009). And yet, despite recent gains, the strong year 2021 was still 29% lower than the record year for sales volume in 2005.
Why have home sales volume and home price increases in 2021 been so strong compared to recent years?
The Federal Government has introduced a number of measures to create a bridge for consumers, to support them from the time of the 2020 recession until the end of the pandemic response. The result has been a buoyant housing market, with low interest rates and extra liquidity providing a launch pad for renters, buyers and investors to make the real estate leap.
Government measures included:
- keeping artificially low interest rates in 2020-2021, held back by the Fed’s purchase of mortgage-backed bonds (MBBs) and a zero rate on its benchmark interest rate;
- a moratorium on evictions and foreclosuresthat allowed renters and landlords unable to make housing payments to stay in their homes (and kept those homes off the market);
- individual stimulus checkswhich fueled consumer spending not just for those who lost their jobs during the 2020 recession, but for consumers of all incomes;
- a continuous pause on student loan repayments, which also boosted consumer spending, supporting the economy; and
- establish and extend the Paycheck Protection Program (PPP) and an economic disaster loan grant program to help small businesses stay afloat.
All of this federal action has helped drive up enthusiasm (and prices) not just for real estate, but for assets of all types.
However, while the government created a bridge to carry consumers through the pandemic-era recession, it was only temporary. Government efforts delayed the inevitable. As stimulus winds down, the economy is on course for its next recession.
California home sales in 2022 and beyond
Despite the jump in sales volume in 2021, home sales will continue to decline in 2022, due to:
- rapidly rising mortgage interest rateswhich led to a drop in the purchasing power of buyers by 25% compared to the previous year in May 2022;
- The expiry in 2021 of the moratorium on foreclosureswhich has resulted in a backlog of forced sales in the market, creating a further drag on house prices and discouraging buyers;
- lower owner turnover as FOMO buyer looks to relief from rising rates and rising inventories; and
- the ongoing recovery of job losses of 2020, of which more than 300,000 are still absent from the California labor market in April 2022.
The housing market will not start a consistent recovery until California recoups the historic job losses of 2020. This job recovery will likely take shape around 2023 – when the second act in recession 2020 to arrive at.
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The difference between seasonal and sustainable trends
Home sales fluctuate from month to month for a variety of reasons, the most important being buyer demand. This demand is influenced by several factors currently at work in the California home buying market, including:
- seasonal differenceswhile sales volume tends to peak in the middle of the year, falling in the sluggish winter months (a trend that was disrupted by the unusual drop in April 2022);
- mortgage interest ratewhich were at historically low levels in 2020-2021 but jumped significantly in 2022;
- buyer confidencewhich has oscillated sharply since the start of the 2020 recession and continues its volatile path through today’s recession hangover;
- available Multiple Listing Service (MLS) Inventory, which remains well below buyer demand in 2022; and
- in 2020-2021, buyer fear of missing something (FOMO)which pushed both sales volume and prices above sustainable highs.
Year-to-date (YTD) Home sales volume can be a good predictor of annual sales volume. In April 2022, the year-to-date sales volume is 8% lower than the previous year.
first tuesday predicts sales volume will fall below 2021 through 2022, tempered by rising interest rates, a still-recovering job market — and more sober homebuyers.
To Read more on home sales trends and the first tuesday analysis, see graphs of California home sales volume.