When will Southern California homebuying rebound from 2-year crash?

The soaring mortgage rates and stubbornly high home prices of the past two years made it nearly impossible for Southern California house hunting to have much financial logic.

And without dramatic change – cheaper loans, collapsing prices, surging paychecks, or all three – you can expect the purchasing pace to only marginally rebound off a historic bottom.

To better understand the depth of the recent sales crash, let’s take a look at two years worth of homebuying. Remember, the Federal Reserve’s battle with inflation – using higher interest rates as its weapon – began in early 2022. Please consider just how slow homebuying was in 2022 and 2023, according to my trusty spreadsheet’s review of CoreLogic sales stats dating to 1988.

Only 384,515 residences were sold in the region over those 24 months – that’s existing and newly built houses, condos, and townhomes. This was the slowest two-year span on record – even below 2008’s financial mess and the Great Recession.

Looking across the region, four counties set record sales lows in 2022-23 …

Los Angeles: 120,562 sales in 24 months, No. 2 was 2008.

Orange: 52,344 sales, No. 2 was 2008.

San Diego: 64,732 sales, No. 2 was was 1996.

Ventura: 15,772 sales, No. 2 was 2011.

The relatively “best” homebuying pace, historically speaking, was found in the Inland Empire – the region’s housing “bargain” …

Riverside: 76,715 sales, No. 9 slowest. Worst? 1993.

San Bernardino: 54,390 sales, No. 7 slowest. Worst? 1993.

Note those 1990s lows – long-forgotten bad times of lethargic buying and meek appreciation. Perhaps this feels parallel to our current climate.

Rate rollercoaster

Historically low mortgage rates juiced homebuying in 2020-21 as the Fed used cheap money to lift the economy out of its coronavirus funk.

Then came record-setting rate hikes the Fed deployed to cool an overheated business climate. The 30-year, fixed-rate mortgage averaged 6.81% last year – up from an unfathomable 2.96% in 2021.

So, a borrower’s buying power was cut by 36% – the largest two-year drop in Freddie Mac records dating to 1971.

Now mortgages are expected to drop in 2024 – but by how much?

Sales slashed

Shrinking affordability cut the number of Southern California home sales by 43% between 2021 and 2023 – the second-biggest, two-year dip behind bubble-bursting 2007.

Huge sales declines were found across all counties …

Ventura: 51% two-year dip – biggest on record, topping 2007.

Orange: 45% two-year dip – No. 2 behind 2007.

San Diego: 44% two-year dip – biggest on record, topping 2007.

Los Angeles: 43% two-year dip – No. 2 behind 2007.

San Bernardino: 40% two-year dip – No. 3 behind 2007 and 2008.

Riverside: 38% two-year dip – No. 3 behind 2007 and 2008.

Persistent prices

Unlike the last market calamity, home prices have been essentially stable.

But that’s a big slice of why sales crashed: The affordability hurdle kills the buying mood.

Curiously, prices crept up modestly in 2022-23 – minus Orange County’s leap – after ballooning in the cheap money days.

The six-county median price finished 2023 at $720,000 after a 6% two-year increase. That appreciation is down from a 24% surge the previous two years.

And by county, ranked by recent appreciation …

San Bernardino: $481,500 median in December after a 1% two-year gain vs. a 34% jump in 2020-21.

Los Angeles: $820,000 after a 2% gain vs. 27% in 2020-21.

Riverside: $550,000 after a 3% gain vs. 34% in 2020-21.

Ventura: $786,000 after a 3% gain vs. 34% in 2020-21.

San Diego: $800,000 after an 8% gain vs. 28% in 2020-21.

Orange: $1.1 million after a 17% gain vs. 28% in 2020-21.

Payment pain

Do prices matter? Most house hunters are more mindful of their monthly mortgage payments as borrowing expenses that exploded over two years.

The typical Southern California buyer got a $3,735 payment in December – assuming a 20% downpayment and 2023’s average mortgage rate. That’s after a record-breaking 64% two-year payment increase. By county …

Orange: $5,743 payment following a 82% jump.

San Diego: $4,179 after 69% jump.

Ventura: $4,103 after 61% jump.

Riverside: $2,871 after 60% jump.

Los Angeles: $4,281 59% jump.

San Bernardino: $2,514 after 58% jump.

Pay pop

Wage hikes significantly improved, but they’re not matching skyrocketing housing costs.

Southern California workers got an average $73,100 annually as of June 2023, by one federal tally – a 22% raise in four years vs. a 12% increase in 2015-19. Look at paychecks by county …

San Diego: $78,600-a-year wages, up 28% in four years vs. 10% in 2015-19.

Riverside: $57,000 (up 25% vs. 7%).

San Bernardino: $59,300 (up 23% vs. 13%).

Orange: $74,500 (up 20% vs. 10%).

Los Angeles: $76,600 (up 20% vs. 16%).

Ventura: $65,700 (up 18% vs. 2% decline).

Bottom line

Homebuying tumbled into history’s basement because purchasing is a budget-buster for most Southern Californians.

Only 17% of Southern Californians could qualify to buy the median-priced home in the year ended in September, according to California Association of Realtors affordability indexes. That’s down from 27% two years earlier and the 34% historic affordability between 1991 and 2023.

Think about this massively increased financial juggle, by county. Even the “cheap” places are now a tough sell …

San Bernardino: 29% could afford to buy in the past year vs. 45% two years earlier and 51% since 1991.

Riverside: 21% vs. 35% in 2021 and 43% since 1991.

Ventura: 15% vs. 26% in 2021 and 32% since 1991.

Los Angeles: 14% vs. 22% in 2021 and 30% since 1991.

San Diego: 14% vs. 24% in 2021 and 28% since 1991.

Orange: 12% vs. 19% in 2021 and 26% since 1991.

Sadly, local homebuying has become a game largely for folks with fat paychecks, investment windfalls – or generous relatives.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com

Source: Orange County Register