The strong sales momentum that occurred during the peak home-buying season gave way in July as shrinking housing inventory and waning affordability stifled pending home sales, which declined both from the previous month and year, the CALIFORNIA ASSOCIATION OF REALTORS®(C.A.R.) said Wednesday.
Coming out of the summer home-buying months, the housing market is showing signs of slowing as REALTORS® reported fewer floor calls, listing appointments, and less open house traffic than in June, C.A.R.’s July Market Pulse Survey found.
Based on signed contracts, year-over-year statewide pending home sales fell in July on a seasonally adjusted basis, with the Pending Home Sales Index (PHSI)* declining 2.6% from 122.5 in July 2016 to 119.4 in July 2017. California pending home sales also edged down on a monthly basis for the first time since March, decreasing 0.9% from the June index of 120.4.
Pending home sales have declined on an annual basis for six of the last seven months so far this year, however, the pace of decline has slowed in recent months. After a solid run-up of pending sales growth in April, May, and June, continued housing inventory issues and affordability constraints may have pushed the market to a tipping point, suggesting the pace of growth will begin to slow in the fall.
The Southern California Region was the only major region to record an increase in pending sales from the previous year – the third straight annual gain. Los Angeles, San Bernardino County and Orange County saw healthy spikes of 4.0%, 6.0%, and 4.6%, respectively. Pending sales in San Diego (-5.8%) and Riverside (-4.2%) counties declined from last July.
Pending sales in the Central Valley slipped 0.3% from the previous year, led by a 17.8% annual decrease in Sacramento County. Additionally, Kern County reversed a healthy pending sales gain in June and decreased 2.6% from last July.
The San Francisco Bay Area experienced the largest drop in pending sales in July, falling 11.5% on an annual basis. San Francisco and San Mateo counties, two of the state’s most expensive markets, were both down in double-digits, 11.0% and 21.4%, respectively. Santa Clara County, where home prices also are at all-time highs, saw pending sales decline 9.8% from a year ago.
C.A.R.’s newest market indicator of future price appreciation, Market Velocity Index – home sales relative to the number of new listings coming on line each month to replenish that sold inventory – suggests that there remains upward pressure on home prices through the fall. Home sales continued to outstrip new listings, further depleting the supply of active listings last month.
While the Market Velocity Index fell from 42 to 37, this still implies that there were 37% more homes sold than there were new listings. In other words, the supply of homes available for sale continued to drop, which will make the remaining units more competitive as net supply has deteriorated by roughly 34,000 units this year. Thirty-five of 49 counties tracked sold more homes than new listings that came online in those areas, suggesting that price growth will remain broad-based geographically as well.
