38,000 new and resale home transactions closed escrow in California during March 2016. In step with the seasonal sales cycle, sales volume was up significantly from the prior month. It was also 3% higher than a year earlier. While this is an improvement over last year, the rise has decelerated in recent months, signaling sales volume will decline to 2015 levels by mid-2016.
2015 ended with 450,700 home sales in California. This is 35,400, or 9%, more sales than took place in 2014. This is just above 2013 sales volume. For perspective, the number of homes sold in 2015 is still 303,203, or 40%, below peak sales volume experienced in 2005.
The number of homes sold year-to-date is 6% higher than 2015 as of March 2016. Sales volume is likely to continue to pick up in the first half of 2016 as job numbers continue to grow, to fall back in the months following the inevitable fixed rate mortgage (FRM) rate increase, expected as early as the second half of 2016.
A very long recovery for home sales volume
Annual real estate sales numbers since the Great Recession of 2008 suggest the upcoming years through 2017 will be characterized by the same continuing bumpy plateau in home sales volume we have experienced now for eight stagnating years. As a rule, current market action, whether up or down, is reflected first in sales volume, followed by prices, and both fluctuate from month to month mostly going in opposite directions or just standing still.
Home sales in the coming years
The forward trend in California home sales is mixed for both buyers and seller. Homebuyer income is going further and doing more than anytime during the past 15 years due to increased borrowing capacity brought on by low interest rates (even though they rose mid-2013 to cut back funding by 10% from one year prior, but dropped to fuel sales in 2015). In fact, the Buyer Purchasing Power Index (BPPI) went negative in June 2013 and bounced back to zero in September 2014 – this momentarily stalled home price expectations.
In December 2015, the Federal Reserve (the Fed) committed itself to raise short-term interest rates in order to keep a lid on the recovery (as they did in both 1984 and 1994 midway through those recoveries). This upward rate move by the Fed (and the bond market) will instantly be reflected in ARM rates, and eventually trickle into higher mortgage rates, likely around mid-2016. Higher FRM rates will promptly trend real estate sales volume down and some 9-12 months beyond prices will slip. As prices start to decrease, expect the short-term rate to decline in the 2017-2018 period which will slow and put an end any downward turn in real estate sales volume and the economy.