Sales volume and home prices tend to correlate, albeit on a delay of about a year. It’s usually helpful to look at changes in one to predict changes in the other. But sometimes that’s not the case — most notably, at the start of an economic recovery. Looking only to sales volume to forecast a recovery can result in some false starts.
This happened in 2008, and may be about to happen now. Home sales volume shot up between 2008 and 2009, but crashed back down the next year. This is because economic stimulus resulted in temporary buyer demand, which fell off as soon as the stimulus was used up. Now, in 2020, despite actual buyer demand, sales volume is low as a result of low inventory. Low inventory doesn’t decrease home prices, though, so they’re still going up. Pent-up demand means that as soon as the economy recovers, inventory may be snatched up quickly, resulting in another sudden burst of activity that will rapidly fall off.
So what does need to happen for an economic recovery? The answer is jobs. While sales volume may predict short-term direction of change, the job market is an excellent reflection of the housing market stability, since both homeowners and renters require income in order to make payments. Job numbers aren’t going to be stable for a while either. A full recovery of the job market isn’t expected until 2022 at the earliest, at which point we can start to see the regular patterns emerge again in home sales volume and home prices.
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With their most recent update to home sales volume data for California, First Tuesday has the some of the numbers up to June of 2020. While parts of their analysis have not been updated, we do have data comparing month-to-month sales in June 2020 to both May of 2020 and June of 2019, as well as data for year-over-year sales for June of 2020, 2019, and 2018. We’ve also compiled data exclusively for the South Bay, which demonstrates a much more significant difference.
In June of 2020, the month-to-month sales for all of California were 35,300, with a nearly even split between Northern and Southern California. This is a decrease from the June 2019 number of 39,900, but the numbers are up from May of 2020 at 24,000. Looking at only the South Bay, the trend direction is the same, but the differences are much more stark. There were only 75 sales in May 2020 and 95 in June 2020, compared to 376 in June 2019.
This pattern continues to hold for year-over year sales through June. The total for California was 177,500 in 2020, down from 206,300 in 2019 and 223,800 in 2018. Again, the difference is much more obvious in the South Bay. Following 1692 sales through June in 2018 and 1245 in 2019, there were just 433 in 2020.
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When we looked at July data, we saw home sales volume decreasing for the fourth straight month nationwide and third in California. August added to the same downward trend in California, making it the fourth straight month for California. Sales of existing single-family homes dropped 1.8% since July.
At the same time, prices were still going up, though at a slower rate as sellers are catching on to the lowered demand generated by high prices and high interest rates. California’s median home price was $596,410 in August, an increase of 0.8% from July.
C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young believes this is the start of a shift. Prices are roughly at their peak, and we should see them begin to either flatline or drop soon. More homes are staying on the market unsold and sellers are more willing to take price reductions.
Southern California had the most significant decline in sales volume. It’s been going down in most counties, though, with the exception of Marin, Napa, Kern, and Merced counties. Marin and Napa counties don’t account for much of the Bay Area’s sales volume, but their contribution was enough that the region had an overall increase of 0.3%.