Due to a severe lack of inventory on the market, home prices in much of California and throughout San Diego have been relatively unaffected by rising rates this year and year-over-year price growth has finally turned positive during the past few months. Although the inventory shortage has prevented home sales from achieving a meaningful recovery, transactions have held onto some of the modest gains achieved since rates initially hit 7% last year. However, the recent surge in mortgage rates (conventional loans are around 8 percent) could slow the recovery as buyer demand takes another step back. Per the California Association of Realtors (CAR) report, more transactions fell out of escrow last month than previously seen. Market competitiveness is also subsiding modestly as the median days on the market have started to rise and discounting has become more common. It is also the time of year when that starts to happen anyway. In addition, the median time on market for active listings (homes that have yet to sell) is rising more than it is for closed transactions, meaning that homes not yet in escrow are sitting for longer and prompting more seller concessions.
I had two closings last week where I represented the buyer in each. Both buyers felt the price the sellers wanted was fair so agreed to it but following inspections they both asked for what would have been seen the past three years as an "aggressive" credit for closing costs. In both case the wisely sellers agreed not wanting to take the chance with rates going up and buyers taking their time to decide on a property.
From the CAR report, "The macroeconomic data suggests that the U.S. economy continues to outperform despite calls for a coming recession. The labor markets reaccelerated in September and virtually every metric shows that the shortage of available workers persists. However, this strength in the fundamental economic data has stoked fears that inflation will be slow to return to the 2% rate targeted by the Federal Reserve, which means that rates will indeed remain 'higher for longer.' This has begun to weigh on California’s housing market as demand has dipped, more transactions have fallen out of escrow, and sellers are increasing looking toward price reductions to get properties sold. However, nearly 50% of the remaining transactions are still selling above their list prices, which means that desirable homes that are priced right continue to receive ample demand despite mortgage rates reaching their highest levels in more than 20 years."