California was home to five of the nation's 30 worst-performing markets in the second quarter.
The TrendThis pricing report, which tracks the median selling price of existing single-family homes in 178 markets, shows a broad trend of cooling appreciation. This price chill is a tad more extreme in the Golden State.
Let’s start with the nationwide picture. U.S. prices in the second quarter were up 4.3% vs. a year earlier to $279,600, with 16 markets posting declines. That’s a slight appreciation dip from averaging 5.5% annual gains in 2016-2018, a period when just eight U.S. markets were losers.
Next ponder California, especially near the coast.
In Silicon Valley, prices took the nation’s second-biggest loss in the quarter: a 5.3% year-over-year decline. That’s quite the contrast from 2016-2018, when the San Jose-Santa Clara market’s prices averaged 15.7% annual gains — the No. 1 gain nationally. Still, this market’s median of $1.33 million for the quarter was the U.S. high.
Just to the north, San Francisco suffered the seventh-biggest U.S. decline of 1.9% in the year. Again, quite the flip-flop: In 2016-2018, San Francisco prices averaged 9.6% annual increases — the No. 19 gain. Its second-quarter median of $1.05 million was second highest.
Three other coastal California markets had thinning gains that graded poorly on the national scorecard.
Orange County: 19th weakest with 0.6% gain. In 2016-2018, prices rose at a 5.8% annual pace — the No. 85 gain nationally. Median of $835,000 was third-highest nationally.
San Diego: 27th weakest with a 1.6% increase. In 2016-2018, prices averaged 6.7% annual gains — No. 69 nationally. Median of $655,000 was fifth-highest.
Los Angeles: 30th weakest with a 1.8% increase. In 2016-2018, prices rose 8% annually — the No. 38 gain. Median of $567,000 was seventh-highest.
Not every California market looked as dicey. Inland markets, with more affordable options, fared better.
In the Inland Empire, its above-average 5.6% second-quarter gain was a mid-range 78th largest. Still, it’s a dip from 2016-2018 when prices rose at an 8% yearly rate — the nation’s 37th highest. The median price in Riverside and San Bernardino counties of $380,000 ranked 22nd highest.
And Sacramento’s gains ranked 128th in the quarter, up 2.9% vs. averaging 7.8% in 2016-2018 (45th highest). Sacramento’s median of $385,000 was 20th priciest nationally.
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The DissectionNo index is a perfect home value measurement, and the Realtors’ index of existing, single-family home sales covers an important but not comprehensive slice of the market. But looking at a broad spectrum of housing benchmarks, one thing’s clear: California’s big price gains are history.
What’s up for debate is whether noteworthy depreciation is occurring in some geographic or markets niches.
California home sellers losing their pricing power is no grand surprise considering the steep run-up of prices in recent years and a recent cooling of the state’s business growth pace.
House hunters have choices, as more homes are listed for sale. And last year’s sharp-but-brief spike in mortgage rates certainly didn’t help prices as house hunters, at a minimum, lost buying power.
Let’s be clear: This is by no means just a California issue or one involving the nation’s upper-crust markets.
Look at the nation’s biggest loser, Bismarck, N.D., with a 5.5% decline that follows 2016-2018 losses averaging 0.7% yearly — fifth-worst nationally. Its median price? Just $248,800! Bismarck may have a lofty median household income for its size — $61,000, roughly the same as L.A. — but it’s suffering the loss of once-booming, good-paying energy jobs.
And second-quarter depreciation, by Realtor math, was also found in markets in Illinois, New York, Wisconsin, Florida, Oklahoma, Hawaii, Colorado, Kansas and Connecticut.
How bubbly?On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … THREE-AND-A-HALF BUBBLES!
First, let’s have a chat about what’s a bubble and when is it bursting. Bubbles are unsustainable economic advances. Falling prices alone do not indicate a bubble or its imminent bust. But depreciation is certainly a negative trend worth serious attention.
And this may be a case of “be careful what you wish for.” You could dismiss these 2019 price dips as a predictable plateau after a long-running upswing. But painless plateaus are hard to accomplish.
That’s because depreciation hurts economically … and emotionally. Lots of people talk about wanting more “affordable” housing in California, but the creation of relative bargains with price cuts on existing homes often scares off the same house hunters who claim they want to pay less.
Why? These wannabe owners can get scared of overpaying as a price slide begins. Or they’ll wait to buy, hoping the discounts only get steeper. That wait-and-see mentality can amplify an already souring situation.
Of course, today’s suddenly cheaper mortgage rates plus these price “markdowns” shown in the Realtor data could be a cure for California housing’s “affordability” challenges.
From the OC Register.