California sales speed up ahead of mortgage rate rise

Danville, California, USA
Danville, California, USA

Sales of California homes sped up at the end of 2016, ahead of the looming mortgage rate rise.

Following the election of Donald Trump in November 2016, the Federal Reserve announced that it would raise interest rates for the second time since the financial crisis, boosted by positive sentiment in the economy. As a result, mortgage rates were anticipated to begin climbing, following a long period of record low rates. Buyers were prepared, with sales racing in November 2015.

Every major region of the state saw double-digit annual sales increases, according to the California Association of Realtors. Existing, single-family home sales totaled 442,320 in November on a seasonally adjusted annualized rate, down 0.1 per cent from October but up 17.7 per cent from November 2015. Demand for homes continued to outstrip supply, pushing November’s statewide median home price up 4.9 per cent year-on-year to $501,710.

Home sales remained above the 400,000 pace for the eighth straight month, and were up year-over-year for the third consecutive month. The seasonally-adjusted annualized sales figure was the third highest level since December 2012, and the year-over-year increase was the largest since 2009, when first-time home buyer tax credits fueled home sales.

However, November’s strong sales gain can be partly attributed to weak sales caused by the Consumer Financial Protection Bureau’s implementation of Know Before You Owe TILA-RESPA Integrated Disclosure (TRID) last October, notes C.A.R. President Geoff McIntosh, although he notes that there was “near-universal expectation of the Federal Reserve’s rate increase”, which may have given buyers a sense of urgency.

“The Federal Reserve’s announcement last week to raise the federal funds rate has been anticipated and should only have a minor, if any, adverse impact on the housing market in the next couple of months since rates are still historically low. Yet, future rate hikes will further increase the cost of a mortgage, which could impact home sales in 2017 and beyond,” adds C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young.

Indeed, pending home sales dropped from both the previous month and last year in November, indicating that the robust sales registered in November will “likely not be repeated” in the months ahead, realtors also noted, reporting “signs of slowing competition” with more properties selling below asking price and fewer properties receiving more than three offers compared to a year ago.

“With the specter of rates drifting higher, more buyers may rush in to buy homes and compete for a dearth of homes available for sale, which could put upward pressure on home prices and lead to a further decline in affordability,” continues Appleton-Young.

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