Southern California may not have freezing temperatures and snow on the ground like the rest of the country, but it is much cooler. Leaves still fall from the trees, and the golden rolling hills stretch as far as the eyes can see. It is winter. While it may be a time with plenty of sunshine and warmer temperatures when the wind shifts, it is also the rainy season. This year’s El Niño climate pattern has delivered a lot of rain and promises to deliver even more in the coming weeks. In no time, the rolling golden hills will magically turn green. If you look closely, there are already plenty of green shoots.
According to Investopedia.com, "green shoots" is a term used to describe signs of economic recovery or positive data during an economic downturn. They are a welcome symbol that the economy is on the mend and slowly trending upward. In this case, the housing market has been in a funk since mortgage rates rocketed from 3.25% at the start of 2022 to eclipsing 8% last October. Pending sales and closed sales plunged. Last year’s closed sales were one of the lowest totals in decades. Homeowners have opted to stay put in their homes, unwilling to sell and give up their incredible, low fixed-rate mortgages. Since tracking began, the number of sellers coming on the market has plummeted to its lowest level. Each of these data lines reached a low in 2023 and established a bottom. This bottom gave way to the first sign of recovery: green shoots in the number of homes coming on the market, homeowners willing to sell.
You cannot purchase what is not for sale. The limited number of homes coming on the market has exacerbated an already limited number of homes available to buy, which limits the number of pending and closed sales. Higher rates have significantly impacted demand, but so have the lack of sellers. Sales can only increase when more homeowners are willing to participate and sell their homes. In January, more homes were placed on the market than the prior year. It also occurred in November, the first year-over-year rise since July 2021, up 4% compared to July 2020.
There were 5,555 new FOR-SALE signs in January, up 16% compared to January 2023’s 4,779 or an extra 776 sellers. It is still far below the 3-year average before COVID (2017 to 2019), 7,311 new sellers, when housing was normal. January’s reading was 24% below that average, or 1,756 fewer signs. Nonetheless, it is a green shoot. More homeowners are opting to sell despite their lower fixed-rate mortgages. This is just the start, but it establishes a new trend: more available homes coming on the market for buyers to choose from.
The trend began to unfold in October when year-over-year differences were very similar. Yet, the difference in January is substantial and not a fluke. It is a paradigm shift in homeowners’ thinking. Many are tired of waiting for rates to come down. They have reasons for wanting to move: increased family size, empty nesters, job opportunities elsewhere, moving closer to family, etcetera. Over time, more and more homeowners desired to sell when the timing was right. There was pent-up seller demand that accumulated over the past couple of years. Eventually, something had to give.
Still, until mortgage rates fall further, the number of homes coming on the market will remain muted. Many homeowners continue to “hunker down” in their homes, unwilling to move due to their current underlying, locked-in, low fixed-rate mortgage. Through the third quarter of 2023, according to the Federal Housing Finance Agency’s National Mortgage Database, 85% of all Californians with a mortgage have a mortgage rate at or below 5%. More than two-thirds, 69%, have a rate at or below 4%. And an astonishing 30% are at or below 3%. In 2023, there were 41% fewer sellers than the 3-year average before COVID (2017 to 2019), with 16,920 missing FOR-SALE signs.
The January reading is a green shoot. There are more sellers, which eventually means more pending and closed sales. With mortgage rates anticipated to fall further this year, the lower rates dive, the more homeowners are willing to participate. When rates eventually fall below 6%, the increase will be substantial and more than matched by a considerable rise in demand as affordability improves. This is the year of green shoots in housing when the behemoth housing market wakes from its nearly two-year slumber.
