I have reprinted a portion of this article because of important data that just came out. So, a closer look at the charts below the article is imperative.
Southern California home sales crash, a warning sign to the nation
- Sales of both new and existing houses and condominiums dropped 11.8 percent year over year, as prices shot up to a record high, according to CoreLogic.
- The median price paid for all Southern California homes sold in June was a record $536,250, according to CoreLogic, a 7.3 percent increase compared to June of 2017
- In the past, California, one of the largest housing markets in the nation, has been a predictor for the rest of the country.
Southern California home sales hit the brakes in June, falling to the lowest reading for the month in four years. Sales of both new and existing houses and condominiums dropped 11.8 percent year over year, as prices shot up to a record high, according to CoreLogic. The report covers Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties.
Sales fell 1.1 percent compared with May, but the average change from May to June, going back to 1988, is a 6 percent gain.
The weakness was especially apparent in sales of newly built homes, which were 47 percent below the June average. Part of that is that builders are putting up fewer homes, so there is simply less to sell.
“A portion of last month’s year-over-year sales decline reflects one less business day for deals to be recorded compared with June 2017,” noted Andrew LePage, a CoreLogic analyst. “But affordability and inventory constraints are likely the main culprits in last month’s sales slowdown, which applied to all six of the region’s counties and across most of the major price categories.”
Fewer affordable homes
The median price paid for all Southern California homes sold in June was a record $536,250, according to CoreLogic, a 7.3 percent increase compared with June 2017. While part of that is due to a mix shift, since there are fewer lower-priced homes for sale, it is becoming increasingly clear that fewer buyers are able to play in the higher price ranges.
“Sales below $500,000 dropped 21 percent on a year-over-year basis, while deals of $500,000 or more fell about 3 percent, marking the first annual decline for that price category in nearly two years,” said LePage. “Home sales of $1 million or more last month rose just a tad – less than 1 percent – from a year earlier following annual gains of between 5 percent and 21 percent over the prior year.”
LePage points to the rise in mortgage rates over the past six months, increasing significantly a borrower’s monthly payment. Rates haven’t moved much in the past month, but are suddenly going higher again this week, pointing to even further weakness in affordability.
Time to check the trend charts:
The charts below represent the Real Estate Sector and can tell us if the information in the article above is pointing to a possible Real Estate price crash or it has it already started. Should we look to transfer from a REIT to something with more growth potential? Should we move form Real Estate Mutual funds or Exchange Traded Funds to another sector?
Let’s take a look:
The Image below is our longer-term Monthly Trend Chart for IYR, a Real Estate Index ETF:
As you can see it is bullish after a short corrective decline since January. But because of the late spring and summer building that exploded, we have reacted bullishly. Could that turn south again?
The Weekly chart below gives us even more information revealing that the overall real estate market has been extremely bullish since late February. Our algorithm was hit with a rare quick scare in late April only to capture the bull run since then. But the article is speaking of data that just came out. So, a closer look is imperative.
The Daily Chart for the Real Estate Index tells a changing story:
We can see that a downturn in the real estate index has just begun and may be illustrating the start of a downward move that can be traded successfully.
It can also be a guide telling you that the weekly Red Light is could be arriving shortly. This would confirm that both the daily and weekly are supporting a decline in prices that just started this month.
Better yet, this information could tell you to exit your ETF, or even take a short position to profit from a decline.
InterAnalyst has been serving over 500,000 investors globally since 1990. Authoring hundreds of financial articles, publications, and thousands of buy and sell trading charts. Mr. Nespoli’s Premier Bull & Bear blog is been read by more than 500,000 investors globally.