Rent and home prices continue to drop nationwide. Will SLO County’s market follow?

A 2022 filled with home price increases across California finally began to cool as the seasons turned to autumn, and October was no exception.

Sky-high home and rent prices continued their slow decline in October across California, reports from the California Association of Realtors (CAR) and Rent.com showed.

With housing affordability beginning to slowly climb, could these lower prices affect San Luis Obispo County’s typically insular housing market?

Home prices, sales see big drops statewide

On the Central Coast, San Luis Obispo County’s median home price dropped from $875,000 in September to $815,000 in October, the CAR report said, a 6.9% decline that brought prices nearly in line with this time last year.

The current median SLO County home price of $815,000 is now just 1.9% higher than October 2021’s median of $800,000.

Those lower prices come as nearly 45.6% of SLO County homes were sold below listing price, Arroyo Grande Realtor Barry Brown said.

“This is where I think that there’s some opportunity for buyers like right now,” Brown said. “when you were going into battle last year, at this time, the big problem you had is that there were a lot of people that were were buying, and because of that there was a lot of competition for every one of the listings that were out there.”

SLO County was the only Central Coast county to post negative price growth in October, with neighboring Monterey, Santa Barbara and Santa Cruz counties seeing median month-over-month price increases of 5.2%, 23.2% and 11.9%, respectively.

Those local number was an echo of the trends seen by the rest of the state; the median home price in California ended October at $801,190, a 2.5% decrease from the previous month, and was only 0.3% higher than this time last year, the CAR report found.

On top of the drops in price, the 274,000 homes sold in California last month also continued a 16-month downward trend in home sales on a year-over-year basis.

That figure was good for an 18.5% drop compared to last October.

The CAR report blamed this continued slowdown in home prices sales on rising interest rates on 30-year fixed-rate mortgages, which peaked north of 7% in October, according to Freddie Mac.

With the exception of slowdowns directly caused by the COVID-19 pandemic, those high interest rates led to the lowest sales level since February 2008 and the largest year-over-year decline since December 2007, the CAR report said.

Since its Oct. 27 peak of 7.08%, the 30-year rate has fallen to 6.61% this week, signaling interest rates may have reached their peak this year, the CAR report said.

Brown said while a more moderated market might seem like a golden opportunity to buy a home, there’s little difference in outcome.

Over the past several months, Brown said many buyers chose to accept high interest rates with the expectation of eventually refinancing their mortgages down the line, rendering the thought of waiting for a good interest rate moot.

“Nobody ever rings the bell at the top of the market, and nobody ever rings the bell to let you know it’s the bottom of the market,” Brown said. “Trying to time the real estate market for a perfect purchase is pretty tough to do. It’s more just a factor of luck, rather than any kind of planning that you can do.”

Home affordability inches up statewide

CAR’s recently released third-quarter housing affordability index also provided some reasons for optimism, bouncing back from the 15-year low of 18% in the second quarter of 2022.

That means 18% of California households were capable of purchasing a $829,760 median-priced home in the third quarter of 2022, the report said, based on an ability to meet a monthly payment of $4,820 with a 5.72% interest rate.

That would require a minimum income of $192,800 to qualify for the purchase of a median-priced single-family home.

That still is too expensive for the vast majority of Californians, Brown said, but seeing housing affordability improve is still a good sign for the health of the market.

“In the end, what really drives home sales is what someone can afford to pay each month in a housing payment,” Brown said.

Despite a small increase in housing affordability from 12% to 13% locally, SLO County still lags behind much of the state.

Only Mono County’s 8%, Santa Barbara County’s 13% and Monterey County’s 13% housing affordability rates fared as low or worse than SLO County between the second and third quarters.

However, despite some marginal improvements this quarter, markets across the state have yet to return to last year’s housing affordability level.

In SLO County, housing affordability rates are still almost half of the 24% they were at in the third quarter of 2021.

National rents drop while some California cities see declines

Like the housing market, the national rental market has seen declines over the last few months, spurred by a 2.5% decrease in costs in September.

“The September decline at 2.5% was the first real monthly decline since February 2021 and the largest month-over-month decline since September 2020,” the Rent.com report said.

While October’s national median rent of $1,983 represented a 7.8% increase over this time last year, it still accounted for a 0.97% drop from the previous month.

In California, where the median rent landed at $3,032, both of these trends were somewhat moderated compared to the national trends.

That was 4.65% higher than last year, but down 0.31% from September.

Similarly, year-over-year, 90.7% rental markets were up compared to October 2021, compared to 9.3% of markets seeing decreases, while month-over-month, 58.1% of rental markets saw decreases compared to the 39.5% that saw increases.

Brown said the high interest rates seen over the past several months may have driven these prices higher, as landlords of newly purchased homes charged higher rents to compensate for higher initial mortgage rates.

“Obviously, it becomes maybe less attractive for (landlords) to buy an investment home (when rates are higher),” Brown said. “And if they do, then they have to kind of pass that on more to renters.”