Southern California home sales plunged in July and show little signs of rebounding. And that, economists say, could stunt the region's economic growth.
Buyers scooped up 20,369 new and resale houses and condos in the six-county region last month, down 12.4% from a year earlier, research firm CoreLogic DataQuick said Wednesday. The sharp drop follows steady declines since October, as would-be buyers struggled to afford houses after prices surged last year.
The drop in sales could have economic repercussions. When someone buys a home, they often splurge on items such as new furniture, fresh paint or new carpeting. Then there are real estate agents, mortgage brokers and moving companies to pay.
"The housing multiplier effect is very significant, because there are so many things that happen with a home purchase," said Leslie Appleton-Young, chief economist for the California Assn. of Realtors. "That is dampened when you have lower home sales."
The pain is especially acute for brokers, who depend on a commissions.
"There are a lot of hurting agents right now," said South Bay agent Leo Nordine, who said his volumes have been roughly flat this year. "There are too many agents and not enough sales."
The steady declines come despite more homes on the market compared with last year. With prices sharply higher, there are simply fewer buyers able to afford them.
Changing demographics are also playing a role, experts said. Surveys show most young adults still want to own a home, but significant barriers exist for that large demographic group.
Student debt is high, income growth is meager and many are putting off marriage, which historically has spurred purchases. And the massive baby boom generation isn't downsizing en masse, further limiting home sales as its members hold onto their spacious suburban homes, Appleton-Young said.
"It's clearly a concern," she said of low sales volumes. "And I'm not seeing the way out of it."
Others experts aren't so dour. Sales of previously owned homes, the largest segment of the market, have an economic impact, but a small one, said Richard Green, director of USC's Lusk Center for Real Estate. Housing's economic punch comes chiefly from new home construction, which demands legions of laborers and raw materials, he said.
New home sales fell 1.9% last month, after rising 4.4% in June.
The broad sales drop stems from less demand not only from families but also investors. Foreclosures, a favorite target of those buyers, flooded the market after the bubble burst, depressing values and wrecking credit for those forced to leave their homes. With the availability of those low-priced properties rapidly shrinking, investors have pulled back.
Once distressed sales — foreclosures and short sales — are removed from the data, conventional sales fell only 2.8% in July.
"This is just all part of getting back to normal," said Bill McBride, who writes the financial blog Calculated Risk. "We are getting rid of the foreclosures."
Families, however, haven't filled the void created by the investor retreat, even though more homes are for sale, mortgage rates are near historical lows, and price appreciation is slowing. The Southland's median home price rose 7.3% to $413,000 in July, the smallest year-over-year gain since June 2012.
"Prices came a long way in a couple of years, and now a lot of would-be buyers just can't stretch their finances enough to buy in today's more conservative lending environment," CoreLogic DataQuick analyst Andrew LePage said.
And if demand for homes remains subdued, builders aren't likely to ramp up construction to historic levels, further blunting housing's economic impact.
Home sales last month were 19.4% below the 26-year average for July, CoreLogic DataQuick said.
"We haven't had an average month in more than eight years, and I don't think we are going to see one in the next six months," LePage said.