At the end of April, we showed that the California housing market is getting just a "little frothy" again, when in the span of a few days a simple 2-bedroom house sold for 40% above asking. Now, according to a recent analysis by CoreLogic it appears that this was not a one-off event, because as many Californians struggled to gain a foothold in homeownership early this year, they were hindered as a surging stock market and other forces lifted sales of $1 million-plus homes to the highest level ever for a first quarter.
In a blog post by CoreLogic's Andrew LePage, the real estate consultancy reports that the number of California homes that sold for $1 million or more totaled 10,562 during the January-through-March period, up 11.7% year over year and the highest on record for a first quarter. Luxury homebuyers purchased 2,523 homes priced at $2 million or more in the first quarter, up 11.8% year over year and also a record for a first quarter (Figure 1).
Maybe it's just another opportunity to blame the Fed: historically there’s often been a correlation between a rising stock market and an increase in luxury home sales (Figure 2). Higher stock values can make potential homebuyers feel wealthier and in some cases stock proceeds are reinvested in real estate. Job growth and higher consumer confidence are among the other likely drivers of the record $1 million-plus sales last quarter.
Or maybe just simple math: as price appreciation continues, more homes reach or exceed the $1 million mark.
On average, $1 million-plus homes that sold last quarter were a bit smaller, and situated on smaller lots, compared with the average home and lot size for $1 million-plus sales over the past decade (more on this below). Last quarter’s share of $1 million-plus sales that were newly built homes – 11 percent – was lower than a year earlier, when it was 13.9 percent, but higher than the 10-year quarterly average of 8.4 percent. While the number of sales of existing (resale) $1 million-plus homes hit a first-quarter record high in this year’s first quarter, sales of $1 million-plus newly built homes were about 12 percent lower than a year earlier and about 30 percent below the first-quarter record set in 2006.
According to CoreLogic, California’s all-time high for the total number of $1 million-plus sales was 15,222 in second quarter 2016, which is also when the state experienced an all-time high of 3,508 sales of $2 million-plus homes.
Meanwhile, even as total California home sales – including all price levels – last quarter were the highest for a first quarter in five years, the number of sales of homes priced below $500,000 was the lowest for any quarter in nine years, since first quarter 2008. Home price appreciation and tight inventories in many markets have led to fewer sub-$500,000 sales. Last quarter 59.3% of all sold homes were priced below $500,000 – roughly the same level as during the previous three quarters and the lowest for any quarter in nearly a decade, since third quarter 2007 (Figure 3).
Last quarter the share of homes that sold for $1 million or more – 10.9 percent – was the second-highest on record for any quarter, behind 11.7 percent in second quarter 2016. The share of all homes that sold last quarter for $2 million or more – 2.6 percent – was also the second-highest on record, behind 2.7 percent in second quarter 2016.
Of the homes that sold for $1 million or more last quarter, nearly 77 percent sold for $1 million to $2 million, and the vast majority (91 percent) sold for no more than $3 million.... which probably means that when the Chinese finally leave Canada and hit California, watch out.
Other highlights from California’s $1 million-plus home sales in first quarter 2017, per CoreLogic:
- Roughly 78 percent of the $1 million-plus sales last quarter were existing (not new) detached houses, up from about 75 percent a year earlier but below the 10-year quarterly average of about 82 percent.
- About 11 percent of last quarter’s sales were existing condos, roughly the same as a year earlier and above the 10-year quarterly average of around 9 percent.
- About 31 percent of the homes that sold for $1 million or more last quarter were purchased with cash, while nearly 43 percent of multi-million-dollar sales were bought with cash.
- The average size of a $1 million-plus home sold last quarter was 2,739 square feet, down from a 10-year average of 3,064 square feet. For resale detached houses the average was 2,825 square feet, while for resale condos it was 2,053.
- On average, $1 million-plus homes sold last quarter had four bedrooms and three bathrooms.
- The average lot size for a $1 million-plus home sold last quarter was 17,368 square feet, down from a 10-year average of 19,370 square feet (for homes on 5 acres or less).
- The five zip codes with the highest number of million-dollar-plus home sales last quarter were 92620 (Irvine); 92130 (San Diego, including Carmel Valley); 95125 (San Jose); 92037 (La Jolla, San Diego); and 92651 (Laguna Beach).