Why California home sales tumble as car purchases rise

“Numerology” tries to find reality within various measurements of economic and real estate trends.

Buzz: Just 258,000 California houses sold last year – the lowest sales count since the Great Recession ended. Meanwhile, Californians gobbled up 1.78 million vehicle sales, the sixth-best year since 2009.

Source: My trusty spreadsheet looked at single-family house sales (from the California Association of Realtors) vs. purchases of new cars and light trucks (from the California New Car Dealers Association) dating back to 2009.

Fuzzy math: You’d think California sales patterns would be somewhat in sync for two of the largest transactions a household makes.

Topline

Both house hunters and car shoppers need significant financial oomph to close the deal.

Both transactions also require a solid economy and a decent amount of consumer confidence.

But in six of the last 14 years, home purchases and car sales ran in opposite directions. How can this be?

The scoop

We know that homebuying thrives when interest rates are falling, considering California housing’s lofty price tags and 30-year financings.

But car financing is shorter-term, typically over five years, so interest rates are not as big of a consideration.

Consider this example of typical monthly payments.

In 2019, the median-priced $607,000 California house at the average 3.9%, 30-year rate had a $2,290 monthly payment. Last year, houses were 37% pricier at $833,000 with rates that jumped to 7.4%. That created a $4,614 typical payment – up 101% in four years.

Compare that with new cars. In 2019, the average $40,000 new car at a 4.6%, five-year rate had a $748 payment. Last year, cars were 23% pricier at $49,000 – with 7.7% rates – for a $987 payment. That’s up just 32% in four years.

Bottom line

Yes, California’s home sales last year suffered from few owners willing to sell as auto dealers had their first decent inventory since coronavirus broke the supply chain.

But a longer-term view shows these two purchases often dance to different economic drums.

Interest rates – homebuying’s juice – tend to fall when the economy weakens. Yet a strong job market – fuel for car sales and higher interest rates – creates demand for transportation to get to work.

So ponder California’s best five years for these major purchases since 2009, as defined by yearly percentage gains in sales, and how the economy performed.

In homebuying’s hottest years, on average, we saw: Statewide unemployment was flat, California’s consumer confidence as measured by the Conference Board was up 7% – and the Fed Funds rate (controlled by the Federal Reserve) was down 0.4 percentage points.

Contrast that with car buying’s top times: California’s unemployment rate was down by 0.6 percentage points, consumer confidence was up 12% – and the Fed Funds rose 0.7 percentage points.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com