This is CalMatters housing reporter Ben Christopher pinch-hitting for Lynn.
There’s something odd going on in California’s housing market.
If you’ve bought a house in this state lately — or if you’ve thought about buying a house, perused your local listings and then deleted the Zillow app from your phone while quietly weeping — you’ve probably noted that interest rates are high these days.
In fact, the rate on a typical 30-year fixed-rate mortgage cracked 8% on Wednesday, according to the tracking site Mortgage Daily News. Weekly data from Freddie Mac shows home borrowing rates are now higher than they’ve been in at least two decades.
That’s thanks almost entirely to the work of the U.S. Federal Reserve, which has been ratcheting up the cost of borrowing in an attempt to rein in inflation.
The way that’s supposed to work follows two steps:
- Step one: Higher rates make it less appealing for people to borrow money for big purchases and investments.
- Step two: Fewer people wanting to buy stuff leads sellers to cut prices.
A new report out on Wednesday from the California Association of Realtors shows that the state’s housing market is experiencing that first step in spades as sales continue to crash.
But step two? We’re still waiting.
The number of homes sold in September of this year is down 21.5% from the previous year, according to the Realtors report.
But despite the drop off in demand, California’s notoriously high home prices haven’t budged much. Statewide, they’re up about 3% over last year.
What’s the deal?
I asked Oscar Wei, deputy chief economist with the Realtors association, who explained that the housing sector can behave by its own economic rules. That’s because, unlike the people who sell new cars or clothing or groceries, someone selling a house is also often in the market to buy one. And they don’t like these high rates either.
- Wei: “Three years ago, many existing homeowners at that time locked in at a rate of let’s say, three percent… right now, when people look at the rate, it’s seven. Even if they originally planned on moving, they may not necessarily want to do that right now.”
To put that in Econ 101 terms, the high borrowing rates not only cool demand, putting downward pressure on prices, they simultaneously restrict supply, which boosts prices back up. The net effect: High rates combined with persistently high prices, pricing out ever more aspiring first-time buyers.
The high rates could also make it that much harder for state lawmakers to combat California’s housing shortage over the long run. Last week, Gov. Gavin Newsom signed 56 bills aimed at speeding up the building process in an effort to tackle California’s chronic housing shortage.
But cutting red tape only goes so far. The people in the business of building homes operate with borrowed cash.
Hence the result from a survey out this week by the National Association of Home Builders, which found that high rates have home builders feeling awfully glum these days. That’s especially true of those in western states, including California.
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Other Stories You Should Know
Test scores still in post-pandemic slump
The pandemic may be officially over, but here’s another example of how the shadow of COVID-19 is still hanging over the state: Student test scores.
The California Department of Education released a raft of new numbers. As CalMatters education reporter Carolyn Jones and data reporter Erica Yee explain: “Scores remained mostly stagnant last year and still well below pre-COVID levels.”
That’s despite billions of dollars in state and federal spending aimed at helping kids catch up after pandemic-era school closures.
- Linda Darling-Hammond, state Board of Education president: “We’re not where we want to be. We have a long road to go, but we are making headway.”
But that headway is pretty modest:
- The number of students who met math standards inched up since last year, but only a little more than a percentage point;
- Those meeting English language art standards actually fell slightly.
One explanation for why these numbers refuse to budge: State schools have seen an uptick in the share of students from low-income families and those experiencing homelessness.
Which brings us to yet another example of California’s persistent COVID hangover: With so many state and federal pandemic relief programs coming to an end, poverty shot up across California last year.
California’s B.S. debate
California environmental regulators, farmers, fuel producers and environmental activists are in a heated debate about cow poop.
That’s because the California Air Resources Board may soon phase out subsidies for dairies that capture the methane that wafts off of cow and pig manure.
As CalMatters environment reporter Alejandro Lazo explains, it’s a dilemma that reflects California’s changing priorities when it comes to tackling climate change.
- Providing financial credits for “avoided methane” was once considered a smart way to reduce dairy industry emissions: Methane blasted from either end of some 1.7 million cows that makes up roughly 6% of the greenhouse gas emissions attributable to California’s agriculture industry.
- But those credits have spawned a California biogas industry, whose very product (“renewable” gas) powers another product state regulators are hoping to soon phase out (cars with internal combustion engines).
Read Alejandro’s story for a deep dive into this surprisingly complex debate — but also for his description of a Tulare County dairy digester, a thick-skinned black balloon that inflates atop a manure lagoon the size of a football field.
Apparently walking on it was like “stepping on a bounce house at a child’s birthday party.”
A ‘just right’ solution to homelessness?
It’s a tiny solution to California’s biggest problem.
Less that 400 square feet and often lacking a kitchen or a bathroom, “tiny homes” have become an increasingly popular way for local and state officials to offer shelter to Californians experiencing homelessness.
They may be here to stay, writes CalMatters’ Jeanne Kuang. That’s in part because between cheap but crude congregate shelter arrangements and comfortable but slow and expensive affordable housing projects, these modular houses occupy a Goldilockian sweet-spot.
- San Jose Mayor Matt Mahan: “They are our single best solution to the crisis on our streets.”
Some of the advocates that Jeanne spoke to — even including a tiny homes builder — worried that the focus on tiny homes as a solution to the state’s homelessness crisis could detract support and funding from longer term solutions, like permanent supportive housing.
- Amy King, CEO of Pallet Shelter: “I am not a supporter of this type of housing becoming a substitute for permanent housing.”
One of the state’s biggest tiny home boosters: Gov. Newsom. Earlier this year, he said that his administration would be sending 1,200 units across the state.
When can cities expect the first delivery? The state is still working on it.
CalMatters columnist Dan Walters: When Gov. Newsom signed a bill, he opened a new front in a complex, decades-long political and legal war between employers and unions.
CalMatters columnist Jim Newton: The re-election bid for Los Angeles County District Attorney George Gascón is likely to come down to his poor management, not his ideology.
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Sen. Butler’s lucrative post-union work included a $1M-plus Airbnb payout // Politico
State fines Long Beach hotel $4.8M for not rehiring workers post COVID // Los Angeles Times
LA TV anchor Christina Pascucci is running for US Senate in CA // Politico
CA no-kill animal shelters struggle with rising pet euthanasia rate // The Sacramento Bee
Suzanne Somers’ legacy tainted by celebrity medical misinformation // California Healthline
Citrus disease’s northward march worries valley growers // Bakersfield Californian
Will El Niño’s return mean an even wetter 2023 winter? // KQED