CA housing affordability fell, interest rates peaked this summer. How did it impact SLO County?

A summer of depressed sales and low inventory continued its hold over San Luis Obispo County’s housing market in July, as well as the rest of California.

According to San Luis Obispo-based Realtor Graham Updegrove, the current state of the market is dividing local buyers into two categories: the haves and the have-nots.

Where it might have been possible for some lower-income buyers to get into a home when interest rates were more favorable as recently as two years ago, those rates are now too high for most buyers to stomach, Updegrove said.

National interest rates on 30-year fixed-rate mortgages hovered just below 7% all July, and continued to climb in August, according to home lending corporation Freddie Mac.

Rates surpassed the previous peak of 7.08% in August, reaching 7.09% on Thursday — the highest interest rate since Dec. 17, 2001.

“(High interest rates have) just weeded out people that were struggling to get into a home in the 3% range,” Updegrove said. “In the lower price range threshold, there’s a larger buyer pool that can afford the $700,000 home versus $1 to $1.5 million plus.”

Here’s a look how the San Luis Obispo County housing market fared in July — plus a look at how housing affordability has fared in this new high-threshold market.

Report: Even by CA standards, SLO County is unaffordable

Even after a month that saw home prices slightly decline, California hit a new low in housing affordability in July.

According to the California Association of Realtors’ quarterly housing affordability report — which measures the percentage of all households that can afford to purchase a median-priced, single-family home in California — just 16% of the state’s households could afford to buy a median-priced home in the second quarter of 2023.

That was the state’s lowest housing affordability rate in 16 years, slipping from already-low figures such as 17% in the second quarter of 2022 and 19% in the first quarter of 2023.

To afford a home in California at the median price, a household must make a minimum annual income of $208,000 — enough to make $5,200 monthly payments on a $830,620 home at a 6.61% interest rate, the CAR report found.

Meanwhile, the CAR report ranked three Central Coast Counties as among the least affordable places to buy a home in California — including San Luis Obispo County.

Just 11% of San Luis Obispo County residents could afford a median-priced home in the second quarter of 2023, according to the CAR report.

Only in Mono and Santa Barbara counties, where the percentage of households that could afford a median-priced home was 5% and 10%, respectively — was home ownership less affordable.

A homebuyer in San Luis Obispo County would need to make a minimum of $220,400 a year to afford a median-priced house in the county, the report found.

In the era of remote work, those lower-cost homes that might have served lower-income local buyers have been snapped up by out-of-town buyers with more money to spend, Updegrove said.

What’s left is often being purchased by older local buyers with more savings and money on hand, leaving little room for new buyers to enter the market, Updegrove said.

Central Coast home sales continue to suffer

Affordability wasn’t the only thing that suffered in recent months, as sales again faltered both statewide and in San Luis Obispo County, according to CAR’s monthly statewide housing market report.

In July, 203 homes were sold in San Luis Obispo County, declining 7.7% from July 2022.

Declines in sales were more pronounced in Monterey County, which saw 139 sales last month — 18.7% fewer than July 2022.

Santa Barbara County was the only Central Coast county to to see growth in sales last month, increasing 2.7% year-over-year with 152 homes sold.

In San Luis Obispo County, the number of homes sold in July grew only in Pismo Beach, Morro Bay and Cambria, with all other parts of the county experiencing declines in sales compared to this time last year.

Pismo Beach’s 10 units sold in July was 25% higher than this time last year, while Cambria’s nine sales constituted a 12.5% increase from July 2022.

Morro Bay’s 11 homes sold represented the largest increase in sales compared to July last year, growing 83.3%.

But for the most part sales fell in most cities, with Grover Beach leading the way at a 35.7% year-over-year drop, or just nine sales in July.

Other cities were close behind, with Los Osos falling 28.6% year-over-year to five sales and Nipomo dropping 21.1% to 15.

Declines in sales were less severe in San Luis Obispo, where the 24 homes sold trailed 14.3% behind the number of sales last July and in Paso Robles, where 46 units were sold for a 14.8% year-over-year decrease.

Templeton saw just eight homes sold last month, an 11.1% decline from last year, while in Atascadero, 28 units were sold for a 9.7% year-over-year decrease.

Arroyo Grande experienced the county’s lowest decline, falling 5% from last year to 19 sales in July.

Listings post large declines

The number of units on the market also dropped significantly in San Luis Obispo County last month, falling 17.2% year-over-year to just 333 active listings.

Neighboring Santa Barbara County saw a 21.4% decline in listings, falling to 301 in July, while Monterey County experienced the largest drop on the Central Coast — falling 24.6% for a total of 297 active listings last month.

In San Luis Obispo County’s communities, some places saw the number of active listings go up last month, but for the most part, the number of listings fell in area’s largest cities.

Templeton’s 20 listings last month was 25% more than the number of listings in July 2022, while Atascadero grew 11.1% year-over-year with 40 units on the market, and Cambria’s 23 listings represented a 21.1% bump from last year.

No city saw a bigger bump in listings than Pismo Beach, where 25 homes were listed in July for a 50% year-over-year increase.

As with home sales, though, listings largely fell across the county.

Nipomo saw new listings fall by 54.3% — the most in the county — for a total of 19 listings, while San Luis Obispo saw a 41.7% drop in its listings, for a total of 28.

Grover Beach was close behind, with listings falling 40% from July 2022 for a total of nine listings last month. Meanwhile, Morro Bay’s 13 listings in July represented a 31.6% year-over-year decline.

With 63 units on the market, Paso Robles had the most home listings of all cities in the county in July — but that was still 23.2% lower than how many it reported in July 2022.

Arroyo Grande listings fell the least, dropping 12.7% year-over-year, meaning the South County city ended July with a total of 27 units on the market.

Updegrove said the drop in the number of local listings is likely a symptom of a housing market that saw critically low levels of new inventory entering the market between 2008 and 2018.

Despite the heavy emphasis counties and cities across the state have placed on building more housing in recent years, not enough inventory is becoming available to meet demand, Updegrove said.

“I would imagine everywhere is in this low inventory situation,” Updegrove said. “I don’t want to sound like a broken record, but low inventory is the new norm.”

Prices continue to soften in restrictive market

Countywide, median home price declined somewhat, falling 4% from last July.

The median home price in three SLO County cities went up, according to the data: Arroyo Grande grew 12.5% to $1.18 million, Pismo Beach went up 12.5% to $1.23 million and Templeton’s jumped 69.4% to 1.45 million.

Some of the biggest losses came in Atascadero, which experienced a 14.7% reduction in median price year-over-year, dropping to $704,000. In San Luis Obispo, the median home price fell by 12.5% year-over-year to $1.03 million; in Morro Bay, prices fell 11.9% to $945,000 and in Paso Robles, prices declined 10.2% year-over-year to $715,000, the report found.

In other cities, declines in median price were more moderate.

Cambria’s median price fell 7.9% year-over-year to $960,000, Los Osos’ median price hit $783,000 after falling 5.2% and Grover Beach’s median price fell 2.7% to $750,000 in July.

Nipomo’s median price fell just 1% year-over-year, ending July at $860,000.

Even with some modest declines in price, Updegrove said the market hasn’t gotten any more hospitable to lower-income buyers, thanks to the twin problems of high interest rates and low inventory.

The only thing keeping the seller’s market in check are high interest rates, as new buyers are more hesitant to lock into a high rate on an expensive home and current owners are likely less willing to let go of more favorable interest rates, Updegrove said.

“The haves will continue buying and moving where they desire, whereas the have-nots are totally priced out of the market,” Updegrove said. “They’re spending a lot of their income on housing, whether it’s a property they own or rent. Such a large percentage of their household income is going towards housing — and I don’t have the magic eight ball answer on how you solve that”