Southern California home prices have plummeted. But will the drops continue?
Last year, rising mortgage interest rates cooled the previously boiling Southern California real estate market.
Buyers retreated, sales fell and, for the first time in a decade, home prices suffered a sustained decline.
By one measure, prices in the six-county area have fallen 13% from last spring’s peak.
It could be as low as they go.
Over the past few months, there have been growing signs that home values may have resumed their ascent, potentially dashing the hopes of first-time buyers waiting for cheaper housing in the months or years to come.
What exactly is happening?
According to several data trackers, house prices have been rising over the past few months.
In April, the median selling price of an existing single-family home in Southern California rose 2% from the previous month to $785,000, according to the California Assn. real estate agents. It was the third month in a row that prices rose from the previous month.
Similar increases can be found in data trackers from mortgage firm Black Knight and real estate brokerage Redfin.
But not all sources show that prices are rising in all areas.
According to Zillow, the typical price in the combined six-county region of Southern California continued to decline in April, but the decline was the smallest since values turned negative last year.
Why does this happen?
Essentially, buyers have been more willing than sellers to return to the market this spring.
Real estate agents said a drop in mortgage rates of more than 7% to 6% brought some buyers back, as did the belief among buyers that rates wouldn’t drop much further if they continued to hold on.
Some agents said they saw mainly first-time buyers returning.
“Why pay high rent? Ramon Sanchez, a Whittier-based agent, said. “They prefer to see if they can qualify to buy.”
Jeff Tucker, an economist at Zillow, said first-time buyers might also “burst into their apartments” as their families grow, another reason why “a lot of interested first-time buyers aren’t in a place where it’s easy to wait.”
At the same time, many existing homeowners are waiting, unwilling to list their homes and trade in their sub-3% mortgages to borrow at 6%.
Year-to-date, the total number of homes for sale in Southern California has fallen 21%, according to data from Redfin.
Despite fewer options, sales increased by 34%.
“Inventory is just very low,” Tucker said. “There are enough people who can afford prices at this level that they are still bumping into each other and having a little competition.”
If I am looking to buy a house now, what should I know?
Okay, a little more competition. Compared to a few months ago, open houses are expected to be busier and there is a higher chance that you will have to bid against others.
Tracy Do, a Coldwell Banker agent who specializes in high-demand neighborhoods in northeast Los Angeles, said some homes are again selling for more than $100,000 relative to demand.
In southeast Los Angeles County, Sanchez doesn’t see any big jumps, but the last three properties he listed had multiple offers and either sold or went into receivership for above list price.
“We have more buyers in the market than sellers,” Sanchez said.
Although the market is more competitive, it has nothing to do with the pandemic housing boom.
In March 2022, buyers paid above list price in 76% of home sales in Los Angeles and Orange counties, according to Zillow. Fast forward to March 2023, that percentage was 42%.
Are these buyers – compared to early 2022 – also more likely to get away with leaving in the event of the unexpected or convincing the seller to pay for repairs.
The price is also lower.
According to California Realtors, although the median for April in Southern California’s combined six-county region was up $15,000 from March, it was $52,000, or 6.2%, below April 2022 levels.
In Los Angeles County, the median was 8% lower than a year earlier and 17% lower than the county’s price peak last September.
In Orange County, April prices were 8% off the high in that county; in the Inland Empire, 5% below peak; in Ventura County, 7% below peak; and in San Diego County 5% below peak.
Will house prices fall further?
What ultimately happens will be influenced by a variety of factors, including the direction of mortgage interest rates and whether the economy enters a recession.
But Tucker, the Zillow economist, said the most likely scenario is higher house prices from now on as high mortgage rates are expected to keep many homeowners from putting their homes up for sale.
Jordan Levine, chief economist at California Assn. of Realtors, also predicts price increases, but like Tucker at a more modest level than during the pandemic.
Levine said still-high mortgage rates and a slowing economy should dampen demand enough to keep prices from skyrocketing.
Other experts pointed out that the values could once again turn negative.
“House prices are still well below what underlying incomes would support today at today’s interest rate levels,” said Andy Walden, vice president of research at Black Knight. . “There is always potential price risk.”
Los Angeles Times