Editor’s note: CoreLogic’s median price and sales numbers were updated on July 2 after the real estate research firm issued revised data for Southern California on Monday, July 1. Also revised was the amount of a typical monthly mortgage payment for a median-priced Southern California home.
Southern California home prices continued to push ever upward last month, ascending to a high despite sluggish sales and high mortgage rates.
The region’s median price home — or the price at the midpoint of all sales — hit $775,000 in May, real estate data firm CoreLogic reported in revised data on Monday, July 1.
Price records also were set in Los Angeles and San Diego counties, while Orange County’s price matched the record high set in April.
Also see:Orange County rises to No. 1 home-price gains in US on high-end rush
And there appears to be no end in sight.
Home prices have risen in all but nine months out of the past 13 years.
“Home prices are very high,” said Rossana Salas, broker and owner of American Home Realty in Anaheim. “One hopes prices for homes are going to drop. But for now, they’re unchanged.”
Sales totaled 15,330 transactions in May, down 5.7% from the year before. It was the second-slowest May since the Reagan Administration.
Related: Homeownership suffers in California, US as prices outstrip incomes
Typically, prices drop when sales are this slow. So why are they still going up?
Economists use words like “inventory,” “interest rates” and “the locked-in effect” to explain this curious climate.
Yes, higher prices and higher mortgage rates have thinned the herd of potential buyers able to afford a home.
But higher interest rates also left homeowners locked into mortgages they took out during the pandemic, when rates averaged 3-4%. According to First American Financial Corp., just over half of U.S. borrowers have rates below 4%, and nine out of 10 have rates below 6%.
That compares with an average rate of almost 7% last week.
“People aren’t moving right now. Nobody wants to get rid of their 3% interest rate,” observed Huntington Beach agent Terry McCarty.
Sales tend to be limited to people dealing with death and divorce, who are looking for bigger homes for their growing families or are “done with California and are moving out to Utah, Idaho, Texas and North Carolina,” he said.
As a result, for-sale inventory is 40% below pre-pandemic levels, despite a recent uptick in listings this year. In other words, there are more buyers than homes on the market.
“When a nice house is listed in a nice neighborhood at a good, fair price, there (are) multiple offers,” McCarty said. “We’re having bidding wars, still.”
The six-county region had 48,779 active listings in May, according to Redfin. That’s down from more than 80,000 homes for sale in the spring of 2019.
On the other hand, listings have gone up steadily in the past five months, adding almost 12,000 homes to the market since hitting a 13-year low last December, Redfin figures show.
That prompted agent Shannon Shue to write in her online newsletter that “sellers are back in a big way.”
After waiting for two years for interest rates to come back down, sellers are ready to move on with their lives, the Marina Del Rey agent said.
“People are accepting where the interest rates are,” Shue said. “People can’t put their lives on hold much longer. … People want to move on in their life.”
Buyers, meanwhile, had to contend with more than just rising sales prices. While last month’s prices were up 8.4%, the typical 30-year mortgage payment increased 16% to $4,150 a month due to higher interest rates.
Salas worries the market is in another bubble because buyers must stretch their budgets to get into a home. She wondered how the buyers of a five-bedroom Riverside home she listed will manage to make payments of almost $5,000 a month after putting just 5% down.
“How can those people make those payments over the long run?” Salas said.
Others doubted that the market is in a bubble or that prices are going to come down soon. If the Federal Reserve lowers interest rates as expected later this year, “it’s just going to release the hounds,” Shue predicted. That will drive prices up even further.
“I don’t see this being a bubble when (buyers) are pushing through higher interest rates,” she said.
There might be a short window when rates come down where buying a home with a mortgage gets cheaper, said Ralph McLaughlin, senior economist for Realtor.com. But that window will be small.
“If you wait too long and rates come down further,” McLaughlin said, “then that just means prices are going to continue to rise.”
Here’s a county-by-county breakdown of home prices and sales with percentage changes from the year before:
— Los Angeles County’s median rose 10.6% to a record high of $890,000; sales were down 5.9% to 4,832 transactions.
— Orange County’s median rose 20% to $1.2 million; sales were down 2.7% to 2,192 transactions.
— Riverside County’s median rose 5.4% to $585,000; sales were down 2% to 3,268 transactions.
— San Bernardino County’s median rose 5.3% to $500,000; sales were down 8.9% to 1,981 transactions.
— San Diego County’s median rose 10.9% to a record high of $898,000; sales were down 8.7% to 2,485 transactions.
— Ventura County’s median rose 2.2% to $822,000; sales were down 11% to 572 transactions.
