(File photo from Orange County Register/SCNG)
Home prices in Southern California continued to rise last month, reaching a record high despite sluggish sales and high mortgage rates.
The area’s median home price – or the price at the median of all sales – rose to a historic high of $770,000 in May, real estate data firm CoreLogic reported Tuesday, June 25.
Los Angeles, Orange and San Diego counties also saw record prices, while Riverside County’s price reached the record high set in April.
See also: Orange County is becoming the leading real estate price region in the US due to the rush of high-end buyers
And there seems to be no end in sight.
With the exception of nine months, real estate prices have increased in every month over the past 13 years.
“Real estate prices are very high,” said Rossana Salas, broker and owner of American Home Realty in Anaheim. “You hope real estate prices will go down. But right now they are flat.”
Revenues also rose, reported CoreLogic. But not by much.
May’s 17,740 transactions exceeded the year-ago figure by just 411 deals. That’s a 2% increase from the third-lowest May since the Reagan administration.
Related: Home ownership rate in California and the US falls as prices exceed incomes
Normally, prices fall when sales are so slow, so why are they still rising?
To explain this strange climate, economists use words like “inventory,” “interest rates,” and “locked-in effect.”
Yes, higher prices and higher mortgage rates have decimated the pool of potential buyers who can afford a home.
But the higher rates also left homeowners tied to mortgages they took out during the pandemic, when interest rates averaged 3-4%. Just over half of U.S. borrowers have interest rates below 4%, and nine in 10 have rates below 6%, according to First American Financial Corp.
For comparison, last week the average rate was almost 7%.
“People aren’t moving right now. Nobody wants to get rid of their 3% interest rate,” noted Huntington Beach real estate agent Terry McCarty.
The sales are typically limited to people dealing with death or divorce, looking for a larger home for their growing families or “who have had enough of California and are moving to Utah, Idaho, Texas and North Carolina,” he said.
As a result, the inventory of homes for sale is 40% below pre-pandemic levels, even though the number of listings has increased recently this year. In other words, there are more buyers than homes on the market.
“When a nice house in a nice neighborhood comes up for sale at a good, fair price, there are multiple offers,” McCarty said. “We still have bidding wars.”
According to Redfin, there were 48,779 active listings in the six-county region in May, down from more than 80,000 homes for sale in spring 2019.
On the other hand, the number of listings has risen steadily over the past five months, with nearly 12,000 homes coming onto the market since hitting a 13-year low last December, according to Redfin figures.
This prompted real estate agent Shannon Shue to write in her online newsletter that “sellers are back in a big way.”
After waiting two years for interest rates to drop, sellers are now ready to move on with their lives, the Marina Del Rey-based agent said.
“People are accepting the current interest rates,” Shue said. “People can’t put their lives on hold much longer. … People want to get on with their lives.”
Buyers, meanwhile, have had to contend with more than just rising sales prices. While prices rose 8.5 percent last month, typical mortgage payments for a 30-year term rose 15 percent to $4,123 per month due to higher interest rates.
Salas fears the market is in another bubble because buyers have to stretch their budgets to get a home. She wondered how buyers of a five-bedroom house she is offering in Riverside will manage to make payments of nearly $5,000 a month after putting down just 5 percent.
“How can these people make these payments in the long term?” Salas said.
Others doubted that the market was a bubble or that prices would fall soon. If the Federal Reserve cuts interest rates later this year as expected, “they’ll just let the dogs loose,” Shue predicted. That will drive prices even higher.
“I don’t think it’s a bubble if (buyers) are pushing for higher interest rates,” she said.
There may be a brief window of time when buying a home with a mortgage becomes more affordable if interest rates fall, says Ralph McLaughlin, senior economist at Realtor.com. But that window will be small.
“If you wait too long and interest rates continue to fall,” McLaughlin said, “that just means prices will continue to rise.”
Here is a breakdown of home prices and sales by county with the percentage changes from the previous year:
– Los Angeles County median home value rose 10.6% to a record $885,000; sales rose 4.1% to 5,613 transactions.
– Orange County median value rose 20% to a record $1.2 million; sales increased 5.4% to 2,489 transactions.
– Riverside County median home value increased 6.4% to $585,000; sales increased 0.4% to 3,614 transactions.
– Median home value in San Bernardino County increased 4.3% to $485,000; sales increased 1.1% to 2,526 transactions.
– Median home value in San Diego County rose 10.1% to a record $895,000; sales rose 1.2% to 2,855 transactions.
– Ventura County median value increased 3.1% to $825,000; sales decreased 2.7% to 643 transactions.
