Southern California’s housing slowdown of 2022 trudged into September with rising interest rates continuing to dampen sales and causing the fourth straight month of home price drops.
Homebuyers are moving to the sidelines, unable to afford a home or waiting for prices and mortgage rates to come down. Sellers, meanwhile, are slowly realizing after weeks without an offer they have to drop their prices and be open to negotiations if they want to make a deal.
“Now’s the time (for buyers) to make what would have been considered a lowball offer six months ago,” Chen Zhao, a Redfin researcher, said in a statement last week. “Ask for concessions and repairs to make up for high mortgage rates.”
The median home price in the six-county region – or the price at the midpoint of all sales – fell to $715,000 last month, real estate data firm CoreLogic reported Monday, Oct. 24. That’s down $45,000 or nearly 6%, from an all-time high of $760,000 in April and May. That decrease wiped out 83% of this year’s price gains.
While last month’s median saw a gain of 5.1% from September 2021 prices, it was the smallest annual increase since the pandemic panic of May and June 2020, coming on the heels of nearly two years of double-digit increases.
Sales were down as well, falling for the 11th time in the past 12 months.
The September tally of 16,326 transactions — down 33.5% — was the second-slowest September in records dating back 35 years.
“With mortgage rates surging from about 3% to some 7% now, it was expected that the housing market, particularly in relatively more expensive California, would be hit hard,” CoreLogic Deputy Chief Economist Selma Hepp said in an email. “While the slowdown in the housing market is very different than the one leading to the Great Recession, it will be a challenging year ahead for housing market activity in California.”
Real estate agents, meanwhile, are having “the talk” with their clients, trying to explain that a two-year run of bidding wars and overpaying for homes ended last summer.
“We try to educate (the sellers) the prices aren’t where they were last year,” said Manny De Silvia, an agent with Century 21 Now Realty in Corona. But sellers are reluctant to lower their prices.
“Their attitude is, if they really want my house, they can pay for it,” De Silvia said. “I try to explain that what you bought last year for $700,000, with the (higher) interest rates you can only afford a $400,000 home now if you want the same payment.”
With 30-year, fixed rates averaging 6.1% in September, the typical payment for a median-priced home was up 54%, or $1,205 from September 2021 payments on that month’s median of $680,000.
Economists predict 30-year rates will hover near 7% next year, further dampening sales and leading to annual price declines.
Two factors are holding buyers back from making deals, agents and economists say: An inability to afford a home at today’s higher mortgage rates or having purchased a home while rates were at historic lows.
“Ninety-five percent of the existing mortgage (borrowers) have a mortgage rate below 5%,” Hepp said at a recent housing conference in Atlanta. “That really takes a lot of incentive out of the market for sellers to put their own home on the market.”
Inventory is rising, but mainly from homes taking longer to sell.
The average time for a home sale doubled in Los Angeles County to 47 days this month, up from 23 days last spring, Redfin figures show. Days on market ranged from 42 to 47 days this month in Orange, Riverside, San Bernardino and Ventura counties, up 70%-83% from last spring. While San Diego County homes averaged just 28 days on the market this month, that’s triple the average of nine days last spring.
With sales taking longer, the inventory of homes on the market reached 33,886 last month, up 5.1% from a year earlier, Redfin figures show. But new listings coming on the Southern California market were down 29% in mid-October from the year before.
A one-story house just east of the Long Beach airport was typical of the trend real estate agents are seeing throughout region. It took 26 days to find a buyer, but only after a $75,000 price cut.
“Because of the market changing (and rising) interest rates, we weren’t getting many showings and no offers,” said listing agent Russ Caldarella of First Team Real Estate in Long Beach. “Buyers are now realizing that things are sitting on the market longer. The urgency is not there as it was three to six months ago. And they’re in a position to negotiate more with a seller.”
More buyers are requesting a credit to pay points on their loan to buy down their mortgage rates, or they’re asking sellers to pay for home repairs.
“We’re seeing a lot of sellers, especially if they’ve been on the market for more than 30 days, willing to kick in an extra $10,000 to $12,000,” Caldarella said.
De Silvia noted the slowdown isn’t just affecting home sellers. It also affects agents, lenders, escrow companies, title companies, termite inspectors, landscapers and flooring and home improvement outlets.
“It affects the whole economy,” DeSilvia said.
Here’s a county-by-county breakdown of home prices, sales and year-over-year percentage changes:
- Los Angeles County’s median rose 1.4% to $806,000; sales were down 33% to 5,213 transactions.
- Orange County’s median rose 6.8% to $950,250; sales were down 33.7% to 2,288 transactions.
- Riverside County’s median rose 8.8% to $565,000; sales were down 32.8% to 3,092 transactions.
- San Bernardino County’s median rose 9.6% to $504,000; sales were down 30.3% to 2,347 transactions.
- San Diego County’s median rose 7.4% to $795,000; sales were down 34% to 2,790 transactions.
- Ventura County’s median rose 5.5% to $762,500; sales were down 47.4% to 596 transactions.
Source: Orange County Register
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