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Southern California house payments soar 46%, sales drop 35%

“Payment Pulse” deals with the budget-busting reality of Southern California homebuying finances — it’s really about the size of the monthly mortgage check.

Buzz: Why did Southern California home sales fall to slowest July buying pace since 1995? Blame the record-breaking $3,319 monthly payment needed to finance the $740,000 median-priced home.

Source: My trusty spreadsheet looked at what swiftly turned a bidding-war market into a no-bid world in 2022: The intersection of stubbornly high home prices (using the six-county region’s monthly median from DQNews) and rising mortgage rates tied to the Federal Reserve’s inflation fight (use the average 30-year deal from Freddie Mac).

Combining those figures generates a hypothetical monthly home-loan payment that a typical buyer would get, assuming a 20% downpayment. We didn’t account for property taxes, association dues or insurance.

Lansner’s mailbag: Housing crash is media’s fault

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Rate watch: 5.39% average 30-year rate for the three months ended in July vs. 2.94% a year earlier. So a house hunter’s borrowing power fell 25% in 12 months — and that’s the largest drop since 1980. To make a purchase even trickier for a house hunter, the Southern California median price rose 9% in that same period.

The pain

After two years of a feeding frenzy for homes, house hunters finally said “too much” as a local buyer’s estimated monthly payments skyrocketed by $1,044 — a 46% jump — since July 2021.

Do not forget that monthly expense assumes a $148,000 downpayment — that’s 20% — a financial burden that’s grown by $11,950 in a year.

These hefty upswings in costs make the 35% drop in Southern California sales in the last 12 months not that surprising. Only 1995 had fewer July sales in the DQNews homebuying history dating to 1988.

The sales dip by county? Los Angeles was off 23%, Orange off 34%, Riverside off 21%, San Bernardino off 19%, San Diego off 32% and Ventura off 21%.

“In light of the sharp jump in mortgage rates this year and the impact that jump had on housing affordability, I am not surprised by these early signs of a slowdown,” says Chapman University economist Jim Doti who sees selling prices declining on a year-over-year basis by year’s end.

Locally speaking

The financially painful math within the counties …

Los Angeles: $3,768 monthly payment on the $840,000 median. The payment was up $1,108 in a year or 42%. The median price was up 6% over 12 months.

Orange: $4,486 payment on the $1 million median. The payment was up $1,458 or 48%. Median? up 10% over 12 months.

Riverside: $2,599 payment on the $579,500 median. The payment was up $843 or 48%. Median? up 10% over 12 months.

San Bernardino: Record-high $2,310 payment on the $515,000 median. The payment was up $788 or 52%. Median? up 13% over 12 months.

San Diego: $3,588 payment on the $800,000 median. The payment was up $1,145 or 47%. Median? up 10% over 12 months.

Ventura: Record-high $3,611 payment on the $805,000 median. The payment was up $1,162 or 47%. Median? up 10% over 12 months.

“Once the interest rates stabilize a bit and become the ‘new normal’ I think we will see the buyers come back out,” says Realtor Lisa Dunn, regional sales director for Orange County at Century 21 Award. “Sellers need to understand the days of selling in hours and massive bidding wars are over for now.”

Bottom line

Consider the historic scope of a house hunter’s sticker shock and it’s obvious why Southern California home prices have not increased since April.

In data going back 35 years, we’ve never before seen a 46% surge in the Southern California house payment over 12 months. Record-setting jumps also were found in Los Angeles and Ventura counties. And July’s jump ranked No. 2 for Orange, Riverside, San Bernardino and San Diego counties.

Bigger picture

Real estate doesn’t live on an economic island. Will homebuying’s sluggishness rub off elsewhere?

“We are not noticing much impact on other sectors now,” says economist Mark Schniepp of California Economic Forecast. “But a slowdown in real estate is contagious. So expect to see slowdowns occur elsewhere. Mortgage brokerage has obviously slowed, bank lending has been curtailed; not much else, however.”

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com


Source: Orange County Register

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