Southern California home prices leveled off last month as buyers reacted to higher mortgage rates and rising inflation, causing sales to plunge 16% from year-ago levels.
Last month’s sales tally was one of the lowest for May in records dating back to 1988.
“The market’s changed,” said Katherine Orth of Sierra Madre, a broker-associate with DPP Real Estate. “It’s not like a bubble bursting. It’s more like a punch in the stomach. … The sellers are coming to the realization the party is over.”
The median price of a Southern California home – or the price at the midpoint of all sales – was $760,000, unchanged from April’s record high, according to CoreLogic numbers released Wednesday, June 15, by data firm DQNews.
Last month’s median still was up 13.4%, or $90,000, from May 2021.
Sales, meanwhile, fell to 20,470 transactions last month, down 4.8% from April and down 16.2% year over year.
Prices and sales both typically rise from April to May.
“Given how much interest rates have been rising, I think it’s safe to say the price is leveling off,” Redfin Deputy Chief Economist Taylor Marr said. “Those higher interest rates are going to put significant pressure on home prices.”
The average rate for a typical 30-year, fixed mortgage averaged just under 3% through 2021, then jumped by more than 2 percentage points to more than 5% in just five months, according to government-backed mortgage giant Freddie Mac.
May’s housing figures are the first reflecting the full impact of that mercurial rise on prices and sales.
The double-whammy of rising home prices and higher mortgage rates pushed the typical house payment up by at least 40% to $3,188 per month, up from $2,269 per month a year earlier, not counting taxes and insurance.
“The Fed kind of woke up to the fact that inflation was not going to be a transitory or temporary phenomenon,” said Danielle Hale, Realtor.com’s chief economist. “The way that impacts the housing market is higher mortgage rates, which really have eaten into homebuyer purchasing power this year.”
That jump in house payments sparked a chain reaction in the market, dampening transactions and boosting the inventory of for-sale listings. After falling to an 18-year low last winter, Southern California listings rose 29% to 34,193 homes last month, according to Zillow.
“There are signs that demand is softening,” Hale said. “We’re seeing more homes on the market, in part because you’ve got more sellers, but in part, because buyers are being a bit choosier.”
Although listings remain low by historical standards, agents report homes are taking longer to sell, fewer buyers are waiving loan and appraisal contingencies and fewer are entering bidding wars. As the market slows, said Steve Thomas of Reports On Housing, “we will also see sellers paying closing costs and they will be more willing to negotiate on terms.”
A two-bedroom townhome in Aliso Viejo sold last month for $852,000, or $27,000 over the asking price, after a small bidding war between two competing buyers. Four months ago, that same townhome would have gotten at least eight to 15 offers, said listing agent Karean Wrightson of Compass.
“What we experienced before was such an anomaly. People really got dialed into this frenetic pace,” Wrightson said. “We are back with what we call a normal market where the home takes longer to sell.”
While prices aren’t dropping, she said, she’s no longer seeing homes selling at $50,000 to $100,000 over the asking price.
That reality is starting to sink in among sellers.
Redfin figures show that more home sellers are adjusting their asking prices downward. Marr said nearly 21% of sellers in Los Angeles County and nearly 28% in Orange County and the Inland Empire dropped their listing price last month, compared with 10% dropping their prices in May 2021.
“All of these areas have had pretty dramatic increases in price drops, and they’re likely to continue increasing,” Marr said.
Redfin figures show further that the maximum prices home shoppers seek during an online search are no longer rising – perhaps an early indicator that prices will start flattening out in the months ahead as well.
Hale, meanwhile, revised her housing forecast for this year based on rising mortgage and inflation rates.
She predicted the market will continue to slow through the summer as buyers “step back from the market.” By year-end, U.S. home prices will be up a mere 6.6% vs. last year’s double-digit pace.
As the inventory of homes for sale continues to rise, the fall “could be an opportune time” for frustrated home shoppers to find the kind of property that eluded them until now, she said.
For now, buyers are waiting to see what happens next, Orth said.
“The market today is entirely different from what I saw in the market in May,” she said. “We were talking this morning in our office meeting how the market has changed drastically. The demand is still there, but buyers are afraid that rates are going to continue to go up.”
Here’s a county-by-county breakdown of median home prices and sales, with percentage changes from last year:
— Los Angeles County’s median rose 11.0% to $860,000; sales were down 16.1% to 6,550 transactions.
— Orange County’s median rose 17.8% to $1,054,500; sales were down 23.7% to 2,951 transactions.
— Riverside County’s median rose 19.2% to $598,500; sales were down 12.3% to 3,849 transactions.
— San Bernardino County’s median rose 20.4% to $520,000; sales were down 9.2% to 2,715 transactions.
— San Diego County’s median rose 17.2% to $850,000; sales were down 17.5% to 3,493 transactions.
— Ventura County’s median rose 13.5% to $794,250; sales were down 19.1% to 912 transactions.
SCNG business columnist Jonathan Lansner contributed to this report.
Source: Orange County Register