A new Redfin report found that nearly 40% of home sellers in Orange County and 30% in Los Angeles lowered their sales price in June, as the housing market cools amid rising mortgage rates and increasing inventory. Los Angeles and Ventura saw increases in home prices since May, while Orange, Riverside and San Diego recorded declines in San Bernardino remained unchanged. The prospect of a decline in prices is increasingly likely as the housing market slowdown deepens, and some analysts adjust their forecasts to call for prices to fall next year, the Los Angeles Times reported.
Home values in Los Angeles have been in steady decline since 2010, but the numbers are getting worse. According to Redfin data, an increasing number of sellers are lowering their prices. The reason for this is simple: mortgage rates have gone up. This has resulted in fewer buyers being able to afford home mortgages.
Rise in mortgage rates
Mortgage rates have reached their highest levels in 15 years, thanks in part to the Federal Reserve's actions to tame inflation. This, coupled with mixed economic news, is contributing to the stagnant housing market. In Los Angeles, the 30-year fixed-rate mortgage has increased by a full percentage point in the last three months.
The rise in interest rates has decreased the amount of principal that homebuyers can borrow, making it harder to afford a mortgage. According to the National Association of Home Builders and the Wells Fargo Housing Opportunity Index, Los Angeles has become one of the least affordable housing markets in the country. In fact, just 11.3% of the homes sold in the LA-LB-G region are affordable to families making $73,100.
Despite the slowdown in the housing market, the Fed has been raising rates at the fastest pace in four decades, with intentions of slowing down the housing market. While the Fed isn't the sole factor in mortgage rates, its actions have rippled through the economy, impacting all types of lending. The most recent increase in the 30-year fixed rate was 6.6% on Thursday, the highest since mid-2008.
Fall in home prices
According to recent data, Los Angeles home prices have fallen to a two-year low. The median price fell to $846,320 in July, down from $860,230 in June. However, the year-over-year increase was still over 4.5%, indicating that the market is still on a roller coaster.
The housing market in Los Angeles is influenced by several factors, including income and employment levels. Traditionally, home sales are directly tied to economic activity, so a decline in home prices means that the economy is slowing down. While the economy is slowing down, the jobs market remains strong. In addition, there are opportunities in the fashion industry and Hollywood. These are reasons why people should consider a move to Los Angeles.
During the Millennium Boom, home prices in Los Angeles County hit record highs. But during the financial crisis, home prices fell below their pre-Great Recession levels. Since then, the home market has been recovering from the wreckage. The increase in home prices since April 2009 was just over eight percent. In May 2022, however, prices barely rose by more than one percent a month.
Fall in home values
The fall in home values in California has several reasons. First, rising interest rates and inflation are making it more difficult for sellers to sell at a profit. In addition, extreme relocation choices and the desire to sell at a low price have tempered selling intentions. Falling home values are also the toughest time to sell a home.
While San Francisco and Silicon Valley continue to lead the way in the housing market, southern California is catching up. In July, home prices in Los Angeles County dropped 0.6% from June. That marks the first time prices in the area have fallen since Adam and Eve. While rising mortgage rates have been a headwind for Southern California's housing market, the implosion of tech startups has also had a negative effect on the housing market.
However, economists still predict that home prices will increase through 2023. The fall in home values isn't as severe as many people believe. Economists don't expect home prices to fall by 50%, because many homeowners are not ready to sell in a slow market. Additionally, new listings are down sharply throughout Southern California, which limits the growth of inventory.
Fall in home values since 2010
Home values in Los Angeles have been on a wild ride ever since the housing crash hit in the early 2000s. Prices peaked during the Millennium Boom and then plummeted below the mean during the financial crisis. The market has since been recovering. There was a slight bump in 2009 due to the economic stimulus program, but this was not sustainable. This led to a drop in prices in 2011, which could be traced to a lack of fundamental support.
In July, home values in Los Angeles fell 0.77%, the largest drop in a single month since August 2010. It was the lowest performance in July since 1991, when prices fell by 0.9%. The steep rise in mortgage rates exacerbated the situation, making the housing market unaffordable for many buyers.
Despite the slowdown, the Los Angeles real estate market is on the mend. While the San Francisco and Silicon Valley real estate markets remain in a boom, Southern California is beginning to catch up. As of June, home values in Los Angeles County rose. Meanwhile, prices in Orange, Riverside, and San Diego counties fell. In the same month, Los Angeles County saw a sharp increase in multi-family construction. This is because of the growing need for rental housing. Rents are rising, particularly in urban city-center areas. The builders and lenders are recognizing this need.