The Southern California Housing Market: Navigating the Impact of Rising Mortgage Rates

The Southern California housing market is no stranger to volatility, and in recent months, rising mortgage rates have added to the complexity of the real estate landscape. As we delve into the numbers and trends, it becomes evident that both home sales and prices have been affected by these changes, creating a challenging environment for buyers and sellers alike.

Median Home Prices in Southern California

In September, the median price of a Southern California home stood at $725,000, according to real estate data firm CoreLogic. While this figure represents a slight increase from the previous year, it marks a 1.4% decrease from August levels. It’s worth noting that the September 2022 median price was even lower, reflecting a period of price decline.

However, it’s essential to remember that these fluctuations in median prices are influenced by various factors, including the impact of mortgage rates on buyer demand.

Declining Home Sales

One of the most significant indicators of the current state of the Southern California housing market is the decline in home sales. In September, the region witnessed one of the lowest levels of home sales in 36 years, with transactions totaling just 13,051. This represents a staggering 22.5% drop from the previous year and a nearly 17% decline from August. It’s also the second-lowest sales tally for a September in records dating back to 1988.

Jordan Levine, Chief Economist for the California Association of Realtors, explains this phenomenon by pointing to the surge in mortgage rates, which have reached heights not seen in more than two decades. As a result, it’s expected that home sales will remain subdued for the foreseeable future, primarily due to the ongoing issue of housing affordability.

Impact of Rising Mortgage Rates

The real estate market is highly sensitive to changes in mortgage rates, and the recent increase in rates has left a considerable mark on the Southern California housing landscape. With mortgage rates now averaging above 7% for the first time in 22 years, many potential buyers are finding themselves priced out of the market.

In September, the interest rate for the popular 30-year fixed mortgage averaged 7.2%, the highest monthly average since December 2000. This has a direct impact on a buyer’s purchasing power, as the typical house payment for a median-price Southern California home reached $3,936 a month in September, only slightly lower than the all-time high of $3,939 in August. This is despite the median price being $10,000 lower.

Over the past year, rising mortgage rates have eroded the buying power of Southern California home shoppers, with a payment of $3,936 a month allowing them to purchase a home worth $86,000 less than what they could have afforded just one year earlier.

Shift in Market Dynamics

The increase in the number of homes for sale, a seasonal trend for this time of year, has offered some respite for buyers. This boost in inventory has eased the intense competition that was previously driving up home prices.

As of October 12, the region had just over 23,500 homes listed for sale, an increase of 27% in six months. However, it’s essential to keep this figure in perspective, as for-sale inventory still remains approximately 36% below the October average of around 37,000 listings.

County-by-County Breakdown

To gain a better understanding of the market, let’s examine a county-by-county breakdown of median home prices and sales, including annual percentage changes:

  • Los Angeles County: Median price rose by 4.6% to $837,000, with a 22.8% decrease in sales.
  • Orange County: Median price increased by 9.9% to $1.05 million, while sales fell by 17.7%.
  • Riverside County: Median price decreased by 2.2% to $547,500, with a 20.6% drop in sales.
  • San Bernardino County: Median price fell by 3.0% to $480,000, accompanied by a 22.1% decline in sales.
  • San Diego County: Median price rose by 5.1% to $830,000, with a 25.8% decrease in sales.
  • Ventura County: Median price increased by 5.9% to $810,000, but sales saw a substantial 32.6% drop.

Conclusion: Navigating a Shifting Landscape

The Southern California housing market is currently at the mercy of rising mortgage rates and affordability constraints. While home prices are not experiencing a dramatic plunge, there is increased pressure for values to adjust in response to these changing dynamics.

As we move forward, buyers and sellers in Southern California will need to navigate a market where mortgage rates, inventory levels, and affordability considerations play pivotal roles. Keeping a close eye on these trends and seeking guidance from real estate professionals will be essential for making informed decisions in this evolving real estate landscape.

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