Southern California home prices level off
Southern California home prices stayed flat in August for the second straight month, an indication the market may be normalizing after a period of torrid price hikes.
The median home price remained at $385,000 in August, unchanged from July and June, giving hope to many would-be buyers who had been getting rapidly priced out of the market.
“It’s a good sign that home prices are slowing down,” economist Gerd-Ulf Krueger said. “We are less in danger of getting into a bubble.”
The median is still up a whopping 24.6% from August 2012. Home values have shot up sharply this year as buyers rushed into the market, lured by historically low mortgage rates and prices. They found few homes for sale amid crushing demand — supercharged by competition from cash-laden investors.
The cooling off comes amid expanding supply and higher mortgage rates. Investors have also pulled back slightly, though they still account for about 1 in 4 home purchases across the region.
Real estate agent Amber Dolle said she’s seeing more homes hitting the market in the San Fernando Valley. That’s caused some sellers — who had unrealistic expectations of prices — to temper their enthusiasm, she said.
“Some people are having to bring the price down slightly,” Dolle said.
The number of listings rose in August in the Inland Empire, as well as in Los Angeles, Orange and Ventura counties, according to Realtor.com. San Diego County was the only Southland region to see a decline.
The growing supply is a good sign, Krueger said, especially because the supply is primarily coming from homeowners rather than banks looking to unload repossessed properties. Sales of foreclosed homes continued to fall, hitting 7.1% of the resale market — the lowest rate since June 2007. In February 2009, foreclosure resales peaked at 56.7%.
“This is really just becoming a conventional market,” said Bill McBride, who writes the financial blog Calculated Risk. “That is such a positive.... These are real, conventional sales, and everybody who is buying is paying cash or qualifying under pretty strong underwriting standards.”
As prices took a breather, the number of sales hit the highest level for an August in seven years, an indicator of expanding supply. Buyers purchased 23,057 homes last month in Los Angeles, Orange, Ventura, San Bernardino, Riverside and San Diego counties. That’s up 2.8% from a year earlier, but down slightly from July.
But inventory remains tight, representing only about a three-month supply at the current home sales pace, according to the latest data from the California Assn. of Realtors. A supply of about six months is considered normal.
That makes some see more price increases ahead.
“I can’t envision a market that is topping out with three months’ supply,” said economist Christopher Thornberg, founding partner of Beacon Economics. “It makes no sense.”
An increase in listings may not hold down prices, Thornberg said. Sellers will need a place to live too, bringing more demand.
“For every home going on the market, there is someone looking to buy,” he said.
The median sales price is the point at which half the homes sold for more and half sold for less. That means it is influenced by the mix of homes selling as well as actual home values.
Buyers continued to purchase more homes in pricier neighborhoods in August, while sales fell in more affordable suburbs where investors have scooped up much of the lower-cost inventory.
Compared with August 2012, buyers last month purchased 31.4% more homes in the so-called move-up range of $300,000 to $800,000. The number of homes that sold for less than $300,000 plummeted 24.9% from a year earlier.
Slow income growth in Southern California does not support higher prices, said Richard Green, director of USC Lusk Center for Real Estate. Over the next five years, he said, prices should climb at the pace of inflation.
Owners shouldn’t expect the value of their home to soar in the next year, Green said. But neither should they expect it to fall.
“We are about where we should be right now.”
