Southern California's median home price jumped 8.4% in March from a year earlier, setting a new all-time high, as hopeful buyers engaged in bidding wars over a limited supply of homes on the market.
The six-county region's median price for new and resale houses and condos hit $519,000 last month, up $40,000 from a year earlier, real estate data provider CoreLogic said Monday. March's median topped the previous all-time high of $509,500 set in December.
Sales, meanwhile, fell 6.2% compared with the same month last year, in part because there were fewer homes on the market than in 2017.
"The rate we are seeing price appreciation is simply the lack of inventory," said Selma Hepp, chief economist with California brokerage Pacific Union International.
When adjusted for inflation, March's median price — the point where half the homes sold for more and half for less — is still 13.4% below the high reached during last decade's bubble. But on a year-over-year basis, prices have now risen every month for six straight years — the result of an increase in jobs, historically low mortgage rates and a shortage of homes for sale.
In the long run, the current rate of price increases is unsustainable, according to Hepp, who forecasts a slowdown to a 5% annual gain in 2019 and 2% a year later.
But prices are unlikely to decline if the job picture holds steady, because unlike last decade, the market isn't driven by risky loans, but rather a strong economy and tight inventory, Hepp said.
One major reason for the supply shortage is that despite an increase in construction after the recession, home building hasn't returned to historically normal levels. The nationwide problem is blamed on a variety of factors, including a slew of builders that went belly up in the wake of the financial crisis.
In California, economists say, the problem is exacerbated because, for decades, too few homes have been built relative to job and population growth. Residents have fought against construction projects, expressing concern over traffic and the changing character of their neighborhoods.
In March, there were fewer homes for sale in all six Southland counties than there were the same month a year earlier, with declines ranging from 2.8% to 18.3%, according to data from online brokerage Redfin. In February, only one county — San Diego — had more homes for sale than a year earlier, and that increase was negligible: 0.2%.
The mismatch between supply and demand sent prices up throughout the region last month:
Los Angeles County: The median price rose 6.6% to a record of $585,000.
Orange County: The price rose 8.7% to a record of $725,000.
Riverside County: The price rose 7.1% to $375,000.
San Bernardino County: The price rose 7.5% to $328,000.
San Diego County: The price rose 6.8% to a record of $550,000.
Ventura County: The price rose 5.6% to $565,000.
Sales in all six counties dropped compared with a year earlier. The biggest decrease was in Riverside County, where sales fell 8.1%.
A jump in mortgage rates could also be affecting sales. Last week, the rate on a 30-year fixed mortgage averaged nearly 4.5%, up from just under 4% at the beginning of the year, according to Freddie Mac. That is still well below the 6% rates heading into the financial crisis, or double digits in 1990.
Brad Roth, a San Fernando Valley real estate agent with Pinnacle Estate Properties, said some sellers aren't adjusting their prices to reflect the higher cost of borrowing and those houses are sitting longer.
But, he said, if a home is priced right and under $1 million, "they are flying off the market."
Case in point: Roth listed a four-bedroom house in Northridge on a recent Friday, pricing the 3,000-square-foot single-story at $899,000 even though he thought it was worth around $925,000 or $950,000. More than 250 people came through the weekend open house and by Sunday it sold, Roth said. The buyers paid $990,000.
At some point the price surge will end, but if the economy doesn't take a turn for the worse "this could run for a while," said Richard Green, director of the USC Lusk Center for Real Estate.
"It's not that there is suddenly going to be a flood of [newly constructed] single-family houses and condos," he said.
2:45 p.m.: This article was updated with details about a recent home sale and comment from an economist.
12:25 a.m.: This article was updated with additional analysis and comments from an economist and a real estate agent.