Original article published by the Los Angeles Times
The Southern California housing market is finally slowing down after a two-year pandemic boom fueled in large part by record low borrowing costs.
Now, with mortgage interest rates on the rise, home sales are down, inventory is up and the prospect of home value declines is around the corner.
In June, the Southern California median home price fell 1.3% from May, despite the fact it usually increases between those two months.
Compared with a year earlier, the median was still up 10.5%, according to real estate firm DQNews. That’s a big increase but far smaller than the 16.7% seen as recently as April.
So what does this all mean for me?
First, let’s start with buyers. The primary reason for the housing slowdown is that mortgage rates have soared this year, from the low 3% range to the mid-5% range where they are today.
This has made the monthly cost of a home much more expensive and reduced the size of loans borrowers can get, while pricing some buyers out of the market all together.
If you are a buyer, you likely won’t get approved for what you would have just a few months ago and may no longer be able to buy a home at all.
If you can still afford a home, there are some silver linings.
More options
With fewer people out home shopping, properties are staying on the market longer and giving the buyers who remain more options.
During the four weeks ended July 10, nearly 19% more homes were for sale in the Inland Empire than in the same period a year earlier, according to real estate brokerage Redfin.
In Los Angeles and Orange counties, Redfin data show the number of listings is still below year ago levels but has climbed steadily in recent months as mortgage rates have risen.
This means if you are out shopping, not only will you have more homes to choose from than a few months ago, but you will likely have to fight less to buy one.
The combination of fewer buyers and more inventory has made bidding wars less common, so you may have an easier time bidding around the list price.
In fact, you may not have to bid at list price at all.
Redfin data indicate that 29.6% of all homes on the market in the Los Angeles metro area had price cuts in June. That’s more than double the 12.6% rate of June 2021.
What else should buyers know about the bidding process?
During the last two years, many buyers waived contingencies to make their offers stand out from the dozens of others submitted for the same house.
Some sellers didn’t bother with offers that retained certain contingencies, which essentially are the legitimate reasons you can back out of a deal.
For example, the inspection contingency lets you back out if an inspector finds a cracked foundation or other defect you don’t like. The appraisal contingency — commonly waived in the pandemic market — let’s you walk away if the appraisal comes in low.
Now some agents say more sellers will entertain offers with contingencies in place, a shift that will give you more peace of mind that you aren’t buying a lemon.
What about sellers?
Don’t expect your home to gather dozens of offers and sell for tens — even hundreds — of thousands dollars over asking. Your property may sit on the market for longer, especially if you price it too high.
As mentioned above, buyers can afford less than they could a few months ago and many of your fellow sellers have been forced to reckon with that fact and bring down their asking price.
While always important, you should be careful to pick a good real estate agent. When homes typically fly off the market in days, there’s less an agent has to do to get a home sold.
A good agent can help you sell in a slow market by suggesting a fair price for home, staging it with quality furniture or employing other techniques such as video tours or 3D walkthroughs.
For buyers, a good agent can also help you with strategies to get a home at a relative bargain. For example, you can target homes that are languishing on the market and come in with offers below asking.
What will happen with home values?
Some analysts say overall home values aren’t likely to decline but, rather, the rate of home price appreciation will slow. That is, prices will keep rising, but they’ll climb less than they have in the past two years.
To make this case, these analysts say that despite the recent increase in supply and drop-off in demand, there’s still an overall shortage of housing and large numbers of people who still can and want to buy a home.
Other analysts predict that home values will fall in 2023, but few if any experts predict declines like those seen during the Great Recession.
In large part, that’s because the sizable declines last time around were driven by foreclosures. Now, lending standards are far tighter and experts say many home owners don’t like to sell for less than their neighbor did a few months ago unless they are forced to do so.
