Rising mortgage rates push home prices down

Southern California home prices for the first time in a decade that is fall decisively.

After a decade of near-continuous growth, house prices turned negative. This is the result of higher mortgage rates crushing demand and causing sales to plummet.

Typical Southern California home prices are now nearly 6% below the all-time high set in May, according to data released Wednesday by Zillow.

Typical home prices in the six-county area fell 0.6% from August to $817,316 in September, marking the fourth straight month of month-on-month declines. It hasn’t happened since early 2012.

“This is a tipping point,” said Zillow economist Nicole Bachaud.

Other measures of home prices, including data from mortgage service providers Black Knight and John Burns Real Estate Consulting show similar or greater declines from peak prices, providing further evidence that the recorded declines are not data anomalies.

Few leading real estate experts predict that Southern California home prices will fall like they did during the Great Recession. But economists say that having to do so has devalued many parts of the country.

Mortgage interest rates were below 3% for most of the pandemic, keeping buyers from buying homes. new heightsBut inflation and the Federal Reserve’s actions to combat it have helped boost rate rises sharply And we’ve drastically reduced what people can afford.

As of last week, the average interest rate on a 30-year fixed-rate mortgage was 6.66%, more than double what it was a year ago, according to mortgage buyer Freddie Mac.

This increase will add nearly $1,500 to the monthly mortgage payment for the $817,316 home.

For many buyers, that’s too much.

Christine and Morgan Blackledge decided to keep renting after seeing their options dwindle from well-kept two-bedroom condos to smaller one-bedroom condos. Neighborhood units or fixer uppers in Los Angeles and Ventura counties they thought they lived in.

“It just wasn’t worth it anymore,” said Christine Blackledge. “We’re both in our 50s and past kind of starter home.”

This summer they received a down payment and started a private practice with therapist Morgan handling patients and Christine handling books.

It was a similar story for Santa Monica renter Elizabeth Badger and her husband when they tried to move into an expensive city condo with plenty of space. For two children and a dog.

“Rising interest rates put monthly payments far beyond our ability,” said Badger, 37, who manages educational software for school districts.

Ultimately, lower prices could help people like Badger buy homes.

But so far, rising mortgage rates have meant that the monthly payments for affordable homes today are still higher than those of buying a home at its peak. I’m here.

According to Zillow, individual counties experienced peak ranges of price declines, from a 3.6% drop in Ventura County to a 6.7% drop in Los Angeles County.

Given the strong demand earlier this year, prices are still higher than they were a year ago in every Southern California county, according to Zillow data. But more and more real estate analysts expect prices to continue to fall through at least 2023.

LA County prices are already down 3% since September 2021, according to one measurement from John Burns Real Estate Consulting.

Rick Palacios Jr., a research director at a consulting firm, said one reason for the sharp drop in LA County was a stock market slump hurting sales of luxury goods in the region’s more scarce areas. said that it could be Their down payment is gone.

“People looking at investment portfolios these days are going to need a drink to sit down and look at it,” he said.

Palacios said some parts of the country that saw minimal price drops during the Great Recession could see even more drops this time around. , such a decline is unlikely, he and other experts say.

In large part, this is because economists expect the coming recession to be milder than in 2008. In the event of a recession, experts say lending standards should tighten during this recent housing boom, limiting the number of foreclosures. It was this wave of forced sales that last drove home prices in Southern California down 41%, as measured by Zillow.

Many homeowners now decide not to list their homes because they don’t want to sell for less than their neighbors or forfeit their lowest fixed-rate mortgages.

or “Sellers Strike” Experts say they are limiting the number of homes on the market to prevent further declines in home prices.

Ultimately, how far prices fall will depend on where interest rates are set, said Richard Green, director of the USC Rusk Real Estate Center.

“The higher the price, the lower the house price will be,” Mr. Green said.

Some experts are updating their forecasts as the rate rises toward 7%.

When interest rates were 5%, Palacios said his company expected Southern California prices to fall about 10% from peak to trough, but now the expected decline has nearly doubled. It is

It’s not on the level of the Great Recession, but “not sneeze-worthy,” he said. Said. “These are probably the most significant price drops in history, possibly out of several others.”

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