Southern California home prices hit a record for the third-straight month in May, but there could be some help on the horizon.
Although home prices increased, more listings are finally coming onto the market, giving cash-strapped home buyers more options.
What is happening?
In May, average home prices across the six-county region rose nearly 1% from April to $875,409, according to data from Zillow. It was the third consecutive month that prices hit a record and values are now 9% above May 2023 levels.
Why are home prices rising?
Simply put, there are too few homes for sale in Southern California for all the people who want to buy here.
Economists and real estate agents say the long-running problem was made worse after mortgage rates surged in 2022.
At first, home prices fell as buyers pulled away and the inventory swelled. But prices started rising again last year as homeowners increasingly chose not to sell, unwilling to give up rock-bottom mortgage rates on loans taken out before and during the pandemic.
The pullback among sellers became so prevalent that it even got its own name: the seller strike.
What is happening with inventory?
Things are improving. As interest rates stay higher for longer, more homeowners are deciding to get on with their lives and list their home for sale, deciding additional space, a new job or other factors are more important than keeping a 3% mortgage.
In April, most Southern California counties saw the total number of homes for sale increase for the first time since the first half of 2023.
Last month, inventory jumped again. In Los Angeles County, total listings were 13% higher in May compared with a year earlier; Orange County rose by 6%; in Riverside County, 14%; San Bernardino County, 15%; Ventura County, 18%; and San Diego County, 30%.
“That’s a very positive development,” said Stuart Gabriel, director of the UCLA Ziman Center for Real Estate. “We have just been incredibly short on supply.”
If I a want to buy a home, what does the inventory increase mean for me?
Well, at the most basic level, there will be more options from which to choose.
Inventory is still very low historically so don’t expect your home search to be a breeze, but it could mean fewer bidding wars and an easier time getting into a house.
Gabriel said the inventory increase probably isn’t enough to send home prices down, but, if the trend holds, home prices should rise less than they are today.
Mike Simonsen, founder of real estate data firm Altos Research, said sellers are already more likely to trim their list prices than last year.
He doubts that overall values will turn negative this year and, like Gabriel, expects only slowing appreciation in the L.A. area. But that could change in 2025.
“If rates are still in the 7s, prices flat or down is a real scenario,” Simonsen said.
On the other hand if rates noticeably drop, Simonsen said, demand is likely to pick up more than inventory, setting the stage for home prices to rise even faster than they are now.