In December 2016, Southern California home prices reached their highest levels in more than nine years. According to CoreLogic, an improving economy and home shortages raised home prices nearly 6.8% over the past year. Corelogic confirms December’s median home price of $470,000, up 1.1% from previous months.
With increased demand the rise in December’s six-county regional median price hit $465,000, which at the time was at a nine-year high.
With mortgage rates and prices rising steady over household incomes since the November Presidential election, the Southern California region became one of the hottest areas for the housing market.
Economists project prices will continue to rise in 2017, but not as continuously as they have in recent years, making those looking to purchase a home more assertive in their search before prices reach even higher plateaus.
While the outcome of rising mortgage rates is uncertain, home prices continue to become more expensive. This uncertainty would produce additional demand if consumers rush to lock in rates before they climb higher. The rush to purchase before rates increase is not occurring in mass.
CoreLogic reported sales dropped 2.9% last month compared with December 2015. CoreLogic analyst Andrew LePage said, “a large part of that decline was because new federal lending regulations took full effect in fall 2015 and pushed many deals that would have closed in November of that year into the following month.”
“The number of deals recorded in December 2015 was artificially high,” he said in a statement. That factor, along with an additional business day last year, “outweighed whatever boost December 2016 sales got from the presidential election.” In 2016, sales across the region were up 2.1% from 2015 – with the strongest gains seen in counties of Riverside and San Bernardino. Nationwide, the National Association of Realtors said Tuesday, “sales of previously owned homes dropped 2.8% in December compared with November after adjusting for seasonal fluctuations.”
California home sales tempered in 2014, falling roughly 8.2 percent behind the previous year. But with positive housing indicators and a strengthening economy, experts are predicting a 2015 marked by increased home sales and a better balance between sellers and traditional home buyers.
According to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) “2015 California Housing Market Forecast,” economists expect a 5.8% increase in existing home sales in 2015, which translates into 402,5000 total units. They further expect median prices to continue upward, with a forecasted 5.2% increase bringing the median home price up to $478,700.
Last year’s sluggish home sales resulted in large part from dramatic increases in home price coupled with depleted market inventory — an environment that caused many investors to exit. Without traditional consumers stepping in to take their place, 20 months of double-digit year-over-year home price growth finally normalized to single digits in 2014.
“Stringent underwriting guidelines and double-digit home price increases over the past two years have significantly impacted housing affordability in California, forcing some buyers to delay their home purchase,” said C.A.R. President Kevin Brown in a press release. “However, [in 2015], home price gains will slow, allowing would-be buyers who have been saving for a down payment to be in a better financial position to make a home purchase.”
C.A.R. expects 30-year mortgage interest rates, which repeatedly defied forecasts last year, to remain at historically low levels despite a slight increase to a year average of 4.5 percent. This bodes well for potential buyers, who Brown wants to remind that 20 percent down is not always required to buy a home.
“There are numerous programs available that allow consumers to buy a home with less down payment, including FHA loans, which lets buyers put down as little as 3.5 percent,” he said.
Looking to economic recovery, last year was the strongest since the recession hit in 2008 and closed out with a 5.6 percent unemployment rate nationwide. Currently hovering around a 7.9% unemployment rate, Los Angeles is is forecast to return to pre-recession employment numbers in the coming year.
Yet even with job growth, low interest rates, and slowing gains in home prices, affordability remains a key issue, particularly in the state’s luxury markets. According to C.A.R.’s Traditional Housing Affordability Index, just 27 percent of households will be able to purchase a median priced home in California based on traditional assumptions. This forecast is 3 percent lower than 2014 projections, and is down significantly from 56 percent in the first quarter of 2012. Much of this is attributable to the fact that household income declined while home prices swelled.
With affordability where it is, the homeownership rate for 18- to 34-year-olds continues to fall as the number of Millennials renting or living with parents continues to rise. Household formation for this same demographic is remarkably slow, contributing to Census data that shows an addition of just 476,000 new households in the 12-month period ending in March 2014. By contrast, the two periods prior had an average of 1.3 million added households. Even in today’s “renter nation,” the C.A.R. 2014 Millennial survey shows that over half of this group places homeownership as an eight or above on a scale of one to ten, where ten is “extremely important.” Roughly the same percentage expects to purchase a home within five years.
“With the U.S. economy expected to grow more robustly than it has in the past five years and housing inventory continuing to improve, California housing sales and prices will see a modest upward trend in 2015,” concluded C.A.R. Vice President and Chief Economist Leslie Appleton-Young.