By Andrew Khouri
The Southern California median home price barely budged in May, a sign that the housing market remains soft despite a sustained drop in borrowing costs.
The six-county median — the point where half the homes sold for more and half for less — rose just 0.2% from May 2018 to reach $530,000, according to a report released Wednesday by CoreLogic.
Sales, meanwhile, dropped 2.7% from a year earlier.
“Some buyers are kind of waiting on the sidelines,” said real estate agent Nabil Suleiman. “They believe we are going to see a correction.”
A handful of experts have predicted values will come down slightly this year after too many would-be buyers became priced out or fed up after years of sharp increases. But few expect steep declines.
Many economists argue continued economic growth and a low rate of home building means enough people are willing to buy a home — if not at today’s prices, then at least around those values.
California’s unemployment rate in May clocked in near a record low of 4.2% as employers added 282,700 jobs over the year. And while home price growth has far outpaced wage growth over the current housing boom, that’s starting to change.
Average hourly wages in California have risen an average of 5.3% so far this year, according to the Bureau of Labor Statistics.
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Christopher Thornberg, founding partner of Beacon Economics, is among the more bullish experts, in part because of mortgage rates. The average rate on a 30-year fixed mortgage hit a recent peak of 4.94% in November before falling to the low 4% range in April, when many of the May sales tracked by CoreLogic would’ve opened escrow. Last week, rates stood at 3.84%, according to Freddie Mac.
While data show a roughly flat market, Thornberg said buyers can be slow to respond to changes in mortgage rates or to change their perception that prices are bound to decline. By year’s end, he predicted, sales would be up and price growth will have accelerated to around 4%.
CoreLogic said there is evidence that demand is picking up a bit. The increase in sales from April was more than the typical seasonal bump, while the 2.7% drop in sales from May 2018 was the smallest decline in a 10-month stretch of losses.
Real estate agents said lower rates have brought more people back into the market, but they aren’t bidding as aggressively as they did in years past. Beyond affordability, part of the reason may be more options. While there’s not a flood of new listings, inventory has swelled as sales faltered. In May, there were nearly 12% more homes for sale than a year earlier, according to Zillow.
To close a deal, more sellers are trimming asking prices or paying for repairs, said Amber Dolle, a San Fernando Valley real estate agent. In May, 14.5% of listings in L.A. County had at least one price reduction, up from 11.9% a year earlier, according to Zillow.
“Buyers are becoming a lot more judgmental,” Suleiman said.
The shift toward more of a buyer’s market can be seen in each county, where the median once consistently rose by more than 5%.
In Los Angeles County, the median price rose 1.7% from last year to $615,000, while sales fell 2.9%.
In Orange County, the median fell 2.6% to $720,500, while sales fell 6%.
In Riverside County, the median rose 3.3% to $392,000, while sales climbed 1.6%.
In San Bernardino County, the median rose 1.8% to $345,000, while sales fell 3.3%.
In Ventura County, the median was flat at $590,000, while sales fell 5.6%.
In San Diego County, the median was flat at $570,000, while sales fell 2.9%.
John Burns Real Estate Consulting predicts declines ahead, in part because it’s forecasting a slowdown in the economy, with slight job losses nationally in 2021. The Irvine researchers said prices this year in Los Angeles County should be essentially flat, while they’ll drop 2% in Orange County. In 2020, it said, prices are likely to fall 1% in Los Angeles County and 3% in Orange County.
Rick Palacios, the consultancy’s director of research, said lower mortgage rates and a few months of stronger income growth simply aren’t enough to overcome years in which prices soared past incomes. “It’s not like housing is super affordable,” he said.
According to a report released this week by Harvard University’s Joint Center for Housing Studies, the median income household in Los Angeles and Orange counties could afford only 12.7% of the homes that sold in 2017. Nearly a third of renters across those two counties spent more than half their income on housing.
Such high costs in California and other major West Coast urban centers like Seattle have been blamed for driving people into homelessness or to cheaper states. To bring down costs, many economists call for loosening zoning restrictions to allow developers to build more homes. Some politicians and community groups have called for a crackdown on investors.
CoreLogic on Wednesday said 21.8% of Southern California homes sold in May were purchased by absentee buyers — mostly investors, but also some vacation home buyers. That’s down from a peak of 32.9% in 2013, but slightly above the long-term average.
Last weekend, an agent working with Suleiman held an open house at a three-bedroom home in Westlake. An investor last year paid $550,000 for the house, located just 70 feet from the 101 Freeway. As of Sunday afternoon, the agent said about 15 groups of people had strolled through the 1908 property that was revamped “from the ground up” and listed at $899,000. Marketing materials for the house cite new plumbing, a new foundation, new roof and “rain barrels for water conservation.”
Among those who stopped by was Charles Doan, who said he was looking at houses for a relative who wants to move from the East Coast. Doan said he thought the remodeled house was “very nice,” but felt the price was “too high.” He noted the home had no garage. He said he believed houses are bound to get cheaper.
“If it goes up,” Doan theorized, “it must come down.” As of Monday, Suleiman said no one had submitted an offer.