Southern California Home Prices Reach All-Time High Despite Sky-High Mortgage Rates
Southern California home prices have reached an all-time high, with the typical home price in March hitting $869,082, a 9 percent increase from the previous year. This surge in prices comes despite sky-high mortgage rates, which are currently in the upper 6 percent range, pushing the average monthly mortgage payment to over $5,500 after a 20 percent down payment.
The record-breaking prices are fueled by a combination of factors, including a shortage of homes for sale and a wealth gap that allows cash-flush buyers to bypass the high borrowing costs. Many buyers, especially wealthy first-timers, are not deterred by the rising interest rates and are willing to pay top dollar for their dream homes.
According to Redfin agent Alin Glogovicean, a significant portion of deals in northeast L.A. involve all-cash buyers or buyers with substantial down payments well above 20 percent. These buyers, often professionals like architects, have saved, liquidated assets, or received help from family to secure their dream homes.
Despite the high prices, the demand for homes remains strong, with a growing number of buyers opting to keep their old homes and purchase new ones or invest their considerable equity into down payments. In fact, 23 percent of homes sold in Los Angeles County in February were bought with all cash, a significant increase from previous years.
While home prices have set records across several Southern California counties, the affordability of homes has become a growing concern. Only 11 percent of households in Los Angeles and Orange counties could afford a median-priced house during the fourth quarter, the lowest since the mid-2000s housing bubble.
Looking ahead, experts predict that home prices will continue to rise, albeit at a slower pace than during the pandemic. To truly make housing more affordable, there needs to be an increase in housing construction and continued income growth. While lower interest rates could make homes more affordable, they could also attract a new wave of buyers and further drive up prices.
Overall, the Southern California housing market remains robust, with tight inventory and high demand expected to keep prices elevated. While there may be fluctuations in interest rates, the overall trend is towards continued price growth, making it essential for policymakers to focus on increasing housing supply and income growth to address the affordability crisis.