Southern California home prices hit a record in March amid sky-high mortgage interest rates, a combination that’s creating the most unaffordable housing market in a generation.
The average for the six-county region reached $869,082 in March, according to Zillow. That’s up 9% from a year earlier and 1% higher than the previous all-time high in June 2022.
With rates hovering in the upper 6% range, the mortgage payment on the average home now tops $5,500 — if you can put 20% down.
“It’s bananas,” Tommy Kotero, a 43-year-old refinery worker, said last weekend after touring a dated, $899,000 house in north Torrance with visible cracks in the ceiling and walls. “The asking prices for what we are getting is crazy.”
How home prices hit a record despite the high cost of borrowing is a tale of too few homes for sale, combined with a wealth gap that has equipped some buyers with reams of cash that negate the effect of high rates.
When interest rates first soared in 2022, buyers backed away en masse, inventory swelled and home prices dropped.
Then potential sellers all but went on strike, with many deciding they didn’t want to move and trade their sub-3% mortgages for a loan at more than double that rate.
Inventory plunged and enough buyers returned to send home prices back up. Many of these buyers are well-heeled first-timers who aren’t ditching a low-cost mortgage.
Others are holding on to their old home and buying another. Still more are selling their old home and turning their considerable equity into hefty down payments well over 20%.
“People who have cash are not paying too much attention to interest rates,” said Alin Glogovicean, a real estate agent with Redfin who specializes in northeast L.A.
He estimates that in about one-third of his deals a buyer is paying all cash. Another third put down at least 50%, with a mortgage on the rest.
At least two-thirds of the buyers with down payments of at least 30% aren’t investors but people who want to live in the home, he said. They are professionals such as architects and Hollywood types who have saved, liquidated stock portfolios, built up equity or received help from family.
Some are willing to dip into retirement savings — a strategy many financial experts advise against.
Nationally, similar trends are afoot, according to a Zillow survey, with the share of home buyers putting at least 20% rising, as well as those who received help from family and friends.
In all, 23% of L.A. County homes sold in February were bought with all cash, up from 16% in 2021, according to Redfin.
For those without access to a spare half-a-mill, times are tougher.
According to the California Assn. of Realtors, only 11% of households in Los Angeles and Orange counties could reasonably afford the median-priced house during the fourth quarter, the smallest number since the housing bubble of the mid-aughts.
At that time, risky lending practices allowed people to buy homes they couldn’t really pay for. Today, lending standards are far tighter, which economists say should prevent a similar collapse in prices if there’s another recession.
Across the region, home prices have now set records in Orange, San Bernardino, San Diego and Ventura counties. In Los Angeles and Riverside counties, prices are less than 1% from their all-time highs.
Agent Alicia Fombona of United Real Estate Pacific States works across the Southland — from the coast to the Inland Empire. Amid high rates and high prices, she said, one strategy that’s growing more popular is co-borrowing: family and friends coming together to buy a house or duplex to keep payments somewhat affordable.
“Everybody needs a place to live and there is not enough housing for everybody,” Fombona said.
More homes are starting to come onto the market, but inventory is still tight and expected to remain so, according to forecasters. Rates may drop somewhat but are expected to remain elevated.
That combination could create a scenario in which prices don’t soar but also don’t drop much — if at all, especially because incomes for many households are growing.
“We are going to continue to see robust price growth, but nothing near where we were in the pandemic,” said Orphe Divounguy, a senior economist with Zillow.
If rates fell considerably, it would immediately make homes more affordable, but a new crop of buyers probably would flood the market and could put even more upward pressure on prices.
To help housing truly become more affordable, Divounguy said, there must be continued income growth and more housing construction.
“The way out of this is not going to come from mortgage rates,” he said.
In California, construction headed in the wrong direction in 2023, with building permits falling from the previous year, though lately there are signs of a rebound in single-family construction, which is mostly for-sale homes.
Some Californians, however, are on a timeline.
Kotero, the buyer looking in Torrance, currently rents a house in the city with his wife, Rikah, and their four children. But he said they need to find a new place by summer because the landlord is moving back in.
They’d like to buy and stay in Torrance for the schools but so far have struck out — even though Kotero makes $160,000 as a manager at a local oil refinery.
He said he and his wife were recently outbid, despite stretching their budget to offer $1 million for a house listed for $900,000.
Unlike others, the Koteros don’t have hundreds of thousands in cash to meaningfully offset high rates. Instead, Rikah, who currently stays home with the children, is thinking of looking for a job.
“If we are realistically looking to buy a home in Torrance, there’s no way around it,” Kotero said.
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Mortgage rates initially ticked up a little bit following the release of Tuesday’s slightly hotter-than-expected Consumer Price Index data. But they’ve since trended back down and remain well below last month’s levels. Rates are still expected to go down this year.
Last month, average 30-year mortgage rates rose to 6.52%. So far this month, they’ve been trending a bit lower, and they could drop below 6% by the end of the year, according to Fannie Mae’s latest forecast.
But mortgage rates probably won’t drop substantially until we get more data showing that inflation is continuing to slow.
In February, prices rose 3.2% year over year, according to the Bureau of Labor Statistics. This is a slight uptick from the previous month, which showed prices rising 3.1% on an annual basis.
Federal Reserve officials want to see more data that inflation is coming down before they start lowering the federal funds rate. Once we get closer to a likely Fed cut, mortgage rates should start to fall.
Right now, investors still believe the Fed could start cutting rates as soon as June, according to the CME FedWatch Tool. So we could see mortgage rates go down in just a few months.
Mortgage Rates Today
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Mortgage Refinance Rates Today
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- Paying a 25% higher down payment would save you $8,916.08 on interest charges
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By plugging in different term lengths and interest rates, you’ll see how your monthly payment could change.
Mortgage Rate Projection for 2024
Mortgage rates increased dramatically for most of 2023, though they started trending back down in the final months of the year. As the economy continues to normalize this year, rates should come down even further.
In the last 12 months, the Consumer Price Index rose by 3.2%, a significant slowdown compared to when it peaked at 9.1% in 2022. This is good news for mortgage rates — as inflation slows and the Federal Reserve is able to start cutting the federal funds rate, mortgage rates are expected to trend down as well.
For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of the best HELOC lenders to start your search for the right loan for you.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.
Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.
When Will House Prices Come Down?
We aren’t likely to see home prices drop anytime soon thanks to extremely limited supply. In fact, they’ll likely rise this year as mortgage rates drop.
Fannie Mae researchers expect prices to increase 3.2% in 2024, while the Mortgage Bankers Association expects a 4.1% increase in 2024.
Lower mortgage rates will bring more buyers onto the market, putting upward pressure on prices. But prices aren’t currently expected to increase as much as they have in recent years.
Fixed-Rate vs. Adjustable-Rate Mortgage Pros and Cons
Fixed-rate mortgages lock in your rate for the entire life of your loan. Adjustable-rate mortgages lock in your rate for the first few years, then your rate goes up or down periodically.
So how do you choose between a fixed-rate vs. adjustable-rate mortgage?
ARMs typically start with lower rates than fixed-rate mortgages, but ARM rates can go up once your initial introductory period is over. If you plan on moving or refinancing before the rate adjusts, an ARM could be a good deal. But keep in mind that a change in circumstances could prevent you from doing these things, so it’s a good idea to think about whether your budget could handle a higher monthly payment.
Fixed-rate mortgage are a good choice for borrowers who want stability, since your monthly principal and interest payments won’t change throughout the life of the loan (though your mortgage payment could increase if your taxes or insurance go up).
But in exchange for this stability, you’ll take on a higher rate. This might seem like a bad deal right now, but if rates increase further down the road, you might be glad to have a rate locked in. And if rates trend down, you may be able to refinance to snag a lower rate
How Does an Adjustable-Rate Mortgage Work?
Adjustable-rate mortgages start with an introductory period where your rate will remain fixed for a certain period of time. Once that period is up, it will begin to adjust periodically — typically once per year or once every six months.
How much your rate will change depends on the index that the ARM uses and the margin set by the lender. Lenders choose the index that their ARMs use, and this rate can trend up or down depending on current market conditions.
The margin is the amount of interest a lender charges on top of the index. You should shop around with multiple lenders to see which one offers the lowest margin.
ARMs also come with limits on how much they can change and how high they can go. For example, an ARM might be limited to a 2% increase or decrease every time it adjusts, with a maximum rate of 8%.
By Stephen Johnson, Economics Reporter For Daily Mail Australia
05:11 01 Feb 2024, updated 09:59 01 Feb 2024
- Perth house prices up 17 per cent in a year
- No longer the cheapest state capital market
More affordable Australian cities outside of Sydney and Melbourne that attract new residents from interstate instead of overseas have seen the strongest surge in house prices.
Perth is no longer Australia’s most affordable state capital city market with its median house price jumping by 17 per cent in the year to January to $708,335, CoreLogic data released on Thursday showed.
In January alone, house prices rose by 1.6 per cent, with CoreLogic research director Tim Lawless describing Perth as a stand out for its persistently rapid rate of capital gains.
Prices in the West Australian capital are now at a record high, having earlier peaked in 2014 after the last mining boom before stagnating for years.
The middle price in Perth still buys something with a backyard less than 10km from the city centre in an inner-city suburb like East Victoria Park.
‘The western capital continues to see housing demand outweigh supply,’ Mr Lawless said.
In the coastal satellite city of Mandurah, south of Perth, property values have surged by 21.2 per cent to $596,579 during the past year.
This occurred as Brisbane‘s mid-point house price rose by 15 per cent to $888,628.
In the southern suburbs, stretching from inner-city Annerley to Stretton, home prices soared by 20.7 per cent to $1,053,461.
Both Perth and Brisbane are growing because of interstate migration, as new overseas arrivals flock to Sydney and Melbourne.
These provincial capital cities had the biggest house price increases even though the Reserve Bank in November raised interest rates in November for the 13th time in 18 months to a 12-year high of 4.35 per cent.
Real estate values in Australia’s state capital cities are increasing despite the most aggressive interest rates since 1989 because of rapid population growth.
Sydney, Australia’s most expensive capital city market, saw its median house price over the year rise by 12.8 per cent to $1,395,218.
This occurred after a record 518,000 net migrants, on a net basis, moved to Australia during the last financial year.
Sydney has Australia’s biggest influx of new overseas residents but also the biggest exodus to other states.
Cities with a colder climate had weaker property price increases.
Melbourne, another major recipient of new foreign arrivals, saw its mid-point house price rise by a lesser 4.3 per cent over the year to $942,750.
Hobart is now Australia’s most affordable state capital city with its median house price over the year falling by 0.5 per cent to $692,619.
Adelaide, however, had a double-digit increase with its mid-point house price rising by 10.2 per cent to $774,969.
Canberra, Australia’s second most expensive capital city market, saw its median house price rise by a more subdued 1.9 per cent annually to $968,248.
Darwin is still Australia’s cheapest capital city market with the Northern Territory capital’s median house price rising by just 0.3 per cent to $578,342.
AMP senior economist Shane Oliver said a lack of supply would see Australian house prices continue to grow in 2024, but at a slower rate.
‘Our base case remains for softer home prices this year, but the housing shortage and increasing confidence in rate cuts may keep average house price gains modestly positive,’ he said.
But with inflation last year falling to a two-year low of 4.1 per cent, Dr Oliver said Reserve Bank of Australia rate cuts in late 2024 could see prices climb again at a fast pace.
‘Expect a renewed upswing from later this year in response to lower mortgage rates,’ he said.
‘Falling inflation adds to confidence that rates will be falling from mid-year, but bear in mind that RBA communication will likely remain cautious on inflation and rates for a while yet.’
Lower home prices and declining interest rates on new fixed-rate mortgages are starting to translate into affordability gains in some Canadian cities, a Globe analysis has found.
While many Canadian cities have seen sizable home price drops over much of 2022 and 2023, soaring borrowing costs over that period have, until recently, wiped out any affordability gains for homebuyers. But with lenders lowering fixed rates on new five-year mortgages over the past two months, that’s beginning to change.
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The Globe and Mail compared the mortgage payments homebuyers would have to carry if they purchased an average-priced home in their local market today to what they’d have paid if they’d bought in February, 2022, right before the Bank of Canada began its rate-hiking campaign. In a handful of housing markets, those payments would be lower, the numbers show.
The analysis shows it currently takes a home price decline of around 25 per cent or more from February two years ago to produce a mortgage payment decrease of more than $100 a month.
But the good news for homebuyers is limited. The gains are typically modest and concentrated in mid-sized cities and smaller communities in Ontario, which saw the sharpest housing corrections since early 2022.
And in the absence of sizable increases to the housing supply, any affordability gains are likely to be short-lived, with buyer demand bound to quickly push up prices, CIBC Capital Markets deputy chief economist Benjamin Tal said, commenting on The Globe’s analysis.
“What we’re seeing now is a situation in which we are planting the seeds for some increasing prices down the road,” Mr. Tal said.
The Globe calculated mortgage payments in more than 20 markets tracked by the Canadian Real Estate Association. The analysis relies on estimates of the price of a typical home in February, 2022, and in December, 2023, the latest available data.
To calculate mortgage payments at the peak of the pandemic housing boom, The Globe used a rate of 2.94 per cent. That was the lowest nationally available five-year fixed rate for purchases that don’t require mortgage default insurance in mid-February of 2022, according to MortgageLogic.news.
For an estimate of mortgage payments for today’s buyers, The Globe used a 5.29 per cent rate, the current lowest five-year fixed rate. The calculations assume buyers have a 20-per-cent down payment and will take 25 years to pay off the mortgage.
Those steep price declines are mostly found in Ontario. In Cambridge, for example, where prices have dropped 28 per cent from their peak, a buyer today would likely face monthly mortgage payments around $300 lower for a typical home. Buyers will find similar conditions in London, Waterloo, Hamilton and Oakville.
The province also dominates the ranking of markets where prices have fallen by around 20 per cent, which currently produces mortgage payments that are roughly equal to those buyers faced two years ago, before the central bank began raising rates. Chilliwack, B.C., is the only city outside of Ontario among those analyzed to also exhibit these conditions.
In much of the rest of Canada, buyers are still contending with higher mortgage payments. In Halifax, for example, the monthly payment on a typical home is still roughly $400 higher, even though home prices are 6 per cent lower.
In Calgary, where prices are up 10 per cent since February, 2022, a new buyer would have to shoulder nearly $1,200 more a month in mortgage payments for an average home.
But for many buyers, strong wage growth over the past two years should help soften the financial pinch, said mortgage analyst Robert McLister, who runs MortgageLogic.news.
“You would find that the total affordability is not as bad as it would seem in some places if you factor in that,” Mr. McLister said.
And lower home prices mean down payments can go further to reduce the size of a mortgage and its monthly instalments.
With borrowing costs still elevated, Mr. Tal expects only a modest revival in housing activity this spring. But the affordability gains realized so far are so little that even small price increases would erase them in the absence of further interest-rate declines, he said.