Southern California's housing market experienced a minor adjustment in December, marking the second consecutive month of slight declines after a period of overall growth.
Despite the dip, the region's average home price, standing at $825,621, reflects a modest 0.3% decrease from the prior month, as reported by Zillow. Notably, Riverside and San Bernardino in the Inland Empire saw home values remain steady, with marginal increases of less than 0.1%.
Nicole Bachaud, a senior economist at Zillow, attributes the recent small declines to the seasonal nature of the real estate market during fall and winter, coupled with challenges faced by buyers grappling with elevated prices and mortgage rates.
The California Association of Realtors sheds light on the affordability challenge, revealing that only 11% of households in Los Angeles and Orange counties could afford the median-priced house during the third quarter. In contrast, 19% of households in Riverside County and 25% in San Bernardino County could afford homes in their respective markets.
While the surge in mortgage rates in 2022 led to a temporary dip in home prices, the reluctance of homeowners to sell, holding onto favorable mortgage rates, contributed to a resurgence in prices last year.
Despite the recent declines in November and December, home prices in most counties remain close to their all-time peaks. A positive development for potential buyers is the recent drop in mortgage interest rates, offering some relief. Rates have fallen from a high of 7.79% to the mid-6% range, providing buyers with increased purchasing power.
However, experts caution that the improvement in affordability may be limited as declining mortgage rates are expected to attract more buyers into the market. While sellers are showing increased willingness to list their homes, particularly as the era of ultra-low mortgage rates fades, the supply may not keep pace with rising demand.
Zillow's recent adjustment in predictions, spurred by the drop in mortgage rates, anticipates price increases in areas previously expected to remain flat or experience slight declines. In 2024, the Inland Empire counties of Riverside and San Bernardino are forecasted to see home prices rise by 3.1%, while Los Angeles and Orange counties are expected to experience a 1.4% increase.
Despite uncertainties, including the potential impact of the Federal Reserve's efforts to control inflation, there is growing optimism that the country will sidestep an economic downturn, providing a positive outlook for the housing market in Southern California.
