The How and Why Behind the Calming of California’s Housing Market

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As market observers have long noted, California’s housing market has been persistently volatile.

The only consistent fact about the West Coast’s housing market has been its capacity for sharp price gains and painful crashes. Since the housing market began recovering, the California housing market has seen an exceptionally sharp rise in property values, much of which has been bolstered by the strength of the San Francisco and Los Angeles job markets.

The Housing Recovery

As the housing recovery has progressed, it seemed only those with outstandingly high income were likely to have much available home choices in the Golden State.

That being said, there’s some evidence things are evening out. A recent report in the Los Angeles Times notes that the rise in home prices seems to be slowing somewhat. This is currently running hand-in-hand with an overall slowing of home sales, which occurred at a flurry pace throughout 2013.

Related: California Housing Market Losing Momentum

According to figures provided by the Los Angeles Times, the typical house in the six-county Los Angeles region sold for  $410,000 in May. This is up only 1.5% from April, a comparatively slight increase against the climbs we’ve seen in the prior twelve months.

Additionally, the annual year-over-year gain only recorded at 11.4%. While this is still a strong climb, it’s far from the spikes we’ve seen in past months. This looks like an indicator of relative price stability, and broader market trends seem to be validating this. We’re seeing a simultaneous decrease in investor purchases and a climb in available inventory.

The breadth of available has likely gone a long way toward easing price gains, since inventory constriction has typically been one of the strongest guarantees of value inflation.

So Does this Mean Housing Will Become Affordable?

Well, considering this is the southern California housing market, that’s a very relative term.

As a large positive, it seems that we won’t see a continuous spiking in home values that could prove destabilizing. Sales recorded this May tallied at 15.1% less than in May of last year.

Related: The What, Where, When and How of Investing in Southern California’s Volatile Real Estate Markets

That being said, housing in the region wasn’t particularly buyer-friendly to begin with, and those who subsist on salaries that would be more than suitable for supporter a mortgage in much of the country won’t have much luck around San Francisco and Los Angeles.

In Conclusion

It’s likely that California’s housing market will enter a period of comparative stagnancy. Neither demand nor prices will likely rise within the following months, leading to a calm and relatively unremarkable time for the local housing market.

On the other hand, it looks like the number of distressed sales and foreclosures are declining. If patterns continue, there’s a chance that the long-term fate of the California housing market is that it will become comfortably predictable.

Do you agree?

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About Author

Harrison Stowe is a writer for NVR Inc., a prime developer of Baltimore new homes. Addressing a range of topics including investing, mortgages, and real estate, Stowe combines finance knowledge with additional experience working with Ryan Homes in the current real estate market.

4 Comments

  1. Yes, certainly see a slowdown of the Orange County, CA market this year, which I believe to be a good thing even though I flip homes. A steady sustainable market is something I cherish more than the manic boom bust cycles.
    That being said, it is still a fairly strong sellers market with approximately 2.7 months of inventory in the market and homes priced well, in good location, and in good condition flying off the shelves and it looks to be that way for a long time more.
    Going forward, I am wondering if there will be continued rise in prices or will home price increases rise in tandem with inflation? The reason for this tough is that I am feeling that home prices are really starting to bump up against affordability for the home buyer.

  2. I see it cooling in my area (Long Beach/Lakewood). Generally I think list prices are too high and sellers are not budging therefore buyers aren’t buying. The only thing selling are very-well priced listings and many of those are selling with multiple offers.

  3. I know investors in LA, and first time homebuyers alike, don’t want to purchase properties in the LA area. Reason is because prices have just been too expensive. The fundamentals should revert back, at least for next few years because of affordability. It doesn’t matter what the prices are, if “normal” people can’t afford it, it won’t sell.

    Sophisticated investors would rather take their money elsewhere, than get marginal returns in LA. Yes, once in a while, you will get those foreign money and from the extreme rich to overpay for the LA market. But that’s not the norm.

  4. There are still quite a few hot markets down here in SoCal. The entry level priced inventory is getting lots of showings and offers. Lending is still problematic. Lots of people want to buy, but the banks are not making it easy. I’ve heard stated income is making inroads in the lending world again. That will open up a lot of pent of demand and could be very good for the market overall.

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