Spring is less than a month away, and with it typically comes a busy time to buy and sell a home in Southern California.
The holidays have passed. The weather is warmer. At least in theory, families should have enough time to find a home, move and settle in before their children start school in the fall.
But during four years of a pandemic-influenced market, seasonality has at times gone by the wayside and home prices have whipsawed up, down, then back up again.
So what should you expect if you are looking to buy or sell a home this spring?
Borrowing costs
If you are buying a home, prepare to pay a high mortgage interest rate.
Prospective buyers had received some good news in recent months as the average rate on a 30-year fixed mortgage fell from a high of 7.79% at the end of October to 6.6% in January.
Mortgage interest rates tend to follow inflation and during that time inflation showed signs of easing. But in recent weeks, economic reports have signaled inflation may be harder to eradicate than some expected and mortgage rates have resumed their climb.
As of last week, the average rate on a 30-year fixed mortgage was 6.9%, according to Freddie Mac. That means the monthly payment on an $800,000 house is $128 more a month than that bottom in January, but $387 cheaper than the peak in October.
According to the latest forecast from the Mortgage Bankers Assn., buyers shouldn’t expect drastic relief this year. The trade group expects rates to average 6.6% during the second quarter and end the year at 6.1%.
If you are selling your home, high rates mean you will have fewer people touring your open houses than during the pandemic boom and you may need to rethink what your home is worth.
However, there are buyers out there at today’s higher rates and some houses still receive bidding wars. Wealthy buyers can easier stomach a mortgage rate around 7% and may be able to pay all cash.
“I wouldn’t call it a hot market,” said Tracy Do, a real estate agent who specializes in Northeast L.A. “It’s very tempered.”
Homes for sale
If you are looking for a home, you may wonder where they’ve all gone. However, the experience might be somewhat easier than it’s been.
For the first time since 2021, new listings in January — homes hitting the market for the first time — were up compared with a year earlier in L.A. County, according to Zillow. Similar trends were seen across Southern California.
Inventory has been extremely tight because many homeowners have decided not to sell, unwilling or unable to give up their 3% and below mortgages.
Orphe Divounguy, a senior economist with Zillow, said he believes that “lock-in” effect is starting to wear off, as more people decide they’d rather get on with their lives and move than keep a low mortgage rate.
But Divounguy and other economists don’t expect a return to normalcy soon, given the depths of the inventory crisis. In part that’s because of the difficulty of building houses in places like California, but also because high mortgage rates will still prohibit some from selling.
According to Zillow, there were a total of 10,887 homes on the market in January in L.A. County, both new listings and homes that remain on the market unsold. That was 13% below a year earlier, but an improvement from the 26% annual decline recorded in September.
Real estate agent Do said she is not seeing a flood of calls from people seeking to list their house.
Some of the calls she does get come from people asking her to run the numbers to see if it makes more financial sense to lease their house rather than sell it since rents are high and they have sub-3% mortgage rates.
“They are just thinking of keeping it as long-term investment, because they can,” Do said. “They have such a low overhead.”
High prices
If you’re looking for a screaming deal, you’ll be disappointed, according to many economists.
According to Zillow, home prices across the six-county Southern California area dipped slightly in November and December, while they remained largely flat in January.
Part of the reason is high mortgage rates prevented buyers from bidding up the cost of housing. But economists say part of the lack of movement in values is seasonality, since the winter is typically a slow time in the market.
As buyers return this spring, some experts predict there will be enough of a mismatch between supply and demand to send prices back up.
Overall, Zillow expects home prices in January 2025 to be 4.5% higher than January 2024 in the Inland Empire counties of Riverside and San Bernardino. Across Los Angeles and Orange counties, prices are predicted to climb 2.6%.
However, economists say prices could fall if the Federal Reserve’s actions to beat back inflation push the nation into a recession.
