L.A. Home Prices Stumble at Midyear

Los Angeles home prices were down 6% in July year-over-year, rounding out three consecutive months of home pricing declines, according to research from Pacific Union International. The downward trend comes after months of strong pricing gains, which haven’t been offset by the anemic midyear numbers. Los Angeles could be rebalancing after rapid pricing growth, following a similar pattern in the Bay Area, which also saw soft pricing trends after months of rapid price gains.

“Pricing trends suggest that following a strong increase in prices at the beginning go 2018, price growth is stabilizing again to a more sustainable level see over the last couple of years,” Selma Hepp, PhD, chief economist and VP of business intelligence at Pacific Union International, tells GlobeSt.com. “Some of the more affordable L.A. communities are seeing more appreciation as buyers are still looking for deals and areas of growth.”

The decline, therefore, isn’t an issue of waning demand, but rather a rebalancing following unusually strong demand due to rising interest rates. “Market has been very competitive over the last year as buyers were trying to rush in before interest rates increased and prices rose further—that led to higher price growth that over the last few years,” says Hepp. “Now, buyers do not feel the same urge, fatigue has set in, and they are taking longer to shop around. Also, for those budget-constrained buyers, combination of price growth and higher rates made it unaffordable to purchase a home.”

While the home market continues to be strong in Los Angeles, Hepp expects the home prices will grow at a more moderate pace over the next year, partially as a result of increased interest rates. “I think price growth will continue to moderate grow at slower pace than has been the case over the last year,” she says. “The approximately 10% increase we’ve seen year-to-date in Los Angeles will probably settle at about 5% to 7% rate going forward.”

This could be good news for buyers. More tempered buyer demand and slower pricing growth will create more of an equilibrium between buyers and sellers. “Slower pace of home price growth and less frenzy among buyers will make the market between sellers and buyers more balanced,” says Hepp. “Market conditions have been decidedly skewed in favor of sellers  and they benefited from rapidly rising prices and strong buyer demand. Going forward, sellers may see fewer offers come their way and may have to adjust their price expectations as a result. Buyers may be less rushed and competing against fewer other bids. Taken together, market will be more balanced. Though with dearth of inventory, even with slight recent increases, market will remain tilted in favor of sellers.”