Prospective homebuyers in Los Angeles didn’t close many deals in September, according to a new report from real estate tracker CoreLogic. Sales in the month dropped off an astonishing 25 percent from August.
That hefty dip in sales came in spite of some serious price reductions. Median prices countywide fell 3.3 percent, from a record-high $615,000 to $595,000. That’s still 3.5 percent above the median price a year ago, but September is the first month since April that the median price has fallen below the $600,000 mark.
But none of this means the local real estate market is crashing.
As CoreLogic analyst Andrew LePage points out, a drop in sales between August and September is typical. Across all of Southern California, the number of homes sold in September is nearly 10 percent lower than the number of homes sold in August, on average.
This month, LePage says, that dropoff may have been higher than usual because some buyers are no longer willing to pay prices that have been steadily rising since 2012.
“The double whammy of higher prices and rising mortgage rates has priced out some would-be buyers and prompted others to take a wait-and-see stance,” he writes in an analysis.
At the beginning of the year, many real estate experts predicted that rising mortgage interest rates would cause prices to level off or even drop in 2018.
For buyers who aren’t paying in cash, interest rates are a key determining factor in whether a home is affordable. In September 2017, the average 30-year mortgage rate was 3.81 percent. In September 2018 it was 4.63 percent.
That means that monthly mortgage payments for a house costing $595,000 would be more than $200 more per month, assuming a 20 percent down payment (monthly payments would be even higher if the down payment was lower than 20 percent).
LePage explains that with such rapid interest rate growth, even a moderate uptick in sale prices can keep buyers out of the market. Across all of Southern California, median prices are up 3.6 percent since last year, but with interest rates factored in, that’s nearly a 15 percent bump in the cost of monthly payments.
The good news for buyers is that prices appear to be plateauing and more sellers are slashing prices. According to a recent Zillow report, the number of homes in the Los Angeles metro area being advertised with a price cut is up 6.5 percent since this time last year.