For the first time in a decade, home prices in Southern California are falling.

After 10 years of largely uninterrupted gains, home values have turned negative, the result of rising mortgage rates that have squashed demand and caused sales to plummet.

The typical Southern California home price is now nearly 6% below the all-time high reached in May, according to data released by Zillow.

In September, the typical home price for the six-county region dropped 0.6% from August to $817,316, marking the fourth consecutive month that prices declined from the prior month. That hasn’t happened since early 2012.

Few, if any, major real estate experts predict Southern California home prices will fall like they did during the Great Recession. But values are coming down in many corners of the country, because they have to, according to economists.

For much of the pandemic, mortgage rates below 3% enabled buyers to bid up housing to new heights. But inflation and the Federal Reserve’s actions to fight it have helped push rates up sharply and drastically reduced what people can afford.

As of last week, the average rate on a 30-year fixed-rate mortgage was 6.66%, according to mortgage buyer Freddie Mac, more than double what it was a year earlier.

The increase adds nearly $1,500 to the monthly mortgage payment on an $817,316 house. For many buyers, that’s too much.

Eventually, price declines could help many buyers purchase a home.

But so far rising mortgage rates mean monthly payments for today’s lower-cost homes are still higher than the monthly payment if you purchased a house at the peak, assuming a 20% down payment.

In individual counties, price declines from the peak range from a 3.6% drop in Ventura County to a 6.7% decrease in Los Angeles County.

Given the strong demand earlier this year, data show prices are still higher than a year earlier in all Southern California counties.

And at the moment, many homeowners are deciding not to list their homes, because they don’t want to sell for less than their neighbors did, or give up their rock-bottom fixed-rate mortgage. That “seller strike” is limiting the number of homes on the market and preventing home prices from falling dramatically further, experts say.

Ultimately, just how far prices drop may depend on where interest rates settle. The further they go up, the more house prices will likely go down. And with rates climbing toward 7%, some experts are updating their forecasts.

Source: Staff Writer Andrew Khouri