Some Buyers Find Deals In Shifting Southern California Housing Market

Stephen Jackson lost out on more than a dozen properties as home prices surged during the pandemic housing boom. He finally called off his search in 2021 when someone outbid him for a Tarzana condo by $25,000 — and paid in cash.

“I was like, ‘I am never going to get a freaking home here,’” the 31-year-old human resources manager said.

Last year, mortgage rates exploded, making the sky-high prices even less affordable and tanking home sales

When his roommate decided to move in October, Jackson chose to look again, this time seeking deals swirling in the crosscurrents of the real estate fallout.

Last month, he made an offer on a two-bedroom condo in downtown L.A. that had languished on the market for 72 days. At $20,000 below the $450,000 list price, his offer — the only one — was accepted.

“All my friends were shocked I bought a home right now, and I was like, ‘Why wouldn’t you?’” Jackson said.

Demand for homes is a far cry from the height of the pandemic housing boom, but Southern California real estate agents and mortgage brokers say they’ve been seeing more people like Jackson dip their toes into the market to take advantage of momentary opportunities.

Mortgage rates — though elevated — have come off their 7% highs, and home prices have fallen as sellers struggled to get offers.

In L.A. County during the four weeks ended Feb. 5, the number of signed purchase contracts was 42% below the same period last year, according to data from real estate brokerage Redfin. Still, that’s an improvement from the 51% drop seen at the start of December.

“The temperature in the room is still cold,” said Taylor Marr, an economist with Redfin. “But it’s not frozen.”

Whether the modest rebound will hold is unclear. Returning buyers may need to rapidly adjust what they can afford.

In the past two weeks , mortgage rates — heavily influenced by inflation — have resumed their climb following economic reports indicating that inflation will be tougher to bring down than expected.

The average on a 30-year fixed mortgage climbed to 6.32% for the week ended Wednesday, up from 6.09% two weeks earlier, according to Freddie Mac, the government-backed mortgage buyer. A daily tracker from industry publication Mortgage News Daily puts the average even higher: 6.8% as of Friday.

One mortgage broker said he noticed a “huge drop-off” in demand as rates rose last week, while other brokers and real estate agents said they’ve seen buyers plow ahead undeterred.

For would-be buyers putting down 20%, the monthly mortgage payment on a $800,000 house would be about $100 more expensive with an interest rate of 6.32% than with 6.09%. But the payment at 6.32% is $322 less than at 7.08%, which is where rates topped out in the fall, according to Freddie Mac.

Falling home prices help offset some of the pain from high rates.

Overall, L.A. County home prices have fallen 3% to 14% since the peak in pricing last year, according to a review of various platforms that track prices in different ways. Additionally, with less competition, sellers are more likely to pay for repairs or cover a buyer’s closing costs. Some will buy down a buyer’s interest rate.

Tressa Pope, founder of TPG Mortgage Lending in Burbank, said people using down payment assistance programs have also had luck. When competition was fierce, sellers often refused to consider those buyers, because they feared paperwork would bog down the deals.

Not everyone can, or wants to, jump in the market now.

Dana Robinson, a 46-year-old freelance writer, and Scott Rowden, a 44-year-old video editor, rent a Sherman Oaks apartment and want to buy a house in the neighborhood to build equity and give their 2-year-old daughter a backyard.

But with nearby houses typically listed above $1.5 million, the dream is out of reach. The couple hopes to start looking late this summer or early fall. By then, prices ideally will have fallen enough so they can stretch their budget to buy.

“If not, then we will push it back,” Robinson said.

Such continued affordability challenges are a major reason some experts predict Southern California home prices have further to fall.

Though mortgage rates have dropped from 7%, they remain above 6% — roughly double the level that helped drive home prices to all-time highs.

“Affordability still looks really bad at 6%,” said Rick Palacios Jr., research director with John Burns Real Estate Consulting.

The consultancy expects rates to average around 6% for the remainder of 2023. By year’s end, it predicts, L.A. County home prices will have dropped percentage-wise by the “high-single digits” compared with December 2022 — a moment when the company’s home price index had already recorded a 5% drop from the peak.

Jeff Tucker, a Zillow economist, said it’s possible home prices have already found a bottom. Inventory is very low, and a modest increase in demand could be enough to send prices back up, he said.

On the other hand, higher mortgage rates could squash what was a modest rebound.

During the week ended Feb. 10, U.S. mortgage applications — precursors to home sales — dropped compared from the prior week as rates rose, according to the latest data from the Mortgage Bankers Assn.

“Potential buyers remain quite sensitive,” Joel Kan, an economist with the Mortgage Bankers Assn., said in a news release announcing the data.

Given the uncertainty, would-be home buyers have much to ponder. If they buy now and prices keep falling, they might not have enough equity to sell and could be vulnerable to a foreclosure if they lose their jobs.

Jeff Lazerson, president of Mortgage Grader in Laguna Niguel, said he thinks buyer skittishness is why many deals fall apart in escrow.

“They are worried,” Lazerson said of buyers. “It’s, ‘If I wait six months, will the price be lower?’”

Source: www.latimes.com

Author: Andrew Khouri