Southern California home prices and sales surged in December

Southern California home prices in December rose by the most in 19 months, the latest sign that the housing market is gaining steam after a prolonged slowdown.

The six-county median sales price hit a new all-time high of $550,000 last month, a 7.2% increase from a year earlier, according to data from DQNews. Sales, meanwhile, surged 22.1% from December 2018 — the largest gain since late 2016.

The dramatic bounce of sales and home prices reflects the depressed state of the market a year earlier. At the time, concerns over affordability and the direction of the economy were heightened. The stock market had plunged and some would-be buyers wondered if prices would follow. Sales in December 2018 dropped 20% from a year earlier.

“December 2018 was a really weird month,” said Christopher Thornberg, founding partner at Beacon Economics.

Still, the data reveal a market that’s heating up after staying slow through much of 2019. Thornberg and other economists attributed the pickup to an easing of recession fears, rising incomes and falling mortgage rates — factors that have made buying more attractive and possible.

“High-income people buy houses and their incomes have been really strong,” said Richard Green, director of the USC Lusk Center for Real Estate.

Prices increased in most counties last month:

• In Los Angeles County, the median price rose 7.4% to $628,250, while sales climbed 18.4%.
• In Orange County, the median price rose 3.2% to $732,750. Sales climbed 36.9%.
• In Riverside County, the median price rose 6.9% to $401,250. Sales climbed 17.9%.
• In San Bernardino County, the median price rose 7.7% to $355,000. Sales climbed 21.5%.
• In San Diego County, the median price rose 4.5% to $575,000. Sales climbed 24.1%.
• In Ventura County, the median price fell 1% to $569,000. Sales climbed 14.9%.

Just because the median increased, however, doesn’t mean values of all homes rose by the same measure. The median sales price for a month is the point at which half the homes sold for more and half for less.

Other measures try to take into account the types of homes selling in a given month. For example, if a lot more five-bedroom homes sold in December 2019, compared with December 2018, then the median price can be influenced more by that mix of homes than a true increase in values across the board.

Zillow tries to account for such shifts and estimates a median for all homes, not just those that sold that month. Its data show L.A. County home prices rose just 1.6% in December. However, like DQNews, Zillow data show the price gains are getting bigger. In August, the Zillow median rose just 0.27%.

By any measure, rising values are unwelcome news for Californians struggling to purchase a home. And with many people locked out of the purchase market, higher-income individuals are remaining renters, putting upward pressure on rents in a state where thousands bed down in tents and RVs.

But rising wages and falling mortgage rates have broadened the base of eligible home buyers.

In November, average hourly earnings in the Los Angeles-Orange County metro region rose 5.6% from a year earlier, according to data from the Bureau of Labor Statistics. And the average rate on a 30-year fixed mortgage was 3.65% last week, down from 4.45% a year earlier, according to Freddie Mac. The drop would save $203 on a monthly mortgage payment for a $550,000 home, assuming a 20% down payment.

In the third quarter of 2019, 33% of the households in Los Angeles, Orange, Riverside, San Bernardino and Ventura counties could afford the median-priced single-family home, compared with 30% a year earlier, according to the California Assn. of Realtors.

Although demand has increased, the inventory of available homes has declined. The number of homes for sale in L.A. County has fallen, on a year-over-year basis, every month since August, according to Zillow. In December, listings were down 19%. Similar declines were seen across Southern California.

Given that tight inventory, home prices are likely to keep rising during the upcoming spring home-buying season, said Cheryl Young, a senior economist with Zillow. But she expected any gains to be less than those seen through much of 2018 and before, when Zillow’s data consistently showed gains in the 7% range.

“We have hit an affordability ceiling,” she said.

Thornberg doesn’t think that’s the case; he predicted home prices could easily start increasing at the rate of years past. He said there’s plenty of high-income households in Southern California able to pay more to get into one of the few homes on the market.

“It’s not going to slow down anytime in the near future,” he said.