ANAHEIM, Calif. — Southern California Home sellers are cutting the asking prices for their listed homes.
A new Redfin report found that nearly 40% of home sellers in Orange County and 30% in Los Angeles dropped their listing asking price in June, as the real estate market cools amid soaring mortgage rates and rising inventory. In Riverside, 36% of sellers cut the price of their homes last month.
Last year, during a fierce and competitive housing market, only 12% of sellers dropped their home listing prices across the three Southern California regions.
Redfin Senior Economist Sheharyar Bokhari said a looming recession, a shaky economy, the down stock market and higher mortgage rates are causing prospective buyers "to press the pause button."
"Sellers are adjusting their expectations in real-time as they realize they may not get the price their neighbor got two months ago," said Bokhari in a news release.
The report released Thursday comes as Southern California's real estate market slows and demand for homes drops as mortgage rates rise.
During the first two years of the pandemic, there was a huge run-up and demand for homes due to historically low mortgage rates, low inventory and work-from-home policies. Home values across the region skyrocketed, and many desperate buyers overbid on homes to secure one.
But those days are seemingly over.
Historically high inflation, the Federal Reserve's aggressive reaction to increasing rates to stem inflation and other factors are causing a slowdown in the real estate market.
Housing affordability has also become a more significant issue as buyers today spend hundreds more on a monthly mortgage than if they had purchased a home a year ago.
As of Thursday, the average 30-year mortgage rate is 5.5%, a 2.2% increase from the start of the year, Freddie Mac reported. Last July, the 30-year mortgage rate was 2.8%.
According to Reports on Housing, in Orange County, the active housing inventory sits at 3,803, a 9% jump from the past few weeks and its highest level since November 2020. Last year, the housing stock was at 2,528, 34% lower or 1,275 fewer.
"With persistently higher rates, demand has significantly dropped to low levels last seen during the Great Recession, which has allowed the supply of homes to rapidly rise," said Steven Thomas, an economist at Reports on Housing.
Thomas said the number of available homes has still not caught up to pre-pandemic levels. However, as the year progresses, Thomas expects the inventory "to relentlessly rise and make up the difference."
Demand has also dropped.
Thomas said that the expected market time — the number of days to sell all Orange County listings at the current buying pace — is at 67 days, its highest level since May 2020.
He expects the market time to grow to 90 days within the next couple of months as rates continue to climb. The days of a hot seller's market, when homes were quickly snatched up, are no longer.
"Depending upon where mortgage rates are during the autumn, housing could even reach a slight buyer's market (between 120 and 150 days), where buyers get to call the shots, yet home values are still not changing much," he said.
Jucevi Virtudes, a realtor at TNG Real Estate based in Fullerton, said he was shocked last month when he sent in two below asking price offers on behalf of a client on two homes in Orange County.
Both seller's agents, Virtudes said, immediately contacted him, looking to go into escrow.
"It's usually us [the buyers] doing the follow-ups," said Virtudes to Spectrum News. "But this time, it was the other way around. They wanted to go to escrow right away."
The situation highlights the sudden shift in the market, he said. He's noticed agents dropping the price of a listed home by $10,000 to $50,000 if it doesn't sell within the first couple of weeks.
During the pandemic, many homes sold during the first open house weekend and over the asking price.
This time, Virtudes said his client had a choice of homes to choose from and offered under asking the seller listing price.
The tables have turned.
"Home sellers are being realistic," he said. "I think the market is shifting to pre-pandemic levels when homes for sale sat for a month or two or three before being sold."