Rising interest rates cool off Southern California’s red-hot real estate market

With interest rates rising another .75%, Southern California’s once red-hot real estate market has calmed down.

“Every time we’d put an offer in it wouldn’t go through because somebody put $50,000 more, $60,000 more,” said homeowner Ariana Sipavich.

Sipavich finally closed on her home purchase about four months ago, finally buying a fixer-upper.

“Our home was probably the ugliest home on the block,” she said.

Since then, the real estate market in Southern California has taken a drastic turn. According to Dr. Richard Green from USC’s Lusk Center for Real Estate, at almost the exact time Sipavich closed the deal the market dropped.

“We’ve seen a decline in the last four months, about 20% in home sales,” said Green.

Green attributes the declining market to the Federal Reserve’s attempts to tame inflation. One of the strategies that the Fed uses to get a handle on inflation is to raise interest rates. With inflation rising to 9.1% — its highest point in 40 years, in June — the Fed began to raise interest rates to hopefully dissuade consumers from spending more money.

The latest round of interest rate hikes has bumped 30-year-fixed-rate mortgages to about 6% compared to about 3% in December.

For example, a $550,000 loan last year at 3% would equal a payment of $2318 on a 30-year mortgage. Now, the same loan at 6% would be $3297, a 42% jump.

Real estate agent David Smith said he had to make price adjustments on his listing in Woodland Hills after 65 days on the market. He added that sellers have to manage their pricing expectations while buyers are in the driver’s seat, essentially making it a buyer’s market now.

“Now, there’s a positivity time because there’s less competition,” Smith said. “I’m seeing less multiple offers — still seeing them but less of them.”

Green said it’s unlikely to see home prices bottom out as they did during the Great Recession since borrowing standards are much tighter now.

“I don’t know how much further they can actually fall from where they are right now but I think it will stay low for some time,” he said.

On Zillow, it’s easy to notice the price drops, but for 32-year-old Joseph De Herrara, logging onto the real estate website is no longer part of his American Dream.

“I started about 5 years ago and I think I threw in the towel like earlier this year,” he said.

While home prices are cooling off, fewer homes are entering the market since owners with low-interest loans are not willing to get out of them.

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