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

With interest rates rising another 0.75%, the once red-hot Southern California housing market has calmed down.

“Every time we’ve made an offer, it didn’t go through because someone put in an extra $50,000 or $60,000,” said homeowner Ariana Sipavich.

Sipavich finally completed her home purchase about four months ago and finally bought 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 of USC’s Lusk Center for Real Estate, the market fell almost exactly as Sipavich closed the deal.

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

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Green attributes the declining market to attempts by the Federal Reserve to tame inflation. One of the strategies the Fed uses to control inflation is by raising interest rates. As inflation rose to 9.1% in June – the highest level in 40 years – the Fed began raising interest rates, hopefully to discourage consumers from spending more.

The latest round of rate hikes has lifted 30-year fixed-rate mortgages to about 6%, down from about 3% in December.

For example, a $550,000 loan last year at 3% would equate to a $2,318 payment on a 30-year mortgage. Now the same loan at 6% would be $3297, a jump of 42%.

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

“Now there’s a positive time because there’s less competition,” Smith said. “I see less multiple offers – I still see them, but less of them.”

Green said house prices are unlikely to bottom out like they did during the Great Recession because credit standards are now much tighter.

“I don’t know how much further they can drop from where they are now, but I think it’s going to stay low for some time,” he said.

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Price drops are easy to spot on Zillow, but for 32-year-old Joseph De Herrara, logging onto the real estate site is no longer part of his American dream.

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

As home prices cool, fewer homes are coming onto the market as owners with soft loans are reluctant to step out of them.

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