Home Sales Continue to Drop In Southern California

Home sales are dropping in Southern California. For the fourth month in a row, home sales have continued top drop, according to data for March. At the same time, the median price for a home in Southern California, has climbed above the $500,000 mark. This is a divergence of trends. In the last several years home sales were robust and increasing and so were home prices. Now home sales have slowed but prices are still inching upward in many areas.

Home values in Los Angeles, Orange, Riverside, San Diego and Ventura counties, increased 14% over one year ago. Homeowners should not expect that rate of appreciation for the current year. In March the number of home sales fell almost 10%. Sales activity is related to price activity. The fact that we are seeing a continuing series of months with declining sales activity is an indicator that price activity is soon to follow. The current rate of home value appreciation cannot be sustained in a climate of falling home sales. In Southern California the sales activity and the rate of price increases reached a peak two years ago. In the current environment we are likely to see home values rising at a much slower pace or even approaching 0.

There are no indications that this is a real estate bubble at this point, this is just a return to more normal market conditions. What we have seen in the past several years is abnormal market conditions. The rapid growth in the real estate market must eventually return to a more normal pace. When we see the number of home sales slow, especially for a multi month period, we can expect prices to lag the slowdown in sales by around three months. We should see home appreciation start to really slow down soon in southern California.

Inventory is another factor of price. In this region inventory is increasing, but not at extraordinary levels. The time to sell a home is increasing. Last spring it was 27 days, now it is 48.

The county to watch is San Diego. It was the first county to accelerate in home value appreciation and the first to slow. It is seen as a barometer for southern California. In the last six months median prices of homes in San Diego county have decreased 2%. This is not indicative of a bursting bubble, but an overheated market that is returning to normal.