Due to pent-up demand, SoCal homes are still selling amid higher interest rates

Prices generally rise in the Southern California residential real estate market. But in recent months the market has cooled slightly as asking prices have fallen for many homes. What’s going on? Is this an anomaly or a sign of a long-term trend?

The average interest rate on a 30-year fixed mortgage was 2.96% in 2021, but it rose above 5% due to inflation, says Eric Sussman, professor of accounting and real estate at the UCLA.

But the homes are still selling, says Los Angeles real estate agent Dunia Handy Gill. She takes the example of Pasadena, where properties are being renewed rapidly. She says some homes are listed and purchased within a month.

“I still see several offers. I see money, but I also still see buyers with mortgages, but not [with] 30-year fixed mortgages, more than a seven arm [adjustable-rate mortgage], even a 10 ARM. So mortgage companies are getting a little more creative in order to continue to have buyers who can buy,” says Handy Gill.

Buyers also have pent-up demand caused by the pandemic, Sussman points out. He predicts no housing collapses on the horizon.

“I told everyone that if they wait for a collapse, they will wait for Godot. It won’t happen because of a modest supply,” he says.

“They’ve been so stretched and that’s what really causes the big drops and that snowball effect when people sell the banks and then have trouble with their loans and they foreclose. … It just won’t happen in this cycle as best I can see,” he adds.

Handy Gill says it’s still a good time to buy a home in Southern California: “If you’re planning on buying and keeping a property for at least three to five years, this is absolutely the perfect time. And I see there is more on the market for buyers.

Sussman says he agrees with Handy Gill in general: “It’s a wild ride trying to track the ups and downs of the markets, certainly in real estate. So I agree with the general sentiment.

But he says he doesn’t want to “wear rose-colored glasses” because uncertainty is everywhere, and he sympathizes with Federal Reserve Chairman Jerome Powell who has to balance inflation against a recession.

About Martin Aaron

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