Mortgage rates exceeding 7% have caused a sharp contraction in the housing market across Los Angeles and the broader Southern California region.
According to a 10th-month housing market report released by real estate platform Zillow, existing home sales in the LA metro area decreased by 18% compared to the same month last year. This decline significantly outpaces the national average reduction of 8.7%.
Sales drops were also pronounced in other Southern California areas. Home sales in San Diego fell by 17.2%, while Riverside saw a 16.8% decline. All three major Southern California regions experienced drops roughly double the national average.
Conversely, home prices showed little movement despite the lower transaction volume. The median home value in the LA area stood at $950,752, marking a 0.4% decrease from the previous month but a 0.8% increase year-over-year.
Home values in San Diego and Riverside were recorded at $929,026 and $580,531, respectively. Meanwhile, the national median home price was $364,812. Home prices in LA and San Diego are approximately 2.6 and 2.5 times the national average, highlighting the heavy financial burden facing Southern California home buyers.
The primary driver behind the slowdown in home sales is the surge in mortgage rates. Data from Freddie Mac shows that the average mortgage rate in October hit 7.33%, up 0.47 percentage points from September’s 6.86%.
Given that home prices rose by less than 1% year-over-year, analysts suggest that the recent cooling in home sales is largely attributable to climbing borrowing costs.
As the sales market slumped and demand shifted toward rentals, rent prices maintained an upward trajectory. The typical monthly rent in the LA area rose 2.1% from the previous year to $2,913.
Looking ahead, further contraction in home sales appears unavoidable for the time being. Zillow reported that nationwide pending home sales for October dropped 16.8% year-over-year, marking the steepest decline since August 2023. Pending sales performance for October was also the weakest for that month since 2018.
Because pending sales typically translate into closed transactions the following month, November is expected to see an even wider drop in home sales.
However, Zillow predicts that the market contraction will peak around November, with the downward trend gradually easing in the new year. Particularly as the year-end approaches, home sellers are expected to be more flexible with price negotiations, presenting potential opportunities for buyers with strong purchasing power.
Additionally, an accumulation of housing inventory combined with potential future drops in mortgage rates could support a market recovery next year.
