Southern California Home Prices Hit New Heights Despite High Interest Rates and Tight Inventory

Southern California home prices set a record for the third consecutive month in according to final data for May 2024.

The average home price in the six-county region reached $875,409 last month, up nearly 1% from April and 9% from a year earlier, according to Zillow.

Prices increased in all six counties, including Los Angeles, where the average home costs $889,458.

Economists and real estate agents attribute the rising prices to a lack of available homes despite high interest rates. When rates surged in 2022, home prices initially fell as buyers pulled back and inventory increased. However, prices began rising again last year as homeowners chose not to sell, preferring to keep their low mortgage rates from loans taken out before and during the pandemic.

Another factor driving prices higher is the wealth gap. While many Southern Californians cannot afford to buy a home, there are plenty of high-income earners who can.

Many longtime homeowners have significant equity, allowing them to sell and make substantial down payments that mitigate the impact of high interest rates on new purchases. Others receive financial assistance from parents or liquidate stock portfolios.

In February, 23% of homes sold in L.A. County were bought with all cash, up from 16% in 2021, according to Redfin. National survey data from Zillow shows an increase in the percentage of people putting down at least 20% as mortgage rates have climbed.

Prospective buyers have seen some positive news recently. Although inventory remains very tight, more homes are beginning to come onto the market.

In May, the number of homes listed for sale in all Southern California counties was higher than a year earlier, according to Zillow.

Inventory in Los Angeles County was 13% higher; Orange County, 6%; Riverside County, 14%; San Bernardino County, 15%; Ventura County, 18%; and San Diego County, 30%.

Some experts believe the rise in inventory won’t cause home prices to decline, but it may slow the rate of price increases.