Over the past 12 months, the Southern California markets covered by this report added 122,800 new jobs, and the total number of people claiming unemployment insurance dropped by almost 204,000. With these changes, the unemployment rate has dropped by two percentage points from 6.3% to 4.3%.
The regional economy appears to be performing quite well and I expect this trend to continue for the foreseeable future.
HOME SALES ACTIVITY
- There were a total of 54,216 home sales in second quarter of 2016. This was 0.6% lower than seen during the same period in 2015, which I attribute to the 3.3% decline in the number of homes for sale.
- The decline in the number of home sales in most markets was primarily due to lower inventory levels, but this was not the case in Orange County where listings were modestly higher.
- Home sales were a mixed bag with higher sales reported in San Bernardino and Riverside Counties, but lower in LA, Orange and San Diego Counties.
- Total listings are still well below levels that are expected in balanced markets.
- Compared to second quarter of 2015, average prices in the region rose by 3.9% to $618,042. We continue to see a slowdown in price growth, which can be attributed to affordability as well as supply issues.
- LA County and Orange County are almost at parity with each other price-wise. The average home price last quarter was $774,000 in LA County and $772,000 in Orange County.
- San Diego County saw the greatest appreciation in home values (+6.9%) to $617,000. This was followed by San Bernardino County, where the average price rose 5% to $323,300.
- Both LA County and Orange County saw prices jump between the first and second quarters of this year, with prices 7.5% higher in LA County and 8.8% higher in Orange County.
DAYS ON MARKET
- The average time it took to sell a home in the region was 58 days. This is a drop of three days when compared to the second quarter of 2015.
- The decline in days on market remains a function of low inventory, as well as price. The drop in the time it takes to sell a home is moderating, primarily due to escalating home values which are stretching buyers’ budgets.
- Homes in San Diego County continue to sell at a faster rate than the other markets in the region. In the second quarter, it took an average of 29 days to sell a home, which is seven days less than seen a year ago.
- Four of five counties saw a drop in the amount of time it took to sell a home between the second quarter of 2015 and the second quarter of 2016. The only exception was in San Bernardino County, where the time it takes to sell a home remained at 66 days.
The speedometer reflects the state of the region’s housing market using housing inventory, price gains, sales velocities, interest rates and larger economics factors. The expansion of the economy in the Southern California region continues to taper, but for good reason. The area is getting close to reaching “full employment”, which naturally leads to a subsequent slowdown in employment growth.
The demand for housing continues, but affordability is starting to act as an anchor in some markets. That said, if inventory levels start to grow, some of the pressure will ease and we should head towards a more balanced market.
Interest rates remain competitive, and price growth has shown some signs of slowing, which favors buyers; however, inventory constraints persist and, for that reason, the market still clearly favors sellers.
Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K.