Is Los Angeles Area Housing Affordability Affecting Home Sales?

We have all heard about rising housing prices, especially in California, so is the lack of affordability affecting home sales?

Is affordability affecting the Los Angeles ousing market

(Check out the median price and # of sold listings in selected areas for single family homes)

Several factors may be contributing to the drop in sales including the volatility of interest rates, and lack of inventory which affects the willingness of sellers to put their homes on the market. But the prime cause is the affordability factor.

In the market covered by my Multiple Listing Service (MLS) the median price for single family homes for Q2 2018 was $1,302,125  as compared with $1,200,000 for the same period in 2017, an increase of 8.5%. For condos it was $827,250 in 2018 an increase of 13%. The number of sold single family homes in the same Quarter was 2,122 as opposed to 2,813 in previous year.  Condo sales also dropped.

Statewide, the Housing Affordability Index (HAI), an index which measures the number households that can afford a median-priced home, has been dropping. For potential buyers the monthly home payments, which includes mortgage principal, interest, property taxes and insurance (PITI), rose 13.4% in Q2 in 2018 from $2,770 in 2017 to $3,160, and the minimum income to buy a median-priced home rose from $110,890 to $126,490. Remember these are  statewide numbers. The requirement for the Los Angeles area is probably higher.

Affordability is calculated on the income required to buy coupled with the interest rates. Home prices have risen, and even though interest rates are historically low they have also gone up. Either factor could be responsible for the increase in the eligibility requirements. Wage growth is not keeping up with price appreciation and mortgage rates, and many buyers are not able to keep pace, especially in the lower to mid-level market.

Others factors affecting the market slowdown are the expectations of the buyer and the seller. Buyers are watching the prices rise and are of the opinion that homes are over-valued. Anxious as they are to find a home they are not willing to overpay. Sellers feel they are in control of the market and are not always willing to drop their prices, even when the comps don’t back their price up.

Something has got to give.

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