Housing markets in L.A., Orange County and Inland Empire 'overvalued'

More signs have surfaced that last year's market strength is kicking off a repeat in 2018 home prices.

House prices in January rose nearly 8% year over year in Los Angeles County and the Inland Empire, with houses selling more than 6% higher in Orange County, the latest CoreLogic Home Price Index.

All three markets now are rated as "overvalued," meaning home prices are at least 10% higher than the long-term, sustainable level. By that measure, almost half of the nation's 50 largest metropolitan areas are classified as overvalued, CoreLogic found.

Price gains in the high single digits were typical nationwide. The HPI showed 6.6% year-over-year house price gains nationally, with an increase of 8.3% in California.

Home prices have been climbing at a higher pace as for-sale inventory dropped to historic lows in the face of strong homebuyer demand. It's even harder for first-time homebuyers to afford a home.

Southern California
Aerial view of the 101 Freeway in Ventura, California.

"Entry-level homes have been in particularly short supply, leading to more rapid home-price growth compared with more expensive homes," said CoreLogic Chief Economist Frank Nothaft.

For example, lower-priced, entry-level homes had bigger price gains than homes with above-average asking prices, Nothaft said.

CoreLogic projections show tightness in the entry-level market for the foreseeable future, hampering millennial home buying during the next two years as many in that generation enter their prime home buying years.

The HPI, based on repeat sale price comparisons for single-family homes, reports average percentage gains only.

Southern California price gains accelerated toward the end of 2017 as listings plummeted. Percentage gains averaged under 7% during the preceding two years in Los Angeles County (6.9%) and the Inland Empire (6.5%), compared with last month's near 8% gains. Increases averaged around 5% in Orange County, vs. January's 6.4% increase. Price gains also trend lower in higher-cost Orange County, where buyers face greater affordability problems.

Yet to be determined is how much rising mortgage interest rates will impact home sales and prices. Average rates for 30-year, fixed home loans rose to 4.46% in the past three weeks, up almost a full percentage point since mid-September.

That added $154 to the typical monthly payment on a median-priced Southern California house.

"A rise in mortgage rates coupled with home-price growth further erodes affordability," said CoreLogic President and CEO Frank Martell.

Tribune Content Agency
Home prices Housing markets Real estate CoreLogic California
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