CA's Housing Prices Break Records Yet Again

CALIFORNIA — The Golden State's housing market is still riding an upward trajectory, and swiftly outpricing middle class and low-income residents. In August, the median home price for a single-family home shattered state records again, rising up to nearly $828,000, according to recent data.

The median home price for a single-family home rose above a $800,000 benchmark for the first time ever in April. This August, the median crept up to $827,940 — more than a 17 percent hike from last August, according to a new report from the California Association of Realtors.

Prices dipped momentarily in July but rose again to their current record.

"I was actually a little surprised that it surged past the previous peak," Wei said. "After it dipped in July, it actually bounced back and by just a couple of percentage points."

Why is this happening?

A shortage of housing for sale in the Golden State, low-interest mortgage rates during the pandemic and an increase in demand from the state's highest earners earlier this year are what pushed the state's median home price over that threshold in the spring. But at the tail end of the summer, home prices were still inching up, though at a much slower rate, Oscar Wei, lead economist with CAR, told Patch.

Housing sales plummeted in the early and uncertain months of the pandemic. But higher-income Californians whose jobs were unaffected by coronavirus-related shutdowns started browsing in the market again during the second half of 2020.

Inflation, spurred by a pandemic-wounded economy, has also raised home prices, Wei said.

"You probably have noticed, not just from news reports or from, from the media, but also from going to restaurants or going into a gas station, that there has been a little bit of a price increase," Wei said.

Across the state and nation, surging prices and shortages of goods have ramped up the cost of nearly everything from dining out to grocery shopping. And as building a new home becomes more expensive, costs are passed along to buyers.

"The high inflation that we're seeing right now, part of it is going to be temporary, part of it is going to probably carry on," Wei said. "Let's face it, if you go to a restaurant and you see that menu prices have gone up, I don't think six months later, you're going to see a change."

The Federal Reserve met this week and to discuss the possibility of raising interest rates for mortgages, credit cards and business loans.

"The Federal Reserve, they need to do something about it, probably next year or maybe even the end of the year," Wei said. "In order for the Federal Reserve to keep the inflation down, they have to increase interest rates."

Interest rates for 30-year fixed-rate mortgages dropped to a record low of 2.6 percent from as high as 6.5 percent in 2006 and 2007, prompting droves of Californians to rush into the market, Wei said.

"Believe it or not it is still below 3 percent," Wei said.

Low-interest rates tend to drive housing market shifts, according to Investopedia.

The pandemic may have also imposed some significant and possibly permanent changes on the housing market, Wei said. With so many Californians who hold jobs in metropolitan areas still working from home, many are looking at more affordable regions of the state to buy a home.

"A lot of people probably don't need to work five days a week in the office anymore...that allows people to have a little bit more flexibility," Wei said.

For example, those working jobs rooted in downtown Los Angeles, who now have the option to work from home full time or on a hybrid schedule, are looking to Riverside and San Bernadino counties to buy a home, where home prices are significantly lower, Wei said.

"Some people believe...'I don't have to drive anymore on a weekly or daily basis [to the office] so I can actually get a piece of property a little bit further away," he said.

Aside from low interest rates and surging prices the state also faces another significant housing challenge: there simply aren't enough homes on the market.

"With more flexibly, it actually makes it a little bit easier to buy a house," Wei said. But the issue of supply is going to continue to be an issue in 2022."

Gov. Gavin Newsom recently signed a bill to end a strict single-family zoning requirement to address a shortage of housing in the Golden State. Zoning laws have made it illegal to build anything but a single-family home on one lot for more than 100 years, Vox reported.

"It'll definitely help," Wei said. "Loosening up zoning requirements...will definitely make it a lot easier to add more housing... It's going to take time though and it's not going to happen overnight."

The California Association of Realtors has more than 200,000 members and is headquartered in Los Angeles. Read its full report here.

The Associated Press contributed to this report.