The state is seeing some of the hottest price growth in the US
As home prices continued to surge in California, Los Angeles and San Francisco made up two of the top three US metro areas people moved away from between April and June – a trend that’s helping spur rampant price growth elsewhere in the state.
While the median sales price of a California home grew by just under 10% in May compared with the same time last year, according to Redfin, prices are skyrocketing at a much quicker pace in specific metros.
Eyewatering price growth in Los Gatos (44.5%), Yorba Linda (36.4%), and Fullerton (31.5%) saw those three areas record the fastest growing sales price across the state, the real estate company said, with Encinitas, Morgan Hill, Arcadia, Redondo Beach, Orange, Irvine, and Sun City rounding out the top 10.
That spike across the state is seeing affordability creep out of reach for many buyers, with self-employed Californians in particular turning in increasing numbers to the non-QM space, according to a top Beverly Hills-based broker.
Damon Germanides (pictured top), co-founder and broker at Insignia Mortgage, told Mortgage Professional America that his company – which deals predominantly with self-employed borrowers – had seen plenty of those buyers remain undeterred even amid rising mortgage rates, with the shock of the dramatic jump in borrowing costs from 2022 onwards beginning to wear off.
Some buyers may have stepped to the sidelines when rates started to climb, but plenty are now accustomed to the current landscape and ready to make a purchase. “The rates have gone up; anybody who’s been doing this long enough knows that the rates are not necessarily high, but coming off of where they were, the rate of change has been extreme,” he said. “So that was a bit of a shock – although the clients have adjusted.
“It’s amazing how the consumer can adjust. The rate quotes you were giving a year ago, people were shocked, and now they’re like, ‘Oh, that sounds OK. It’s better than it was a month ago.’ So that’s interesting, how human nature works.”
Thousands of homeowners face higher mortgage payments as 328,000 ARMs reset, with 102,000 more expected, according to data from Intercontinental Exchange (ICE).https://t.co/EhP10X3Kyn#MortgageRates #HousingMarket
— Mortgage Professional America Magazine (@MPAMagazineUS) July 3, 2024
Inventory shortages remain a prominent theme of state’s housing market
Although the number of homes for sale across California has improved significantly on a year-over-year basis, with a recent increase in newly listed homes, supply remains tight. Just two months of supply across the state were available in May, Redfin said, unchanged from the same time last year, as inventory continues to hover well below where it sat around the middle of 2022.
That’s adding fuel to the upward movement of home prices and helping price many buyers out of a mortgage with an institutional lender, according to Germanides. “What we’re seeing is the combination of the higher rates and the sticky home prices in the existing-home world. Because there’s not that much inventory, it’s making it challenging for borrowers to qualify for loans,” he said.
“So we’ve seen a big uptick in our non-QM lending – the near-miss loans that a bank won’t do, or some of our portfolio banks won’t work with.”
California affordability crisis continuing to cause headaches for homeowners
In February, the state announced that it would be expanding its mortgage relief program for homeowners struggling to keep up as the affordability crunch continued to squeeze budgets.
Germanides noted that a desire for cashout, even on low-rate deals, to recoup some cash on a property had been a growing trend in the market, with home equity line requests picking up “dramatically” in the last month.
That’s an unsurprising development, he added. “It kind of goes in line with some of the data you’re seeing about savings accounts getting dwindled down,” he said. “We’re seeing a fair amount of that, and that’s, I think, partly because of the cost of living in a state like California – it’s very high.
“So people are starting to tap their equity. It’s a bit of a challenging market… the general entrepreneur is definitely fighting hard to make it right now. That’s my sense.”
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