As the specter of higher interest rates from the Fed rears its head this week, Southern California home prices are actually beginning to drop in some areas, including surprisingly, Pasadena.
While it’s true that California home prices have risen in Year-over-Year percentage by 13.3%, and in nearby Glendale, prices rose 33.9%, there are still quite a number of homes in Pasadena whose prices have been slashed in the face of slow sales.
Higher mortgage rates and overall inflation may finally be affecting even the very local real estate market as buyers begin to hesitate on buying a Pasadena home after years of a red-hot market that, despite cooling signs, is still vibrant and dynamic.
According to Redfin, sales of luxury U.S. homes fell 17.8% year over year during the three months ending April 30, the largest drop since the onset of the coronavirus pandemic. The report noted “that there are only two instances in the past decade when there were steeper declines: the three months ending June 30, 2020 (-23.6%) and the three months ending May 31, 2020 (-21.6%).”
“The market is not the same as it was a month ago even,” Lindsay Katz, a Los Angeles agent at Redfin, the brokerage company, told The Los Angeles Times recently.
Mortgage News Daily also reported Monday, that perhaps in anticipation of a higher Fed rate, the average rate on a 30-year mortgage hit 6.18%, up from 5.5%, just a week earlier.
A cursory overview of Movoto listings, for example, revealed 44 homes in the Pasadena area with discounted prices.
As an example, a three-bedroom, two-bath home on El Molino, on the market for eight days, and listing at $1,198,0003, has been reduced by $782,000, since going on the market.
A three-bedroom, two-bath 1,488 square-foot, home on Seco Street near the Rose bowl, currently on the market for $1,650,0003, was reduced in price by $200,000, after being on the market for 41 days.
A relatively more inexpensive three-bedroom, three-bath condo listing at $718,0003, currently under contract, was also reduced by $40,000.
Redfin also noted that home buyer’s budgets have moved little from last year, up only 0.3% year over year nationwide in the three months ending April 30, which would represent the slowest growth rate since June 2020, according to an analysis of the average maximum price set by Redfin.com users in their online home searches.
To put that in perspective, budgets hit their peak growth at a rate of 12.2% in April 2021,three months before home-sale prices hit their own peak growth, increasing 22.6% year over year in July 2021.
Redfin economists expect that smaller budgets will lead to lower home prices within two to three months.
While sellers are slower to adjust to cooling markets, they are now starting to react to buyers’ declining budgets. As noted in the Pasadena example, 21% of home sellers dropped their asking price in the last four weeks, which is up from 10% a year earlier.