Soaring wealth and a relentless housing shortage are taking the California housing market to new extremes.
Buying in California Requires Thick Skin, Sharp Elbows & LOTS of Money
Bidding wars may be cooling in some parts of the country however, California’s bidding wars remain sizzling hot and wildly expensive. A recently sold home in Berkeley with an asking price of $1.795M sold to one of 28 potential buyers in a bidding war for an all-cash offer of more than $4M.
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Even a burned-out house in South Los Angeles, a high-crime, low-cost area, went for $525,000 in seemingly ubiquitous state-wide bidding wars, +28% more than the list price.
Such stratospheric prices being offered and paid for are products of California’s perennial housing shortage, the race to beat interest rate hikes and more than enough affluent residents who can actually afford to back up their offers with cash.
Jordan Levine, chief economist with the California Association of Realtors (CAR),said, “Not everybody (people without the option of paying cash or first-time buyers without the ability to tap into swelling home equity to finance a trade-up) can absorb the one-two punch of rising prices and interest rates. It (worsening affordability) creates a sense of urgency.”
California Home Prices
The median price of an existing California single-family home jumped +12% y/y in March to a record $849,000, according to CAR. This $849,000 is more than two times the US median price of $382,000.
CAR indicated that nearly 33% of all homes in California sell for more than $1M.
The median home price in San Francisco and San Mateo County now sits above $2M while homes in Silicon Valley’s San Jose sell for an average of +14% above list price, according to Redfin.
Amid Hollywood’s elite neighborhoods, the median single-family home price in Los Angeles’s Bel-Air Holmby Hills jumped to $4.22M, double the March 2021 price, according to a report from Douglas Elliman Real Estate. In Beverly Hills, prices climbed just +22% to a median of $9.15M.
According to Zillow, 2021’s biggest home price jumps were in the cities of Sonora, Santa Cruz and Riverside where the trade-off for an affordable home is a two-hour commute to an office in urban job centers.
Additionally, more than 70% of all for-sale homes in California sold above the listing price during March 2022. CAR data indicates that selling above list price adds an extra $40,000 to any median price.
Rising Rates Beginning to Show Glimmers of Slowing Market
Demand may hit a wall as potential buyers are squeezed by increasingly climbing mortgage rates. Even Mark Kiesel, a bond manager with Pacific Investment Management Co. who notoriously called the peak of the last housing bubble, said that prices are so out of whack that price appreciation is becoming more and more limited.
But California’s massive deficit in housing makes price declines either insignificant and/or limited. The state needs, according to industry experts, about 180,000 new housing units a year while only about 100,000 new units are added every year due to lack of land, grueling regulations and HUGE development costs.
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Thanks to Bloomberg.