For years the United States real estate market was the backbone of a flourishing economy. Loosened regulations were putting more people in homes than ever. This period of housing prosperity lasted all throughout the 90’s and leading up to the 2008 financial recession.
Many families were left with limited options after the financial collapse, and had to sharply cut spending in almost every area of their lives. In addition, the real estate market was on a sharp decline all over the country, as homeowners found it increasingly difficult to keep their homes.
However, all over the country the housing market is now making a comeback, and that includes the much sought after real estate in southern California. While there are still hurdles to jump before the national market makes a full comeback, there is reason to be optimistic for those living in the Golden State.
The Recession and Housing
While most Americans are aware of the collapse of the housing market and the effect it had on the economy, many are unaware of why this actually happened. While there are multiple reasons, a major contributing factor was the offering of subprime loans. A subprime loan is made to a borrower that will most likely have trouble keeping to the repayment schedule; caused by loose financial restrictions on lenders.
While these subprime loans were putting more people in homes, those people were not able to keep up with payments, leaving many underwater on their mortgages. An underwater mortgage is one where the borrower owes more on the mortgage than it is worth. The number of underwater mortgages skyrocketed after the collapse, leading to more foreclosures than ever.
AS a result, home ownership around the nation fell drastically during the recession as credit and lending rules were tightened to try and limit the damage of the recession. In California alone, home ownership rates fell over 20% during the recession. Fortunately, the market in Southern California has recently begun to make a comeback.
Southern California Real Estate
In the aftermath of the housing collapse, Southern California home sellers were holding their properties off the market due to low home prices, and high interest rates. However, recently many of these trends are being reversed.
As the region recovered from the recession, home prices rose back up and attracted more sellers into the market. The increased presence of sellers on the market combined with still relatively low prices and low interest rates is attracting even more sellers to the market, and increasing home ownership at the same time. In addition, the tightened financial regulations are keeping home owners from ending up underwater on their mortgages.
This is the case in two of the major southern California real estate markets. In Los Angeles County the number of houses listed for sale was up 9% over the last month, and prices were staying relatively low for the area, with most below $500,000. Homes selling in “reasonable” price ranges are selling incredibly fast, as this area has some of the most sought after real estate in the country.
San Diego real estate is also making a comeback, and for similar reasons as L.A. county. The area experienced a 13% spike in the number of houses listed for sale, which represents the biggest growth in over two years. While prices for housing are increasing, they are staying relatively reasonable. Much of this is due to interest rates that are on average falling below 4.0. With interest rates down about 4%, San Diego citizens are gaining confidence in the housing market and allowing themselves to buy and sell again.
Hurdles to Jump?
While there are plenty of reasons to be optimistic about the comeback of the southern California housing market, there still may be hurdles to jump in order to make a full recovery. One question that is surfacing is the state of the housing supply in this area.
Although the number of sellers is increasing, to make a full recovery the markets will need an even bigger influx of people willing to sell property. However, it is difficult to judge if Southern California will continue to see increases in their number of sellers. If the number of sellers remains stagnant or declines, the prices of homes in this area will be driven way up due to high demand.
Housing markets all over the country have been influx since the collapse of the real estate market. Some are making comebacks, and Southern California is one of the areas experiencing upward trends in housing. However, this problem is far from solved and will continue to develop as the nation still tries to recover from the recession.