In recent months, rising mortgage interest rates have put the brakes on a once-hot housing market in Southern California and across the country.
With would-be buyers choosing to sit on the sidelines, sales are plunging and homeowners are slashing their asking prices to close a deal.
Now, there are signs overall home values may be headed down as well.
"It's turning into a buyer's market," said Keith Hernandez, a real estate agent with Realty One Group Synergy in Whittier.
Few, if any, economists predict a crash in values similar to 2008, but a growing number of experts say overall home values are likely to decline in the near future.
The latest sign came Wednesday when real estate firm DQNews reported that the Southern California median sales price fell 1.3% in July from a month earlier.
Although the median can fluctuate month to month, July's numbers mark the third straight month in which prices failed to increase. The median — now $740,000 — is $20,000, or 2.6%, less than the all-time peak this spring.
Given strong demand before mortgage rates jumped, the median sales price in July remains 8.8% higher than a year earlier. But those year-over-year gains are getting smaller.
In April, the median was up nearly 17% from a year earlier.
Jordan Levine, chief economist with the California Assn. of Realtors, said the median's shrinking year-over-year gains indicate recent monthly declines reflect a drop in values rather than seasonal flukes. He said they are consistent with a scenario in which the median sales price falls around 7% in 2023 compared with this year.
Prospective first-time home buyers might not want to get too excited.
The median is the point at which half of homes sold for more and half for less. Although Levine expects values for all homes to decline next year, he said the 7% figure somewhat overstates the expected drop since it reflects a sharper decline in luxury home sales.
Other economists still think home prices will keep rising in 2023, just at a smaller rate than they have during the pandemic. Even experts who expect a drop aren't predicting declines anywhere near those seen during the Great Recession, when prices fell 50% over two years.
That's because many homeowners don't like to sell in a slowing market if they don't have to. At the moment, new listings are down sharply across Southern California, essentially putting a cap on how far inventory can climb.
What tanked values during the Great Recession was a wave of forced selling at a loss — through foreclosures and short sales.
This time, there's fear that the Federal Reserve's actions to fight inflation could tip the economy into a recession. But most economists expect any downturn to be relatively mild and believe that today's tighter lending standards should limit foreclosures.
Although there are not yet signs of a 2008-magnitude collapse in values, any shift in favor of buyers will be welcomed by many Californians struggling to own in some of the country's most expensive housing markets.
Real estate agents said sellers are more willing to extend the length of contingencies, pay for repairs and even front money to cover a buyer's closing costs.
There's also less urgency, without the need for buyers to make snap decisions on offers in just days, hours or even minutes.
“When my buyers look at homes, they have some time to think about it now,” said Carl Izbicki, a real estate agent at RE/Max Estate Properties in Los Angeles. "It's a normal market."
For his seller clients, that new normal might mean taking less than they could have when rates were lower.
Case in point: Izbicki said he's about to list a three-bedroom townhome in North Hollywood for $645,000. That's 14%, or $105,000, less than what he sold an identical unit for in the same complex last year.
This story originally appeared in Los Angeles Times.