Explaining Southern California's economy

September home prices: California is still down from the peak

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A construction worker cuts a piece of wood on the top of a home under construction at a new housing development in Petaluma, California. Homebuilding should pick up in California as demand rises and supplies stay low. This should put some downward pressure on prices.

CoreLogic released its September home price index Tuesday. It showed that while prices are up nationally by almost 6 percent from last September, they're still down over 37 percent in California since the peak of the housing market six years ago.

Given that we're experiencing a minor bubble in home prices at the lower end of the market in Southern California, this should provide some solace to buyers who are concerned that they're never going to be able to buy a house this cheaply again. 

Interest rates should remain at historic lows through next year at least, and with prices down almost 40 percent from the peak, it's going to take some time for the market to normalize. Additionally, more foreclosed properties will come to market, homebuilders will begin to build into surging demand, and homeowners who have been waiting out the aftermath of the housing crisis may decide to put their properties on the market.

All of these things will put downward pressure on prices and give patient buyers chances in the future to get a good house at a good price. Additionally, it's unlikely that once the market does normalize, prices will take off again, as they did during the boom years. 

It does seem to be fairly clear, given that the highly respected Case-Shiller index is showing steady home-price appreciation in the cities it tracks, that housing in the U.S. and in Southern California is forming a bottom. So if buyers do purchase a home now, in the tight local market, they can be reasonably confident that prices won't collapse. Although they may adjust down temporarily as more inventory comes to market.

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