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Pedestrians are reflected in a window as they walk by a sign displaying mortgage rates inside a Bank of America office on June 7, 2012 in San Francisco. Mortgage rates are at record lows and home prices are rising in Southern California.
In April, Southern California saw a 3.6 percent year-over-year increase in the median house price, to $290,000, according to DataQuick, a company that tracks housing data. In May, that trend — if you can call two consecutive months and trend — improved: the median price moved up 5.4 percent, to $295,000.
The good news here is that we're no longer seeing price deflation. In March, were weren't seeing very much of a year-over-year price decline — it was a barely perceptible 0.2 percent. But it was there. It was worse in February. In fact, the median price didn't increase in Southern California for two years: the April uptick was the first sign of life.
But before we get to excited, it's worth noting that prices are still dauntingly off their 2007 highs. That was a bubble, of course. But what we need to see now is a sustainable trend of year-over-year price increases. This will remove the risk of a return to deflating home prices, which can be reinforcing: buyers expect prices to fall in the future, so they don't buy today, and that creates a disastrous spiral. It doesn't matter how far interest rates fall. Savvy buyers avoid investing in a declining asset. Smart buyers invest in a rising asset while it's still cheap and they can borrow cheaply to buy it.