Although home prices increased, more listings are finally coming onto the market, giving cash-strapped home buyers more options.

What is happening?

In May, average home prices across the six-county region rose nearly 1% from April to $875,409, according to data from Zillow. It was the third consecutive month that prices hit a record and values are now 9% above May 2023 levels.

Why are home prices rising?

Simply put, there are too few homes for sale in Southern California for all the people who want to buy here.

Economists and real estate agents say the long-running problem was made worse after mortgage rates surged in 2022.

At first, home prices fell as buyers pulled away and the inventory swelled. But prices started rising again last year as homeowners increasingly chose not to sell, unwilling to give up rock-bottom mortgage rates on loans taken out before and during the pandemic.

The pullback among sellers became so prevalent that it even got its own name: the seller strike.

What is happening with inventory?

Things are improving. As interest rates stay higher for longer, more homeowners are deciding to get on with their lives and list their home for sale, deciding additional space, a new job or other factors are more important than keeping a 3% mortgage.

In April, most Southern California counties saw the total number of homes for sale increase for the first time since the first half of 2023.

Last month, inventory jumped again. In Los Angeles County, total listings were 13% higher in May compared with a year earlier; Orange County rose by 6%; in Riverside County, 14%; San Bernardino County, 15%; Ventura County, 18%; and San Diego County, 30%.

“That’s a very positive development,” said Stuart Gabriel, director of the UCLA Ziman Center for Real Estate. “We have just been incredibly short on supply.”

If I a want to buy a home, what does the inventory increase mean for me?

Well, at the most basic level, there will be more options from which to choose.

Inventory is still very low historically so don’t expect your home search to be a breeze, but it could mean fewer bidding wars and an easier time getting into a house.

Gabriel said the inventory increase probably isn’t enough to send home prices down, but, if the trend holds, home prices should rise less than they are today.

Mike Simonsen, founder of real estate data firm Altos Research, said sellers are already more likely to trim their list prices than last year.

He doubts that overall values will turn negative this year and, like Gabriel, expects only slowing appreciation in the L.A. area. But that could change in 2025.

“If rates are still in the 7s, prices flat or down is a real scenario,” Simonsen said.

On the other hand if rates noticeably drop, Simonsen said, demand is likely to pick up more than inventory, setting the stage for home prices to rise even faster than they are now.

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The abnormal scarcity — compounded by the region’s long-running underproduction of housing — emerged when homeowners chose not to sell and give up pandemic-era mortgage rates. The so-called seller strike helped pushed home values to new records, despite rising borrowing costs.

Now the inventory picture might be changing.

“It’s getting a little bit better,” said Eneida Contreras, a Compass real estate agent who specializes in the San Fernando, Santa Clarita and Antelope valleys.

In April, the number of homes listed for sale in most Southern California counties rose from the same month a year earlier, according to data from Zillow.

Los Angeles, Riverside, San Bernardino and Ventura counties turned positive for the first time since the first half of 2023, each recording an increase of at least 5%.

Orange was the only county to see a decline, while in San Diego, inventory has risen for two consecutive months and is 18% above what it was a year ago.

To be sure, the availability of homes remains at historically low levels. But as it rises, it opens the possibility that prospective buyers will have an easier time making the largest purchase of their lives.

Jordan Levine, chief economist with the California Assn. of Realtors, said more homes are coming onto the market because owners are increasingly accepting that the new normal is interest rates in the 6%-7% range.

As people get married, divorced and have children, the “benefit of the low rate starts to be outweighed by having a house that doesn’t work,” Levine said. “Ultimately, these are people’s homes, too, and they are not just straight-up investments.”

Levine said he expects inventory levels to increase and home prices to be lower than they would have been if inventory continued to shrink. However, he and other experts said home prices are unlikely to decline. That’s because though more owners are coming to terms with high rates, many will likely choose to keep their sub-4% mortgages — a phenomenon known as the lock-in effect.

Other factors are at play. The economy is growing, and while most Southern California households can’t afford to buy, there’s a sizable population of techies, Hollywood types and other white-collar workers who can funnel excess cash into large down payments that offset high mortgage rates.

“The current level of inventory rise — which is a little bit, but not a lot — is likely to slow price appreciation but not turn it negative,” said Mike Simonsen, founder of Altos Research, a real estate data firm.

The rise in inventory is providing opportunities for buyers with means, but the market is still tough.

Interest rates are above 7%, and even if home prices rise at a slower pace, they will set records.

In Los Angeles County, the average home price in April was $890,516, an increase of 1.4% from March and surpassing the previous record, set in June 2022.

The six-county Southern California region climbed above its 2022 average home price record in March. It set another all-time high last month, reaching $875,388.

If mortgage rates noticeably decline, the lock-in effect could lessen and bring more homes onto the market. Falling mortgage rates would also immediately make housing more affordable.

Whether falling rates provide much relief is another question. Lower borrowing costs may bring a flood of additional buyers who quickly gobble up new listings and supercharge price growth.

“Building more housing is really what is going to break that cycle,” said Nicole Bachaud, a senior economist with Zillow.

According to the latest forecast from the Mortgage Bankers Assn., rates will remain high but will drop to 6.4% by the end of 2024.

Carol Otero of Rodeo Realty is among the Los Angeles agents seeing an increase in inventory. She estimated that the number of homes for sale in some San Fernando Valley neighborhoods has at least doubled in the past few weeks.

Buyers are eager.

Last Friday, Otero listed a four-bedroom home in Northridge. She said she has received six offers, all above the $869,000 asking price.

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