The home price rise is losing speed in California’s largest cities, according to the Standard & Poor’s / Case-Shiller home price indices. The indices cover the following cities in California:

  • Los Angeles;
  • San Diego; and
  • San Francisco.

Prices increased slightly across most price tiers in the second quarter (Q2) of 2016 compared to the prior month. However, high-tier sales began to level off in California’s major metropolitan areas at the end of Q2 2016.

Despite the slowdown, the statewide average for low-tier prices is 9% higher than a year earlier. Average mid-tier prices are 7% higher and high-tier prices are 5% higher than a year earlier as of Q2. While the annual price rise is still above the historical average increase of 3%, the pace has fallen from the recent 20%+ annual price rise experienced in 2013.

The largest year-over-year increase was seen in San Francisco’s high-tier, which increased 11% over a year earlier as of Q2. The smallest increase was in high-tier Los Angeles home sales, which rose 4% over a year earlier.

Sellers are catching on to the price deceleration, and one-in-four current sellers surveyed nationwide by Redfin are concerned about prices falling before their home sells.

Here in California, expect home prices to rise just slightly through the rest of 2016 due to the strengthening economy and jobs market. However, after mortgage rates rise due to action by the Federal Reserve — likely in 2017 — expect home sales volume to trend down and prices to follow within 9-12 months due to the shock of negative buyer purchasing power.

For more in-depth coverage and charts of California’s major metro area home prices, see California tiered home pricing.