In June, Southern California home prices surged nearly 8% from the previous year, marking the fourth consecutive month of record-high values. The average home price across the six-county region reached $876,280, a 0.4% increase from May, according to Zillow data.

Prices increased in every county, with Los Angeles County's average hitting $892,304 and Orange County averaging $1.16 million.

These rising prices present a significant challenge for prospective homebuyers in an already costly market, particularly as interest rates remain at their highest levels in over two decades.

Only 14% of households in Los Angeles County could reasonably afford a median-priced home in the last quarter, as reported by the California Association of Realtors. The situation is somewhat better in the Inland Empire, where fewer than 30% of households in Riverside and San Bernardino counties can afford a median-priced single-family home.

Despite the steep decline in affordability since the 2000s housing bubble, there may be some relief on the horizon. Economists attribute the recent price increases to a shortage of homes for sale, although inventory levels are beginning to improve. In June, the number of homes for sale in Los Angeles County increased by 22% from the previous year, marking the third consecutive month of rising supply. Other counties experienced similar upticks.

When mortgage rates spiked in 2022, home prices initially dropped as buyers retreated and inventory grew. However, prices began to rise again last year as many homeowners opted to stay put rather than give up their low mortgage rates secured during the COVID-19 pandemic.

Now, with mortgage rates stabilizing in the 6% to 7% range, homeowners seem more willing to prioritize buying a new home over retaining a 3% mortgage. Economists and real estate agents believe that if the supply of homes for sale increases significantly, prices could eventually decrease. However, many factors suggest this may not happen soon.

California has long struggled with insufficient housing relative to demand, and the economy is growing, which, combined with homeowners' reluctance to part with their low-rate mortgages, may prevent a significant drop in home values. Experts predict that while home values may continue to rise, the rate of increase is likely to slow, allowing incomes to catch up.

June’s nearly 8% annual price increase, though still high, is lower than recent months and the smallest gain since January. Richard Green, director of the USC Lusk Center for Real Estate, notes that while it’s too early to definitively say if the price growth is slowing, a deceleration seems likely.

“Prices can’t keep rising at 8% a year indefinitely,” Green said.