How Inflation Has Impacted the Housing Market in Five West Coast Cities

Inflation can be a double-edged sword when it comes to the housing market. On one hand, inflation increases the costs of new construction, as everything from labor to materials cost more. As these costs are passed on to buyers of new homes, prices rise.

On the other hand, inflation — and the increasing interest rates that typically accompany it — make homes more unaffordable for buyers, which tends to decrease demand and depress home prices.

The effect on home prices can vary from region to region. Although inflation alone is just one factor that affects home prices, here is a look at how the housing market has performed over the past year in select West Coast markets. 

Housing prices dipped a bit in Los Angeles in early 2022, but they have since reversed and remain trending higher. According to Redfin, prices in the region jumped 14% year over year, not blazing compared to some of the hottest markets in the U.S. but still well above average and handily outpacing the rate of inflation.

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Los Angeles is such a diversified housing community that it’s hard to pinpoint any particular reason for the year-over-year gain, and indeed different pockets of Los Angeles have performed well above or below the city-wide average. But overall, these numbers may be poised to take a turn downward, as sales of existing single-family homes in the L.A. Metro Area actually have fallen 8.7% since last year.

When it comes to the West Coast, San Diego has been one of the kings of real estate over the past year: Prices have jumped nearly 30%.

There’s an expression that says “money follows the sun”; and, as the city dubbed to have the “most pleasant weather” in the United States, this is very much true for San Diego.

But other factors play a role in the housing spike in San Diego, including the number of available buyers with significant buying power still active in a market with low supply. In the second half of 2021, cash buyers jumped to a whopping 27% of all purchases, about double the usual rate. As cash buyers are less sensitive to rising interest rates, the housing spike may continue.

The Seattle housing market remains hot, with prices jumping nearly 20% over the past year. Even more impressive, homes have been remaining on the market for just six days. According to Redfin, Seattle is one of the most competitive housing markets in the country, with average homes selling for 8% above list prices.

Redfin agents in the area expect rising rates and inflation to make it even harder for buyers on the low end to compete, as higher-end homes will be out of reach to more buyers as prices continue to escalate.

Portland hasn’t quite kept up with the rest of the West Coast, with prices rising less than 7% over the past year, according to Redfin.

Portland has some societal and fiscal policy issues that are more pronounced than in some other cities, and these may be keeping more of a lid on downtown housing prices. In particular, high taxes and a rise in homelessness appear to have driven some city dwellers to the suburbs. In Portland’s case, inflation itself doesn’t seem to be as big of a factor in home prices. 

The housing frenzy has even reached smaller cities on the West Coast, with the median price in Eureka, Calif., (population: 26,000) skyrocketing 28.6% over the past 12 months, according to Redfin.

Rising inflation, higher rates and general housing unaffordability may be catching up with the seat of Humboldt County. In February, the average sales price was actually under list price, and the total number of sales fell by 21.4%. Median listing time also increased, from 11 days to 13. According to Joshua Cook, board president of the Humboldt Association of Realtors, prices are likely to start leveling out.

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