The sharp decline in the housing market being talked about is predominantly a decline in the volume of sales or transactions. The seasonally adjusted number of sales of existing homes in January was $4 Million homes according to the National Association of Realtors. That's a 37% drop year over year and it's a lower level of activity than we saw during the lockdown of 2020 (!).

 

Some are calling it a 'cold war' of real estate. Buyer demand dropped in the face of higher interest rates and economic uncertainty, and the number of new listings hitting the market are record lows for this time of year, as sellers are either stuck or stubborn in light of their possibly-never-to-be-seen again 3% mortgage. 

 

So this is a cratering of activity, not necessarily of prices. At least not yet and not everywhere. Nationally and looking at the entire LA market as a whole, we are seeing month over month declines in prices erode the year over year gains as we move further from the 'peak' of spring 2022. But looking neighborhood by neighborhood, we saw several areas with gains in the median sale price in February compared to last month and even last year which is a testament to the unique value of LA real estate and could signal a bounce back from the bottom. It really all comes down to supply and demand.

 

Here in Los Angeles, the opportunity for less competition and the ability to negotiate a better price seems to have been limited to a brief period at the end of last year into early January or be limited to those properties that are inherently less desirable. Homes on a busy street, needing lots of work, etc. 

 

After months of little activity, we saw a sudden and dramatic increase in buyer demand in January once the rain stopped and mortgage rates suddenly (and temporally) dipped. With a relatively modest increase to the federal funds rate of only 25 basis points coming out of February's meeting, many of us were hopeful that the worst of the correction was behind us! But the release of the minutes from that meeting and worse than expected inflation numbers both point to continued upward pressure on rates. We've seen the 10 yr treasury, the best indicator for mortgage rates, jump up over 4% and the average 30 yr fixed conforming loan rate jump back up over 7%. 

 

We typically see both mortgage application rates (a key signal of demand) and new listings start to ramp up in February as we move into the spring selling season. However both indicators are down (the former more so than the latter).

 

So, what does it all mean for us here in LA?!?

 

Right now - 

 

Supply is up from where we were this time last year, but still well below 'normal' / pre-pandemic levels and we are actually seeing the supply levels continue to drop month over month (where as they typically start increasing in January or February). So that increase in supply is largely made up of the stale listings that are staying on the market longer.

 

And despite the headlines and national averages for mortgage rates, we are still seeing clients get loans in the 5% and even 4% ranges (typically with private banks that offer relationship discounts and / or by choosing 7 or 10 year adjustable products). There is a lot of wealth here in LA. Buyers with access to great financing options and cash, that are not only driven by the numbers but also by lifestyle needs / wants.

 

This means the competition for the great homes, in great areas, priced well is still pretty fierce!  We are seeing bidding wars and / or immediate sales of well presented and turn-key homes on the west side from the entry level up to ~$5M. We recently had a client miss out on a home in Venice that had 13 offers and went about 500K or 20% over ask!

 

Predictions for the rest of the year are a bit all over the place and will continue to be recast each month. We had a waive of optimism coming off of the last fed meeting that might have been premature. Rates are likely to stay high for a wile longer and inventory levels will likely be constrained for quite some time as well, increasing slowly as days on market continue to increase, leading to less transactions and keeping prices fairly flat overall. 

 

We know that folks are fairly comfortable in their homes, locked in at low rate mortgages that were much harder to qualify for than those leading up to the last housing crash and, for the most part, with quite a bit of equity. An increase in unemployment typically takes a while before it impacts the housing market - so I don't expect to see huge numbers of distressed sellers in 2023. The urgency to sell will again be driven more by lifestyle needs than financial pressure in the near term. 

 

My advice-

 

Buyers should be patient & prepared. Shop around to find the best financing options, have your ducks in a row and be ready to move when the right opportunity presents itself. Know that there is more to home ownership than dollars and cents, and take the time to figure out your own priorities so you can make an informed decision in the face of so much noise.

 

Sellers need to be realistic and put the work in. This is still a phenomenal time to sell based on extremely tight inventory, but we have far less buyer demand. The qualified and motivated buyers are more price sensitive and pickier than they have been the past few years. So to get peak or near peak prices, you must put forward a quality product that is priced correctly and marketed extensively.  

 

Standard disclaimer! Every neighborhood, price point, house, and client has a unique situation. Do not make decisions based on click bait headlines! I am happy to dig in with you on any specific scenario, just reach out!