Even with muted demand due to the higher mortgage rate environment, the muted supply of available homes has allowed the Los Angeles County housing market to continue to line up slightly in favor of sellers.
A Normal Market; The insane pace of the housing market has come to an end and the instant marketplace has shifted to a much more normal, typical speed for this time of year.
Everyone seemingly has an opinion when it comes to the housing market. Forget economic models, data, charts, and statistics. Most believe that since values have soared to ridiculous heights and now mortgage rates have skyrocketed to their highest level since 2008, prices must correct. Yet, this kind of logic ignores facts. There is still a huge missing ingredient when it comes to housing, not enough homes. There is an absurd lack of homes available to purchase. Due to a lack of supply, the housing market continues to line up in favor of sellers.
The Expected Market Time (the time between hammering in the FOR-SALE sign to opening escrow) reveals the true speed of the market and is based upon supply and demand, the number of available homes to purchase and the number of buyers in the marketplace writing offers. The inventory is at 10,730 today, not quite as low as last year’s 8,300 homes, the lowest start to September since tracking began 10-years ago, but well off averages prior to COVID. The 3-year average (2017 to 2019) was 13,084, a mind-blowing 22% higher, or 2,354 more than today. And the inventory peaked in mid-August and will now drop for the rest of the year. Demand (last 30-days of pending sales activity) is at 4,327, the lowest level to start September since tracking began and 31% less than last year. There were 1,921 additional pending sales last year. Current demand is off by 19% compared to the 3-year average prior to COVID of 5,363. Demand has definitely been impacted by much higher rates.
In pairing low supply with low demand, the Los Angeles County housing market lines up slightly in favor of sellers. The Expected Market Time is at 74 days, a Slight Seller’s Market (between 60 and 90 days). It has actually improved since the end of July when it was at 79 days. Yet, it is much slower than the 30-day level reached in mid-March.
From February of 2021 to May of this year, the market was an INSANE Hot Seller’s Market with an Expected Market Time below 40 days. At those levels, buyers lined up around the block just to see a home. There were very few open houses because homes sold too quickly. “Multiple Offers” was an understatement; instead, homes were procuring 20, 30, or even more offers to purchase. Appraisal contingencies were dropped. Many buyers opted to waive their inspection rights and would ask for no repairs. Sellers were able to rent back their homes for free while they took their time moving out. Homes sold way over their asking prices and home values were rocketing higher. Basically, sellers were able to run the table, call all the shots.
Those days are gone. A Slight Seller’s Market means that a seller must carefully arrive at the asking price, considering the home’s condition, upgrades, amenities, location, and overall appeal. Homes that are nicely appointed, in excellent condition, have that model home feel, and priced according to their Fair Market Value, will still obtain a lot of attention, pull in multiple offers, and, in many cases, sell above the asking price. For everyone else, the further a home is away from being turnkey, in great condition, or in a great location, the longer the home is going to take to sell. Sellers need to pack their patience. The market is no longer instant. As a result, more and more homes are sitting on the market.
Not surprisingly, 60% of all homes available to purchase today have been on the market for more than a month. Back in June, it was at 43%. Over a third, 34%, of the inventory has been on the market for more than two months and are still waiting for the right buyer to bring an acceptable offer to purchase. That is a lot of sitting and waiting considering 37% of the active listing market has come on the within the last 30-days. Of course, everyone expects sellers in the luxury ranges to play the waiting game; however, many sellers in the most affordable price ranges are sitting on the market and waiting as well. Below $1 million, 31% of the market has been on the market for more than two months. Between $1 million and $1.25 million, it is 32% of the market. From $1.25 million to $1.5 million, it is 31%, From there, the share of sellers who have been waiting to find success grows, from 36% to 59%.
The market has undeniably evolved from warp speed, out of control, to a much more normal pace. However, nobody is used to normal. It is when buyers and sellers must negotiate a contract prior to opening escrow. Sellers do not call all the shots. There is no more waiving the appraisal or inspections. Sellers do not have the opportunity to rent their homes back from buyers after the closing for FREE. For the most part, homes are not selling over their asking prices. The froth of the past two years is gone. It is a Slight Seller’s Market.
The current active inventory dropped by 3% in the past couple of weeks.
The active listing inventory decreased by 382 homes, down 3%, and now sits at 10,730. It was the largest drop since December of last year, during the holiday market. Why is the inventory dropping so rapidly when rates are so high? It is not because a flood of homes is entering escrow. First, there are plenty of missing FOR SALE signs. The trend that developed this year is a sharp decrease in the number of homes coming on the market, more missing signs than both 2020 and 2021. For the month of August, there were 6,692 new FOR-SALE signs in Los Angeles County, 1,651 fewer than the 3-year average prior to COVID (2017 to 2019), 20% less. August was the most missing sellers since May of 2020 during the initial lockdowns due to COVID. So far in 2022, there have been 8,724 missing signs, down 13%. In addition to fewer homeowners opting to sell, the number of sellers who have been on the market and are now throwing in the towel, pulling their homes off the market is up 68% compared to August of last year, 2,067 compared to 1,232 in 2021. Homeowners are opting to not sell because most are locked in at lower mortgage rates. An overwhelming 72% of homeowners with a loan have a mortgage rate at or below 4%. They might not be in love with their home, but they certainly are in love with their loan. Since a peak in the inventory was established at the start of August, expect the active inventory to continue to drop for the remainder of the year, picking up steam during the holiday season from Thanksgiving through New Year’s Day.
Last year, the inventory was at 8,300, 23% lower, or 2,430 fewer. The 3-year average prior to COVID (2017 to 2019) is 13,084, an extra 2,354 homes, or 22% more. There were a lot more choices back then.
Demand increased by 1% in the past couple of weeks.
Demand, a snapshot of the number of new escrows over the prior month, increased from 4,278 to 4,327 in the past couple of weeks, adding 49 pending sales, or up 1%, its highest level since last June. Since the Federal Reserve met in Jackson Hole, Wyoming for their economic symposium, mortgage rates have been on the rise. Despite expert consensus that a recession is inevitable, the overall economy is still running a bit hotter than initially anticipated, yet another reason that rates have been on the rise recently. Within the past couple of weeks, mortgage rates have grown from 5.72% to 6.25% today. If this rise holds, demand could be further impacted and drop a bit more. Remember, there is ALWAYS demand for housing, more commonly referred to as “inherent demand.” There are always buyers looking to buy regardless of the market. For the rest of the year, expect demand to slowly drop and then plunge during the holidays.
Last year, demand was at 6,248, 44% more than today, or an extra 1,921. The 3-year average prior to COVID (2017 to 2019) was at 5,363 pending sales, 24% more than today.
With the inventory dropping and demand slightly increasing, the Expected Market Time (the number of days to sell all Los Angeles County listings at the current buying pace) decreased from 78 to 74 days in the past couple of weeks. At 74 days, it is a Slight Seller’s Market (between 60 and 90 days) where sellers get to call most of the shots, there are fewer multiple offers and home values are not appreciating as fast as they have been over the past couple of years. The market is no longer instant and properly pricing is crucial to find success. Last year the Expected Market Time was at 40 days, substantially faster than today. The 3-year average prior to COVID was at 74 days, identical to today.
The luxury market improved in the past couple of weeks.
In the past couple of weeks, the luxury inventory of homes priced above $2 million decreased from 2,093 to 2,032 homes, down 34 homes, or 3%. Luxury demand increased by 19 pending sales, up 5%, and now sits at 402. With demand rising and the inventory falling, the overall Expected Market Time for luxury homes priced above $2 million decreased from 164 to 152 days, its best reading since June. With mortgage rates on the rise combined with the volatility on Wall Street, only time will tell how the luxury end continues to evolve from here. For now, it is holding steady.
Year over year, luxury demand is down by 148 pending sales, 27% less, and the active luxury listing inventory is up by 168 homes or 9%. The Expected Market Time last year was at 102 days, faster than today.
For homes priced between $2 million and $3 million, the Expected Market Time in the past couple of weeks decreased from 113 to 94 days. For homes priced between $3 million and $4 million, the Expected Market Time increased from 126 to 159 days. For homes priced between $4 million and $8 million, the Expected Market Time decreased from 240 to 184 days. For homes priced above $8 million, the Expected Market Time decreased from 731 to 292 days. At 292 days, a seller would be looking at placing their home into escrow around June 2023.
Los Angeles County Housing Summary
- The active listing inventory in the past couple of weeks dropped by 382 homes, down 3%, and now totals 10,730 homes, establishing a peak for 2022 two weeks prior. In August, there were 20% fewer homes that came on the market compared to the 3-year average prior to COVID (2017 to 2019), 1,651 less. Last year, there were 8,300 homes on the market, 2,430 fewer homes, or 23% less. The 3-year average prior to COVID (2017 to 2019) was 13,084, or 22% more.
- Demand, the number of pending sales over the prior month, increased by 49 pending sales in the past two weeks, up 1%, and now totals 4,327. It is still the lowest start to September since tracking began a decade ago. Last year, there were 6,248 pending sales, 44% more than today. The 3-year average prior to COVID (2017 to 2019) was 5,363, or 24% more.
- With supply dropping and demand slightly rising, the Expected Market Time, the number of days to sell all Los Angeles County listings at the current buying pace, decreased from 78 to 74 days in the past couple of weeks, a Slight Seller’s Market (between 60 and 90 days). It was at 40 days last year, much stronger than today.
- For homes priced below $750,000, the market is a Hot Seller’s Market (less than 60 days) with an Expected Market Time of 60 days. This range represents 33% of the active inventory and 41% of demand.
- For homes priced between $750,000 and $1 million, the Expected Market Time is 68 days, a Slight Seller’s Market. This range represents 24% of the active inventory and 26% of demand.
- For homes priced between $1 million to $1.5 million, the Expected Market Time is 73 days, a Slight Seller’s Market. This range represents 17% of the active inventory and 17% of demand.
- For homes priced between $1.5 million to $2 million, the Expected Market Time is 87 days, a Slight Seller’s Market. This range represents 8% of the active inventory and 7% of demand.
- For homes priced between $2 million and $3 million, the Expected Market Time in the past couple of weeks decreased from 113 to 94 days. For homes priced between $3 million and $4 million, the Expected Market Time increased from 126 to 159 days. For homes priced between $4 million and $8 million, the Expected Market Time decreased from 240 to 184 days. For homes priced above $8 million, the Expected Market Time decreased from 731 to 292 days.
- The luxury end, all homes above $2 million, accounts for 18% of the inventory and 10.5% of demand.
- Distressed homes, both short sales and foreclosures combined, made up only 0.4% of all listings and 0.3% of demand. There are only 35 foreclosures and 11 short sales available to purchase today in all of Los Angeles County, 46 total distressed homes on the active market, up 7 from two weeks ago. Last year there were 32 total distressed homes on the market, similar to today.
- There were 4,604 closed residential resales in July, 32% less than July 2021’s 6,793 closed sales. July marked a 18% decrease from June 2022. The sales to list price ratio was 101.2% for all of Los Angeles County. Foreclosures accounted for just 0.2% of all closed sales, and short sales accounted for 0.1%. That means that 99.7% of all sales were good ol’ fashioned sellers with equity.