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This Quarter may be the end of the short-lived buyer’s market! WAIT, what’s that you say? Yes, the buyer’s market. Did you miss it? Not yet. Whether you were aware or not, the market had subtly shifted to a buyer’s market, even with interest rates at recent highs. If you are a home buyer that has been on the fence waiting for a collapse, there is recent news to support that we may be at the bottom after a modest decline in home sales. For home sellers there is a rainbow at the end of this cycle and demand is expected to perk up in Los Angeles as interest rates for home loans decline, and prices will stabilize and eventually (as they always do) rise. Now is the time to get off the fence if you are a home buyer and seller.
For the last 6 months or so, it has been a buyer’s market in Los Angeles. We’re not talking about the crash we saw in 2008 but certainly buyers could pick and choose what they wanted to offer and sometimes get in under the listing price. This happened partially due to mortgage rates going from an all-time low and in a 9-month period, to the largest mortgage rate jump in history driven by the Federal Reserve raising the federal funds rate, which acts as a reference for the interest rates big commercial banks charge each other for their overnight loans.
For home sellers, there has been some desperation to sell, as there always is in the transition from a seller’s to buyer’s market. We are seeing this in the form of frequent and steep price reductions, only a few buyers writing offers, or sellers giving large credits or incentives for buyers to jump in. However, things are expected to perk up as housing demand in Los Angeles continues to increase and interest rates for home loans start to float down again.
Why do we say we may be near the end of this buyer’s market? The CEO of our company, Robert Reffkin, was recently interviewed on CNBC and he may have been the first to call the bottom of the real estate recession of 2022. There are multiple articles now predicting this.
He believes Q4 of 2022 was the bottom of the recent real estate market
cycle based on several data points:
25% increase in weekly mortgage applications.
Mortgage rates continue to move down to a 4-month low.
Increase in buyer interest, open house traffic.
In the last quarter of 2022, 42% of sellers were giving concessions to buyers at the closing table, a 10-year high.
Home builder sentiment improved for the first time in 1 year.
Pending closings were down 30+% at points in the fall but over the last few weeks, we have seen pending listings in most of our markets nearly flat year over year.
Though not determinative, these trends certainly point positive for the market.
On a recent call with Nicole Francis of Cross-Country Mortgage
, she explained some key notes about the Los Angeles market. In the next 5 years, there will be 160,000 new household formations annually in the 27-35 age demographic alone. Of those, just under 50% (about 79,000) will be purchasing their first homes. At the same time, the projected annual number of new homes actually being built is around 19,000. This represents a significant supply issue because there is already a lack of available inventory and this annual demand is 3x the existing supply.
So, what does this mean for buyers who are able to purchase a home now? This will create strong price appreciation on existing homes over the next 5 years. Nicole forecasts a 1-year appreciation in Los Angeles County home values of 2.81% and a 5-year appreciation at a robust 30.57%! Also, of the 5 million renters in LA County (out of a total population of 9.83m), just over 900,000 can afford to buy a home. If even a small percentage of these renters decide to jump into the market, the demand for homes will be even greater. This does not bode well for buyers choosing to wait longer hoping for market values to decline.
The reports out there seem to be repeating a similar message: Is this rebalancing and correction over? No, not yet, and things will differ from area to area for sure. For the moment if you are sitting on the fence deciding when to buy a home, the goal is always to buy as low as possible. You can always change what your monthly payment is by refinancing your loan but you can’t change what you pay for a home. In my experience of buying a home in Los Angeles in 1988 at $205,000, it would be unspeakable now to find a home at that price but my interest rate was 8.5%. It’s all relative. If you are ready to get off the fence and buy a home in Los Angeles, all indicators are pointing that now is a time to buy.
Get off the fence with us and send us a message to learn more.