Home sales in the Los Angeles area have been strong for a year and a half, almost too strong some have felt. The resurgence in the local housing market has seen year-over-year increases of 20% or more in both prices and the number of homes sold. While the country in general has seen the strong upswing, Los Angeles’ Westside has been one of the leading markets in the rebound.
There has been concern that this trend was creating another housing bubble. Especially the rapid increase in selling prices was seen as unsustainable. Recent statistics are indicating that this over-hot market is cooling off, at least somewhat.
The California Association of Realtors reports that pending home sales fell 1.8% in September compared to August. However, compared to September of 2012 pending sales were down 8.1%. Since home sales tend to vary seasonally, the year-over-year figure is likely a more significant indicator.
Those numbers confirm what active Realtors® have noticed for the past couple of months. The frenzy is calming down, and we are moving towards a more normal market. (If there is such a thing.)
What we have seen out in the field is that inventory is increasing and huge price increases are tapering off. While multiple offers are still quite common, there are apt to be 3-5 offers rather than 25 to 30. (I know of one case over the summer where there were 37 offers on one home.)
There are a number of possible factors in the changing market. I have felt that the large wave of sales was to some extent a matter of pent-up demand. Home sales had been so low for a few years that a literal land rush occurred when the marketplace got confident that there would not be another collapse in home values. That phenomenon would be expected to calm down after an initial surge, which matches the change we are seeing now.
It’s a bit harder to guess at why home inventories went down starting in early 2012. It’s possible that, as the overall economy improved, fewer home owners felt the need to extricate themselves from “underwater” home values. With higher equity finally on the horizon it might have made more sense to stay the course with their current homes. We have also seen fewer financially distressed properties on the market. Short pay and foreclosure sales are down significantly from recent years.
So what does the Westside marketplace look like today? It’s too soon to make sweeping forecasts, but here are a few expectations I have:
It will continue to be a sellers’ market. Inventory is still only about half of what would be described as a balanced market. Well-priced homes will probably continue to sell quickly and with multiple offers. On the other hand, homes that have issues or that are over-priced will be more likely to languish on the market. Poor locations with busy streets or run-down neighborhoods will have a bigger impact on sale-ability. Homes that need significant repairs or upgrading will attract less attention. The quality of nearby schools nearby will be more important.
I do expect that real estate sales and prices will continue to increase, though at more modest rates. An annual appreciation of 5-6% would be my guess. For sellers it could be a good time to cash in on the recent jump in home values. For buyers it is still an excellent time to get in relatively early in the upswing of home values. It takes a lot of work for buyers these days, but those willing to make that effort are likely to be rewarded as the housing market continues to improve.
The forecasts above should be put in perspective: we are early in a state of change and won’t really be able to get a clear picture until more of it has played out. It should be an interesting few months ahead.