Unprecedented Start

Even with a rising mortgage interest rate environment, it is the hottest start to a year since tracking began in 2004 by a landslide.

The COVID-19 pandemic has severely disrupted the supply of goods and commodities. Initially, back in March 2020, there was a relentless run on toilet paper when people stood in long lines for hours as new shipments arrived. As the pandemic evolved, so did the impact on the supply of computer chips, which ultimately hit the automobile industry the hardest. Flash forward to today and new car lots are empty, there is a COVID premium on the sticker price, and many must wait weeks or months for delivery. It is just as challenging to obtain a used car and prices have gone through the roof. It boils down to supply and demand. Even when demand levels do not change much, yet inventories drop substantially, prices soar.

That is precisely what is occurring in the Los Angeles County housing market today. The supply of homes available to purchase today is at a staggering, mind blowing, record low level, and it is matched with strong demand that is not much different than prior to the pandemic. As a result, the market has been white hot, insane, from day one of 2022. It is an unprecedented start to the year that is without comparison. On January 3, 2013, according to the Primary Mortgage Market Survey conducted by Freddie Mac for the past 51-years, mortgage rates were at 3.34%, slightly higher than the record low, at the time, of 3.31% achieved on November 21, 2012. On January 7, 2021, mortgage rates hit a 17th record low since the start of the pandemic, dropping to 2.65%. That rate remains the record today, a year later. On January 6, 2022, mortgage rates had risen to 3.22%, the highest level since May 2020. Even with higher, rising mortgage rates, the housing market already has exceptionally strong momentum.

As the inventory dropped, housing has grown hotter and hotter. Today, there are only 4,732 homes available to purchase, an unmatched, ultra-low supply of homes that shattered the prior record low achieved in January 2021, at 7,688 homes. Last year’s start beat the 2013 record start of 8,017 homes. The active inventory had been dropping prior to COVID, but the pandemic further disrupted housing and intensified the inventory crisis. The crisis had evolved into a catastrophe by the end of 2021 as the fewest number of homes come on the market in December and the second fewest occurs in November. That set up the unprecedented start to this year.

When the inventory is this low, just about everything that is placed on the market is thrown into escrow after being exposed to the marketplace for a couple of weeks. As a result, the Expected Market Time (the time between hammering in the FOR-SALE sign to opening escrow) started this year at 38 days, shattering last year’s record 53-day start. At 53 days, Los Angeles County housing is a Hot Seller’s Market (less than 60 days). At 38 days, it is an Insane Seller’s Market (less than 40 days) where buyers trip over each other to see every home that enters the fray, sellers call the shots, multiple offers and bidding wars are the norm, and home values are skyrocketing. As the market time reaches lower and lower levels, falling further below the 40 day “insanity” mark, there are more showing, more multiple offers, and higher sales prices. With nearly nothing on the market, home values are soaring, and today’s higher mortgage rates are not deterring buyers from purchasing.

ATTENTION BUYERS: Waiting for the market to get easier for buyers is not the answer. Home values are on the rise and mortgage rates have been on the rise as well. Values are slated to climb between 8 to 10% in Los Angeles County, and mortgage rates could reach or even exceed 3.5%. With rising values and higher rates, payments increase, and home affordability will slowly erode. For buyers, waiting is not an option. Instead, buyers should pursue a purchase with patience and a steadfast determination. It may take 30 offers to hit paydirt. But it is that kind of persistence that is ultimately rewarded with success.

ATTENTION SELLERS: Take advantage of the hot market by pricing a home as close to the last comparable or pending sale. Carefully pricing will allow a seller to tap into the throngs of buyers waiting for every home that hits the market. A realistic price will allow a seller to attract a ton of offers. The bidding war that follows will allow a seller to obtain a very high sales price, typically selling for a lot higher than the asking price. Sellers who stretch the asking price too much and grossly overprice will result in wasted market time and less activity as the price is adjusted down the road. In this market, it is best to take advantage of the enormous buyer pool carefully watching and waiting for every new home that matches their search. Longer market times due to overpricing could result in fewer showings and fewer offers.