Housing’s Summer Market has arrived, and with it comes an increase in inventory, a slight decrease in demand, and a rise in the market time. Expect the Los Angeles County housing market to slow slightly yet to remain exceptionally hot.
Graduation caps have been tossed into the air since the end of May, marking the beginning of the Summer Market for housing. With the school year ending, it is time to usher in all the distractions of summer: the beach, the community pool, hiking, biking, camping, traveling, and all kinds of camps for the kids. As everyone turns their attention to fun in the sun, the housing market evolves and downshifts slightly.
Spring is cyclically the hottest time of the year for housing. Buyers and sellers are transacting all year long, yet families with kids like to hit the market in the spring, enabling them to close on a home during the summertime when the kids are out of school. Demand typically peaks during the Spring Market, between mid-March and the end of May. As soon as the last bell rings, marking the end of the school year, families may still have housing goals of selling and purchasing, but that often takes a back seat to enjoy all that summer has to offer. As a result, summer is the second busiest time of the year for housing.
The various seasons of the housing market do not necessarily align precisely with the official start and end dates of the four seasons. Summer officially begins on June 21st, the summer solstice, the longest day of the year. Yet, in housing, it aligns with when the kids are out of school, around the end of May. It is hard to look for a home during the busy end-of-school-year activities and graduation festivities, while on vacation, enjoying the warmth of summer surf, or carpooling to and from camps, pools, water parks, and friends’ houses. The Summer Market comes to an end around the third week of August when schools are back in session. Housing then transitions to the Autumn Market.
During the summer market, demand, a reading of recent pending sales activity, decreases slightly with all the distractions. For many buyers, it still feels as busy as ever, but the numbers illustrate a drop in demand regardless. With a decrease in demand, the number of available homes rises as more homes continue to come on the market. Many sellers mistake summer as the best time of the year for housing. With a drop in demand and a rising inventory, the Expected Market Time, the amount of time between hammering in the FOR-SALE sign to opening escrow, grows longer. The overall speed of the market slows a touch.
In looking at the 5-year average from 2015 through 2019 before COVID skewed the data, demand dropped by 5% from the end of May to mid-August, with 311 fewer pending sales in Los Angeles County. On average, the supply of homes has increased by 11%, adding 1,382 homes. The average changes translate to a drop in demand from 4,011 pending sales at the end of May of this year to 3,810 by mid-August. The supply of available homes is projected to increase from 6,996 to 7,778 homes. With a rising supply and falling demand, the Expected Market Time would rise from 52 to 61 days, increasing by nine days, or 17%. At 61 days, it is still a hot market, where sellers get to call more of the shots, just a bit more tolerable.
In looking at these trends, buyers may conclude that the market will slow down enough to line up in their favor. That will not be the case. Negotiations will continue to favor sellers, yet the unbelievable housing pace will slow. As the Summer Market progresses, housing will not be as instantaneous. In the hottest price ranges, anything below $1.25 million, many homes that would have sold after the initial weekend will take an extra week to sell. Homes will still procure plenty of traffic, multiple offers, and sales prices above their asking prices. The market transformation will be characterized by fewer showings, slightly fewer offers generated, and not as many sales above their list prices.
In the coming weeks, buyers, sellers, and everyone connected to the real estate market will feel a slight slowdown in housing. They will scratch their collective heads and wonder what is going on. No, housing is not suddenly shifting completely in the buyer’s favor. Instead, it is shifting to a new cyclical season of the year: SUMMER.
Potential Benefits of Multifamily Investments in Los Angeles
