There is a scarcity of homes available, a lack of demand, and very few closed sales even though home values are rising and most homes are selling quickly.
California experienced a very unusual May and June this year. Southern California was subject to some of the coldest daytime temperatures in the last 40 years, far below their norm. There were days without sunshine. The marine layer was so thick that a cool drizzle welcomed morning commuters often. While the rest of the country roasted, Californians grabbed their sweatshirts and wondered if summer would ever arrive.
The housing market has experienced a similar cold front where it seems shrouded in a thick fog that will not clear. The higher mortgage rate environment has impacted many real estate statistics and resulted in a very cool summer. The active inventory, demand, and closed sales pale compared to when housing felt “normal” before COVID.
Many would intuitively think that the most significant impact would be in demand, yet the supply of available homes to purchase has suffered the most substantial blow. The inventory started in January 23% below the 3-year average before COVID (2017 to 2019). The difference grew as the year progressed, and the supply failed to rise much at all. Today it is 41% lower than that average, sitting at 7,839 homes compared to 13,262 when Los Angeles County felt normal. Today’s level is the lowest inventory for a start to August since tracking began in 2012, even lower than 2021. The low supply in 2021 led to a historic low start to 2022. Similarly, if trends do not change for the remainder of the year, 2024 may break that record low.
The inventory has been at all-time lows not because of unbelievable, hot purchase demand but because of the lack of homeowners willing to relinquish their low, fixed-rate monthly mortgage payments. According to Freddie Mac’s Primary Mortgage Market Survey®, mortgage rates climbed to 6.9% as of August 3rd. Since 87% of Californians with a mortgage enjoy a fixed rate at or below 5%, homeowners are reluctant to sell. Through July, there were only 36,751 sellers to hit the market, compared to 50,977 last year, 39% more, or 57,975 before COVID, 58% additional homes. The lack of available homes has impacted everything from supply to demand to closed sales.
Demand, a snapshot of the number of new pending sales over the prior month, has been squeezed by sky-high mortgage rates and a lack of available homes. This one-two punch has resulted in demand readings at record low levels all year. From January through July, demand has remained at its lowest level since tracking began in 2004. Current demand is at 3,566 pending sales, down 16% compared to last year and 38% compared to the 3-year pre-COVID average of 5,734 pending sales.
Low demand has led to the lowest monthly closed sales since tracking began in 2012. Through July, there have been only 25,847 closed sales, down 29% compared to last year and 31% compared to the 3-year pre-COVID average of 37,558 closed sales. In terms of closed units, housing is experiencing a recession. Nearly anyone that works within the real estate industry, from REALTORS® to mortgage lenders to inspectors, has felt the impact of completing fewer sales. Yet, in terms of values, the homeowner is doing quite well. According to Freddie Mac’s Home Price Index, the Los Angeles/Orange County metro dropped 7% from its all-time peak in May 2022 through December 2022. Since bottoming in December, home values have risen 7% through June and appear poised to continue to climb through 2023 due to a scarcity of homes for sale.
Many wonder when this cold front will pass. When will more homeowners sell? When will the active listing inventory rise? When will the market experience higher demand and more closed sales? The answer is not higher mortgage rates. Some think the inventory will rise if mortgage rates rise to 8%. Yet, that would result in the “Hunkering Down” trend of fewer new listings to deepen. Instead, the answer is lower rates. More homeowners would opt to sell if rates were below 6%. Demand would rise, and so would the number of closed sales. But it is going to take a while to see the inventory increase. As rates drop and demand rises, newly listed homes would sell quickly, making it challenging for the supply to rise. The good news will be that the recession in units will fade as more buyers and sellers tap into the housing market.
For now, it’s a cool, cool summer.
The inventory has been at all-time lows not because of unbelievable, hot purchase demand but because of the lack of homeowners willing to relinquish their low, fixed-rate monthly mortgage payments. According to Freddie Mac’s Primary Mortgage Market Survey®, mortgage rates climbed to 6.9% as of August 3rd. Since 87% of Californians with a mortgage enjoy a fixed rate at or below 5%, homeowners are reluctant to sell. Through July, there were only 36,751 sellers to hit the market, compared to 50,977 last year, 39% more, or 57,975 before COVID, 58% additional homes. The lack of available homes has impacted everything from supply to demand to closed sales.Demand, a snapshot of the number of new pending sales over the prior month, has been squeezed by sky-high mortgage rates and a lack of available homes. This one-two punch has resulted in demand readings at record low levels all year. From January through July, demand has remained at its lowest level since tracking began in 2004. Current demand is at 3,566 pending sales, down 16% compared to last year and 38% compared to the 3-year pre-COVID average of 5,734 pending sales.
Low demand has led to the lowest monthly closed sales since tracking began in 2012. Through July, there have been only 25,847 closed sales, down 29% compared to last year and 31% compared to the 3-year pre-COVID average of 37,558 closed sales. In terms of closed units, housing is experiencing a recession. Nearly anyone that works within the real estate industry, from REALTORS® to mortgage lenders to inspectors, has felt the impact of completing fewer sales. Yet, in terms of values, the homeowner is doing quite well. According to Freddie Mac’s Home Price Index, the Los Angeles/Orange County metro dropped 7% from its all-time peak in May 2022 through December 2022. Since bottoming in December, home values have risen 7% through June and appear poised to continue to climb through 2023 due to a scarcity of homes for sale.
Many wonder when this cold front will pass. When will more homeowners sell? When will the active listing inventory rise? When will the market experience higher demand and more closed sales? The answer is not higher mortgage rates. Some think the inventory will rise if mortgage rates rise to 8%. Yet, that would result in the “Hunkering Down” trend of fewer new listings to deepen. Instead, the answer is lower rates. More homeowners would opt to sell if rates were below 6%. Demand would rise, and so would the number of closed sales. But it is going to take a while to see the inventory increase. As rates drop and demand rises, newly listed homes would sell quickly, making it challenging for the supply to rise. The good news will be that the recession in units will fade as more buyers and sellers tap into the housing market.
For now, it’s a cool, cool summer.
August Luxury Sales Report
