With the second-fewest homes to start a year since tracking began in 2004, the Los Angeles County housing market is already hotter than pre-COVID years.
Farmers markets are growing in popularity. There are plenty of
booths and crowds of people eager to shop outdoors and support the community
even in the middle of winter. Those who have frequented them for years know
January is not a great month for fruits. The selection is limited mainly to
citrus. It is not the season for peaches, plums, melons, pineapple, berries, or
apples. Squeezing between the crowds reveals half-empty shelves with very few
options.
That is precisely what buyers are facing at the start of 2024.
The Los Angeles County housing shelves are half empty. It is tough being a
buyer looking for a home today with higher mortgage rates and very few options
to purchase. Demand is muted due to affordability constraints and fewer
FOR-SALE signs. Still, the inventory crisis eclipses today’s diminished demand,
resulting in a market that already feels hot at the start of January.
After a late but muted inventory peak in 2023 at 9,053 homes, the second lowest peak since tracking began in 2012 only behind 2021’s 8,702 level, the inventory dropped by 25% to where it sits today at 6,827. That is the second-lowest start to a year behind 2022. There were 16% more homes available last year, with 7,907 homes available, which is still very low compared to long-term averages. The average start from 2013 through 2020 was 10,079, a staggering 48% more. That is an extra 3,252 available homes. Contributing to the supply scarcity is the fact that fewer homeowners are willing to give up their underlying, low, fixed-rate mortgages. In 2023, there were 30,530 missing FOR-SALE signs compared to the 3-year average before COVID (2017 to 2019), 34% fewer. Mortgage rates are anticipated to drop this year, and the further they fall, the more homeowners will be more inclined to sell their homes.
With a higher mortgage rate environment and far fewer homes coming on the market, demand, a snapshot of the last 30 days of pending sales activity, is at its second lowest level to start a year since tracking began 12 years ago, only 2,370. Last year was lowest demand reading at 2,325 pending sales, an extra 45 or 2%. As rates drop this year, demand readings will increase due to more available homes and improving home affordability.
Today, demand may be near record low levels to start a year, but when it is combined with a catastrophically low inventory, the Expected Market Time (the number of days to sell all Los Angeles County listings at the current buying pace) is at low levels, even lower than the pre-pandemic average. It may not be as insane as 2021 and 2022, but it is considerably hotter than what is considered “normal.” The long-term average start before COVID (2013 to 2022) was an Expected Market Time of 90 days, an additional four days. It was at 102 days last year, over two weeks slower than today.
The Los Angeles County housing market will thaw from the holidays and improve from here. Cyclically, far more homes will be placed on the market in January and February compared to November and December, the cycle lows yearly. Buyer demand will increase with the distractions of the holidays in the rearview mirror and more homes entering the fray. Further fueling the increase is how rates are now hovering around 6.75% today, after remaining above 7% since the end of July and even breaching 8% in October. The housing market’s direction is predicated on the direction of mortgage rates and home affordability. As rates drop, affordability will eventually improve enough to instigate more demand. Mortgage rates will gradually fall as the economy slows this year and inflation continues to fall.
ATTENTION BUYERS: Waiting for the market to slow and negotiations to line up in a buyer's favor is not the answer. For the market to lean in favor of buyers, there needs to be considerably more homes available to purchase compared to weak demand. Unfortunately, there is a chronic scarcity of homes with FOR-SALE signs in the yard. This will not suddenly change anytime soon based on all current trends. With mortgage rates anticipated to drop further this year, there will be increased buyer competition with increased home affordability. Yes, more homes will opt to sell as rates drop, but the more robust demand will offset any increase. Instead, buyers should pursue a purchase with patience and steadfast determination. It may take several offers to find success, but it is that kind of persistence that is ultimately rewarded with the keys to a new home.
ATTENTION SELLERS: Take advantage of the hotter market by pricing a home close to the last comparable or pending sale. Careful pricing will allow a seller to tap into all the buyers waiting for every home that hits the market. A realistic price will allow a seller to attract immediate interest. 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 buyer pool that is carefully watching and waiting for every new home that matches their search requirements.
