Rising Market Times
The Expected Market Time is at its highest level for a start to September since 2014.
Sometimes, driving around to run local errands becomes an all-day affair. Not checking the go-to navigation app beforehand and hopping on the freeway ready to zoom a few miles to the mall, nursery, or hardware store turns into a disaster. Everyone must have had the same idea because the freeway is practically stopped. The unexpected stop-and-go traffic turns the short trip into a time-eating nightmare. Frustratingly, it takes much longer to get through the list of errands.
Similarly, homeowners placing their homes on the market today with the expectations of multiple offers and short market times is not today’s reality. Instead, there is a lot more seller competition. It used to take days to secure an offer, but for many, it is now taking weeks or months. The Expected Market Time (the number of days it takes to sell all Los Angeles County listings at the current buying pace) has increased from 37 days in March to 73 days today, the difference between zooming to your destination and stop-and-go traffic.
Many wonder why the market has slowed so much this year. It is not that demand has suddenly fallen sharply like it did in 2022 when rates climbed from 3.25% in January to 7.37% in October. Instead, it boils down to a supply and demand issue. More sellers are vying for a limited number of buyers.
Demand in 2024 (a snapshot of the number of new pending sales over the prior month) has charted a course similar to demand in 2023. In February, there were 272 fewer pending sales year-over-year, and in August, there were 350 more pending sales, the largest differences through August. Currently, demand is at 3,760, 270 more than last year’s end of August. This illustrates that this year’s monthly buyer pool closely resembles the buyer pool in 2023.
It is essential to point out that demand has been bouncing along a bottom ever since rates climbed above 6%. They have remained above 6% since August 2022, two years ago. As a result, demand has been limited due to affordability constraints and is far below pre-COVID levels. The 3-year (2017 to 2019) pre-pandemic end-of-August average demand reading was 5,363, an additional 1,603 pending sales or 43% higher than today. Demand will eventually rise as rates fall below 6% in the not-so-distant future. For now, demand will continue to trudge along a bottom that was established last year.
The market has decelerated this year because the inventory has climbed substantially. In January 2024, there were 6,827 homes on the market, 14% less than in January 2023, or 1,080 fewer homes. Since demand readings have been very similar to last year, in matching that lower supply to similar demand, the Expected Market Time was much stronger than last year to start the year. That advantage faded as the inventory grew, eclipsing last year’s level at the end of February. Undeterred, the inventory has risen substantially since. There are 11,403 homes on the market today, up 4,576 since January, or 67%. Last year, there were 7,880 homes on the market at the end of August, 3,523 fewer homes or 31% less. The difference is noticeable in every price range. There are a lot more sellers competing for limited demand.
Last year’s inventory remained relatively flat. After initially falling through mid-April, the active listing inventory peaked at 9,053 homes in November, 14% above its January start with 1,146 additional homes, a sharp contrast to the 67% rise this year. The only difference between this year and last is that more homeowners have decided to sell. Through August, 49,962 homeowners have placed their homes on the market, that is 16,357 fewer than the 3-year average before COVID of 66,319, indicative of homeowners continuing to “hunker down” in their homes, unwilling to move due to their current underlying, locked-in, low fixed-rate mortgage. Yet, there are 7,455 additional sellers this year compared to last year’s even more muted 42,507 sellers through August. That is 18% additional FOR-SALE signs.
Those additional signs have accumulated on the market and have allowed the inventory to rise this year. The extra inventory has been matched against limited, affordability-constrained demand, resulting in a slowing housing market. The slowdown in the Los Angeles County housing market will endure until the inventory reaches its peak and starts to fall. As mortgage rates continue to fall and remain low with duration, more demand will unlock, the market will improve, and the Expected Market Time will fall.
