There are times when there is an overabundance of young Girl Scouts attempting to sell as many boxes as humanly possible. Some go door to door, others pivot to the local grocery store, while many turn to their parents’ workplaces to increase their sales count. When too many hit the same neighborhood, the competition amplifies; for some, it is very hard to sell their cookies.
That is precisely what is happening in the Los Angeles County real estate market. Many more sellers are hitting the market, the competition is amplifying, and it is very hard for some to sell their homes. There are currently 10,662 homes on the market, 42% more than last year’s 7,505 at this time. That is 3,157 additional homes year-over-year. It is the most homes for mid-February since 2019 when there were 12,910.
The inventory has been rising due to the higher mortgage rate environment. The Federal Reserve raised the short-term Federal funds rate 11 times from March 2022 through July 2023, and long-term mortgage rates exploded higher from 3.25% in January 2022 to over 7% eight months later in September. They have remained above 6% ever since and have been stuck, for the most part, above 7% since July 2023. Higher mortgage rates have precluded many homeowners from placing their homes on the market and selling. They “hunkered down” in their homes and opted not to sell.
The hunkering-down trend occurred because homeowners were unwilling to move due to their low-fixed rate monthly payments. According to the Federal Housing Finance Agency’s National Mortgage Database, 82% of all Californians with a mortgage have a mortgage rate at or below 5% (2024 Q-3), 65% have a rate at or below 4%, and 29% have a rate at or below 3%. Many homeowners have been reluctant to sell their homes and exchange their low rates for today’s substantially higher mortgage rates. In 2023, there were 33% fewer FOR-SALE signs compared to the 3-year average before COVID (2017 to 2019), or over 30,000 missing signs. In 2024, there were 22% fewer sellers, 20,421 less. Yet, that was 9,913 extra signs compared to 2023. In January 2025, there were 7,124 new sellers, only 3% fewer than the 3-year average before COVID, 187 less. It was a 1,488 home improvement over January 2024, and 2,331 additional signs compared to 2023.
More and more homeowners who have placed their desire to sell on hold as they wait for mortgage rates to ease have grown tired of waiting. It has been 30 months since mortgage rates were last under 6%. Everyone is realizing that the higher mortgage rate environment will not go anywhere anytime soon. This has resulted in more homeowners coming on the market compared to the last couple of years. As time progresses, even if rates remain elevated, the number of sellers coming on the market will normalize and return to prepandemic levels.
These extra sellers coming on the market have been matched with similar, low-demand levels that have not changed much in the last couple of years. When there are more sellers yet similar demand, the extra sellers accumulate, and the active inventory rises. Competition among sellers increases. That is precisely what occurred in 2024. The inventory peaked in October at 12,106 homes, 34% higher than the 2023 peak of 9,053. And, with more sellers coming on this year, the inventory will continue to increase rapidly as long as rates remain around 7% or higher.
The market time rises when a growing inventory is paired with low demand. That is precisely why the Los Angeles County housing market is at its slowest mid-February level since tracking began in 2012. The Expected Market Time (the number of days it takes to sell all Los Angeles County listings at the current buying pace) is 92 days. It was at 64 days last year and 61 two years ago. The 3-year prepandemic average was 65 days, significantly faster than today. After reaching its lowest level within the next month, the Expected Market Time will rise weekly for the remainder of the year.
The housing market is about to enter the season when homes come on the market at a higher rate, from March through August, peaking in June. By mid-March, housing transitions to the Spring Market, the busiest time of the year for demand and the number of new sellers. The number of new sellers outpaces demand, so the inventory rises at a faster pace than in January and February. This is why the inventory builds throughout the Spring and Summer Markets and peaks between July and August. However, the peaks have been coming later over the past couple of years because the number of homes coming on the market has outpaced demand readings into the Autumn Market, which is abnormal.
The Bottom Line: The inventory will continue to build as more sellers opt to sell than in the past couple of years, and housing transitions to the Spring and Summer Markets, ultimately increasing seller competition and resulting in longer market times. More seller competition means sellers better be priced appropriately to secure a successful outcome. Many sellers will languish on the market without success. This is not a year to “test” the market and stretch the asking price. The best approach is to spend as much time as possible to secure a home’s Fair Market Value, carefully dissecting all recent comparable pending and closed sales and considering the condition, location, upgrades, and appeal.
The devastating fires in the Pacific Palisades and Alta Dena destroyed nearly 12,000 homes. Many believed it would significantly impact buyer demand within the residential resale market. The data illustrates very little change in demand below the luxury threshold of $2 million. While there may have been a 50 pending sale rise in demand for homes between $1 million and $2 million, or 5%, there was a 97 pending sale rise, or 12% year-over-year, last year for the same price range. However, there has been a noticeable impact on luxury demand. For homes priced between $2 million and $4 million, there are 73 additional pending sales year-over-year, 27% higher. For homes priced at $4 million or higher, there are 48 additional pending sales, or 66% more. The year-over-year difference last year for luxury demand was slightly negative. The data illustrates that the fires will impact the upper end for the foreseeable future but will not result in an excessively hot luxury market because the active luxury inventory is up dramatically compared to last year. A limited number of wealthy fire victims have the necessary liquid funds in bank accounts that will allow them to purchase a home immediately. It will take a very long time for most fire victims to rebuild, sell if they desire, and buy another home.
There has been a substantial impact on residential leasing. In
January, leasing activity was up 53% year-over-year. It was the most
residential leases in Los Angeles for any month, dating back to 2000 when
tracking began. There were 3,263 leases this year compared to 2,126 last
January. The numbers were up significantly in every price range. This should
continue as additional fire victims move out of hotels, vacation rentals, and
family and friends’ homes and seek longer-term temporary housing. This will strain
the supply of residential leases, increasing pricing pressure.
