Now is a Great Time to Buy
Mortgage rates do not need to improve much for a wave of buyer activity to develop quickly.
The phrase “the calm before the storm” dates back to the 17th century when sailors observed how the air and the sea became unusually calm right before stormy weather started. The winds stopped howling, and the waves diminished. Today, the phrase calls attention to a period of quiet or stillness before something significant changes.
Today’s housing market pace is the “calm before the storm.” After years of a brisk, instantaneous speed, Los Angeles County housing is much more balanced. The active inventory has blossomed. More homes are coming on the market, and they have accumulated since the spring of last year. Home buyer demand has been subdued since mortgage rates spiked higher in 2022, eroding home affordability. Pairing the increased supply with low buyer demand has resulted in longer market times and fewer multiple-offer situations. It is the best time to be a buyer in spring since 2019.
While it may be a great time to be a buyer, that does not mean collapsing values. In fact, according to the Freddie Mac Home Price Index, the Los Angeles/Orange County metro has grown by 5% year-over-year through January and up 0.5% month-over-month.
For now, the conditions are excellent for home buyers. It is the best market in years. Yet, it is crucial to understand that right now is the calm before the storm. Down the road, a foreseen wave of buyer activity will result in a substantially hotter housing market than what everyone is experiencing today.
It is best to look at supply and demand to understand how the market can change suddenly. Everyone talks about how the U.S. housing supply has grown considerably since last year. According to the National Association of REALTORS®, the inventory has averaged 1,137,000 since 2021. The U.S. housing market has endured a chronically low inventory and supply scarcity. In January, it was at 1,180,000, up 17% year-over-year. Yet, it is far below where it was before the pandemic. Between 2012 and 2019, the inventory averaged 1,980,833, slowly declining from year to year (white arrow). From 2006 through 2011, during the Great Recession, the inventory averaged 3,347,500. The housing market experienced a supply glut, with 184% more homes than today, nearly triple. Since the latter half of 2022, when rates skyrocketed higher and home affordability collapsed, demand dropped to Great Recession levels and has remained there. Home values have not collapsed because low demand is contrasted with a low supply.
In Los Angeles County, there are only 11,469 homes available to purchase today, up 45% compared to last year’s 7,924 ultra-low inventory. The 3-year average before COVID (2017 to 2019) was 10,983, 4% lower than today, or 486 fewer homes, and home values appreciating from year to year. The inventory has grown because of an accumulation of extra homes coming on the market. Homeowners have been unwilling to move and give up their underlying low fixed-rate mortgage. In 2023, 33% fewer homes came on the market compared to the 3-year pre-pandemic average. In 2024, it fell to 22%. So far in 2025, it’s off by only 7%. The inventory will continue to grow as more homes accumulate on the market and rates remain close to 7%.
Los Angeles County demand (a snapshot of the number of new pending sales over the prior month) has been hovering at low, anemic levels since the summer of 2022. Today’s demand is at 3,810 pending sales, 4% higher than last year’s 3,647 pending sales. The 3-year average before COVID was 5,461, 43% higher than today, or an extra 1,651 pending sales.
Expected Market Time, the velocity of the market, is based on supply and demand. Today’s Expected Market Time (the number of days to sell all Los Angeles County listings at the current buying pace) is 90 days, much higher than last year’s 65 days. This is the slowest mid-March reading since tracking began in 2012. It has been at these levels before, just not during the spring.
The foreseen wave will come when mortgage rates drop towards 6%. The U.S. economy will eventually slow. With increased unemployment, fewer jobs created, lagging retail, and a slowing GDP, mortgage rates ease. Since February 19th, there have already been a series of economic numbers that have started pointing to an economic slower patch. According to Mortgage News Daily, mortgage rates have improved from 7.13% in February to 6.8% today. Eventually, as the economy slows, rates will drop to 6%, matching September 2024 levels. A buyer's purchasing power improves dramatically as mortgage rates fall.
If a buyer desires a monthly payment of $5,000 (principal and interest with 20% down), at 7%, they would be looking to purchase a $940,000 home. At 6%, they could buy a $1,042,500 home. When rates fall, it will open up a floodgate of demand, pent-up potential buyers waiting on the sideline to purchase due to affordability constraints.
In 2024, for 47 days, from August 20th through October 3rd, rates dropped below 6.5%. You could see the significant impact on demand. It jumped 10% at the end of September and remained elevated through the end of the year. This was just a tiny glimpse of the future foreseen wave of buyer activity. Millennials and Generation Z have been eagerly waiting for mortgage rates to fall and for home affordability to improve so that they can purchase a home. When rates drop and remain close to 6% or lower for a long duration, buyer demand will rise, and the housing market will grow much hotter, the number of multiple offers will increase, bidding wars will reemerge in the entry-level price range, and home values will rise. The lower rates fall, the larger the wave of activity.
Today’s market is much slower, a calmer pace for buyers. Yet, it is the calm before the storm. Eventually, as the economy cools, mortgage rates will fall, and the foreseen wave of buyer activity will materialize rapidly.
