Traveling on the freeway and hitting bumper-to-bumper snarled traffic can be particularly frustrating. The frustration grows as the brake lights seemingly stretch for miles ahead, and the speed decelerates even more. Suddenly, the traffic has slowed to a crawl, and it will take a lot longer for everyone to arrive at their destination.
Similarly, the housing market had been moving along at a decent speed last year, and even hinted at speeding up early this year, but that has since changed. Fractures in the Los Angeles County market have emerged. These cracks illustrate a rapidly cooling market. Sellers are losing their grip on calling the shots and must now be very precise in their pricing, or they risk not finding success and a further slowing of the market down the road. It is not a buyer’s market with plunging prices, but it is also not a hot seller’s market with rapidly rising prices. The market is moving, but not at the speed everyone expects in the spring. The latest trends highlight a cooling marketplace, moving at a much slower speed.
CRACK – The current active inventory has increased by 18% or 1,975 homes in the past two months. Last year, it grew by 15% or 1,168 homes; in 2023, it dropped by 5% or 391. How can this year’s inventory grow rapidly when year-over-year demand is only slightly down? The answer is simple: more homeowners are participating. Very few homeowners chose to sell in 2023 after rates skyrocketed in 2022. Instead, they “hunkered down” in their homes, unwilling to move due to their underlying, locked-in, low fixed-rate mortgage. That trend eased in 2024, allowing the inventory to grow. This year, the trend eased further, and the inventory has been rapidly growing with all the extra FOR-SALE signs, many more homeowners opting to sell. The trend is for the inventory to grow rapidly, increasing seller competition through the Spring and Summer markets.
CRACK – Despite an inventory that is 48% higher than last year, demand is down 3% year-over-year. Affordability is the main culprit for diminished demand. Mortgage rates have remained elevated since the Federal Reserve ratcheted up rates 11 times starting in 2022; thus, demand has been subdued since mid-2022. Yet, according to Mortgage News Daily, today’s 6.82% mortgage rate is far lower than last April, when they eclipsed 7.5% three times. With all the extra choices, demand should be higher. A contributing factor to today’s diminished demand is that consumer sentiment has collapsed since the announcement of deep tariffs on April 2nd. Plunging sentiment has led some potential buyers to place their home search efforts on hold despite improving rates. Financial market volatility has further eroded consumer confidence.
CRACK – The Expected Market Time spiked in the past six weeks. Typically, the Expected Market Time (the amount of time it would take to place a home on the market today and become a pending sale down the road) rises slowly after demand reaches its annual peak between March and April, and the inventory continues to grow until its Summer Market peak. This year, demand peaked a couple of weeks ago, and has begun its slow descent. On the other hand, the inventory has been growing at its most rapid pace since 2018. With a rapidly increasing supply and falling, subdued demand, the Expected Market Time has grown from 90 days six weeks ago to 107 days today, its slowest speed for an end to April since the pandemic lockdown in 2020, which was a temporary slowdown that did a 180 a month later as rates dropped to record lows. The 17-day rise in the past six weeks significantly outpaces every year since the pandemic lockdown. Last year, it grew by five days. In 2023, it decreased by nine days, and in 2022, as rates climbed from 4% in March to 5.5% at the end of April, the Expected Market Time climbed by only eight days. As inventory continues to climb rapidly and buyer demand slowly declines through the rest of the Spring and Summer Markets, the Expected Market Time will briskly rise, and the Los Angeles County housing market will slow considerably.
CRACK – Like Los Angeles County, all markets tracked by Reports On Housing are experiencing a swiftly rising inventory and subdued demand. Across the board, all markets are experiencing a jump in the inventory. It is growing at a brisk pace everywhere. Like Los Angeles County, far more homeowners have opted to sell compared to last year, and the two-year difference is staggering. The “hunkering down” effect is waning everywhere, resulting in ever-increasing seller competition and a rapid accumulation of sellers to build this year’s inventory. It appears as if demand has reached its annual peak in all markets, which means demand is now slowly declining. Sinking consumer sentiment has impacted demand’s true potential, given that mortgage rates are down substantially compared to last year. The Expected Market Time is up noticeably compared to the previous year due to the rapid rise in inventory and subdued demand. As inventory continues to climb until reaching a peak later in the year, and demand slowly falls simultaneously, the Expected Market Time will continue to slow down from week to week. The bottom line is that this trend is not isolated to Los Angeles County. It is affecting all markets.
The Los Angeles County housing market has hit bumper-to-bumper traffic and slows further each week. With the current trends in place, it won’t be long until the market slows to a crawl, and sellers will wait much longer to secure success. There is a fracture in the market. This slowing market trend will continue until there is a noticeable drop in rates
