In September, the sun was setting at 6:30 PM, temperatures reached the 90s, and there was no trace of rain. Now, in late November, clocks were turned back an hour, the sun sets at 4:45 PM, temperatures have averaged in the upper 60s, and rainfall totals have exceeded five inches this month alone. There’s a chill in the air, and shorts and t-shirts have been replaced with jeans, long-sleeved shirts, and everyone’s favorite fall sweater. Day by day, inch by inch, as the sun set earlier and earlier, the weather grew considerably colder. The transformation sneaked up on everyone.
That is precisely what is occurring in the Los Angeles County housing market. At the end of May, mortgage rates eclipsed 7%. They dropped under 6.75% in June and below 6.5% at the start of September. They have hovered between 6.13% and 6.38% for nearly three months, the longest stretch below 6.5% since August 2022, when rates were last below 6% for an extended period. Today’s lower mortgage rates have changed the climate of the housing market. The improvements have been gradual, day by day, inch by inch, until, suddenly, home affordability is much better than it was earlier in the year. The transformation sneaked up on everyone, and rates are forecasted to remain in this range for the upcoming Spring Market, providing light at the end of a dark tunnel of extremely limited pending and closed sales activity.
When rates skyrocketed from 3.25% in January 2022 to 7.37% in October of the same year, affordability eroded seemingly overnight. That resulted in a waterfall drop in demand that has remained at low levels ever since. Demand in 2023, 2024, and 2025 has been very similar; the only real difference was an even further drop in demand from September through December 2023, when rates breached 8%. At that level, demand further downshifted. Nonetheless, buyer demand has been noticeably subdued for three years.
At the end of November 2021, demand (a snapshot of the number of new pending sales over the prior month) was at 5,841. Today’s demand, the highest at this time of year since 2021, is at 3,520, a substantial 40% less, or 2,321 fewer pending sales. It was 3,440 last year, 2% less than today; 3,009 in 2023, 15% less; and 3,023 in 2022, 14% less.
It boils down to affordability. In 2021, rates hit an all-time low at 2.65%. A $1 million mortgage at 2.65% is $4,030 monthly. At January 2022s 3.25%, it would be $4,352. Nine months later, in October 2022, rates hit 7.37%, meaning the $1 million mortgage jumped to $6,903, an extra $2,551 monthly or nearly $31,000 a year. When rates jumped, the Los Angeles County housing market came to a screeching halt and has remained muted ever since. Rates have endured above 6% for 39 consecutive months, since August 2022. At this point, nobody is expecting rates to drop into the 3s or 4s. For the most part, they have been stuck between 6.5% and 7.5%, with only a few exceptions. Last year, between the end of August and the start of October, rates dropped between 6% and 6.5% for 45 days, the longest streak since mortgage rates left the 5s behind in 2022. It was the lowest rate of the year, after it had eclipsed 7.5% three times in April 2024. As a result, demand uncharacteristically increased during the Fall Market. Yet the excitement surrounding affordability was short-lived, as mortgage rates pushed past 7% to finish off the year.
This year was similar, with rates stuck above 7% from January through most of February, then dropped to 6.75% from the end of February to the start of April, then bounced around 7% from April through the end of May. Once again, rates were too high during the Spring Market, dampening demand and sales activity. Since May, as the U.S. labor market weakened, mortgage rates have slowly and methodically dropped. They dipped below 6.5% on September 3rd and have not looked back, improving affordability and increasing demand. It has been nearly three months at these lower levels, just about twice as long as last year.
This time, the economic backdrop is considerably different than last year. Last year, after some initial weakness over the summer, the economy strengthened and proved to be resilient from the fall through the first several months of 2025. Consequently, rates rose. Yet, from June through today, the U.S. economy has downshifted considerably, and it appears it will remain weak for months to come. Mortgage rates are forecasted to persist between 6% and 6.5% throughout 2026. This mortgage rate level came too late in 2024 and 2025, during the Fall and Holiday Markets; yet it will match up perfectly with 2026’s Spring Market.
That $1 million mortgage is $6,653 per month at 7%. It drops to $6,157 per month at today’s near 6.25% rate, $496 per month less. At 6%, it is $5,996, and at 5.5% it is $5,678, nearly a $1,000 improvement compared to 7%.
There is light at the end of the tunnel, a persistent, lower mortgage rate environment. With an improvement in affordability that matches up with the best time of the year for real estate, the Spring Market, expect demand to increase and finally break away from the lethargic, low-demand levels of 2023 through 2025. Pay careful attention. In the blink of an eye, the change in the Los Angeles County real estate market will sneak up on everyone in the spring of 2026.
