Los Angeles County has endured an inventory drought for several years now. Yet, finally, there is rain in the forecast, more homes are coming on the market, and the inventory is slowly rising. The drought of available homes to purchase has not ended, but at least it has been moving in the right direction. For buyers experiencing the drought firsthand, any rise in the number of homes to look at is a welcome relief.
From the start of the year to today, the active inventory has risen from 6,8247 to 7,924 homes, a rise of 16% or 1,097 homes. Mortgage rates bounced between 6.63% and 7.16%. Last year, the inventory dropped from 7,907 to 7,229 homes, down 678 homes or 9 %, while mortgage rates fluctuated between 5.99% and 7.1%. It was 2022 when the inventory last increased to start the year, rising from 4,732, a record low start, to 5,481, up 16% or 749 homes. That was when mortgage rates soared from 3.29% at the beginning of January to nearly 4.5% by mid-March. The low mortgage rate environment was quickly coming to an end.
For a proper perspective, it is best to look at the 3-year average before COVID (2017 to 2019) when housing was normal and mortgage rates were in the low to mid 4% range. Cyclically, the active inventory would slowly rise during the Winter Market, then pick up steam during the Spring Market, and slowly reach a peak sometime during the Summer Market. The 3-year average rose from 10,295 to 10,983, up 688 or 7%. The percent change looks misleading because it is much smaller than this year and 2022, but that is because there were already a lot of homes on the market before COVID. This year and 2022 started from chronically low, anemic levels. As a result, the percent change exaggerates what is really occurring from a buyer’s perspective. 7,924 homes today is more than the 6,827 to start this year, but it does not feel significant for buyers waiting for more homes to come on the market.
Nonetheless, the rise in inventory is a welcome trend in a housing market starved for a fresh supply, especially in comparison to last year’s dwindling supply. The 7,924 homes available today are much better than the 5,481 available in 2022, yet the total is still 28% lower than the 3-year average before COVID of 10,983 homes when the housing market was functioning at a much better pace.
The inventory has been rising partly due to the higher mortgage rate environment, as rates have eclipsed the 7% mark several times over the past month, and also because more homeowners are opting to sell their homes. When rates surpass the psychological 7% barrier, the inventory grows. That has been true both last year and this year. In addition, there have been 10,567 homeowners who placed their homes on the market in January and February. That is up 15% from last year’s record low, an extra 1,378 sellers. Yet, the 3-year average was 14,139 homes, 34% higher, or 3,572 additional FOR-SALE signs.
The inventory crisis has not been averted. The drought is far from over. But, slowly, more homes are accumulating on the market. It is a trend to be aware of, especially for sellers. Even though the market is exceptionally hot and negotiations favor sellers, a growing inventory indicates some sellers are overzealous and lingering on the market, stretching their asking price too high. With higher rates, many buyers are not biting when pricing is out of bounds. That is precisely why 26% of the active inventory has adjusted their price lower at least once. With a climbing inventory, sellers must price appropriately to secure success.
