The Summer Housing Market
Demand
peaked at the beginning of May, and the inventory has yet to peak, so the
market continues to slow.
Summer is here with all of its many distractions. It is time to
pack the suitcases and take a much-needed family vacation. An easy answer to
the blistering heat is to head to the pool, lake, or beach and splash around
until the sun goes down. Parents are busy Ubering their kids to summer school,
camps, and movies. Many additional extracurricular activities are on the
calendar, from museums to amusement parks to day hikes. Summertime is chock
full of interruptions to everyday daily life. It is no wonder that the housing
market is evolving and downshifting a bit from the heated pace of spring.
Cyclically, in nearly every market across the country, including
Los Angeles County, spring is the hottest time of the year for housing. Buyers
transact year-round, but their preference, especially families, is to pull the
trigger on isolating a home during the spring that ultimately closes in the
summer. That is when the kids are out of school, the perfect time for a
household move. Even if it requires a school change, the best time is when they
are transitioning between grade levels. Throw into the mix the list of summer
activities, including travel, and the goal of purchasing a home often takes a
back seat to all the fun. As a result, demand drops from its Spring Market
peak.
In Los Angeles County, demand, a snapshot of the number of new
pending sales over the prior month, peaked at the start of May at 4,021 homes.
Since then, it has dropped by 6% or 240 pending sales and sits at 3,781 today.
It was at 3,734 last year, 1% less or 47 fewer pending sales. Compared to
normal markets before COVID, the 3-year average between 2017 and 2019 was
5,516, 46% higher or 1,735 additional pending sales.
Many homeowners mistake summer as the best time of the year to
sell a home and decide to place their homes on the market from June through
August. Yet, since demand typically peaks during the spring, and there is still
an elevated number of homes that come on the market during the summer, the
extra homes accumulate until a peak is reached between mid-July and the end of
August. Back in May, when demand peaked, there were 9,256 homes on the market.
Since then, the inventory has grown by 14%, adding 1,270 homes, and sits at
10,526 today. The inventory has yet to find a peak. Last year, with rising
mortgage rates that reached 8% in October, a late peak was reached in November
at 9,053 homes, a phenomenon that only occurs when rates jump during the second
half of a year. Last year, there were 7,341 homes on the market, 3,185 fewer
FOR-SALE signs, or 30% less. Yet, even with this year’s higher inventory
levels, it is still far lower than the 3-year pre-COVID average of 13,030, an
astonishing 19% lower or 2,504 fewer signs.
Since demand found its peak during the spring and the inventory
has yet to reach its peak, the market has slowed considerably in the past
couple of months. In fact, since May, the Expected Market Time, the time
between coming on the market and becoming a pending sale, has grown from 69
days to 84 days today. Housing is noticeably slower than the 3-year pre-COVID
average of 71 days. At 84 days, most homes are not snapped up instantly.
Sellers expecting a hot summer housing market like this year and last year’s
Spring Markets may be unaware that the market has slowed considerably.
Overzealous sellers who stretch their asking price without carefully
considering the current market dynamics and the need to meticulously pour over
all recent pending and closed sales activity to arrive at a home’s true Fair
Market Value will not find success until they adjust their expectations.
That is precisely why 29% of the active inventory has reduced the asking price
at least once. The number of price reductions has also been growing from week
to week.
The housing
market has been downshifting. There are more open houses. As long as they are
priced properly, only homes that are in tip-top shape with all the bells and
whistles and are genuinely turnkey, ready to be moved into with very little
work, fly off the market. For everyone else, the Summer Market feels a bit more
subdued.
