Higher Market Times
Housing has slowed from a 69-day Expected Market Time in May to 90 days today, a much more favorable market speed for buyers.
Traveling down the freeway with the cruise control set to 75 miles per hour, listening to a favorite music playlist on Spotify, and the A/C set to the perfect temperature is easy, relaxing driving. Seemingly, there is nothing in the way of arriving at your destination with plenty of time to spare. Yet, the GPS navigation app exclaims that there is a 20-minute traffic delay ahead. After breaking and turning off the cruise control, the stop-and-go of snarling traffic takes over. Looking for an alternative route proves futile. It is time to grin and bear it. It will just take longer to arrive at your destination.
That is precisely how it feels to be a seller. The market was moving at a much swifter pace back in the spring. Sellers were cruising down the housing highway. That is just not the case today. It has significantly slowed. The Los Angeles County housing market has shifted from a hot seller’s market to a much more balanced one. Buyers are getting a much-needed breather.
To better understand today’s market, comparing this year to where housing was one year ago is helpful. The active inventory currently sits at 11,141 homes versus 7,708 last year. That is up 3,449 homes or 45%. Every price range has a much stronger supply. Last year, housing was plagued by a scarcity of available homes to purchase. The most substantial issue affecting inventory is that homeowners are “hunkering down” in their homes and are unwilling to move due to their current underlying, locked-in, low fixed-rate mortgage. In 2023, through June, there were 31,305 homes placed on the market, down 37% or 18,048 missing FOR-SALE signs compared to the 3-year pre-COVID average (2017 to 2019) of 49,353 homes. This year, 36,630 homes were placed on the market. While it is off by 26% compared to the 3-year pre-COVID average, it is up an additional 5,325 homes compared to last year.
The extra FOR-SALE signs are matched against buyer’s demand, which has been very similar to 2023 levels. In some weeks, demand has been slightly better than last year, and in others, it has been slightly down. Today, demand, a snapshot of the number of new pending sales over the prior month, is at 3,722 pending sales versus 3,718 last year, nearly identical. Not much of a difference compared to the contrast in supply. The hottest price range, homes priced between $0 and $750,000, has seen the most extensive cooldown compared to last year's demand.
The excess year-over-year supply and similar demand have resulted in much longer market times. Homes are sitting on the market a lot longer with increased seller competition. The Expected Market Time today (the number of days it takes to sell all Los Angeles County listings at the current buying pace) is 90 days, up 28 compared to last year’s 62-day level. That is a noticeable difference in the marketplace. As a result, there are a lot more price reductions. A revealing 30% of all available homes have reduced their asking price at least once. This has been growing as the market has continued to cool.
Today’s housing market is much different than last year. With more choices in every price range, the sense of urgency for buyers has dissipated. Not as many homes are snapped up the moment the FOR-SALE sign is pounded into the ground. There are vastly more open houses to tour on the weekends. Home values are no longer skyrocketing higher.
Additionally, the purchasing power has greatly improved as mortgage rates have dropped from 7.5% in April to nearly 6.75% today. For example, a buyer looking for a $5,000 monthly payment (principal and interest) was looking at an $893,750 home in April. Today, they can look up to $963,750, an improvement of $70,000 in purchasing power. As rates drop, buyers can afford a larger home with no change in payment. The further rates fall, the larger the home. Of course, as rates drop more down the road, demand will grow.
Another way to look at it is the annual savings for specifically priced homes as rates drop. For example, the monthly payment of a $1 million home with 20% down at 7.5% in April would be $5,594. At 6.75% today, it would be $5,189 per month, a savings of $4,860 annually. The lower rates drop, the larger the cumulative savings.
The bottom line: The Los Angeles County housing market has seen a buyer-friendly shift. It is the best summer housing market for buyers since 2022, when rates were escalating. For sellers, it is imperative that they painstakingly arrive at the asking price with the expectation that today’s market is not instant for most.
