Los Angeles Real Estate Market Update July 2023
This morning’s CPI or rate of inflation came out under expectations with core inflation at 4.8%. The stock market rejoiced, angels sang, atheist came to Jesus, all praised the heavens as salvation from the Fed is coming. Uh, no. This is still above the Fed’s target and shelter inflation is still running at close to 8%. The dollar index DXY also known as the Dixie fell dramatically. The dixie reflects how other currencies are trading against the dollar. This means as the US dollar gets weaker, commodities and hard assets will get more expensive. More dollars to buy the same goods and services. This is partly why the bond market is pricing in another rate hike in July. Like the 1970’s, we are in a rolling period of inflation. Sometimes higher, sometimes lower.
Mortgage rates printed an average of 7.04% last week for the 30-year fixed. As predicted, rates are expected to continue higher after all-time lows. I call this the normalization of rates. It is important to remember the average 30-year fixed since the 1960’s is roughly 7.5%. We just came out of a 15-year period in which rates were kept artificially low. This spurred inflation along with massive government money printing. It’s the same thing in case you didn’t know, bonds and the printing of money. To demonstrate how low rates went, here is a chart from Elliott Wave International. We saw the 10-year treasury drop below 2% in 2020. The last time we saw this happen, 1942. You can see what happened after and where rates went from there. Only this time, it is much more aggressive. With rates climbing, one would think people would stop buying houses, right? Nope.
Nationally, pending home sales appear to be keeping pace with pre-pandemic levels, all of which are below 2020-2022 levels. However, the number of listings on market still remains extremely low. 1 in 7 homeowners are choosing not to sell this year citing high mortgage rates, and 4 in 5 home shoppers are rate locked or can’t get a new mortgage at the same rate as their previous mortgage. Hence, buyers are not listing homes to purchase new ones. This is supporting list prices as affordability continues to be a challenge.
In Los Angeles County, new listings, active listings, pending sales all remain near decade lows. Closed sales have crept up some, but still remains near lows. The average days on market is 28 while the month’s supply is 2.4 months.
The median sale price for a single-family home in LA has recovered some to $950,000 in June, down 4.5% from a year ago. The median sale price for a condo in LA is $630,000, down 3.8% from a year ago.
The key takeaways from this are while inventories are low, there are still buyers out there purchasing at the higher rates. In order for prices to fall dramatically, inventory would have to triple, or buyers would have to stop buying all together. Right now, we are seeing neither. If you are waiting for the housing market to crash, it is unlikely. Remember, the vast majority of homeowners have cheap mortgages, why would they want to leave them? They have a home they can afford the payments on. If you are a home purchaser, get out there and find the home you can afford. If you are a seller looking to downsize, it is a great opportunity to cash in.