Los Angeles Real Estate Market Update May 2022
The latest Los Angeles County housing numbers, national unemployment numbers and economics, forbearances and foreclosures... All from a brokers perspective.
The housing market continues to be on fire. This is largely due to low supply and high demand. For the past couple years, the Federal Reserve has been monetizing Congressional spending and increasing the money supply. This has caused broad inflation in the marketplace not just for homes, but all commodities, goods, and services by flooding the market with dollars and low interest rates. In this chart, we can see the amount of assets held by the Federal Reserve. The total amount of treasuries and mortgage-backed securities held is just under $9 trillion dollars. This has now ended, and the Fed will begin to roll off its balance sheet slowly and then accelerate as it raises rates. The market is responding to this policy change, and it is causing disruptions in the bond and currency markets. It has pushed 30-year mortgage rates to 5.22%, the highest in over a decade. If you would like to see more on the impact of rising interest rates on home purchasing, check out the link above on Rising Rates. For now, know that monthly payments of the same loan amount have risen 23% in less than a year.
In the meantime, wage growth is not keeping up with inflation and is causing a cost push inflation at the same time. This originally started with high fuel prices at the pump which continues due to bad policy decisions. High energy prices are pushing prices higher for food, goods, and services in turn. We have seen inflation in the fuel prices over 40% fairly continuous since the Biden Administration took office. The GDP contracted by 1.4% in the last quarter. One more negative quarter and we will be in a recession. We are experiencing high inflation with low to negative GDP growth. Effectively, we are facing stagflation again. The last time we had stagflation was the 1970’s. Home prices during this period continued to rise modestly but were technically flat when adjusted for CPI peaking in 1979 at the highest inflation rate. This is noted by the green line on the chart. Nominal prices continued to rise through the 1980’s with high interest rates.
The housing market on the national scale continues to have extremely low inventory as shown in this chart. It continues to have less than 2 months’ supply for this year. This is some of the lowest in history. Median home prices across the country continue to rise. California continues to lead the charge in the highest average median price, mostly along the coast. Los Angeles, San Diego, and Thousand Oaks continue to be some of the least affordable metros in the country. Most of the country has home prices below $350,000. As we zoom in to the county level, it takes an income of $150,000 per year to begin to afford a home, often being dual income earners. For those earning less than $100,000 per year, it becomes increasingly difficult to purchase with 10% of the home listings in their price range.
In Los Angeles, the median single family home price rose again to $999,000, close to a 13% gain. Condo prices also continued to rise $650,000 also a 13% gain. Listings are continuing to see multiple offers and going well over asking prices. I personally have seen properties with 30 plus offers on them. Some people have expressed concerns about a bubble in prices. Currently distressed sales and foreclosures account for less than 1% of all sales nationwide. In comparison to the Great Recession in 2012, distressed sales were closer to 35%. In order for a bubble to form, we would need buyers to leave the marketplace, inventory to climb to over 6 months’ supply, and closed transactions to drop precipitously. We are expecting sales to slow as affordability becomes an issue. But buyers still have lots of cash and are being aggressive with their offers. One area I am watching is the personal savings rate. This has now dropped below pre-pandemic levels but appears to have normalized.
It is a great time to be a seller. If you have thought of transitioning to a larger home, or are relocating to another state, the market is on your side offering you tremendous purchasing power on the buy side. I am happy to go over strategies to help you sell your home and make a smooth transition. Please let me know if I can be of service.