Los Angeles Real Estate Market Update May 2023

Needless to say, the market has been behaving pretty much to expectations. Interest rates have moved up dramatically since November. Before we all race off and blame the Fed, let’s keep the blame where it belongs, Congress from 2020 through 2022. If you have taken econ 101, you would know inflation would happen. The Fed had to wait till after the reelection of Jerome Powell to begin to tame inflation by raising rates. The labor market appears to be resilient, and prices are moderating some. CPI is currently at 4.96 with Sticky CPI at 6.32. Food and energy are taming some for the moment, but wages are persistent. This means inflation is still stuck in the economy as wages attempt to keep up with the higher prices. I’ve talked about this before, the Taylor rule is still in effect. The fed will need to raise rates further to combat inflation. Raising rates is effectively demand destruction. The Taylor Rule is currently saying the fed funds rate will need to exceed a minimum of 5.71%. This means two more rate hikes minimum.

How does this affect mortgage rates and the housing market? Mortgage rates are influenced by the 10-year treasury. This means as the Fed Funds rates go up so do all other rates. I would expect to see interest rates closer to 7% for the 30-year mortgage by the end of summer. It is important to keep historical context. The average rate for the 30-year since the 1960’s is roughly 7.5%, so this period we are going through is more of a normalization. If we see inflation rear its ugly head further as in the 1970’s, expect rates to really move higher.

The national housing market has been slow. The number of new listings is down. This is keeping inventory down and supporting prices. Prices are pulling back in some areas, but it is relative to affordability. Less affordable areas are seeing more price declines than more affordable areas. This is why we continue to see prices hold or rise in the East and fall in the West. The national median home price fell 1.7% to $388,000. This is boosting the numbers across the country which would otherwise be lower due to falling prices in the West. Existing home sales in April fell 23.2% from one year ago and have declined 14 of the last 15 months.

Delinquency rates are still very low. As shown here, the number of delinquencies has stayed pretty flat across the country. The reason for this, people who got homes got them at a cheap rate and can afford the payments, hence, no defaults.

In Los Angeles County, new listings, active listings, pending sales, closed sales all remain near 5-year lows for both condos and single-family homes. The median sale price for a single-family home in LA is $880,000 in April, down 11.6% from a year ago. The median sale price for a condo in LA is $650,000, down 6.5% from a year ago.

It is incredibly important to keep perspective in a time like this. Most people who bought homes over the last couple years did so because they could afford them. Most homeowners are now rate locked or can’t get a new loan at a rate they previously had. This means fewer owners will be selling into the future. Will prices adjust to the new realities of higher rates? Yes. But I do not expect a crash in housing. I have been saying this for over a year for this reason. Is it a good time to buy? Yes, there is less competition. This offers you the opportunity to take advantage of the pullback. If your intentions are to buy a home to live in for 5 or more years, it is a good time to buy. If you are looking to flip houses, I do not recommend it unless at a deep discount.

If you need help buying selling leasing or investing in real estate, please reach out. My team is ready to help.

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