Los Angeles Real Estate Market Update October 2021
Opening Remarks 0:00
5 Reasons Today’s Housing Market Is Anything but Normal 1:50
Interest Rate 5:10
Home Appreciation and Market Trends 6:41
Foreclosures and Forbearances 7:24
Los Angeles Single Family Numbers 7:42
LA Home Prices 8:39
Leases and Rentals 10:56
Welcome to the October Market Update. My name is Dennis Maynard, I am a real estate broker in Los Angeles California.
This week we saw unimpressive job growth numbers which did compress the unemployment rate largely due to people leaving the workforce. The increased controls and regulations being mandated for government workers and democrat run cities and states is leading to a large loss of government sector workers. In LA, the City Council past the most strenuous Vaccine Passport restrictions in the country, while similar measures in New York are being put on hold while court cases are being heard. The restrictions being put in place right before the holiday shopping and dinner season will likely have effect on those industries, which are already struggling to survive. Compounded with Supply constraints and logjams created by logistical bottlenecks have further strained those sectors. We are seeing mild softening in home sales, but it is still very much a seller’s market with low supply and high demand. The continued follies in congress continue to wage even higher inflation due to reckless spending and terrible policy decisions. Be prepared for a winter of excessively high heating costs. Food and energy prices continue to apply pressure to family checkbooks as we look to the holiday shopping season as government induced inflation takes hold.
As you can tell, this is an aggressive deep dive into the local and national real estate market and the factors that go into it. I have placed links to make it easy to jump around in the description below. Please like subscribe and follow for more fun and informative content. If you have not seen the TNT episodes on Inflation, I highly recommend them as a primer into what is happening right now. Let’s jump right in.
There are five reasons today’s housing market is anything but normal. 1. Mortgage rates. In this chart we can see the historical difference over time of mortgage rates which we are holding at substantial lows. As you can see, we are currently around 3%. 2. Home price appreciation. As we can see appreciation has been some of the best we have seen in recent years. 3. Months’ supply of inventory. This refers to the number months it would take to sell the current supply of inventory. Current national numbers are at 2.6 months supply. 4. Days it takes to sell a home. The average days on market nationally is at 17 days currently to sell a home, some of the lowest numbers we have seen. 5. Number of Offers per Listing. A properly priced listing in this market will receive multiple offers. Nationally that is around 4.5 offers.
Economy. Currently the Gross Domestic Product or GDP has recovered from the pandemic lows. However, this is largely due to a function of money supply and printing of money. Please check out the TNT Video on inflation for a better understanding of this. The 10-year Treasury appears to be ready to resume its downward pricing trend. As price and yield are inverse, we are likely to see higher rates in the future. This chart is the US 10 Year Note Bond Yield since the 1920’s. We are currently at historically low yields. This is likely to reverse soon.
Unemployment. Why do we discuss jobs and employment in a real estate update? Housing and commercial real estate is driven by jobs, job outlook and growth. These factors support the fundamentals of the real estate market. The important thing to remember about the unemployment rate is it is based on a survey. The national unemployment rate is currently at 4.8%. One would think that’s amazing until you dig into the numbers. People are leaving the labor force as is evident in this chart. The compressed labor force is creating the downward pressure on the unemployment rate which may demonstrate there is more to the story. The following maps demonstrate the progression of unemployment across the US for the past 5 years. The first map is from November 2016, the second from November 2019 which was the lowest unemployment on record with the largest labor force, and August 2021. Note which states marked in deep blue have the highest unemployment rates. Los Angeles unemployment rate is currently at 8.8%. When we look at the unemployment rate versus the labor force, we can see LA has had a 1.29% decrease in its labor force. This implies the unemployment rate may be higher than reported. If we measure the unemployment rate against the February 2020 Peak Labor, we can see that it is easy to speculate a higher rate may be true.
Interest Rates. The single biggest risk to housing—rising mortgage rates—is a real possibility in the next year, and that could bring prices down. Further, other economic, financial, and confidence challenges could also result in a drop or flattening of home prices, even with solid buyers in place. But a drop or flattening in home prices is a far cry from the crash we saw during the Great Recession. Ali Wolf from Zonda. In this chart, we can interest rates climbing from previous lows to above 3%. Many factors led to this increase, including the Federal Reserve communicating that it will taper its support of the capital markets, the broadening of inflation and emerging energy supply shortages which compound other labor and materials shortages. Sam Khater Chief Economist at Freddie Mac. Mortgage rate projections are now averaging to be above 3.5% by third quarter 2022. We don’t know for sure where they are going, but we can speculate they are going higher as demonstrate in this chart. This will affect buyers purchasing power as demonstrated in this chart. There is a cost to waiting to purchase and with housing supply being short, there will not likely be equal price reductions in low inventory areas.
Appreciation. In order to understand appreciation in home values, we need to look at Supply and Demand. This chart maps out seller traffic across the US. This essentially is the number of homes being listed for sale. The next chart is the buyer traffic mapping the number of active buyers in a market. You should see a stark difference between the two. This emphasizes the price appreciation that is being seen across the country. The appreciation we have seen has been driven due to supply and demand. Current Q2 price appreciation is at 17.2%.
Foreclosure and Forbearance. This chart demonstrates the number of distressed property sales. We are not seeing any increase currently. As I have mentioned in the past, homeowners have more equity in their homes than ever before with really low loan values. Sales. These are the current LA County Sales numbers. If you would like me to take a look at your area or your property, please reach out. I’m happy to do that for you.