LA South Bay Real Estate: The Recession Has Arrived

In a normal year one would expect April to be the turning point for the LA real estate market. March is still cold and the children are still in school for another 10 weeks. April’s the month when the weather turns warm, the flower buds poke up, and the buyers come out to start the spring buying season. It hasn’t happened that way this year.

Prices had gone through the ceiling by the end of 2021, much of the activity stimulated by fear of escalating mortgage interest rates. Usher in 2022–January and February were typically slow and in March home sales bounced up like an indicator of business as usual. But, interest rates continued to climb and April ended with the total number of home sales down instead of up. Likewise, total sales dollars were down across the South Bay.

Number of Homes Sold

Judging from the charts, entry level homes in the Harbor area were clearly the center of activity for South Bay real estate. As interest rates pushed against the 5% mark, panic set in among first time buyers who had been outbid multiple times. Prices went up as high as buyers could afford, a number that shrinks amazingly fast with each tenth of a percent increase in the interest rate.

Across the South Bay, the number of homes sold in April dropped by -4% from March, which had been an increase of 59% over the prior month. As we see from the chart below, sales were uneven between the various areas.

On the entry level front, at the same time Harbor area home sales were dropping off, Inland homes gained sales. On the high end, sales on the Palos Verdes peninsula were also facing declining numbers, while Beach area sales increased.

So far declining sales counts have been modest, but a decline overall, coupled with a decline in half of the individual areas covered indicates that buyers are pulling back. Part of the resistance is a matter of simply being priced out of the market. Another important piece is the anticipation of price corrections in the near future. We have heard multiple buyers say they are watching and waiting for lower prices later this year.

At this point we’re well into the second quarter of the year and it looks as though those folks may be on track for some savings. even some of our most gung-ho pundits are beginning to see a market downturn on the horizon.

Median Price Sold

Interestingly, Harbor area prices went up at the same time the number of sales went down.The March to April price increase was a modest +6% compared to a +21% increase over April of last year. Similarly, the Beach cities had a month over month increase of +4%, while showing +19% year over year. While sales prices are still rising in those areas, the increase is a fraction of what it was last year.

Sold prices on the Hill continued to slide downwards. Because the February increase in the median price was created by the sale of new construction, and that building phase is now sold out, a downward turn in median price is expected. We anticipate that leveling off soon.

In the Inland area the median price for homes sold during April of 2022, was +12% greater than sales in April of 2021. By comparison, the median price of those sold in March of 2022 versus April of 2022 decreased by -1%. It’s a modest decrease that points to the direction of the South Bay real estate market for the balance of the year.

Area Sales Dollars

The total dollar value of home sales in the South Bay usually tracks right along with the number of units sold. The few times it differs are important times like these when the number of homes sold is dropping, and/or the sales prices are dropping. Today, of the four areas we track, PV Hill has a declining number of sales, both in comparison to last year and in comparison to last month. As we noted above, the area also is declining in total dollars compared to last year and last month.

As we discussed in last month’s issue, some of the reason for the drop is found in new construction homes that sold at a much higher price than the typical Palos Verdes resale home. The rest of it can be found in longer days on market waiting for a buyer, and in price reductions.

At the opposite end of the spectrum, the Beach cities showed gains last month for both number of units sold and for the total sales value of those homes. The only decline this month for the Beach was in number sold compared to April of last year. Sales this April were off by -21%.

The Harbor area still trended upward in dollar value, both month over month and year over year. But, the number of units sold was down for both time measurements. The price competition was very stiff in what is generally an entry level market. During the past couple years, bidding wars and over-asking sales prices have kept the dollars high. The April numbers show that changing rapidly.

Total dollar sales for the Inland community increased 15% month over month. That was the highest growth of all four areas. Scanning those individual transactions showed an odd pattern. Sales in the price range from about $325K up to about $750K were a familiar mix of some under asking price, some at asking and some above asking. The degree of variance was about what one would expect. Unexpectedly, for sales over $750K, nearly every property sold above asking price, and in many cases well above asking.

We found no clear explanation for why this phenomena occurred. There is a suspicion that buyers who were priced out of Beach properties may have shifted their bidding wars into the increasingly popular parts of west Torrance. This theory is supported by the distribution of sales among the various neighborhoods.

In Summary

In the table below are the core statistics comparing April to March of this year, and comparing April of this year to April of 2021. The prevalence of negative numbers is convincing evidence that high prices and high interest rates are pushing the South Bay real estate market into a recession.

Notable Properties

One of the more interesting properties sold in April is a four bedroom, five bathroom home located in west Torrance. The home was purchased by the seller as their family home in 1990 for just above $360K. The children grew up and the parents remodeled in 2022 and sold the house.

As would be expected in a good neighborhood with a contemporary remodel, the home sold for over the asking price of $2.7M. The final selling price was slightly over $3M. and just happened to be almost exactly $360K over the asking price.

In the 32 years that family owned the home it appreciated at an average rate in excess of $84K per year. It’s the classic “American Dream.”

Main photo by Amy Vosters on Unsplash

Inflation Hits Los Angeles: South Bay Real Estate – March 2022

The Federal Reserve Bank tries to keep annual inflation at around 2%. Over the past 12 months the median price increase of a home in the South Bay ranged from 7% (Inland area) to 32% (PV Hill). Clearly housing in the LA area is exceeding the desired inflation rate.

The recent Fed report to Congress stated, “Mortgage rates for households remain low despite recent increases.” In other words, the Fed considers 5% mortgage rates to be “low.” As part of the battle to control runaway inflation, the Fed is expected to implement rate increases. Estimates for how much higher we can expect mortgage rates to rise in the coming year range from approximately 1% to 2% more.

Rates currently at about 5%, we can already see an impact on sales volume and prices in our local monthly data. Real estate industry pundits are projecting an imminent recession. Some say “mild, in 2023.” Some are comparing the current market environment to the 2007 lead-up to the Great Recession. Keeping a probable recession in mind, let’s look at the March sales data.

Sales Volume

March is the month when South Bay denizens shake off the winter doldrums and get serious about real estate. The chart last year looked very similar to this. This year the Hill and the Beach were up slightly from last year. The Inland and Harbor areas increased at the same rate as in 2021. Compared to last year’s market, 2022 is distinctly more normal.

The chart makes it look like the Harbor area took an especially large leap in March. That’s just because the Harbor area is so much larger and so many more homes are sold there than the other three areas.. On a percentile basis, sales of Beach homes actually increased at a steeper rate. Sales at the Beach were up from the prior month by 71%, while Harbor area sales increased by 61%.

Normally, we would expect the sales volume to level off now and remain roughly a even line until winter when sales taper off again. If, in the battle to contain inflation, mortgage interest rates climb as fast as the Fed has indicated, we can expect to see the number of homes selling decline. We expect buyers who must buy will adjust the size of the purchase to meet their financing capability. Buyers who aren’t compelled to buy will probably delay and wait for better circumstances.

Median Price

Today, the best measure of home prices is comparing to last month. The market in 2021 was recovering, so some statistics are comparable, while others are still showing signs of impact from the pandemic.

March gave us a month-to-month downturn of -4% on the Hill. Of course, if you remember from last month, February saw escrow close on several new construction homes. Those units pushed the median price exceptionally high, so what we’re seeing now is a return to normal.

While median prices on the Hill were dipping, the Harbor area was flat. Prices there were +4% in January, slowed to +1% in February and had no change in March. This is the largest market area in the South Bay and is often a precursor for change.

The Beach and the Inland areas show continuing price increases of 3% and 5% respectively. Looking back to the first of the year, the Beach has been varied. The March price shift at the Beach is down from the February increase of 6%, but is up from the January decrease of -12%. The Inland numbers show steady growth from -2% in January to +5% in March.

Monthly Sales Dollars

The dollar value of March sales in the South Bay showed positive increases for all areas for the first time this year. This is important because normal growth in our capitalist system will almost always show the sold value from the current year to be larger than that of the preceeding year. The negative numbers from January and February are reflections of the troubled economics of 2021.

We expect the sales dollars to level out as the median price pulls back to a normal growth pattern. If the Fed is to realize any kind of reasonable slowdown for inflation, the monthly median prices have to stabilize at a rate of increase barely above zero. As of March the cumulative median for each area ranges from +3% to +20%. We’re not going to get to +2% inflation with those results.

The Statistics

Supposedly, charts are easier to read for most people. I like to include this table because it packs all the data from the three charts above, plus background detail, into a fraction of the space. Here we see the specific quanties sold in each area, plus the median price of the area, for the month of March.

% symbol indicates no change from prior period.

More importantly, the table shows at a glance how March 2022 compared to February of this year, and March of last year. All four areas currently have increasing sales, in part because the inventory is growing. In addition, there’s a bit of panic from the rapid interest rate increase.

At the same time, the table quickly shows that the median price has moderated in all four areas from what was happening in 2021.

Notable Sales

The South Bay in Los Angeles is a highly diverse area. In the distance of a few minutes it’s possible to drive from the lowest priced property sold in March to the highest priced property sold in March.

This studio condo in Long Beach sold for $249,900. It offers 441 sqft of airspace, no assigned parking, has an HOA fee of $149, and was originally built in 1913.


This 7 bedroom, 15 bathroom house in Palos Verdes Estates sold for $17,150,000. It offers 13,000 sqft on a 3 acre lot, has 5 garage spaces and was built in 2006.

Main photograph by Randy Jose on Unsplash

2021 Real Estate Summary – Los Angeles South Bay

2020 versus 2021

2021 was a year of tears for many people. But, not so for most South Bay property owners. Briefly, median sales prices across the area increased between 9% (the Inland areas) and 24% (on the Hill). Those are incredibly large increases. To put it in perspective, the median price increase the previous year, 2020, was less than half that, ranging from 4% (at the beach) to 9% (Hill and Inland).

Similarly, the year over prior year sales volume for 2021 was up in a range from 18% (harbor area) to 22% (beach and hill). This compared to a range from decline of 6% (inland area) to an increase of 7% (hill) for 2020.

Along with median sales value increasing and number of units sold increasing, we also saw astronomical increases in total sales dollars for the year. The change from 2020 to 2021 ranged from 33% (harbor) to 52% (hill). That compared to a range from 2% (inland) to 20% (hill) for the transition from 2019 to 2020.

These huge percentages are uncomfortably like the years 2006 and 2007 leading up to the Great Recession. It’s highly unlikely that 2022 will continue at this pace. We anticipate the year starting out with listings priced on the high end, with subsequent price reductions as “distressed” properties come on the market with more appealing prices.

So called “distressed” properties include those which have been hidden from the market by the Covid-inspired moratorium on foreclosures and evictions. Now that lenders are allowed to process foreclosures, we are beginning to see properties come on the market as “pre-foreclosure.” Here in the South Bay we have yet to see any significant number of bank-owned property come on the market, though at least ten distressed homes have been listed in the past three months in Los Angeles county.

In the end, most real estate sales involve a family home where buying or selling is dictated by events beyond the property owner’s control rather than by market trends. Births, deaths and new employment top the list of reasons for transactions that will happen regardless of market conditions. If you anticipate a need to sell in the next few months, we recommend you consult with your broker/agent early. Ask about marketing or negotiating techniques that will deliver the best result in a slowing market given your circumstances.

Year-End Housing Sales Drop

Regular readers will recognize that we’ve been seeing the sales volume declining for a couple months now. On the one hand, it’s understandable because we report actual sales results, as opposed to seasonally adjusted results. Being the winter season, sales are slower.

On the other hand, nearly everyone has been ignoring the white elephant in the marketplace. Let’s face it, prices have gone up dramatically, the interest rate is climbing at a quickening pace, and inflation is on the rise. Combined, those factors foretell fewer qualified buyers, more inventory on the market and some pullback on the recent price increases. We’ll talk more about that next month when we take a first look at real estate in 2022. If you’re about to make a move and need information sooner, give us a call.

Sales quantity fell off from the November numbers everywhere except in the Palos Verdes area. There we found a healthy 10% increase in activity for December. (With a hundred or fewer units sold in any given month, statistics related to sales volume on the Hill can have some wild variations.) Sales rose by 10% from last month, but fell 11% from last year.

Harbor area sales slowed the most in the South Bay. Of course, sales there and in the Inland cities had increased dramatically early in the year. The confluence of low interest rates threatening to go up, with burgeoning demand from first time buyers, drove sales numbers all year. As the mortgage interest rate passed three percent, many of those first timers fell out of the market.

Year-End Median Prices Mixed

Palos Verdes homes brought in 24% more in median prices last year than the year before, which was 9% above 2019. Most of the 2021 increase came in the first three months of the year. Prices were stable for the summer before dropping in the fall. At the same time, Beach homes went up 19% in 2021, compared to a 4% increase in 2020 over 2019. Much the same in the Harbor area, median prices doubled, up 15% over 2020, compared to 7% above 2019.

In an interesting anomaly, prices in the Inland increased 9% over last year, which was 9% above 2019. It seems the purchasing mania and bidding wars didn’t have as much impact to Inland areas.

By mid-year all areas had seen one or two months of declining median prices on a month-to-month basis. As the year wore on, the “down” months grew and the “up” months shrank. Despite the year-over-year median price being up, three out of the final six months of the year saw declining median prices in all areas.

On a month over month basis, selling prices on the Hill were the most impacted in December, dropping 10% from November. Harbor area homes fell by 4%, while Inland property values were up 6% and homes at the Beach grew 7%.

The Beach areas enjoyed significant appreciation in 2021. Prices at the Beach started the year at just over $1.4M, moved quickly up to $1.7M in August, then lost $150K of those gains before springing up to close the year out at a median price of nearly $1.8M.

Year-End Total Sales Dollars

The total dollar value of all the homes sold in the South Bay in a given month or year is probably only useful to investors or economists. At the same time it can be instructive by way of demostrating market direction. For example, let’s look to total sales on a monthly basis.

In total dollars South Bay homes sales for 2021 were up 38% from 2020 sales. That compares to a 10% increase from 2019 to 2020. Looking at individual months, the bulk of that revenue increase happened between January and July. By August the 2020 to 2021 increases had slowed to single digits. By December, the Beach and Inland areas were already seeing monthly declines compared to 2020.

The December year-to-year decline in total sales dollars was only 5% at the Beach but compare that to an increase of 156% in April. The Inland areas dropped 3% for the same period, compared to a 159% increase in sales for May. Harbor area sales were up 8% compared to 106% in May. Palos Verdes December sales were up 2% compared to 228% in May.

What does all this mean? For most of 2021 we cautioned readers that year to year comparisons were problematic because in 2020 no one was truly prepared for Covid. Business exploded in the first three quarters of 2020. It took until August and September of 2021 to get past the previous year’s damage, so camparisons were even explicable. Until then nothing is there to compare to. Businesses were locked down. Consumers and retailers alike were hunkered down at home. That’s why 2021 annual percentages are so large–they’re an anomaly! Only the last few months of 2021 are valid comparisons to historically relevant statistics.

In Summary

From our perspective it looks like we’re headed into a correction. One might even look at it as a correction from a correction. It’s as though the real estate market over-corrected from the Covid collapse and boomed for about three quarters. Now we’re coming back down to some pretty solid numbers.

We expect January 2022 to look a lot like this table, with some moderation of the numbers. That moderation should continue into the year as sellers and buyers move closer together on their initial expectations. By the end of summer we predict the market will show the first indications of pulling together for another roughly 10 year cycle.

We like to think of the proverbial real estate cycle as three steps forward–one step back. It’s important to note that this is the “back step” of the cycle. As such, it’s probably the lowest price a purchaser can expect to see for that product in the next decade, if ever again. At the same time, it’s probably the last opportunity for a seller to trade up without having to make significant upgrades to the product, or taking a big hit for deferred maintenance. By 2023 we should be working on building long term market value.

Thank you for reading. Our lead photo is courtesy of Michael Fallon. See https://unsplash.com/@fallonmichaeltx . As always, we’re here if you have a question or want to bounce an idea off us.

July South Bay Real Estate Slows – Takes Back Prices

Even with mortgage interest rates under 3% the July market had a hard time keeping momentum. March looked like a game changer, but May went soft. Total dollar sales were up in June but by July prices and sales volume were both headed down again.

So what’s going on here? Sales are yo-yoing across the charts like the economy can’t make up it’s mind. Are we leaving a pandemic or entering one? Banks have started raising the interest rates multiple times. Each time buyers walk away and the rates come down again.

The Coronavirus pandemic has been so pervasive most of us haven’t noticed there is a concurrent recession happening. One pundit I follow recently referred to it as a “two month recession–the shortest in history.” That’s a great punch line, but highly mis-leading. Real estate is a long term business proposition, not an impulse buy.

That’s part of the reason forecasting is so challenging this year. The statistics we would normally compare are last year versus this year. To do so is meaningless in today’s situation because last year was anything but normal and the result of a comparison makes no sense. To demonstrate, this table shows the comparison from this month to last month of the current year, and from last month of the current year to the same month last year.

Is the market good? Or just looking good?

Notice that comparing June to July of 2021, nearly every statistic is negative. Quantity sold was up 3% for the Inland cities, but down in all other areas. Prices were flat in the Harbor area, but down in all other areas. Looking just at the current stats, it looks like a slowing market.

However, it’s easy to portray everything as rosy when you only compare 2021 activity to 2020 activity. Reading it that way, sales volume is down 2% at the Beach, but volume and pricing are up in big numbers everywhere else. For those readers who like to study punditry, watch the authors you read to see who compares both ways, versus who only talks about positive numbers.

Sales volume flat last four months

By March of this year, all areas took a big jump upward in the number of units sold. The Harbor area, which is often the most friendly to first time buyers, took the biggest jump increasing from roughly 350 units per month to nearly 500 units per month.

Since March the number of units sold has remained stubbornly flat across the South Bay. The Harbor area showed strong activity, recovering almost immediately from a sharp dip in May.

Prices flat last four months

More accurately, Beach prices have been flat the last three months after a $100K jump in May. Inland and Harbor prices have seen very little change since the first of 2021. PV moved upward from January through April, picking up about $400K in median price appreciation. Since then the Hill has also been stable.

Usually more stable than the Beach or the Hill, the median Inland prices have remained very close to their starting point in January. Harbor area prices have bumped up about $100K since the first of the year. We see some of that in appreciation related to retail growth and renewal in San Pedro. On the Long Beach side, we’ve seen good appreciation in the first time buyer community and in the 1-4 rental community.

In summary, real estate in the Los Angeles Suth Bay is on the mend. Don’t mistake that for astronomical growth. We’re getting back to where we were and leveling out.

Photo by Mark König on Unsplash

LA South Bay Real Estate in a Post-Pandemic World

It’s official. We’re now in the post-pandemic phase. So what’s the real scoop on local real estate? Follow along as we review the May statistics and tease you with a little early June data.

Putting Statistics in Perspective

The first thing we want to do is remind everyone that in the first three months of the pandemic, the number of sales in the Los Angeles South Bay had dropped to approximately 50% of 2019 activity. So, when we say sales are up 100% from last year, what we’re really saying is that sales volume is pretty much back to normal. That is, “normal” in 2019.

Similarly, the fact all areas show higher sales prices than 2020 is relatively meaningless. We can only look to recent months or pre-pandemic statistics for market indications. We’ll get into more detail below, but remember that comparisons of 2020 to the Great Recession can be misleading.

Median Price Climbs: Everywhere

The median price in May of this year is shown in the chart below. Because 2020 wasn’t very meaningful in terms of normal real estate activity, we pulled up 2019 statistics. Respectively, the median price is up from 2019 by 25% at the Beach, 20% in the Harbor, 18% in PV and 16% Inland. That’s more than a healthy increase in prices for two years of appreciation. We can see from the charts there was some rapid inflation the first quarter of the year. More so at the Beach and in PV than elsewhere. Probably we’ll see some of that taken back as the market cools.

What we’re not talking about is what part of the market is selling? High? Low? Let’s look at the sales volume to find the hot spot in the market.

Sales Volume Starting to Smooth

The number of home sales per month across the South Bay has just about returned to normal. Sales in May 2020 were off by 45%-55% across the board from 2019. Now, comparing May of 2021 to 2019 we find that the Harbor cities have had virtually zero change in the number of sales. By contrast, the Beach shows 2% more sales, the Inland cities 5% growth in sales, and Palos Verdes 19% growth.

Two things stand out for me. The two year lack of growth in sales volume for the Harbor cities tells me the pandemic hit those cities the hardest. The recovery there will lag behind the rest of the South Bay offering some opportunity for those ready to buy now.

The second hot spot is 19% growth in sales volume on the Palos Verdes peninsula. Looking over the actual sales, I’ve concluded it’s simply that there are far fewer homes on the Hill, so minor change in sales statistics can look like a major fluctuation.

Total Sales Down Across the South Bay

Our chart below shows the total sales dollars climbing out of a winter slowdown that was accentuated by the pandemic. All areas rose uniformly in March and April of this year ending in May just about where they were the prior fall. June results will give us a better picture, but we expect a gradual leveling as inventories grow.

As of now, activity indicates that the peak of recovery from the pandemic is passing by us right now. Things should level out over the summer leaving us with a statistically somewhat normal sales year.

South Bay Summary

Across the South Bay we’re seeing a moderation of the wide swings and extreme numbers generated throughout the pandemic. For example, monthly March sales volume for all areas was up 57% over the prior month. By the end of April volume was only up by 6%. For May it was down -8%. Taking a peek at sales to date in June, it should be at -2% next month.

What we’re watching is the panic leaving the marketplace and stability returning. Pent-up demand earlier this year pushed property prices up as much as 14% on a month-to-month basis. While still steep, the high for May was 10%. Our forecast for June price increases in SoBay is a high of 9%, with a low of 0%.

At the moment there is little indication prices will move into negative territory beyond losing some of the rapid inflation of recent months. That may change as moratoriums on eviction and foreclosure dissipate. Currently slated to end September 30, 2021, some fear that the end of local moratoriums will release a flood of foreclosures and cause prices to plummet.

Locally, Los Angeles county and city have offered several alternative plans to minimize the impact. In some cases the entire debt may be covered by combined State, Federal and local government funds, completely rescuing both the tenant and the landlord from housing loss. As a result, many in the industry expect prices and activity levels to return to approximately where they were prior to the pandemic.

We believe the level of inventory will be nearly normal by this fall. Already we see offer prices declining and Average Days On Market (ADOM) stretching past 30 days for 15-20% of available homes. Following the usual slowdown for the holiday season, we predict a robust January in 2022 as the pandemic becomes a fading memory.

Judging from the downturn in May, we’re now returning to a more normal market. So, logically speaking, homes listed in June and later should come on the market at slightly lower prices. Our expectation is for area median sales to fall back by approximately $175K in the Beach and Harbor areas, with a decline of about $100K for PV and Inland area sales.

Cover photo by Martin Sanchez on Unsplash

April 2021 Real Estate Surprises

As we discussed in this column last month, comparative analysis of real estate between “the year of Covid” and any other year will be relatively meaningless. Starting in August we may have something approaching useful data in the year-over-year category. Until then, the best guidance will come from the month-to-month numbers and paying close attention to buyers and sellers.

The Beach cities is a great example. A 2020-to-2021 comparison of March sales shows an increase of 136%. Compare that to the March-to-April decrease of 2% and we immediately see the dramatic difference. The table below shows how huge the difference is. The year-0ver-year statistics are all skewed way to the high side because there were significantly fewer sales in 2020 than in a normal year.

April 2021 LA So Bay residential sales stats

Moving on to the monthly statistics, let’s look at how the year is shaping up. There was a minor decrease of-2% in the quantity sold at the Beach last month. The rest of the South Bay showed increased sales, with the inland cities showing a big bump up, in addition to a lower median sales price.

Entry level buyers who can now afford to become home owners, due to pandemic stimulus interest rates, make up a big part of those added sales. Another sizable component is made up of investors who can make cash offers, then leverage their investment to do it again.

Slowdown in Volume of Sales

The chart below shows steep growth in the number of homes sold in all areas for March. Sales in the Harbor cities were especially strong. It looked like the bright light at the end of the Covid tunnel. But, in April we see sales level off everywhere except the inland cities. The pent up demand we spoke of last month seems to be easing already.

April 2021 LA So Bay residential sales volume chart

When the volume of sales drops off, there is typically a decline in the price point, too. So far prices have been on the ascendant. The low interest rates kept buyers in the market, and the shortage of homes drove the prices up.

Home buyers are typically most active in the months surrounding school vacation for students. No parent wants to change schools during a regular session. We’re in the month of May, and the sales stats coming out next month will give us a better picture of how much recovery we will see this summer.

Prices Level Out Across South Bay

Like the number of sales, the median prices have flattened and in some cases turned down this month. Palos Verdes homes seem to have taken a strong upward trend with a 14% jump in price. However, looking a little deeper we find there were two exceptionally large sales which combined to create an illusion in the charts. That yellow line should drop back down around $1.6M next month.

April 2021 LA So Bay residential sales median price chart

Considering the rate at which prices have been increasing over the 2020 prices, leveling off is a necessary thing. In each of the first four months of this year, home prices have escalated as much as they would in a normal year. Continuing at this rate threatens us with another “bubble” coming on the tail of Covid-19.

Total Sales Dollars Still Climbing

April 2021 LA So Bay residential total sales $$ chart

Elevated prices combined with increased sales last month to push total monthly sales dollars way up. The chart looks like everything is hunky-dory. If only we didn’t know this is growing out of the disaster we lived through in 2020.

Actually, we’ll be quite lucky if some excessive price increases are the only fallout from the pandemic. We’ve written a number of articles recently on the probability for a rash of foreclosures coming after June 30, when the prohibition of eviction and foreclosure come to an end. Stay tuned and we’ll keep you abreast of the situation as it develops.

LA South Bay Gets Hotter!

From the Beach to the Harbor, from Inland to the Hill, the month of March brought an average of 57% more home sales than February! This, after February fell 10% from January, and January was down 30% from December! It’s almost as though spring’s sunlight is breaking through a crack in the Covid wall.

Last March we were seeing healthy spring growth ranging from 8% to 29% in sales volume over the prior month. By comparison this March is in a range of from 42% to 69%. That’s a tremendous jump in sales, and it corresponds nicely with the 35% to 70% annual increase in sales over March of 2020. Rarely do we see year over year sales growth above 35% in any given area, so that level of growth across the South Bay is a strong indicator that we are coming out of the erratic market of the past year.

We need to remember that home sales recorded in March of last year were transactions initiated in February for a Close of Escrow 30 days later. The comparison we’re looking at is the last normal March sales, pre-pandemic, compared to the most recent March sales as we roll into vaccinations en masse. That means they were the final set of “normal” transactions before the Covid pandemic was declared. It also means comparing statistics for this April to last April won’t be terribly useful.

That spike in sales is the “pent up demand” we’ve been hearing about. Circumstances that create a need for people to relocate have continued throughout the pandemic. Simultaneously, sellers have been very reluctant to put their homes on the market and take a chance on contracting Covid-19 from a visiting buyer. Now that threat has diminished, so buyers and sellers are making up for lost time.

We anticipate continued froth in the form of increased prices and bidding wars for the balance of 2021. Gradually everyone will catch up with their real estate goals and things will settle down. There is a good chance most of the price increases will stay with us. That’s a plus for sellers, while buyers will only be hurt by the higher prices.

Prices Skyrocket with Pent-Up Demand

Switching our attention from sales volume to median value, let’s look at how prices have been changing. Year-over-year, the median price came in above last March in the range of 8% to 18%. This is stubbornly high compared to the Consumer Price Index (CPI) of 4.7% for increased housing costs in the Greater LA area during 2020. The last time annual price increases were this dramatic was just before the Great Recession.

When we look a little closer, we’re seeing some weakness in the more current sales prices. Beach and Inland areas both showed big month-to-month improvement over February of this year. The Hill had a more modest 2% increase. The single negative showing in the first quarter, Harbor prices are down -5% for March, despite rising 1% in January and another 9% in February.

As the pandemic ends, we’re seeing a lot of people trying to escape the lease trap (rental prices are going up even faster than sales prices) by taking advantage of historically low interest rates. However, rising sales prices are meeting resistance on the part of some buyers. Possibly because interest rates have starting climbing again. Possibly because the employment picture is still untenable for many.

2021_mar_med_price_chart-1

As the chart above shows, prices for the first quarter are wobbly–a little up and a little down. The Fed is trying to stimulate financial activity to pull our nation through the pandemic by keeping the overnight bank loan rate at near zero. Meantime, the investor market is smelling money and gradually hiking mortgage rates. As the mortgage interest rate edges up, more and more potential buyers are priced out of the market. The first place this shows up is in the entry level market, which is predominately found in the Harbor and Inland areas.

Real Estate for Spring / Summer??

So what’s the forecast for the hottest selling months of the year? The pundits are split about 50/50 on whether the stimulus funding will turn this into a booming economy, or when we emerge from the pandemic, we’ll run smack into a wall of recession.

There is definitely money flowing. The Beach and the Harbor areas show the steepest growth, both adding about $135M in overall sales from February to March.

Anecdotally, there’s a significant percentage of first-time buyers who are now able to qualify for a loan, because of the interest rate. That group is looking at entry level homes throughout the area. Another set of buyers is now able to buy an additional investment property to rent out, because of the interest rate. First time buyers and investors are looking at the same properties and bidding against each other.

As mentioned earlier, April 2020 is when the pandemic blew holes in the economy. Whatever April brings this year, we’ll have to find a new way of looking at it. April and May last year plummeted with drops ranging from 25% to over 50%. Comparisons to last year could be interesting, but most likely uninformative.

Main photo by Barthelemy de Mazenod on Unsplash

2020/2021 Housing Summary & Forecast for the South Bay

The year 2020 was very nearly the least predictable time in local real estate history. Seriously, what other time have we experienced massive unemployment and rising home prices simultaneously? All indications suggest 2021 will be a tad more conventional.

Home Values Grew in 2020

Despite “turmoil” being the watchword of 2020, the year produced some remarkable results in the Los Angeles South Bay. The Beach cities recorded a 28% increase in median price for December compared to December 2019. The cost of building didn’t rise at that rate, so clearly there was a heavy investment in anticipated value. As the chart below shows, Even with all the up and down motion, during the final half of the year buyers & investors were betting heavily that things were headed for calmer, more profitable waters.

That activity was spread across the spectrum of prices, as you can see tracing the community lines shown above.

Note that May reflects the sudden market contraction from the Covid announcement the beginning of March. This is a rare moment when the chart shows how much delay there is between signing a purchase agreement, and closing escrow. In April, 30 days after the announcement of a Covid pandemic, escrows were starting to drop off and were at or slightly down from March closings. By May, 60 days later, the number of closed sales had fallen by ~50K units in each of the four market areas. It took the classic 45 day escrow period to show that the pandemic took away nearly 30% of the business in the local real estate market.

How Many Sales? Where? Why?

While the Beach and the Harbor areas fought it out for the highest total sales dollars throughout the year, the Harbor clearly enjoyed the highest number of units sold every month as we see in the chart below. While the number of sales climbed across the South Bay, at the end of the year it was the Harbor with the largest increase in sales. Starting 2020 with 315 sales in January, the number climbed consistently through the year to a strong finish with 476 in December.

Two factors play into the volume of Harbor area sales. Part is the sheer number of homes in what is physically a larger area. The more interesting aspect of Harbor area sales increasing while the rest are relatively flat is the reason.

Homes in the Harbor cities are lowest priced in the South Bay by about $100K. Interest rates are currently running below 3%, and it’s in the lowest price points of the market where low interest rates are most effective. The low rates mean more buyers can afford to purchase at the same price point, on the same income stream. The larger number of buyers competing creates multiple offers and drives the price higher, which is a major factor pushing the market today. If we are to believe the Federal Reserve Bank, current interest rates are expected to remain historically low for the foreseeable future. The demand should hang around for just about as long.

Different Strokes for Different Folks

In the chart below, it’s interesting to note that the Inland and Harbor cities progress across the months with stability and only a slight change from beginning to end. At the same time, the Beach and PV cities gyrate through the year, sometimes with $200K jumps from one month to the next. One is tempted to say it’s the comparative size of the market area, but the Inland cities have very nearly the same number of homes as the Beach cities.

This difference is often thought of as reflecting the nature of the home buyer in these communities. Looking at stereotypes, it’s easy to imagine an owner in Torrance or Long Beach, for example, who buys in their early twenties and doesn’t move again until retirement–very stable. In the Beach and PV price ranges, where a home is often considered more as an investment vehicle than a residence, it’s easy to see where market forces can result in sudden changes to where one lives.

Moving From 2020 to 2021

The beginning of 2021 marked the end of some of the more impactful aspects of 2020. A ferocious political battle is ended, and a new Federal administration looks inclined to use “all the available tools” to bring our collapsed economy back on line quickly. Time will tell how much that helps us here in the South Bay.

The ever-changing story of the international pandemic may be coming to an end with the approval of multiple vaccines for Covid-19. Rumors still abound as to the actual efficacy of the drugs, and rates of infection are still climbing dramatically, especially here in Los Angeles county. It will end, whether sooner or later. The big question today is if the price increases we’ve seen as a result of bidding wars will sustain as the pandemic eases and government assistance is strengthened.

Looking at December activity, we see big increases in sales volume for Month over Month (M-M) and Year over Year (Y-Y) statistics. A continuance of this trend could make 2021 an exceptional year for real estate in the South Bay.

Median prices show a large variation from area to area, and importantly show a slowdown in the climbing prices. Y-Y price growth was strong in December, reflecting the high demand at current interest rates. However, M-M prices predominantly showed a reversal in price growth. Some of the slowdown could be seasonal, but if you’ve been reading our blog posts you already know there’s a growing backlog of homes poised on the edge of foreclosure. The only thing preventing a mass of short sale and foreclosure properties on the market is the forbearance rules put in place to prevent a sudden jump in homelessness during the pandemic.

Beach

December activity in Beach cities showed insane growth for M-M and Y-Y sales, both in the the number of sales, and especially in the prices of sold homes.

As if annual growth of 28% in median price wasn’t crazy enough, look at that monthly increase of 18.2%! Annualized, that would be over 114% growth! Statistics with this much reach can only be attributed to a profound belief that prices will continue to increase at a similar rate. Or, continue until the property can be flipped, that is.

Palos Verdes

Palos Verdes in December was almost a reverse image of the Beach cities. The explosive growth in PV came in the number of home sales which shot up 18%, bringing the annual number to a phenomenal 42% growth in volume for the year.

Median prices in PV showed modest increases, ending the year only slightly higher than the Fed’s target growth rate. The shift from positive growth to shrinkage in December hints at an overall market trending toward lower median sales prices.

A side note: Homes on the hill have not maintained the “investment quality” image of those on the Beach. PV was once considered the place to buy a home from a prestige angle and from an investment perspective. New money moving into the Beach cities has diminished that role in recent years. I predict a rebirth of property values in the Palos Verdes cities over the next few years, which will make having a home on the peninsula key in local business and society.

Inland

For the most part, Inland homes are family homes. They are the places with hoops in the driveway and lemonade stands at the sidewalk. Investment here is a long term concept.

So, when we see over 20% M-M growth in number of homes sold accompanied by nearly 30% Y-Y, we’re seeing market movement rather than shifts in investment strategy. As it is throughout South Bay, the cause of that movement appears to be the sub-3% interest rate which enlarged the entry level market segment. More buyers flooding in created bidding wars and drove sales and prices higher.

Compared to last December, median prices in the Inland cities were up 5.5%, peaking at $733K. That’s a good healthy increase, only slightly above the expected Consumer Price Index (CPI) numbers. Caution though–the M-M median is down 2.3%. It could be a momentary blip; a result of the holiday season, or the Covid surge. That year end drop may also indicate that the $750K median from November is the market ceiling.

Harbor

In addition to the largest home sales volume in the South Bay, the Harbor area boasts the most entry level homes. There’s a good deal of lifestyle overlap with the Inland cities, to be sure. The Harbor dramatically displays the same message we see across most of the South Bay. Everything was going strong until December, then buyers put the brakes on.

Today’s environment in the Harbor points the direction to the future. Sales here had a stronger growth than the Inland cities over the months leading up to December, and show a more pronounced decline in December.

Some of the slowdown will ultimately prove to be driven by the holiday, and some the election, and some by the pandemic. Even then, it’s hard to avoid the feeling that some of the decline is a recession held back by a thin wall of regulations temporarily preventing foreclosure and eviction.

We can certainly hope for better news from the new year, but as of the end of 2020 many of our indicators are calling for a deeper recession in coming months. It’s possible. Somewhere in the range of 20%-40% of homeowners are in forbearance now, and a roughly equivalent number of tenants are building up deferred rent payments. If adequate measures are taken to protect both sides of the debt, all of this will amount to footnote in history. Otherwise, it’ll be the second worldwide recession in this generation.

Photo ‘Work From Home’ by Nelly Antoniadou on Unsplash

Real Estate Sales, Oct. 2020

We’re looking at sales in the South Bay area of Los Angeles a little differently than usual this month. Typically we analyze the area as a single entity. This month we’ll divide the South Bay into four parts, allowing you to see a greater level of precision about those four areas.

Within each area the homes will be more similar, both in style and in pricing. We started by combining the four beach cities, El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach. Each of the cities has it’s own unique character, but they share many common traits. (If your home is in Hollywood Riviera, you can consider yourself one with the beach cities.)

The cities on the Palos Verdes Peninsula come together naturally, so we’ve combined Palos Verdes Estates, Rolling Hills Estates, Rolling Hills and Rancho Palos Verdes.

While Torrance does have it’s own beach, most of the city has more of an inland character, so we’ve combined it with Lomita and Gardena. One immediate benefit is the median prices are more representative of actual prices in those three communities.

Finally, we conjoined San Pedro, Long Beach, Harbor City, Wilmington and Carson, collecting the harbor area cities together.

Beach Cities

Prices have been trending up at a pretty rapid pace for most of the year, so it was a real surprise to find the median price in the Beach Cities had dropped by 6% from the September numbers. Last month the median price was $1.5M, while October only came in at $1.41M. Likewise, the number of sales dropped by a surprising 20%, from 209 sales in September, to 167 in October.

Year over year, beach prices increased by an impressive 17%, from $1.2M last October to $1.4M this October. Over the same time frame, sales volume went up by 45%, climbing from 115 units in October 2019, to 167 units in October of 2020.

Photo by Nathan Dumlao on Unsplash

Palos Verdes

On the Peninsula is where you really want to be in 2020. Prices and sales volume increased month to month and year to year. From last month to this month was on par with most of the South Bay, with the October median price of $1.68M coming in 5% above September’s median of $1.6M. The sales volume increase was a modest 3%, going from 95 units to 98.

The real treat for the PV cities is the 2020 over 2019 sales prices. October of last year showed a median price of $1.2M versus $1.68M this year. That’s a whopping 36% median price increase in 12 months. At the same time, October unit sales jumped 51% from 65 homes sold in 2019 to 98 sold in 2020.

Inland Cities

Going just a short distance away from the sandy shores of the beach, or from the bluffs of Palos Verdes, makes a huge difference in property prices. Like the coastal cities, the inland cities showed a 6% increase in prices from September to October. In contrast to the beach and the hill, the median price only went up $40K, from $719K to $759K. Like the beach cities, fewer inland homes were sold in October falling 11% from September. The drop wasn’t as great, going from 183 units in September to 163 in October of 2020.

October of 2020 versus October of 2019, the inland cities had median prices go up by 9%, from $600K to $656K. At the same time, the number of sales dropped by unit, from 164 homes sold, to 163 homes sold this October.

Photo by Dominik Lückmann on Unsplash

Harbor Cities

Median price in the harbor cities is typically lower than anywhere else in the South Bay. Similarly, price increases are slower. For example, while the rest of the areas saw 5-6% increases in month to month sales prices, the harbor came in at 3%. From September to October, the median increased from $636K to $656K. During the same time frame, the number of homes sold climbed 5%, from 435 to 457 units.

Comparing last October to this October, homes in the harbor area enjoyed a slightly more sustainable 9% rise in median price. The median for October 2019 was $600K compared to $656K this October. Sales volume jumped by 15%, from 397 units last year to 457 this year.

Why These Crazy Numbers?!

They are crazy, you know. There is no way prices can continue to climb at 5-6% per month. That’s more like what we would expect on a year over year increase.

October2020September2020ChangeM-M
Med Sales $Sales #Med Sales $Sales #Med Sales $Sales #
Beach1,407,5001671,500,000209-6%-2%
PV1,682,750981,600,00095+5%+3%
Inland759,000163719,000183+6%-11%
Harbor656,000457636,000435+3%+5%
So Bay820,000885799,500922+3%-4%

It’s been a long time since we’ve seen Beach Cities prices decline. We’ll be watching November closely.

The answer lies in the interest rates. One the borrowing side, mortgage interest rates have been under 3% for some time now. With rates that low, many people who couldn’t afford to buy a home before, now qualify for a loan. Those who are still employed despite Covid-19 are buying homes if at all possible.

The demand created by that phenomenon has created a plethora of bidding wars. Homes with 20 offers on them are not uncommon. All those offers are pushing prices up at clearly unsustainable rates.

October2020October2019Change %Y-Y
Med Sales $Sales #Med Sales $Sales #Med Sales $Sales #
Beach1,407,5001671,202,00011517%45%
PV1,682,750981,233,0006536%51%
Inland759,000163680,00016412%-1%
Harbor656,000457600,0003979%15%
So Bay820,000885699,00074117%19%

Adding to the entry level buyers who are driving the market at the low end, there is another group who have cash in the bank. Unfortunately, that cash is only earning 1%, or less. Those buyers are watching the price of real estate climb astronomically, and are hoping to cash in on a windfall profit. Some of them will.

The Crystal Ball

Watching the median price drop at the beach by 6% is a hint at what’s coming next. We can’t be sure when it will happen, but steeply escalating prices inevitably plummet in a subsequent correction. Current increases are reminiscent of the rapid run-up of prices in 2006-2007 which resulted in the Great Recession.

Further complicating matters, today we have government and consumer response to Covid-19 as a uncontrollable factor. The third quarter of 2020 looked really good compared to the second quarter, until we remember the coronavirus struck in March. Business during the second quarter was essentially nil.

We can’t forget the election. Fallout from the presidential election could push the economy in any one of several directions depending on who the President is, and the degree of polarization in the Federal government.

One would need a crystal ball to forecast this winter, but I predict a volatile ride for the real estate market.

Crystal ball image by Jamie Street on Unsplash