Tag: Los Angeles South Bay

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