real estate – www.BeachChatter.com

Palos Verdes Homes Top the South Bay Market

Home sales on the Palos Verdes Peninsula chalked up an impressive set of statistics in October. Comparing the October 2023 sales to October of last year showed a stunning 26% increase in sales volume beside an equally impressive 11% increase in median price. At the opposite end of the spectrum the Beach Cities October sales volume fell 19% from 2022, while the median price dropped 14%.

Elsewhere across the Los Angeles South Bay volume and prices were mixed with the general trend leaning toward decreased number of homes sold and prices struggling to stay level with last month while often slipping below.

Year To Date Sales Continue to Drop

In between the highs and the lows real estate activity in the South Bay has been mixed for the months of August through October. While many commentators are cautiously hopeful, it must be noted that year to date comparisons continue to show significant declines in the number of homes sold, with an average drop of 18% from 2022 for the first 10 months of the year. Likewise, median prices are falling for the January through October time frame. For example, median prices on the Hill were up in October, but have fallen 4% year to date compared to last year. Similarly the Beach area median is down 3% and the Harbor area is off 2%.

Sales volume is clearly down. By this time in 2022 sales were at 6700 units versus 5500 this year. Many buyers have been “priced out of the market” and many sellers are resisting the idea of “prices going backward.” The result has been a lot of deals not being made.

Year to date, the deals that have been consummated are still generally at median prices above last year, however the most recent three months have shown at least half of sold homes required price reductions to make the sale. With winter setting in, we expect continued reductions in both the volume of sales and in the prices of sold homes.

Home Sales at the Beach Hit a Wall

Throughout the year real estate in the Beach Cities has maintained spotty growth. Sometimes median prices improved, sometimes sales volume. But, October brought a wall of red ink for the Beach. Month over month sales volume plummeted by 27%, while the median price dropped 5% from September when it was flat at $1.7M.

Year over year transaction volume dropped 19% from September of 2022. The median price fell 14% for the same period.

Looking at the year to date statistics showed more declines with sales volume for the first 10 months of 2023 coming in 16% below that of 2022. At the same time, the median price was off by 3%.

In prior downturns the Beach area has been among the last to respond to market negativity and one of the first to recover. If the pattern repeats, sales at the Beach will continue to show predominately negative numbers for the late fall and winter months. Most chroniclers project a return to positive market conditions in late 2025 or early 2026 in general.

Harbor Volume and Prices Turn Upward

Home sales in the Harbor area moved from all negative last month to mostly positive this month. Sales volume on a monthly basis jumped from 24% down in September to a 7% increase in October. Similarly, the month to month median price went from -1% to +1% in October.

Annually, the number of homes sold in the Harbor area increased by 6%, a significant change from having fallen 26% in September. The median price came in at $750K, up by 7%.

That’s only the second time this year the Harbor area median price has come up into the positive range when compared to 2022. Overall, the year to date median sits at $739K, 2% below last year’s number of $756K. Sales volume for the Harbor is off 20% year to date. The number of homes sold for the first 10 months is 2824, compared to 3535 in 2022.

Palos Verdes Homes Star in October Sales

Home sales on the Hill came in at 63 homes sold with a median price of just under $2M. Month over month that represented a 13% growth in sales volume and no measurable change in the median price.

On an annual basis October sales were up 26% over the same month in 2022. This year’s median price was up by 11% over last October.

While these numbers reflect impressive growth it’s important to remember that the number of transactions on the Palos Verdes peninsula is quite small, which results in some dramatic percentile shifts. For example, the annual percentage of change in the median price so far this year has ranged from a low of -29% to a high of 17%. By comparison, the Harbor area where monthly transactions number in the hundreds, has an annual range from a low of -11% to a high of 7%.

On a year to date basis, the Hill showed a more common face with the January through October sales volume down by 20% from 2022. During the same time frame median prices fell by 4%.

Inland Area Sales Volume Down, Prices Up

In a surprising turn of events, the Inland area has shown an increased median price for both the monthly and for the annual sales figures. The median price came in at $917K this October, which was 2% above the September median. On an annual basis, the median was up by 7% over the $860K of October 2022.

With 116 units sold for the month of October this year, the sales volume was 11% lower than it was this September. The monthly decline was even greater than the drop of 9% for the year over year comparison to last October.

Year to date, the Inland area has outperformed the balance of the South Bay on median price and on sales volume. For January through October there is no discernible change to the median price from 2022 to 2023. In the same time frame the sales dropped by 14%, the smallest decline of the local areas.

Beach=Manhattan Beach, Hermosa Beach, Redondo Beach, El Segundo
Harbor=Carson, Long Beach, San Pedro, Wilmington, Harbor City
PV Hill=Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills, Rolling Hills Estates
Inland=Torrance, Lomita, Gardena

Photo by Julianne Takes Photos on Unsplash

Over A Third Of Homebuyers Paying Cash

In September, the share of homebuyers paying all cash was 34.1%. This is the highest it has been since the beginning of 2014, and an increase of 4.6% from September 2022. However, this doesn’t mean homes are more affordable; in fact, it’s the opposite.

While it’s true that a significantly higher share of buyers are paying all cash, there are much fewer sales overall. Total sales decreased by 23% over the past year. Compare this to a decrease of only 11% for all cash sales. Cash sales aren’t going up, rather sales overall are going down, and cash buyers are less affected.

The reason for this is high interest rates, since cash buyers don’t care what the interest rate is for a mortgage loan they aren’t getting. Interest rates fluctuate up and down on a daily basis, but rarely change by much at a time. But in this case, they hit a two decade high in September at 7.2 and then continued an upward trend into October, almost reaching 8%. As of last week, they had started to drop back down. Despite this decrease, with how erratic rates can be, that isn’t a sure sign that rates are now trending downward.

Photo by Andres Siimon on Unsplash

More: https://www.redfin.com/news/all-cash-homebuyers-september-2023/

Inspections Alone Won’t Uncover All The Potential Problems

Certainly, one of the benefits of a home inspection is peace of mind that the property you’re buying or selling doesn’t have any major issues. However, some issues can be hidden even after an inspection. Home inspections are typically visual assessments by a single individual. Some things could be missed, particularly if the home is large, and problems that are difficult to see visually can easily escape notice.

If a mold, mildew, or pest problem is easily seen by a home inspector, it means the damage is already done. You’ll need specialists to detect these issues before they arise. The same is true of faults in the foundation or structure as well as environmental hazards such as lead and asbestos. There are also some things that records may show but that an inspector wouldn’t have any knowledge of without access to these records, such as outdated plumbing and wiring and unpermitted home renovations.

Photo by Stefan Steinbauer on Unsplash

South Bay Real Estate Struggles to Stay Afloat

The summer selling period for real estate in the South Bay showed mixed results for August and September. July was down across the board, but both the volume of sales and the median price was able to rebound in some areas. Notably, the Beach Cities come out of the third quarter with median prices up by 2% over last August, and up by 3% over September of 2022. That growth wasn’t enough to make up for earlier this year when median prices were down by as much as 17% in year over year sales.

Year To Date Prices Down Across the South Bay

Comparing the first nine months of 2022 to the same period in 2023 shows median prices at the Beach down 2%, the Harbor down 2%, the Hill down 8% and the Inland area down 1%. Similarly, the number of homes sold dropped at the Beach by 15%, the Harbor by 22%, the Hill by 23% and the Inland area by 14%. On average across the South Bay sales volume was off by 20%.

To some extent this validates the supply versus demand theory. With interest rates above 7%, many potential sellers (who are simultaneously buyers elsewhere) have simply changed their plans. They’ll wait for interest rates to abate before trying to move. The California Association of Realtors reports that the number of homes sold across the State has fallen for 27 consecutive months. Locally, a couple of neighborhoods have shown year over year improvement a couple of times, but overall, the last time sales volume was positive across the South Bay was September of 2021, 24 months ago.

Because there are so few homes available for buyers in a must move situation, those buyers are forced to buy despite high interest rates and despite elevated prices. Mortgage interest rates are currently testing the 8% number, and are expected to stay there into 2024. Most forecasts expect the number of sales to drop even further, possibly offset by an increase in renters and a corresponding increase in rental prices.

Things don’t happen very fast in the real estate market. We mentioned earlier that sales have been declining here for 24 months already. But, prices are still up and interest rates are still climbing. Currently, we expect to see a shift in the pattern this winter. As time goes on, more and more sellers will surrender to the inevitable and lower their asking price. Coupled with an increasing number of short sales and foreclosures, that will create the key metric the Federal Reserve is looking for to quell inflation. Most pundits are suggesting 2025-2026 for the bottom of the current down-trend and the beginning of a recovery.

A Home or a House?

Are you buying a home? Are you looking for a neighborhood that matches your personality? Are you looking for schools for your children? And nearby businesses for your family needs? That’s a home. If you’re looking at the appreciation rate for the zip code and how much you can leverage, that’s a house. The difference becomes important when the real estate market is rocky. When you’re buying a home, you’re looking at time over generations. Percentages on a loan mean little then because the property can be refinanced many times before it belongs to the family.

Are you looking for a house? Are you measuring the appreciation and the cost to income ratio? Are you looking for a distress sale and a rock-bottom price. Now is the time to put your cash away. Make no mistake—cash will be required! That’s not to say you can’t finance part of your investment, but count on having “skin in the game.” Your lender will require it. Over the next twelve months, accumulate as much cash as possible, and make your broker your best friend. You want a constant finger on where good deals are happening and you want to be one of the first on the scene. The “bottom of the market” is a hypothetical point. Your best deal can be anywhere in the area and any time in the downturn. It just has to meet your investment requirements!

Beach Cities Holding Strong Over 2022

The median price of homes sold in the Beach Cities was flat for August and September, following a 2% drop in July. Coming in at just under $1.7M the month over month price has been mostly down for the first three quarters of the year. Following a similar pattern, the month to month sales volume has fallen after a strong start in early spring.

In year to year comparison, both August and September have shown a modest improvement over the same months last year. Median prices were up 2% in August and 3% in September. This improvement comes on the tail of four straight month of declining median prices. Supporting the growth in median price, sales volume was up 23% in August and 20% in September. The positive numbers at the Beach are a welcome respite following 21 months of falling volume.

Looking at year to date 2023 versus 2022, median prices are down 2% and sales volume is down 15%.

Harbor Volume and Prices Slipping

September found home sales in the Harbor area fell in all measures. On a month to month basis, sales volume dropped 24%. At the same time, median prices fell 1% below the August median.

Year over year showed the number of homes sold down by 26% and the median price down by 3% from September of last year.

Year to date for the first three quarters of 2023 sales volume was off by 22% while median prices dropped 2%.

This is a pattern we expect to see repeated again and again during the coming two years. First the sales volume declines steeply, and median prices begin a downward trend. Then as the sales volume continues to decline, sellers begin to panic and the few active buyers tighten up on the terms of their offers. The cycle typically continues until falling commodity prices and weak employment numbers convince the Federal Reserve inflation is under control. Then it will start lowering the interest rate and allow markets to float free again.

Palos Verdes Transactions Volatile

The PV Peninsula came through September with positive numbers for the month, though the annual and year to date numbers suffered some slippage. Sales volume for September came in 14% above August and the median price was a respectable 15% above the prior month.

Compared to September of last year, home sales on the Hill fell by 7%. That decline was countered by a 5% increase in median price over the same month in 2022.

Like the rest of the South Bay, PV suffered downturns in the year to date statistics. The first three quarters of 2023 ended with a 23% downward slide in home sales volume, accompanied by an 8% fall in median price.

Inland Area Sales Volume Mixed, Prices Up

The Inland area performed surprisingly well in September. Home sales in the Inland area typically mirror those in the Harbor area. Last month brought a surprise when the median price climbed 6% above August. This positive note came despite a 12% drop in sales volume.

September of 2023 compared to September of 2022 brought even more surprise with a 5% increase in median price as well as a 17% jump in sales volume.

Year to date activity for the first nine months of 2023 compared to the same time frame in 2022 fell in line with the rest of the South Bay, Sales volume fell by 14% and median price by 1%.

Photo by Oliver Cole on Unsplash

Can’t Rent Out Your Whole House? Rent Out A Room

Have a bit of extra space in your house, and wish you could use it for something, but aren’t in a position to downsize? You can rent out single rooms, even if your home is a single family residence. It can even be a basement, if it’s large enough to serve as a bedroom. That way, the extra space doesn’t go to waste, and you even earn a bit of extra income. Of course, not everyone wants strangers living in their home, so this idea may not be for everyone. But if you don’t mind or even would prefer another occupant, it’s a win-win for you.

Keep in mind that renting out a room is still renting something out, and you must still follow regulations. Read up on the Fair Housing Rules if you don’t already know them, and talk to an expert, particularly if there’s something you’re unsure about. And of course, the same guidelines apply for finding a tenant. That means being very specific with what’s being offered and what sort of tenant you’re looking for, making sure to request background and credit checks as well as references, and meeting the prospective tenant in person before signing the deal. If you don’t want them in your home before you’re sure you want them as a tenant, your first meeting can be in a public space, like a coffee shop — though keep in mind your tenant will want to see the property before they sign.

Photo by Storiès on Unsplash

How To Tailor Your Home Staging For The Fall Season

Fall may not be the single most common season to buy or sell a home, but it’s certainly one of the most common. It’s a good idea to get your home staging right for the season, because it’s not a time that you want to miss out on opportunities.

Fall makes it more difficult to set the stage, but that makes it all the more important. You’ll want to rake leaves in front of your house, because leaving them makes the area look less cared for and therefore less appealing. Shorter days in autumn mean it will get dark earlier. Make sure to amp up the lighting so people can actually see the home they’re attempting to buy. Also note that prospective buyers are likely to spend more time inside the home, as autumn weather tends to be unpredictable. Maintain a comfortable temperature in your home and highlight appealing aspects of the home’s interior. If you really want to go all out, fresh baked cookies are sure to feel cozy to your buyers.

Photo by Priscilla Du Preez on Unsplash

What Is A Contingency?

You may have been told that a listing is contingent or seen a list of contingencies. But what is a contingency, exactly? A contingency is a condition that, only if met, causes a transaction to proceed as normal. It’s a way to protect both the buyer and the seller in case something goes wrong. It both assures the seller that the transaction will go through as long as the condition is met, and may enable the buyer to renegotiate or back out if it isn’t met.

Not every contingency is something the seller can necessarily provide, though, so it’s never a guarantee of a successful transaction. There are several types of contingencies. There is one that the majority of sellers can meet without any effort, and that is a title contingency. This specifies that the seller must be able to demonstrate that they have clear title to the property. In most cases, this isn’t difficult, but things such as inheritance could complicate this. A couple types of contingencies relate more to the buyer. These are financing contingencies and sale contingencies. Transactions with financing contingencies are contingent on the buyer being able to acquire financing. Sales contingencies refer to the sale of the buyer’s current property. This is normally used when the buyer is reliant on funds from the sale of their home in order to afford the new home. The last two common contingencies rely on a third party, an inspection contingency and an appraisal contingency. As the name might imply, these make the transaction contingent on a successful inspection and an appraisal at or above the purchase price respectively.

Photo by Mina Rad on Unsplash

Local Real Estate Meets the Inflation Fight

In August the South Bay real estate market showed some slowing of what has seemed a continuing slide into negative numbers. Closed transactions showed a partial recovery from the July report of declining sales and declining values, across both the past month and the past year.

August showed positive growth over July in sales volume except for transactions on PV Hill. Median prices compared to July were down except at the Harbor.

Annual statistics were similarly mixed with notable increases in sales at the Beach and Inland areas. Median prices compared to August of last year with modest increases in the Beach Cities and Harbor Area.

Beach Cities Show Strength in August

Sales volume at the Beach seemed surprisingly strong, however a look back in history reveals weaker than normal sales in July of this year and August of last year. The 127 units closed in August was much more in line with expectations, than the 91 sold in July or the 103 sold in August of 2022. Sales in a normal year would come in at about 125-135 units, showing that the Beach Cities are currently close to a normal number of transactions for the month.

Median prices came in negative compared to July, though less than a 1% drop. Last year’s weak sales led to an increase of 2% in median price this August, despite an overall downtrend for the year. Hypothetically, assuming the Federal Reserve policy of 2% growth, median price at the Beach should have been about $1.62M in August. As the market stabilizes from the pandemic, the median has steadily dropped from a high of $1.76M in April to the August actual of $1.67M..

Year to date transactions showed a continuing decline in sales volume (-19%) and median price (-4%) versus 2022. Likewise, sales volume was off 31% compared to the baseline year 2019. Median price is still coming in positive compared to the baseline, up 28% from 2019.

August Harbor Area Sales Climb

Looking at August versus July of this year shows Harbor area sales volume up a healthy 22%. While the month over month numbers are positive, sales are off 8% compared to the same month last year. For perspective, note that in 2019, the last normal year of business, there were 436 homes sold compared to 328 this August. Using that reference point, monthly sales are off by 25%.

Median price for last month was $751K, up 1% from July and up 4% over August of last year. Going back to 2019, the median was $575K, giving the current median price an increase of 32% over our baseline year. At the same time, the high median for this year was in June at $772K, and the lowest was $675K in February.

Year to date, the number of homes sold at the Harbor is down 22% from last year and likewise 22% from 2019.That decline in sales volume is driven by the increased median price which is up 32% compared to the first eight months of 2019. Being generally an entry level market, the Harbor area has shown a drop in sales every month of this year. Likewise, the year over year median price has dropped every month until August.

Palos Verdes Volume and Prices Drop

Sales and median prices were mixed everywhere in South Bay except for the PV Hill. All the statistics for August went down on the Hill. Month over month saw a drop in sales of 2% and decline in median price of 6%. Both are modest changes by comparison to most of the South Bay, but are indicative of the direction of the market in general.

Looking at August of last year compared to August of 2023 shows a dramatic decline of 36% in sales volume. Closed escrows dropped from 77 units last year to 49 this year. Annually, median prices dropped 6%, the largest drop of the four areas.

It’s important to note that in 2019, which being the most recent ‘normal’ year of business, August saw 90 units sold on the Palos Verdes peninsula. Monthly sales volume has dropped off by nearly 50% from the reference year.

Year to date through August shows sales volume down 25% from last year, with median prices falling by 10% over the eight month period. Comparing to 2019 year to date volume is off 21%, while median price comes in at 32% above the 2019 figure.

The disparity created during the pandemic is gradually leveling out as the year goes on. Palos Verdes median prices have fallen six out of eight months this year. The same has been true of the balance of homes sold in the South Bay.

Sales Up, Prices Down for Inland Area

From July to August transactions in the Inland area climbed 15%. Simultaneously, median prices fell by 2% for the month. January kicked off the year with a 16% increase in the median price. February saw that pricing promptly reverse and fall 14%. Since then sales volume has gradually dropped each month and median prices have shifted into a pattern of decline.

Year over year pricing numbers are nearly identical with a 15% jump in median price for January, followed by dropping prices every month since. Similarly, most of 2023 has seen falling sales for homes in the Inland area. So far, August has been the only month with growth in closed transactions.

Year to date statistics compared to 2022 have been much the same with the number of homes sold dropping by 17% and the median price down 2%. In keeping with the rest of the South Bay, comparisons to 2019 reflect sales falling 18% while the median price remains 32% above what it was before the pandemic.

Where Is the Real Estate Market Going?

The number of homes being sold has consistently fallen this year. Likewise, the median price of sold homes has generally been falling since the beginning of the year. The driver behind this has clearly been mortgage interest rates rising from under 3% to over 7% in a matter of months. The Federal Reserve managers have been very upfront about continuing these rates into the foreseeable future.

Most estimates state that about one third of potential buyers can no longer afford to continue with their purchase plans. We see a continued decline in the median price, as sellers find it impossible to sell at the price points reached during the pandemic. When ‘’time on market’ increases without a sale, sellers who ‘must sell’ will gradually lower prices.

Polls are showing those who aren’t compelled to sell are finding it hard to let go of mortgage interest rates below 5%. This reluctance, combined with the sliding median prices, will contribute to more stagnation in the market.

Photo by Carl Clark

How Long Does The Home-Selling Process Take?

The average time it takes to sell a home from listing with an agent to closing the sale is about 90 days. Many factors affect how long it takes to sell a home. These elements can include market conditions, buyer financing, the time of year, and the prep time to get a home ready for marketing.

A home that is in good condition, has good curb appeal, and is in a good location will attract buyers more quickly. Competitively pricing a home is key to having a reasonable time on the market. A cash buyer and one who is willing to buy a home in as-is condition can expedite the closing time.

Once an offer is accepted, the average closing time will be 30 to 45 days. The buyer’s loan is processed during this time along with the lender obtaining an appraisal. Property inspections also occur during the closing process. The title and escrow companies will then coordinate the signing of all the final documents, collect the buyer’s closing funds and finalize the settlement statements so the transaction can close.

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Market Stalled By High Interest Rates

As of August 2023, interest rates are somewhere around 7%, possibly higher. While this isn’t astronomically high — they have historically been over 10% — it’s too high for current homeowners to want to exchange their homes. This is because 92% of current homeowners with a mortgage have an interest rate below 6%. Almost a quarter even have locked in an interest rate below 3%.

High home prices are actually somewhat helping current homeowners, since the price boost increases their equity. Prices have increased 14% in the past two years, which results in approximately $86,000 in equity over that time period. However, this may not be enough to offset the increased mortgage costs, especially for those with very low interest rates. Assuming a mortgage of $500,000 and a current interest rate of 3%, a new purchase with the same loan amount would result in a $1,200 increase in mortgage payments per month.

Normally, when demand is low like this, supply is high. This isn’t the case right now. Previously, we would have been able to blame declining construction due to increased construction costs. That’s no longer the case, though, as construction has largely, though not completely, recovered. It may even be simple lack of demand that is the final obstacle to a full recovery for construction. To see the real problem, remember which group we’re talking about — current homeowners. These are the same people who would be selling to buy a new home. If they’re not willing to buy in the current mortgage climate, they’re not selling either.

Photo by Adrian N on Unsplash

More: https://journal.firsttuesday.us/todays-homeowners-are-stuck-on-yesterdays-rates/91951/

Home Financing Options For Struggling Teachers

The share of teachers able to afford homes near where they teach is dwindling rapidly. This year, teachers can afford only 12% of homes within 20 miles of their schools. This is a decrease from 17% last year. In 2019, before the pandemic, they could afford 30% of homes in their school’s area. Fortunately, there are options to help teachers.

The Department of Housing and Urban Development (HUD) is sponsoring a program called Good Neighbor Next Door, which sells homes in revitalized areas to certain government workers at half the listing price. This program is available to pre-K through 12 teachers as well as law enforcement officers and firefighters. Some of Fannie Mae’s programs, while not specifically aimed at teachers, have qualifications that teachers frequently are able to meet.

In addition to federal programs, there are also state and private programs to help teachers. California created the School Teacher and Employee program back in 2018. This specific program is discontinued, but is now folded into their MyHome program, opening it up to more people. The private program Homes for Heroes provides a 0.7% rebate on home purchases made through the organization’s specialists. It is available to firefighters, EMS, law enforcement, military, healthcare professionals, and teachers.

Photo by Kenny Eliason on Unsplash

More: https://finance.yahoo.com/news/teachers-are-struggling-to-buy-homes–heres-where-to-turn-for-help-202043847.html

How Much Do Real Estate Agents Charge?

Real estate agents make their income from commissions when they represent buyers or sellers on the sales of homes. By law, the amount of commission charged must be negotiable. The industry average is 5% to 6% of the home sale price.

Although the percentages of the split may vary, traditionally, a 6% commission would be divided between the listing broker’s office and the selling broker’s office. The listing agent represents the seller, and despite the name, the selling agent is the one who represents the buyer. Three percent would go to the listing broker’s office, which would be split between the broker of record and the listing agent, per their office agreement. Likewise, the other 3% would be split between the selling agent’s broker of record and the selling agent.

For example, if a seller agrees to pay a 6% commission on a $1,000,000 sale price for their home, the total commission paid at closing would be $50,000. Of that, $25,000 would be disbursed to the listing office, where the agent would be paid $12,500 or more, depending on the agent’s commission agreement with the broker. The other half would be shared between the buyer’s brokerage and agent. Agents also generally pay Errors and Omissions insurance premiums as well as other transaction fees.

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Price Declines Forecast Through 2025

Median Home Prices Falling

Year to date through July, the gross revenue for South Bay is a mere 3% above that of 2019. At the same time, sales volume, the number of homes sold, is 23% below the sales of 2019. By most standards, 2019 was the pinnacle of real estate business prior to the turbulent years of the Covid pandemic.

Many sources compare current business to that of the pandemic years, partially because it’s easy and partially because the “numbers look better.“ Undeniably, the statistics do look more favorable, however, this analysis takes comparisons beyond the normal “last month” and “same month last year” to include 2023 versus 2019. This allows our readers to see 2023 in a historical context and to more readily recognize the unfolding recession.

While median prices are still above those of 2019 right now, we project the median prices will also drop below the 2019 level before this recession ends. On a month to month basis, prices are falling approximately half the time. On a year to year basis, 2023 prices have dropped below 2022 medians 82% of the time. Median prices for June and July of 2023 fell below 2022 in all four areas both months. Buyers and sellers should anticipate the bottom of the recession in late 2024, or possibly 2025. Normal growth should return in 2026.

The July report from the Federal Reserve Bank (Fed) notes that inflation is expected to continue above the target of 2% through 2025. Accordingly, the Fed efforts to “restrain” the economy (meaning increase interest rates) will continue into 2025. The report indicates that while housing costs are slowing, they continue to increase at inflationary levels, necessitating further reduction.

In the meantime, buyers who are financially able should plan to acquire desirable properties at substantially better prices than will be available after recovery begins. Sellers who anticipate a need to sell before the economic turn-around, should look toward selling sooner rather than later, to minimize the impact of the down-trending market.

Beach Cities Summer Market Fizzles

From June to July the number of homes sold in the Beach Cities fell 27% and those sold for a median price of 2% less. Some of the decline in sales is attributable to fewer homes available, as sellers hold properties off the market in hopes of improving conditions. Even more is a result of buyers who have lost significant purchasing power as mortgage interest rates have rocketed to over 7%.

Compared to July of 2022, the number of homes sold this July dropped 22% with a decline in median price of 4%. This set of statistics is somewhat deceptive in that last July the real estate market was still in the early stages of the downturn. As the current year progresses, year over year figures will demonstrate the slide more clearly.

Comparing the first seven months of 2023 to both 2022 and 2019 (the most recent year of business not impacted by the pandemic) shows the drift of sales and prices. The number of homes sold fell 24% from 2022 (802 homes) to 2023 (607 homes), while it was down 35% from 2019 (930 homes). The Fed dropped mortgage interest rates to essentially zero during the pandemic to keep the general economy afloat, which resulted in rapid price escalation which ultimately made purchasing a home unaffordable for about 25% of potential buyers. Then to control the resulting inflation, the interest rates jumped up around the 7% mark, which further slowed the real estate market by “pricing out” another 10-15% of buyers. With fewer buyers and stagnating prices, sellers are reacting by pulling property off the market and delaying planned sales.

Median prices fell 4% from 2022 and are still 28% above the median price of Beach Cities homes in 2019.

Harbor Area Sales Volume Plummets

Sales volume in the Harbor area has held up better than the Beach, possibly because median price has taken a greater hit. On a monthly basis, 24% fewer homes were sold (269 in July versus 353 in June). Comparing July of 2023 to July of last year, only 18% fewer closed escrow (269 versus 329).

Generally being an entry level market, the Harbor area tends to react faster to changes in market condition. More upscale neighborhoods frequently “stick to the price” for a longer period of time when markets are declining. Month to month median price dropped 4% in July to $565K. For July of 2022 versus July of 2023, the median fell 5%, from $780K to $740K.

Year to date through July, sales volume was off 24% from last year. Median price was down 4% when compared to the same period in 2022. Looking back to 2019, the number of homes sold during the first seven months of 2023 dropped by 21%. Median price for the same time frame shows up at 32% higher than 2019. Given the median price dropped 4% over the past month (from $772K to $740K), it’s reasonable to project the Harbor area median will end the year near $600K, as it was in 2019.

PV Hill Shows Volatility

Month over month, the number of homes sold on the PV Hill fell from 79 units in June to 50 in July, a decline of 37%. At the same time, the median price dropped 10%, ending the month at $1.8M. This despite a high sale of $12.5M, up from the high of $10M in June.

Year to year, July volume dropped 6% from 53 units in 2022, while median price plummeted 18%, from last year’s $2.2M. Palos Verdes is a unique community with large homes on large lots, many of them highly custom. Combined with the small overall number of homes, these properties truly need to be assessed on an individual basis for realistic projections.

Comparing cumulative sales data for January through July, volume is down 23% and median price is down 17% versus last year. Going back to the stable year of 2019, the number of sales is down 16% while the median is up 34%.

Interestingly, if the Fed’s annual 2% inflation target is added to the years between 2019 and 2023, the median on the Hill would be $1.5M today, instead of $1.8M. Under those circumstances, it would only take a decline of $300K to erase all gain from the past three years. Not a comforting thought for anyone who purchased recently.

Inland Cities Most Stable

The Inland area typifies a classic “middle of the road” performance in the real estate world. Generally the homes are everyday family properties, the sales trends are at the middle of the current South Bay market, and everything seems to happen with minimum drama. So there is little surprise at the minimalist 19% decline in monthly sales volume, the lowest of the South Bay. Likewise there is no shock the Inland cities came in with the lowest monthly price decline, a mere 1% below June.

Similarly, the annual sales volume showed July of 2023 only 14% below last July and the median price just 1% below the same month a year ago.

Year to date for the first seven months of 2023 compared to 2022 looks much the same. The number of homes sold dropped by 22%, 799 in 2023 versus 1021 last year. The median price fell 2% to $868K from $883K. Looking back to the 2019 sales volume for the same time period, the Inland area is off by 18% for the current year. Much like the rest of the South Bay, the median price in 2023 ($868K) remains above that of 2019 ($662K) by 31%.

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Low Inventory Drives Up Share Of Expensive Homes

Home values have been increasing across the board in the US, and the percentage of homes valued at over $1 million seemed poised to hit a record in June of 2023, when the share reached 8.2%. That record wasn’t quite hit, as it actually belongs to the value of 8.6% in June of 2022.

The total value of the US housing market did hit an all-time record in June of 2023. The total was $46.8 trillion. For comparison, in June of 2022 — when the largest percentage were over $1 million — the total value was $46.6 trillion. This isn’t much lower, but it does show that either the top end is increasing in value, bringing the total value up, or there are more homes on the low end, bringing the share over $1 million down. Both of these are possibilities, since inventory is still low despite an increase in affordable living construction.

Photo by Miikka A. on Unsplash

More: https://markets.businessinsider.com/news/commodities/housing-market-outlook-home-prices-value-million-inventory-finance-mortgage-2023-8

Beware The Temptation Of Low Cost Neighborhoods

After the pandemic hit, once lockdowns were over, many people took the opportunity to move to a cheaper neighborhood. It seems like a financially sound decision. But that may or may not be the case. A large percentage of such migrants found it didn’t work out for them, and moved back. So what went wrong?

One near universal quality of cheaper areas is that they also have lower wages and less opportunity for economic advancement. Of course, in the post-pandemic era, many people were working from home, so this wasn’t drastically felt. Now that a fair share of them have transitioned back to full-time on-site work, the math just wasn’t working out. They either needed to commute longer — with gas prices being rather high — or look for a job in their new home. And it was difficult to find one. It’s also worth considering why it’s a cheap area. Is it a nearby low income neighborhood that suddenly has an influx of people? In that case, it may be about to get more expensive to live there. Is it an undesirable area? It’s probably undesirable for you as well.

It’s also important not to overlook quality of life. Cheaper neighborhoods will also have lower tax revenue, which in turn means fewer public services. The roads could be worse and there could be less public transportation. You may not have good schools nearby. The available health care is often also of lower quality. And no matter where you’re moving, you’re going to need to reestablish your social network. People frequently report feeling lonely or isolated in new areas, even when surrounded by people, because they simply don’t know anyone.

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More: https://finance.yahoo.com/news/real-estate-agents-downsides-moving-150014233.html

Millennials Are No Longer The Largest Contingent Of Homebuyers

For quite a while, most buyers have been Millennials. This is predominately related to their age. The age range for the Millennial generation varies depending who you ask, but the National Association of Realtors (NAR) uses 24 to 42. This is considered to be the prime age range for first-time homebuyers as well as those moving from their starter home to their first permanent home. Because of this, Millennials have been the largest contingent of homebuyers. That’s no longer the case.

So who’s replacing them? One might expect it to be the generation just below them — it would make sense that as time goes on the younger generations fill the shoes of those before them. But the typical homebuyer has been around age 36, which is in the Millennial range, and much of Generation Z is still too young to own a home. It’s actually Baby Boomers making a comeback. The reason for this is economic, rather than generational. The current market is not well suited to homebuying. Those who are able to buy are generally those who can afford high-end homes. And one of the best ways to afford high-end homes is by having many more years of saving and building equity. Many Baby Boomers will have paid off their mortgage by now, and their homes would also be worth significantly more than they were when they were purchased. Half of Baby Boomers purchasing now are paying cash, something that Millennials without any equity are priced out of attempting.

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More: https://www.realtor.com/news/trends/millennials-are-losing-the-home-buying-edge-to-baby-boomers/

Aid For Marginalized Homebuyers Coming At A Bad Time

Representative Maxine Waters recently introduced the Downpayment Toward Equity Act of 2023, intended to help disadvantaged groups afford their first home. The bill would provide financial assistance for down payments, closing costs, and the costs to reduce interest rates for first-generation homebuyers who have not bought a home within the past three years. This mainly affects Black and Latine communities and could benefit up to around 5 million prospective homebuyers. However, while probably good-intentioned, this effort is not without its flaws.

We’re currently coming out of a historic peak in home prices. Prices have started to fall now, but they’re not going to suddenly bottom out overnight. It’s going to take a while for home values to fall. Pushing homeownership aid now is not the right time, for anyone, even if it’s directed at helping disadvantaged groups. And the last time minorities experienced a surge in homeownership turned out terrible for them in the end, albeit under different circumstances. In that case, it was predatory subprime lending that left minorities on the hook for massive mortgages with negative equity after the subsequent economic collapse. Of course, it’s doubtful that Waters’ intentions are predatory, but her plan could perhaps be better timed around the state of the economy.

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More: https://journal.firsttuesday.us/close-the-racial-homeownership-gap-but-not-in-2023/

West Coast Luxury Home Prices Are Dropping

The skyrocketing home prices affected homes across the spectrum of affordability. The luxury home market didn’t take as much of a hit in terms of sales, since wealthy buyers can generally afford to buy even with prices being high. But that doesn’t mean their prices didn’t increase. Nationwide, the median sale price of luxury class homes rose to $1.2 million this year, which is a 4.6% increase from last year. This is actually over three times the percentage increase for non-luxury homes, which increased 1.5% to $340,000. Both of these are record median prices. However, prices aren’t increasing everywhere.

Four major cities across the West Coast experienced double-digit percentage drops in median luxury home value from last year to now. The largest decrease was in San Francisco, where it dropped 12.7% to $4.8 million. The other three were Seattle, Oakland, and San Jose. Seattle’s luxury prices dropped 12.3% to $2.5 million. In Oakland, they decreased 11.1% to $2.8 million. San Jose’s decreased 10.3% to $4.3 million. Besides very high prices despite rapidly declining prices, these four cities also share something else in common. All four of them are major West Coast hubs for the tech industry. The tech industry has recently been hit by layoffs and stock market declines, so this is perhaps not unexpected.

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More: https://investors.redfin.com/news-events/press-releases/detail/946/luxury-home-prices-post-double-digit-drops-in-the-bay-area

Should You Buy Now And Refinance Later?

The current housing market is in an interesting position. Mortgage interest rates are high, but home prices are starting to cool off. It raises the question of whether it’s a good time to buy. The advantage of buying now is that home prices, while expected to continue to drop, are the lowest they’ve been in quite a while. That means you may be able to get a home at a decent price without heavy competition, and start to build equity. The disadvantage is that you’re locking in a high interest rate.

That’s where refinancing comes in. While the price of a house can’t be renegotiated once the sale is finalized, your interest rate can. This is why buying with a high interest rate can be appealing if other conditions are favorable. But this is risky, because you never truly know how long rates will remain high. It could take a long time for interest rates to drop, and it’s even possible that by that time, home prices will also be lower. In this situation, not only did you essentially overpay for your home, but you’ve been stuck with a high interest rate for longer than anticipated. It’s also worth noting that if the current interest rates scare you enough to already be thinking of refinancing in the future before you’ve even bought the home, there’s a good chance it’s because you can’t truly comfortably afford the payments for any considerable length of time.

So should you consider buying now and refinancing later? What it ultimately comes down to is that it’s a risky time to buy, and it’s not entirely clear whether it’s worth the risk even if it pays off. What is clear is that if you can’t afford to task risks, you definitely shouldn’t. But if you can comfortably wait as long as you need to, it simply boils down to real estate as a long-term investment. In that case, it’s actually one of the lower risk types of investments, but that doesn’t negate the fact that the risk is higher than usual in the current climate. The actual answer will depend on the individual and on the future, but likely answers are either “no” or “probably not.” What are some alternatives, then? Waiting for mortgage rates to drop, or even just waiting for home prices to drop more, since that can’t be renegotiated. In the meantime, you can also consider upgrading your current home to increase its sale value for when you do buy.

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More: https://www.cbsnews.com/news/buy-home-now-refinance-later-what-experts-think/

2023 Home Sales Volume Below Pre-Covid Levels!

The number of homes sold in the Los Angeles South Bay during the first six months of 2023 is the lowest sales volume for a first half in the past five years. Fewer homes have been sold since the new year than sold during the same period of the worst year of the pandemic.

The first half of 2023 has ended with 24% fewer sales than the same period in 2022, which was itself down 15% from 2021. The peak of the market was early 2021, when interest rates were among the lowest in history, exploding the number of potential buyers. The lowest sales volume was during 2020 when 3311 homes were sold, which was still greater than the 3221 sold the beginning of this year.

Median Price Begins Downturn

Coming right on the heels of the sales volume collapse is a drop in the median price. Prices today are down from where they were in 2022, which was the peak of the recent market. The chart below reflects the median price for the first and second quarters of the past five years. Typically, the first quarter is the slowest, with the number of sales increasing through the second quarter and then slowing again for the third and fourth quarters. Here the growth from Q1 to Q2 shows and we can see the change from year to year.

As always, bear in mind that the Palos Verdes Hill offers a comparatively small sample size, so a couple of significant sales can shift the plot lines dramatically on a chart. The chart above shows one such anomaly where PV the median price actually declines in the second quarter.

Looking across the years from 2019 all four areas show the same upward movement in median price until the second quarter of 2022. Then, comparing it to the second quarter of 2023, we can see the trend shifting downward. For example, the Beach Cities median fell from $1.82M in the second quarter of 2022 to $1.72M in the second quarter of 2023. The weakness in median prices is driven by increasingly steeper mortgage interest rates. Barring a change in market dynamics, anticipate this line turning into a steeper downslope for residential prices starting in winter of 2023/24.

When Is the Bottom?

The market is clearly taking a downward turn. Sales volume is off, median prices are turning down. Sellers are not putting properties on the market. Buyers aren’t buying. The few forecasters willing to make a guess this early are saying real estate won’t come back until 2025, possibly 2026. For those who are “waiting for the bottom of the market,” remember that by the time you read it in the headlines—you’re too late—the bottom is gone.

Beach Cities Sales Dropping Fast

Median prices at the Beach have fallen 5% from last June, coming in this year at $1.72M, an even $100,000 below June of 2022. Year to year sales for June are down 7% from last year, at 124 units compared to 133 in June of 2022.

Month over month statistics have been highly volatile since the beginnning of 2023. Interest rates and prices have changed erratically, making short term forecasts nearly impossible. Month to month sales volume has bounced in a range from 2% to 45%. In just six months, monthly median prices in the Beach Cities have ranged between -18% and 26%.

Year to date sales volume at the Beach is down 25% from last year and is off a full 35% from 2019.

The year to date median is down 3% compared to 2022, though it is still 32% above the median in 2019.

Despite market conditions, homes in the Beach Cities remain highly desirable. For June, 78% of sales transactions closed within 30 days of listing and sold for 2.61 % above asking price. Beach homes also offer a great deal of diversity. June sales showed a 19 million dollar range between the low sale at just over $500K and the high sale at $19.5M.

Harbor Area Home Sales and Prices Down

Year to year-same month sales in the Harbor area have been negative since the first of the year. Prices were still holding up in June of last year, but sales volume had been dropping through all of May and June. As a result, the number of homes sold dropped a mere 1% coming into June of 2023. That looks good until compared with the year to date decline of 24%.

Market conditions in the Harbor last year gradually changed from joy for rock bottom interest rates at the beginning of the year to caution as sales tapered off and sales figures stated taking a hit. Median prices for June of the current year have fallen 7% from the June 2022 median of $830K.

Until now, the Harbor area has shown mixed results in the month over month statistics. For June compared to May sales volume was up by 5% (353 versus 337), while median price was up 7% ($772K versus $720K). Like the Beach Cities, the Harbor Area is following a more normal upward swing from the winter doldrums into the spring selling season.

That upward swing is not expected to go very high or last very long. At 1710 homes sold, year to date sales volume from January through June is down 24% versus 2259 sold in 2022. Sales volume is likewise down 17% from 2071 during the same six months in 2019. The variance in monthly sales is expected to drop into the single digits starting in July.

Median prices are down 4% compared to 2022 though still up 33% versus 2019. (Note: Using The Federal Reserve’s “target inflation rate”of 2% annually would have put the Harbor area median price increase at a little over 8%. That implies an “excess growth” of about 25% in median price during the pandemic buying splurge. Much of that difference, if not all of it, is expected to disappear over the next 18 to 24 months.)

June sales detail shows 77% of sales closing escrow within 30 days. Buyers were still bidding up, with the sales price exceeding the list price by 2.61%. The highest sale recorded in June for the Harbor was $4.25M; while the lowest was $527.5K.

PV Peninsula Volume and Prices Mixed

Palos Verdes, contrasting May versus June of 2023 shows a 22% increase in the number of homes sold for a monthly total of 79. At the same time, the median price dropped by 13%, falling to $2M even. Expectations for month over month statistics include fewer sales and more aggressive price reductions as 2023 wears on. The summer and fall months are projected to have weaker home sales, both in volume and pricing, as interest rates increase and buyers and sellers who “must move” run out of options.

Year over year same month sales, showed a volume growth of 1% (one sale), accompanied by a 14% drop in median price from $2.3M. That 1% increase is the first time in 2023 that any of the areas has shown positive growth in the number of homes sold. As such, and knowing that the PV Hill is considerably smaller that the other areas we measure, readers are cautioned about the wide swings in PV statistics.

Sales volume for the first six months of 2023 is down 26% compared to 2022 (326 homes in 2023 versus 438 in 2022. Similarly, sales are down 9% from 2019 when sales of 358 homes were recorded. Median prices of $1.8M for the same period are down 13% from 2022 prices of $2.1M and up 36% from $1.3M in 2019.

Market time has remained good, with 75% of sales closing withing 30 days. Sellers have enjoyed selling prices 2.3% higher than asking prices, a trend expected to disappear before the end of summer. Once again showing the range of homes available in the South Bay, the high sale in PV was $10M while the low was $610K.

Inland Area Makes Strong Showing

Sales volume of 161 homes in the Inland Area for June was up 33% over sales of 121 in May. With 33% more activity came a 1% reduction in median price, which fell to $875K after reaching $880K in May.

Comparing June of this year to June of last year showed a volume decrease of 3% from 166 in 2022. Likewise, this June showed a median price decrease of 3% from last year’s $905K.

Year to date volume for the first six months was down 68%, for 669 units sold, versus 869 in 2022. Going back to 2019, the most recent “normal business year,” sales volume was down 21% from 799 sold in 2019.

Median price of Inland area homes for the same six month period showed at $863K, down 3% from $887K in 2022; and up 32% from $652K in 2019.
Days on market remained under 30 for 82% of the Inland area homes sold in June. Buyers offered 2.6% above asking price. The high market sale was $2.2M while the low was $390K.

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