2018 was a year of change in Los Angeles real estate. With new tax laws going in to effect, existing home prices hitting a peak, and rising interest rates, the market finally cooled over the last 6 months of the year. With rates increasing nearly a point over the calendar year, buyers hit an affordability wall and prices needed to adjust down to compensate for the loss in buying power.
Gone were the days of multiple offers and properties selling over their asking price, and those were replaced by price reductions and lengthier days on market before selling. In general, many markets have adjusted down in price about 5% or so as a result, and overall sales were at their lowest level since 2014. This change was an eventuality and was necessary to return the market to a normal, stabilized condition.
So what does that mean for real estate in 2019? Many people have predicted after such a crazy run up in prices and interest rates expected to rise further, that we are in for a larger correction. However, the both the data and my experience in the market right now is not supporting that theory.
Because the stock market tanked at the end of the year, rates have actually dropped to their lowest levels in 9 months. This, combined with increasing inventory and the overall sentiment that there is opportunity for buyers in the market (after such a long seller’s market prevailed), has suddenly created more demand than we have seen in the past 6 months. This has stabilized the market from even just November, when it looked like the market was headed for a larger correction.
I’m currently seeing appropriately priced properties in good locations still sell quickly and with lots of interest. Demand is still there for the right homes. Meanwhile, properties that are pushing the envelope in terms of price, or properties outside of what buyers are looking for in terms of location, functionality, or amount of work required, are tending to sit on the market and sell at discounted prices. And really, this is how the market should function as opposed to the craziness we experienced for the past 6 years.
What I expect in 2019 is for prices and sales to plateau to normal levels and overall no major leverage for either buyers or sellers in the market. With inventory increasing, rates staying at reasonable levels (the Fed is now expected to only raise rates twice this year), and demand staying steady, we should see a neutral market. For buyers its still a good time to lock in a lower rate on a long term property, and there is less competition in the market than anytime in the recent past. For sellers, most properties won’t drastically appreciate for the foreseeable future, but also likely won’t drop significantly, so selling should be considered only from a place of need.
The major caveat to this would be if interest rates significantly increased this year. The past 6 months have taught us that we’ve reached a price and rate sensitive time in the market, so if rates go up faster than anticipated this year, it could kill demand and further drop prices. As I type this, the stock market has had a good week, and we never know exactly what the Fed will do, so significantly higher rates are certainly possible, but in my opinion unlikely. Rates are the biggest influencer in the market right now and are a good barometer to keep an eye on as the year progresses.
As always, if you or any acquaintances have any questions or need any help with a property or the market, please feel free to contact me.