After a lackluster end to 2018, uncertainty surrounded the real estate market heading in to 2019. The common belief was that increased interest rates and high prices would limit buyer activity in the market and drive prices downward. However, with rates dropping at the beginning of the year and the Fed stating that they don’t plan to increase them throughout the year, the market bounced back in the first quarter. Buyers returned to the market seeing opportunity in the form of low interest rates and overall strong economic news has increased buyer confidence compared to the end of 2018.
That being said, buyers are now more price sensitive than in the previous few years. Strong demand remains for quality properties that are priced appropriately, but those are few and far between in today’s market. Well priced, good inventory is low, but over-priced listings with sellers who have not adjusted to the changing market is increasing. This increase in unrealistic inventory (particularly in the higher price points) has created some buyer fatigue.
As a result, prices have flattened across the LA market, and actually slightly declined for the first time in 7 years in March. We’ve finally hit the threshold in terms of prices that buyers are willing to pay and the market is reaching a neutral state.
On a more refined level, there is a divide in terms of market conditions depending on price point. While the entry level sector of most markets is still strong, the top end of the market is adjusting downward. At entry level, buyers are still motivated by lower interest rates coupled with the cost of rent being comparable to the cost of ownership. Demand is high and inventory is low in this sector of the market, so prices are holding steady and slightly increasing in some circumstances. Contrast that with the high end of the market (north of $2.5 million) which has suffered due to the new tax laws, high prices, and increased inventory, all of which has lessened demand and dropped prices.
As I’ve said for many months now, this flattening of the market is good for our market and should return some normalcy for both buyers and sellers. I personally see the market staying flat for the rest of the year, but I’ll be watching interest rates closely as they should be the strongest factor in the market moving forward.
As always, if you or any acquaintances have any questions about this market update or need any help with a property or the market, please feel free to contact me.