Covid, inflation, low interest rates, an inventory shortage . . . there are so many factors that have made the real estate market fascinating, challenging, and white hot since the summer of 2020. Throughout the country, similar market conditions prevailed, headlined by high demand due to low rates and work-from-home needs, combined with low inventory, all of which led to a record breaking year for real estate in 2021. Now the question is: where do we go from here?

Let's start with rates. The Fed has stated that they plan to ease rates upward throughout the year (to hopefully combat inflation) which has added more fuel to an already overheated buying fire that exists in the market. Buyers are trying to take advantage of historically low rates, and therefore, the first and second quarters of this year (while rates are expected to remain lower) should remain very active with prices still increasing. Just in the first few weeks of the year, rates have jumped an average of .5% which has added to many buyers' desperation to buy now.

On top of that, real estate has traditionally been a safe haven for investors looking to hedge inflation, and this influx of investor money (both for their own primary residences along with investment properties) has ramped the market up even further. Everyone seems to be trying to acquire more real estate than they currently have which is driving prices upward.

However, the speed at which rates move up this year is something that I am tracking closely. The slowest time in the real estate market in the past 5 years in terms of number of transactions was Q4 of 2018 when the average home loan rate rose above 4%. While this was still a historically low number, it was about a full point higher than rates had been 6 months prior. It was a shock to buyers, who pulled back causing demand to drop, inventory to increase, and prices to flatten. The fact that rates have risen as much as they have at the beginning of this year is not a great sign for the speed of their upward trajectory.

If rates increase too rapidly this year, I expect similar market conditions to occur from 2018, creating a cooler, flatter market. Even if rates are slowly increased throughout the year, I, along with several other real estate forecasts, expect demand to ease, inventory to slowly increase, and prices to flatten. We can hope the Fed learned their lesson from 2018 and will slowly ease rates up to give the market time to react, but they may be forced to act faster than desired to combat inflation, and so far that does not seem to be the case.

For Buyers: flattening prices and less competition both sound encouraging, but depending on how much rates increase, it may end up being a wash in terms of the cost of ownership of a property. In simpler terms, buyers may be paying a lower price for a home, but will have a similar or higher payment due to a higher rate. The market is still highly competitive, and I expect it to be that way for the first two quarters. However, demand could lessen in the 3rd and 4th quarters if rates rise too quickly.

For Sellers: the beginning of the year is an ideal time to take advantage of the market conditions, while the buying frenzy is in full effect. If rates don't rise too quickly, the market should still gradually increase throughout the year, with favorable conditions for sellers remaining in place. If rates rise too quickly, the market could cool considerably.

Despite the quick rise to rates to start the year, overall I'm optimistic that rates won't rise too quickly throughout the year. This means prices should slowly increase and taper by Q3 and Q4 to create a more balanced market. I'll be tracking rates closely, so stay tuned for more updates throughout the year!

As always, if you or your acquaintances have any questions about the real estate market or need any help with a property, feel free to contact me.

The Summer’s market conditions have spilled over into Fall with the strength of the market varying drastically depending on location and price point. While entry level homes remain in high demand due to low rates and a large buyer pool, particularly in up and coming areas such as Westchester, Inglewood, and West Adams, the higher end of the market in established A+ locations continues to slow.

The high end market is struggling as a result of prices jumping to peak levels in recent years which has created more inventory at said higher prices, meanwhile the buyer pool for homes of $3 million+ has dwindled. Not only are there fewer buyers who can afford such a price point compared to available inventory, but with fewer tax breaks and growing fears that prices have hit a peak before a pending recession, buyers are much more cautious and patient than in recent years.

Meanwhile at entry level, buyers are still seeing value in homes as long term investments and want to take advantage of lower interest rates, so demand remains high. Because of their long term approach to home buying, most buyers in this price point are less concerned about buying at a peak as long as their monthly payment remains comparable to rent. The LA economy is strong and continues to create good paying jobs, which in turn is creating more buyers looking in the entry level price points.

The varied market conditions can be summed up by these two articles, published within two weeks of each other, that portray very different markets. The first from CNBC details the market in Fall quickly shifting from a seller’s market to buyer’s market due to concerns of a recession (which has been true at the high end of the market). The second article from Redfin reports at 2.7% increase in prices in August, a 10.8% increase in sales and declares the market becoming even more of a seller’s market (which is also true, at the entry level market).

So where does the market go from here? Economists are predicting rates to drop even lower throughout the rest of this year and 2020, which should continue to fuel the entry level prices points. However, I expect the high end of the market to struggle as many sellers need to adjust their expectations on price to cater to buyers concerned about a potential recession. Overall the market is in a fairly neutral state which I expect to persist throughout 2020. In my opinion the next big chip on the table is the 2020 presidential election and I expect market conditions to remain as they are now until we near the election. Not only are the results of that election hard to predict, but so will it’s impact on the real estate market. As we near the election, the market should see some slowdown with such a big unknown lying before us all.

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.

In Spring I wrote about how the real estate market in Los Angeles bounced back (after a poor end to 2018) in the first quarter of 2019 as lowered interest rates and an increase in inventory spurred buyers to act. While prices had begun to fall at the end of 2018, in early 2019 prices had held steady across most markets, and in the entry level market, they had slightly increased. With rates remaining low, the second quarter saw similar results, as prices have remained steady, and the market has continued on to flatten.

Similar to the first quarter, a divide amongst sectors in the market has furthered widened. The entry level market is still very strong due to a lack of good inventory and a lot of buyer demand seeking to take advantage of low interest rates. Meanwhile, the market north of $2.5 million has slowed. Simply put, there are fewer buyers with the purchasing power to afford a $3 million + home, and with increased prices and more development in this price point compared with lower ones, there is a glut of inventory. Therefore, the higher end of the market is slowing and prices are slightly dropping in some cases, while the lower end of the market is slowing rising to meet it.

The recent news that The Fed has dropped interest rates for the first time since 2008 has ignited a lot of talk about how it will affect the real estate market, but so far I haven’t noticed much of a change. Interest rates had adjusted lower prior to The Fed’s decision, which resulted in the refinance world blowing up (even if you purchased within the last two years, it may be wise to look in to refinancing), but so far I haven’t seen an immediate change in buyer’s desire to purchase. In most cases buyers main reasons to purchase are to avoid high rental payments while making a long term investment, or an upgrade from their current property into a larger home. Low interest rates obviously are making those decisions easier and more affordable, but in most cases are not the driving factor.

In my opinion, all these factors are ushering us to a neutral market where bidding wars will no longer be common, prices will flatten with increased price sensitivity, but demand will remain constant for well priced properties in good locations. This is a positive sign for our market and should bring some normalcy for both buyers and sellers. With The Fed seemingly committed to keeping rates low, these look to be the market conditions for at least the next year, so the million dollar question is what the next big card on the table will be? It seems that the most likely factors that could affect the real estate market would be a change in the economy (US or global) or some global political event, which of course is difficult to predict. For now, the real estate market seems to be on a steady, straight course.

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.

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.

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.