In other words, prices will continue to rise, albeit at a slower pace than in the previous two years. The prospect of a decline in prices is increasingly likely as the housing market slowdown deepens, and some analysts adjust their forecasts to call for prices to fall next year, the Los Angeles Times reported. An article in the Los Angeles Times suggests that the possibility of a fall in house prices becomes more evident as the slowdown deepens in much of the state. See the Los Angeles regional charts below for details on current activity and forecasts for your housing market.
Several factors could lead to a decrease in Los Angeles housing prices. Some of these factors include rising interest rates, declining sales volume, and sagging stock market. But there is one key factor that might prevent a decline in Los Angeles housing prices. That factor is rising mortgage rates. The rising mortgage rates will discourage buyers from bidding up prices.
Stock market sagging
Recent stock market sags have hurt luxury sales in L.A. County and will continue to affect prices in the region. Rising expectations for interest rates have also weighed on stock prices. The third week of August saw the worst drop in the Dow Jones industrial average in four years. Some former treasury secretary Lawrence Summers said that stock market sags often signal a coming recession.
Rising interest rates
Assuming that rising interest rates are responsible for the recent housing market slowdown, it's hard to argue with the results. According to C.A.R., existing single-family home sales are down 29 percent from last year. Yet the median days on market is still over 16 days. In August, a brief reprieve in interest rates caused sales to jump. But with a recent rise in mortgage rates, it's likely that the housing market will continue to cool off.
One of the reasons for this trend is the deteriorating economy. Despite the high demand for housing in Los Angeles, the city's unemployment rate is rising. The 2018 FRM rate increase lowered the principal amount that homebuyers could borrow, reducing their affordable mortgage payments. As a result, the National Association of Home Builders and Wells Fargo Housing Opportunity Index named Los Angeles as one of the least affordable housing markets in the country. In fact, only 11.3% of homes sold in the LA-LB-G region were affordable to families making $73,100 and less.
While historically low interest rates have boosted buyer purchasing power, they will only be stable until the middle of the next decade. By 2022, interest rates will skyrocket, reducing buyer purchasing power and triggering a home price decline. The decline will first affect coastal cities, then ripple out to inland cities.
While the number of Los Angeles home sales is growing, there is a significant shortage of available real estate. According to a HousingWire index, about three-quarters of residents can't afford the median-priced home. Because of the shortage, the rate of appreciation is expected to moderate.
The supply shortfall is particularly acute in the city's major markets. Permitting for building projects fell to a record low last year, and construction projects that did get underway were canceled or abandoned. This led to skyrocketing prices for building materials. In Los Angeles alone, two half-completed apartment buildings sit vacant, and it's expected that the gap between permits and completions will continue to widen.
Los Angeles housing prices will continue to rise. A balanced housing market will have four to six months' worth of inventory. The current supply in Los Angeles County is 3.3 months. Rising inventory decreases the pressure on home prices.
Declining sales volume
Los Angeles' housing market has experienced a slump in recent months due to rising interest rates and lower home sales. According to a report from Douglas Elliman, newly signed contracts declined for the third consecutive month in the greater Los Angeles market, which covers the downtown area and west to Malibu. Listing inventory decreased for the fifth straight quarter, and fell to the third lowest level since 2020. The story is even worse when you look at month-to-month comparisons.
Although prices are rising, fewer homes are selling and fewer offers are being made. Homes are also taking longer to sell. Despite these factors, the median listing price of a home in Los Angeles County has been rising over the past year, at $854,960. This year, sales volume fell by 29 percent YoY, but is up 1% MTM.
The state's job market is expected to rebound in 2020, and Californians will be more willing to spend. Then, sales volume should start rising as more people begin to buy homes.
Fear and uncertainty at the same time prevented anyone from buying or listing homes, and the Los Angeles housing market was no exception. In fact, years of appreciation have led the Los Angeles real estate investor community to favor rents rather than traditional twists and wholesales. This is an excellent analysis of exactly what has been happening in the Los Angeles County housing market. Real estate in Los Angeles came to a screeching halt as unemployment soared and people were less inclined to spend their money.
Not only that, average rents are rising faster than average wages in Los Angeles County, California, according to Attom Data Solutions. Along with the rest of the state, home prices in Los Angeles soared during the Millennium Boom, then fell below average price levels during the financial crisis and have been rising out of the rubble ever since. Even in the face of historic appreciation, the Los Angeles housing market seems poised to benefit smart investors in the coming years. Current trends in the Los Angeles housing market seem to be gaining momentum, and those entering now may be happy to have done so.
The introduction of coronavirus has changed the rental landscape across the country, and the Los Angeles housing market is no exception. The median home value in the Los Angeles housing market is the direct result of spending nearly two years in a pandemic. Most of the current trends in the Los Angeles County housing market are the result of COVID-19 and its impact on the housing market. Touted as one of the most desirable cities in the world to invest in in recent years, the Los Angeles real estate market has officially become the most attractive market for investors around the world.
Investors looking to take advantage of current trends in the Los Angeles housing market should look for the best neighborhoods to purchase rental property.