Are We Entering a Buyer's Market?

Posted by Melissa Miller on Friday, October 19th, 2018 at 8:32am.

Over the last several years, home sellers throughout Los Angeles and the entire country have had the upper hand as housing demand has steadily increased with an improved economy and as home builders struggled to keep up with demand. This resulted in a seller's market where bidding wars and driving up home prices became a norm. But, things may be changing. Real estate data over the last 2 months in Los Angeles suggests that we may be entering into a buyer's market for the first time in years. Lets take a look at the data. 

1. Price Reductions 

In August, the data for Los Angeles real estate showed 16.5% of homes listed for sale were sold after price reductions. This isn't a huge number, however it is the highest percent in price reductions we have seen in the Los Angeles real estate market since 2011. How much were these reductions? The median reduction for Los Angeles homes for sale was 2.5% of the original list price. In neighborhoods such as Malibu and Calabasas, some homes have reduced as much as 20%. 

2.Shift in the Luxury Market 

 In Los Angeles and the West Coast, we tend to see the effects of a market shift last when compared with the rest of the country. For instance, New York City has felt this shift for months, especially in their luxury markets. In Los Angeles real estate, the price points below $3M have not felt any major market shifts as it concerns price, however the luxury market has definitely began to feel the shift. Los Angeles' luxury real estate market has seen a steep increase in days on market and the amount of price reductions. 

3. Inventory 

Active home sales were up 12% in Los Angeles in the month of September, however home sales were down 16% in the same month for Los Angeles real estate. More homes on the market and fewer sales means that homes are now sitting on the market longer than they have in the last several years. The demand for new homes for sale continues to exist, however affordability has become the main issue as home prices have outpaced wages. In the Los Angeles real estate market, we have seen the year over year home price appreciation decrease slightly (-5%) beginning this summer and continue into September. 

4. Interest Rates 

Another layer are the increasing interest rates. Mortgage interest rates are once again closer to 5%, a 7 year high. When interest rates rise, the buyer's expected monthly mortgage payment goes up.When combined with the fact that housing affordability is at a 10 year low, in markets such as Los Angeles, where home prices are at a peak, rising interest rates will likely cause home prices to drop as sellers have to adjust prices to compensate for increasing rates. 

Our Takeaway 

With all of this new data, we have a few takeaways. It is not quite a buyer's market in Los Angeles YET. Although we have seen slightly more inventory, more price reductions, and an increase in mortgage rates, the largest sector of the real estate market continues to see slight increases in home values. Mortgage interest rates have seen increases, however, they are still historically low in the scheme of things. Many buyers are undeterred by the increase as rent prices continue to surge and they find a better value in purchasing. For sellers, it is a great time to capitalize on this market shift if you have been considering a move, as this may be the sweet spot in the seller's market before a larger shift occurs to swing things to a buyer's market. 

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