GREATER LA AREA MARKET UPDATE
Our team is committed to continuing to serve all your real estate needs while incorporating safety protocols to protect all of our loved ones.
In addition, as your local real estate experts, we feel it’s our duty to give you, our valued client, all the information you need to better understand our local real estate market. Whether you’re buying or selling, we want to make sure you have the best, most pertinent information, so we’ve put together this monthly analysis breaking down specifics about the market.
As we all navigate this together, please don’t hesitate to reach out to us with any questions or concerns. We’re here to support you.
– Kevin Gueco, DRE #01461677
Welcome to our October newsletter. This month, we discuss the state of the economy, COVID-19, and potential economic stimulus. We will also look at forecasts for the housing market now that we are entering autumn. Overall, the housing market has shown significant price growth over the second quarter, showcasing the strength and stability of residential real estate. Year-over-year sales have also increased considerably through the summer months. As we enter autumn, we believe the housing market is positioned for continued growth in both sales and price appreciation. As the market changes, we will continue to provide the most up-to-date housing information to support your buying and selling decisions.
In this month’s newsletter, we cover the following:
- Key Topics and Trends in October: More than half of those jobs lost in March and April have now been recovered, but hiring has slowed, and some large companies are announcing layoffs. In California, COVID-19 cases have been declining since mid-August, although the decline over the last month has been less pronounced. Plans for additional economic stimulus for individuals and small businesses remain uncertain.
- October Housing Market Updates: High buyer demand, coupled with lower inventory, has caused home prices to climb higher in North Beach and the South Bay. The West Side median prices have continued to decline.
Key Topics and Trends in October
The Labor Department reported that employers added 661,000 new jobs in September, which is fewer than half the jobs added in August and about a third of those added in July. This trend indicates a slowdown in hiring. If the hiring rate remains at current levels, it will take 16 months to recover the jobs lost in March and April; however, it will take even longer if the hiring rate continues to slow.
As of September 26, 12.5 million workers remained unemployed—an unemployment rate of 7.9%. More than 800,000 newly unemployed workers are filing initial unemployment claims each week, and 11.8 million are continuing to collect unemployment (see figure below).
Despite high rates of unemployment and an economic downturn, housing has held onto its value, particularly in the Los Angeles area. Pandemic-induced economic impacts disproportionately affect workers without college degrees—individuals who were likely not in the housing market in the first place. And, as the Los Angeles area employs a high number of skilled workers with college degrees, its unemployment rate is lower than other areas of the United States, and its housing market is holding strong. Now, more than ever, the more highly skilled and educated a person is, the more likely they will be able to afford a home.
As we enter autumn, we are uncertain whether or not federal stimulus aid for individuals and businesses affected by COVID will come before or after the election. The immediate risks to the housing market, however, are fairly low. The Mortgage Bankers Association’s (MBA) Research Institute for Housing America (RIHA) reports that, for the most part, homeowners were able to continue their mortgage payments; however, renters struggled to pay rent. This should come as no surprise; only 6% of homeowners reported collecting unemployment by the end of June, while the percentage of renters collecting unemployment was more than double that.
Despite our struggling economy, the housing market has maintained its value, and homeowners have navigated this uncertain time well.
October Housing Market Updates for Select
Los Angeles Areas
In this newsletter, we break down three luxury areas in Los Angeles as follows:
- North Beach: includes the Pacific Palisades, Santa Monica, and Venice
- West Side: includes Beverly Hills, Brentwood, West Hollywood, and Westwood
- South Bay: includes Hermosa, Manhattan Beach, and Redondo
In September, single-family home prices rose in the South Bay on a month-over-month and year-over-year basis. North Beach prices have been fairly stable this year on an absolute dollar basis, and showed a year-over-year increase this month. The West Side, which tends to be more volatile, has seen a significant median price reduction since March, the start of the pandemic.
Note: June data removed from median price because it is not representative. June median price for the West Side was over $8 million.
Luxury markets, with $2 million+ homes, tend to show more price variance in general. We can see that with the year-over-year returns. Year-over-year, median single-family home prices were up 20% in the South Bay and 7% in North Beach. The West Side median price declined 27%.
Note: June data removed from median price because it is not representative. June median price change for the West Side was over 200%.
Total inventory decreased in September, as the number of homes under contract rose. Buyer demand, especially in the South Bay, has reduced available inventory. Lack of supply compared to demand typically buoys Los Angeles home prices, and this is the case for the luxury market, with fewer sellers coming to market as well.
To understand buyer and seller sentiment in the selected Los Angeles areas, we can look at how new listings and homes under contract factor into the total inventory in a given month. Using 2019 as a normal year, relative to 2020, we can see the year-over-year abnormalities and seasonal changes.
During the initial months of the pandemic (March, April, and May), buyers and sellers hesitated to enter the market or withdrew from it entirely. Buyers of both single-family homes and condos mostly stayed out of the market from March through May, causing inventory to build. Buyers came back to the market in June, a month before we started seeing an increase in new listings.
New listings for single-family homes increased in July and August, but were met with a dramatic increase in sales in North Beach and the South Bay, causing a decrease in inventory. The figures below show the specific buyer and seller sentiments over time for each region.
The Days on Market (DOM) trended down as buying activity increased. The lower inventory and faster pace of sales caused the Months of Supply Inventory to decrease across the selected markets.
We can look to Months of Supply Inventory (MSI)—the measure of how many months it would take for all current homes for sale on the market to sell at the current rate of sales—as a metric to judge whether the market favors buyers or sellers. The average MSI is three months in California, which indicates a balanced market. An MSI lower than three means that buyers are dominating the market and there are relatively few sellers (a sellers’ market), while a higher MSI means there are more sellers than buyers (a buyers’ market). The MSI for the South Bay homes is 1.9 months of supply, firmly favoring sellers. The MSI for North Beach decreased to 3.8, indicating a more balanced market. The West Side MSI continues to favor buyers with 7.8 months of supply.
In summary, the South Bay has shown the most significant price gains and demand over the last several months, followed closely by North Beach. The West Side tends to favor buyers, with plenty of inventory relative to demand. Overall, the housing market has shown its resilience through the pandemic and remains one of the safest asset classes. As we digest seemingly endless stories on negative economic data, we are pleased to report that home ownership has offered a sense of stability.
Moving forward, we anticipate new condo listings to slow. Home prices will likely remain stable. The fall/winter season tends to see a slowdown in activity, as well, although this year we may see a new trend.
As always, we remain committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we have shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home or condo.
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