- Total home sales in the greater central LosAngeles area were 2 percent below last May, following April’s upwardly revised2 percent year-over-year increase.
- Sales between $2 million and $3 million saw a 6percent jump compared to last May, the first year-over-year increase followingsix months of double-digit declines, driven by East Valley, Eastern Cities(Arcadia and Monrovia), and Foothill Communities.
- Home sales activity remains relatively strongeron the eastern side of Los Angeles and among homes priced below $1 million –including Eastern Cities, Foothill Communities (La Cañada Flintridge, LaCrescenta – Montrose), East Valley (from Sherman Oaks to Glendale), and alsoSouth Bay.
- For-sale inventory is up 10 percentyear-over-year, a notable slowing from 20 to 30 percent increases seen duringwinter months.
- Relatively larger for-sale inventory growth isseen in western parts of Los Angeles, including Mid City, Sunset East, SiliconBeach, and Brentwood, while inventory is aging without increase in new listingson the East Side, NELA, North Valley, and areas surrounding DTLA – days onmarket has increased relatively more, up 17 days YOY.
- While demand for homes priced below $1 millionremains solid, buyers are taking longer to make the purchase leading to longerdays on market, up 7 days YOY to an average of 27 days.
- Absorption of available inventory and the shareof homes selling over the asking price improved markedly from winter lows with 36percent of homes sold over the asking price.
- Home prices remain flat year-over-year with onlyEastside, areas surrounding DTLA, South LA, and Mid City seeing an increase of6 to 8 percent above last year.
- Home price forecast remains flat through 2020.
Following a cheerful housing market activity for Los Angelesin April, May home sales activity slowed some, though still maintaining themomentum gained from the first quarter. Total home sales in the greater centralLos Angeles area were 2 percent below last May, following April’s upwardlyrevised 2 percent year-over-year increase. Encouragingly, the rate of declineshas slowed considerably after double-digit declines seen in the first fewmonths of 2019 and 17 months of continual declines.
Overall, Los Angeles housing markets are experiencing aninteresting dichotomy with relatively pricier West Side markets continuing tosee relative weakness compared to last year and compared to some markets on theEastern side of the city. Buyers are moderately more active in Eastern Cities(Arcadia and Monrovia), Foothill Communities (La Cañada Flintridge, LaCrescenta – Montrose), East Valley (from Sherman Oaks to Glendale), and SouthBay, than in Mid-City or West LA areas. The activity is largely driven by moreavailable inventory this spring, but also search for value as much of theactivity is seen with homes priced below $1 million, but also within higherprice ranges.
Taking the first five months of the year together, sales are7 percent below last year, with all price ranges trending below last year and aconsiderable decline in sales of homes above $2 million, which are down 14percent year-over-year. Nevertheless, May offered some promise for homes pricedbetween $2 million and $3 million with a 6 percent jump compared to last May.This was the first year-over-year increase following six months of double-digitdeclines. Sales in that price range in May reached the highest level in atleast the last four years.
Sales of homes priced below $2 million posted a 2 percent declinefrom last year, following April’s jump of 5 percent. Even with May’s smalldecline, the market has seen a considerable improvement in sales compared to anextended period of year-over-year declines seen in the last year.
Figure 1 traces year-over-year changes in number of homessold by price range. While the volatility of monthly changes makes it difficultto follow the trends, note the April increases in lower price ranges, and thesurge in sales between $2 million and $3 million compared to the beginning ofthe year.
Figure 1Year-over-year change in number of homes sold by price range
Considering the volatility in monthly changes, Table 1summarizes 3-month average change (March-May) compared to last year. The East Sideof Los Angeles, including East Valley (up 58 home sales YOY), FoothillCommunities, and Eastern Cities, maintained relative strength compared to theother areas, generally due to strong sales of homes priced below $1 million.Sales below $1 million also fared well in the Greater Malibu region, SiliconBeach and Hollywood Hills, while sales priced between $1 million and $2 millionfared well in West/Mid LA, North Valley, South Bay, NELA, and South of 210. Thestrength of the sale activity is largely a function of existing inventory.
Regarding the jump in sales priced between $2 and $3 millionin May, the majority of the increase came from the East Valley, Eastern Cities,and Foothill Communities. Note that only 7 percent of Los Angeles sales arepriced between $2 and $3 million.
For-sale inventories continued to trend ahead of last year,however the rapid growth rates seen at the beginning of the year have slowedconsiderably and are back to rates seen at the same time last year. In otherwords, after 20-30 percent increases in inventory during the winter months, therate of increase has slowed to an average of 10 percent. Figure 2 illustratesyear-over-year changes in for-sale inventories by price range, with percentagesdenoted on the line tracing inventory below $1 million. Overall, while inventoryis trending 10 percent above last year for the last two months, inventorypriced between $2 and $3 million is growing at a higher rate in recent months,up 14 percent in May.
Figure 2 Year-oer-year change in for-sale invetnory by pricerange
Furthermore, Table 2 illustrates changes in inventory byregion, change in new listings, median days on market and change in days onmarket from last year. A few trends are of note. Inventory increased and seemsto continue increasing (with increase in new listings) at the highest rate in manywestern parts of Los Angeles, such as Mid City, Sunset East, Silicon Beach, andBrentwood; while inventory is aging without increase in new listings on theEast Side, NELA, North Valley, and areas surrounding DTLA. Those are also areaswhere days on market has increased relatively more, up 17 days.
Attractively priced and updated homes continue to sell at arelatively faster pace in more affordable communities and East of Downtownalong with South Bay. Overall, homes are selling in 31 days on average, whichis 7 days longer than last year. The increase in days on market is predominantlyamong lower priced homes with properties priced below $1 million taking 7 dayslonger to sell, or 27 days on average, and those priced between $1-$2 milliontaking 11 days, or 33 days on average. Homes priced beyond $2 million generallytaken longer to sell anyway, and there has not been a notable change from lastyear.
In addition, absorption of available inventory has improvedin spring, from around 15 percent in the first quarter to an average of 20percent in May, suggesting buyers are cautiously optimistic in most areas. Figure3 traces out 3-month moving average of absorption rate together with percent ofhomes selling over the asking price. Both indicators suggest that buyer demandhas notably picked up in recent months, and while it still has not matched thelevels seen in last couple of years, it measures up with conditions seen in2016.
Figure 3 3-month moving average of absorption rate and shareof homes that sold over asking price
Table 3 summarizes absorption rates in May, year-over-yearchange in absorption rate, share of homes that sold over the asking price, andthe change from last year. The change in absorption rates from last yearsuggests that the number of homes sold from the available inventory is only 3.5percent points below last year, when they were 24 percent. Although overallabsorption rate is down, some areas such as Eastern Cities, FoothillCommunities, East Valley, and areas surrounding DTLA have seen an increase inabsorption rates.
In addition, while the share of homes selling over theasking price has declined by 13 percent points from 49 percent last year to 36percent in May, Eastern cities (up 6 percent points), and Sunset East (up 11percent points) have seen more homes selling over the asking price. A number ofWest Side areas, such as Brentwood/Santa Monica/Palisades, West LA, and HollywoodHills, have seen buyer competition decline markedly from last year. GreaterPasadena with Foothill Communities, NELA, and Sunset East continue to have determinedbuyers and more than 50 percent of homes sell over the asking price.
Lastly, the question remains, where does the Los Angeleshousing market go from here? As discussed last month, median home price growthremained flat overall since the beginning of the year and remained so in May,meaning that following seasonal changes, it is back to the last year levels. Afew areas did see some price increases, mostly value-driven, compared to lastyear — namely Eastside, areas surrounding DTLA, South LA, and Mid City whereprices are about 6 to 8 percent above last year. But generally, softening ofprice growth has been anticipated at this point of the housing cycle. In the PacificUnion Real Estate Economic Forecast 2020, see Figure 4, our housing expertsdiscussed the expectations around the normalization path, suggesting that homeprices will reach a point in 2019 when they will remain flat for couple ofyears. Unfortunately, softening of price growth may be alarming some buyers whofear that housing market correction is inevitable and are waiting for sellersto yield further and lower their prices. Nevertheless, while buyers may beexpecting price declines, declines are likely to be very minimal and unlikelyto resemble the correction that we saw in the last housing cycle. However, manyconditions are different than the last cycle. Most importantly, creditconditions are significantly better than in the last cycle with the currenthousing boom driven by exceptionally solid underwriting, many all-cash sales,and almost negligible new construction growth, all of which suggest that thecorrection path is looking notably different.