Is the Market Poised for a Downturn … or New Highs?

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Have sellers finally met their match in price-induced buyer fatigue? Nationally, pending sales declined for the first time since May 2020. Larry Yun of the National Association of Realtors describes the decline as a “turning point for the market,” adding that the slowdown in sales is “largely due to the huge spike in home prices.”

Are national trends playing out in the Los Angeles market as well? Not yet, according to a July 22, 2021 article in The Real Deal. Los Angeles saw a record number of homes sold in the second quarter. There were 2,093 closings — 400 more than in the first quarter and more than double a year earlier, when California was first thrust into pandemic lockdowns. Helping sales is the fact that housing inventory in Los Angeles has not decreased to the record low levels seen in much of the country.

Meanwhile, prices in Los Angeles continue to climb alongside unit sales. The Real Deal article notes that the median sales price in the second quarter for Westside and Downtown Los Angeles homes was $1.75 million, 9 percent higher than in the previous quarter and 15 percent more than a year earlier. The area’s average sales price — which reflects the booming luxury market — was $2.8 million, up 20 percent from the first quarter and up 6 percent from a year ago. Average price-per-square- foot — $1,178 — was the highest in the last 17 years.

Mortgage rates continue to support the market as well. Rates declined again as concerns about the Delta variant continued to create uncertainty on the pace of the economic recovery. 30-year fixed-rate mortgages (FRM) averaged 2.78% in the week ending July 22, a decline from 2.88% in the prior week. Mortgage rates for 15-year FRM loans averaged 2.12% in the latest week, hitting an all-time low since 1991. With jobless claims data came in higher than expected, the 10-year treasury yield remained below 1.30%, further supporting lower mortgage rates.

When does the music stop for the Los Angeles market? Obviously, it’s hard to predict. Even with low mortgage rates, raw material inflation and continued buyer demand will eventually cause prices to rise to unsustainable levels and result in a pullback by buyers. At that point it will be a question of whether sellers become more motivated than buyers. Until then, expect prices to remain high.

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