What happened to the real estate market?

The 2020 market was crazy.  However, it wasn’t surprising.  Since back in March, experts, large scale Brokerages, and researchers all predicted this would happen.  Here is what we saw.

The median price point is up 12.7% compared to November 2019 to $721,000.  It was at $635,000 back in January.  This has been fueled by low interest rates and low inventory. 

Many of our listings had multiple offers and with favorable terms for the Seller. 

Take one of our latest listings at 25541 Pembrook Place in Santa Clarita.  We listed the home for $699,000.  We had 23 showings in three days, five offers, and sold for $742,000.  This actually wasn’t the highest offer.  However, the winning Buyers waived their appraisal contingency.  They went through two appraisers and the highest it appraised was $720,000.  The Buyers paid the difference and closed.

The Month’s Supply continues to decrease and now down to 2.6.  This means if no new homes came to the market, it would only take 2.6 months for every home in Los Angeles County to sell.  There are exceptions.  The first example is the luxury market.  According to an article published by Mansion Global, some of the drivers are as follows:

• Stock Market: Many high-net-worth people have money in the stock market.  More importantly, a lot of employees of big companies (such as in tech) get paid or are offered recruiting incentives in the form of stock options.  That means most of their money is tied up.  With the massive fluctuations, it can make it harder for someone to pull the trigger to buy.  Moreover, many of these high-net-worth individuals don’t necessarily need to move.  So, when the world is in this state, some feel comfortable enough to stay put.
• Foreign Investment: Each country is having their own set of problems, which is trickling into the luxury market here at home.  Richard Green, director of the USC Lusk Center for Real Estate stated in the article, “We’re seeing in London that there’s less money going into the top of the market…The Chinese are calling their money home, and Russia again has been struggling economically, which certainly influences the luxury market.”
• Inventory:  Even though inventory is low in general, it has increased over the last year or so.  With the smaller pool of buyers, supply is outpacing demand.  Keep in mind because the cost to build in Los Angeles is so high, it basically only makes sense to build in the luxury market (except for the Small Lot Ordinance projects).  Because of this, the builders were fast in swooping up these tear downs and building beautiful homes.  The problem?  Many of them are coming up on the market around the same time.  Now buyers have a choice on which beautiful home they want.
• Interest Rates and Taxes: Many of the tax changes over the years have put a burden on buying in the luxury market.  Although Los Angeles County doesn’t have the highest property tax rate in the country, it is still up there.  In addition, the amount you can write off on some of those costs have been limited, making even less enticing to buy in the luxury market.

The second exception to the low inventory is condensed areas such as Downtown or luxury high rises.  Think about it, what does Downtown Los Angeles currently have to offer?  Their nightlife is shut down and you don’t need to be close to work.  Therefore, many are leaving for more open space.  Because people are wanting more space and don’t need to be close to work, some buyers can go for a single-family home in a different location.  For example, you can live in a condo for $1,000,000 with HOA dues at $1,000/month or buy a house in the valley for $1,200,000 and have the yard you always wanted for the same all-in monthly costs.  Now, of course this will change and DTLA will be thriving once again.  It is just about riding the wave.

So, what’s in store for 2021?  This is our prediction:

• Rates will remain low along with inventory:  Many homeowners are priced out of their own homes.  That means even if they sell, where are they going to go?  This is important to know because that’s what keeps inventory low and prices high.  Plus, the Feds have already announced they intend to keep rates low for now.  Even if they do creep up to say 3%-4%, that is still low when you look over the last fifty years.
• Focus on the COVID Lifestyle to add value:  Instead of putting all new floors throughout, let someone else do that.  But think about ways to create different outdoor experiences or maybe a nice built-in desk for a home office.  More people are working from home.  Play on that.
• We will see more inventory, but that doesn’t mean lower pricing:  Some of those in forbearance will have to sell, and people are moving.  They could be moving up (such as from a condo to a house) or straight up out of the area.  According to How Money Walks, Los Angeles County is seeing a negative loss of wealth.  But here is where it gets interesting.  They aren’t moving far.  Primarily to areas such as Orange County, San Bernardino County, Riverside County, Clark County, NV, and Ventura County.  However, we are seeing migration from counties including New York County and Kings County, NY, San Francisco County, and Cook County, IL.  These counties are typically more expensive, which could mean although fewer people are moving to Los Angeles, they could be generally wealthier, who can afford the higher prices.  Plus, with our already low inventory, it might create balance in the market.

Of course, time will tell.  This year has been nothing we have ever seen so it hard to pinpoint what is going to happen.  But don’t you worry, we are closely tracking it and giving our clients direction as needed.