> > Mortgage rates were remarkably stable in January, and near-term Fed rate cuts look less likely > Quick Take: > After the average 30-year mortgage rate fell over 1% in November and December 2023, rates stabilized between 6.60% and 6.70% in January 2024. Median prices continued to decline in January, but we expect prices to rise in February — the seasonal norm. > Sales fell 6% year over year and 1% month over month, hitting the lowest levels in modern history. Inventory fell nearly 12% month over month, making supply incredibly tight regardless of slower sales. > Consumer confidence has only recently begun climbing despite nearly every economic indicator showing a strong U.S. economy for some time. This, of course, largely can be explained by inflation and the recent improvement in real earnings (that is, inflation-adjusted earnings). > Note: You can find the charts & graphs for the Big Story at the end of the following section. > > > > Will consumer confidence bring back the housing market? > The Fed met January 30th through 31st and decided to keep its benchmark rate at a range of 5.25% to 5.50%, which it’s held since July 2023. The Fed board members left the meeting with a hopeful tone, but the meeting results are somewhat disappointing to those pushing for rate cuts in March. The door for cuts is cracked open, but we now expect rate cuts to begin closer to summer rather than in spring. Fed chairman Powell’s rationale is reasonable: the current rate levels seem to be working, and if it’s not broken, don’t fix it. The Fed’s dual mandate is for stable prices (inflation ~2%) and low unemployment. Currently, inflation is dropping, and unemployment is low, at 3.7%. Recession fears have declined once again, and the soft landing — slowing the economy without recession — that the Fed intended seems to be unfolding. Powell was quick to say the Fed does not have a growth mandate, which is correct, so the risks of cutting rates early will likely outweigh the benefits of cutting in March. However, if inflation continues to fall, and economic indicators are still favorable, rate cuts will likely start mid-year. > > After the sharp mortgage rate drop in November and December 2023, the housing market saw real potential to warm considerably in Q1 2024, but now we expect a slower route to a healthier market. Mortgage rates remained steady at around 6.5% in January 2024, which is still about 1% higher than needed to get more participants to enter the housing market. We know the large mortgage rate drop from the 23-year high of 7.79% in October to around 6.5% wasn’t large enough to bring buyers and sellers back to the market, because the data now show that they didn’t come back. Sales reached a historic low, the number of new listings coming to market are near all-time lows, and inventory declined. This is due, in part, to normal seasonal trends — winter is when all those metrics tend to reach a seasonal bottom — but seasonality doesn’t fully explain those drops in the context of a substantial decline in rates. From October 2023 to January 2024, the monthly cost of financing a median priced home decreased nearly 13%, and the market still slowed on both the buyer and seller sides of the market, implying that rates are still too high for most would-be participants. However, we believe that if rates fall another percentage point, which roughly equates to another 10% decrease in monthly financing costs, the market will react positively and price more people into the housing market. > > Another important aspect of the current market is the very recent positive changes in workers’ real earnings. The psychological effects of nearly 10 years of earnings growth, culminating in a final jump in the first two quarters of 2020, before dropping rapidly once COVID hit and inflation rose, was perhaps the most significant cause of the low economic sentiment in 2022 and most of 2023. People quickly become attached to the amount of money they make and the spending power of that money, so the feeling that it was taken away creates dissatisfaction. It’s also fair to say that part of the American dream is progressively increasing earnings as we age. But earnings didn’t keep up with inflation, so real earnings dropped, causing even more dissatisfaction. From 2021 to 2023, the purchasing power of the U.S. dollar declined 15%; therefore, earnings needed to increase 15% just to feel as financially well off as three years prior. For many, if not most people, earnings weren’t keeping up with inflation, and people don’t tend to buy homes when they feel less wealthy. However, after six straight quarters of real earnings growth, it makes sense that people broadly feel better about their finances, which will only benefit the housing market. > > Different regions and individual houses vary from the broad national trends, so we’ve included a Local Lowdown below to provide you with in-depth coverage for your area. In general, higher-priced regions (the West and Northeast) have been hit harder by mortgage rate hikes than less expensive markets (the South and Midwest) because of the absolute dollar cost of the rate hikes and limited ability to build new homes. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home. > > > > Big Story Data > > > > > > > > > The Local Lowdown > In this Local Lowdown, we divide Los Angeles into three luxury real estate areas as follows: > North Beach, including the Pacific Palisades, Santa Monica, and Venice > Westside, including Beverly Hills, Brentwood, West Hollywood, and Westwood > South Bay, including Hermosa, Manhattan Beach, and Redondo > Quick Take: > Year over year, median price is up across all three of the selected markets for the first time since May 2022. Price per square foot, however, gives a more accurate picture for the selected areas. Year over year, price per square foot is up 1% in North Beach and South Bay and down 11% in the Westside. > Active listings in the selected markets declined slightly in North Beach and the South Bay month over month, while Westside inventory rose due to a drop in sales. New listings rose over 200% month over month across markets. > Months of Supply Inventory in January 2024 indicated a buyers’ market in the selected Los Angeles areas. It’s typical for the MSI to rise in the winter, with fewer buyers participating. > Note: You can find the charts/graphs for the Local Lowdown at the end of this section. > > > > Median prices and price per square foot movements are mixed across markets month over month and year over year > Home prices and inventory in luxury markets continue to buck seasonal trends, showing considerable variability month to month in terms of median price and average price per square foot. The unique homes, higher mortgage rates, and low inventory have all contributed to these volatile price trends. Month over month, median prices rose 22% in North Beach and 26% in the Westside, but fell 6% in the South Bay. However, the price per square foot rose 1% in North Beach and South Bay, but fell 11% in the Westside. In markets with high variability month to month, it can be hard to identify the signal from the noise. When we look over the past two years, prices have moved horizontally, with high variability around the average. > > Luxury markets tend to be affected more acutely by higher interest rates due to the absolute dollar cost of financing. High mortgage rates soften both supply and demand, so ideally, as rates fall, far more sellers will come to the market. Rising demand can only do so much for the market if there isn’t supply to meet it. Unlike 2023 inventory, 2024 inventory has a much better chance of following more typical seasonal patterns. > > > > New listings up over 200% across the selected markets > Inventory, sales, and new listings in the selected areas don’t often trend together, but they’ve shared some similarities in the past 12 months. Inventory has increased minimally across the selected markets over the past 12 months, with North Beach inventory rising the most due to a higher level of new listings coupled with a significant drop in sales. In January, new listings rose significantly across the selected markets, up over 200% month over month across markets. The increase in new listings led to a significant rise in homes coming under contract in North Beach and the Westside, up 30% and 36%, respectively. The South Bay surprisingly saw a 7% decline in listings under contract. However, the South Bay market will likely see an uptick in sales in the spring. > > As demand slows, buyers are gaining more negotiating power and paying less than asking price on average. In January 2024, the average seller received 89% of list price in North Beach, 86% in the Westside, and 93% in the South Bay. > > > > Months of Supply Inventory indicates a buyers’ market across the selected Los Angeles markets > Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is around three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). Luxury markets tend to have higher MSIs because there are fewer market participants. MSI in the Westside has implied a buyers’ market for more than 12 months, and it jumped higher in January as sales fell and new inventory increased 200% month over month. Similarly, North Bay MSI has indicated a buyers’ market since April 2023. South Bay MSI tends to vary between a balanced market and a sellers’ market but, in January 2024, rose to a buyers’ market. > > We can also use percent of list price received as another indicator for supply and demand. Typically, in a calendar year, sellers receive the lowest percentage of list price during the winter months, when demand is lowest. January tends to have the lowest average sale price (SP) to list price (LP), and the summer months tend to have the highest SP/LP. The January 2024 SP/LP was 2.4% higher than last year, meaning we expect sellers overall to receive a higher percentage of the list price throughout all of 2024 than they did in 2023. > > > > Local Lowdown Data > > > > > > > > > >
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