South Bay Real Estate Leveling Off

It looks like the real estate market is finally climbing out of the Covid trough. Each passing month this year has shown red ink, mostly on sales volume, and a lot on median price as well. October brought some relief in that the number of homes sold is up in every area, and median prices are only down in half the South Bay.

The number of South Bay homes changing hands has varied considerably since 2019. Sales staggered briefly after the spring shutdown in 2020, then recovered mid-year as the interest rate continued down. Rock bottom interest rates pulled in buyers and homes flew off the market with bidding wars. In the final quarter of 2022 sales plummeted and the buying spree ended.

Year	Homes Sold
2019	7,100
2020	8,581
2021	10,279
2022	7,616
2023	6,481
2024^proj	6,636

If this is indeed the beginning of a normal real estate market again, it’s possible to see reaching the pre-pandemic sales volume in 2025, but more likely in 2026.

The median price is another story. Interest rates were hovering around 3.5% in spring of 2020. The Federal Reserve opened the money spigot to keep the economy flowing while everyone was locked down. For about 15 months mortgage interest rates were below 3%. Historical data sourced from Freddie Mac shows that rates dropped below 4% starting in June of 2019 and lasting until March of 2022. Nearly three years of sub 4% rates makes the current +/-7% a significant deterrent to buying a new home or trading up.

During that period, buyers took advantage of the low rates to boost their offering prices for homes, creating a sellers’ market and bidding wars. The median price sky-rocketed in 2021 and continued through the first of the next year. In summer of 2022, median prices started falling and dropped until late in 2023. Across the board, median prices have been modestly positive since the beginning of 2024.

Certainly it’s all relative, and the market is adjusting, both on the side of higher prices and higher interest rates. But, with today’s median prices roughly 40% above 2019, the number of buyers who can qualify for the necessary loan is way down. A 2024 Q3 estimate from the California Association of Realtors shows only 15% of households in Los Angeles County can afford the median priced home. That compares to 56% in 2012, which leaves a lot of buyers on the sidelines.

The election is over and the incoming administration is clearly pro-corporate. Over the next couple months the dynamics of the shifting markets will become clearer. By the new year we should have a better understanding of the impact to our local real estate. As of October, declines are leveling off and sales are starting to pick up.

Beach: YTD Sales Up 6%, Prices Up 7%

The number of homes sold in the Beach cities increased by 11% in October, rising from 114 in September to 127. The median price of Beach properties went up from $1,790,000 to $1,900,000, a 6% jump in monthly figures.

Annually, October this year showed a whopping 61% increase in sales over October of 2023, climbing to 127 homes this year versus 79 last year. Over the same one year span, the median price rose 19%.

In view of the huge increase, it’s important to note that October of 2023 is the month mortgage interest rates started toying with 8%, which the buying public simply wasn’t accepting. While lenders and the Fed worked to lower rates, real estate was “in the tank” for last quarter of the year. After the beginning of 2025 the year over year percentages should level out.

January through October, the number of homes sold this year hit 976, 6% more than were sold in the same time period of 2023. Median price at the Beach climbed to $1,788,750 for a 7% increase over last year.

Harbor: YTD Sales Up 3%, Prices Up 4%

October sales in the Harbor area came in at 345 homes for a 9% increase over September. The median price was $775,000, up 2% from the prior month.

Looking at year over year for the same month, this October showed a 29% improvement over the 267 homes sold last year. As noted earlier, home sales took a significant drop in the last quarter of 2023 due to mortgage interest rate hikes. The year over year median price was a much more reasonable 3% increase.

For the first ten months of the year, sales volume has gone up by 3%, to a total of 2,904 homes sold. Over the same period, the median price has jumped up 5% to $778,500.

Hill: YTD Sales Up 2%, Prices Up 5%

On the PV Peninsula, October sales outpaced September by 40%, coming in with 66 homes sold versus 47 the preceding month. It’s important to remember that the Palos Verdes market is the smallest of the South Bay, so a handful of transactions can make a huge difference in either, the sales volume or the median price. The steep increase in sales was accompanied by a more modest increase of 13% in median price, ending the month at $1,914,000.

Comparing October to the same month last year reveals a 5% boost to the number of homes sold. On the other hand, the median price took a fall, dropping by 2%.

Year to date, home sales on the Hill have increased 2%, from 544 in 2023 to 557 this year. For the same ten months, the median price went up 5% to $1,938,750.

Inland: YTD Sales Up 1%, Prices Up 2%

Home sales in the Inland area have been stable, with an increase of 12% in the number of transactions, from 128 properties sold in September to 143 in October. A 1% drop in the median price from last month to this brought the median down from $882,500 to $875,000.

Annual sales in October of this year ended 23% higher than October of 2023. The median price, going the opposite direction, fell 5% from $917,000 last year.

Continuing the relatively modest numbers, the Inland area has risen 1% in the number of homes sold year to date, The 1202 sales reported so far, compare to 1195 sold in 2023. Similarly, the median price is up 2%, having risen from $871,250 last year to $891,245 this year.

Beach=Manhattan Beach, Hermosa Beach, Redondo Beach, El Segundo
Harbor=Carson, Long Beach, San Pedro, Wilmington, Harbor City
PV Hill=Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills, Rolling Hills Estates
Inland=Torrance, Lomita, Gardena

Photo by Corey Buckley on Unsplash

South Bay Real Estate Bonanza

July brought a bonanza—of sorts—to real estate in the Los Angeles South Bay. Sales volume, which had been falling below last year for three of the last four months jumped up 20%. Granted, July was an unusually slow month in 2023, compared to most years including 2024.

Month over month showed a comparable increase. Total sales volume was up 6% from June to July. The only negative for monthly sales was in the Harbor area where activity was off by 8%.

More importantly, year to date through July, sales volume was up 1% across the South Bay compared to the same period in 2023. With over half the year past already, some growth is a positive sign. This close to November on a presidential election year, one would expect the market to be looking better than it has been.

In fact, The number of homes being sold has still not recovered from the pandemic. Sales this July were 22% fewer than they were in July of 2019! As discussed previously, because the mortgage interest rates were temporarily at rock bottom, about 40% of the homeowners in California currently are “trapped in a mortgage they can’t afford to leave.” This promises to maintain downward pressure on home sales for the better part of a decade. Paradoxically, the reduced inventory is contributing to rising prices.

More homes were being sold in July, and they were being sold for greater prices. Annual increases in the median price were up 15% in entry level neighborhoods. At the Beach and on the Hill median prices didn’t reach quite as high, but were still more than 10% above July of 2023.

Monthly pricing showed the contrast between high end and entry level homes more clearly. In the Beach area the median dropped 3% from June, while on the Peninsula, there was no change in the median price. In contrast, the Harbor and Inland areas rose 6% and 5% respectively over June numbers.

Comparing the first seven months of this year to last year shows inflation continues to plague the real estate economy. Median prices rose in a range between 6% and 9% in the South Bay during the period.

Beach: Highest YTD Sales Volume Increase

Sales in the Beach cities jumped from 90 homes in June to 118 in July for a massive 31% monthly increase. This was matched by a 30% annual increase over July of 2023. Month to month statistics, as well as same month last year comparisons have shown tremendous variability this year.

The rapid fire changes precipitated by the pandemic, and subsequently by the Federal Reserve in an effort to keep the economy under control, created wild swings in the number of homes sold. At the same time the shifts in median price were less frequent and considerably less wide-ranging.

Today, looking at the year to date summaries for both, sales volume and median price, the numbers have moderated greatly. Sales volume at the Beach measured against last year has ranged from negative 27% to positive 33%. That huge range smoothed out to 6% growth in the year to date view.

Likewise, the median price, which has been a bouncing ball, declined 3% from June and increased by 11% over July of last year. Comparing the year to date from 2023 to 2024, the median settled in with a 6% increase for the longer term perspective.

Harbor: Highest YTD Median Price Growth

Monthly sales volume in the Harbor area fell 8% to a total of 316 homes sold in July compared to 342 sold in June. Annual sales moved the opposite direction, rising 17% from July of 2023 to July this year. For the first seven months of 2024 sales have fallen 1% compared to the same period last year.

Median prices had fallen 6% in June and have reclaimed that loss with a 6% growth in July. The new median, $848,500, is a 15% improvement over July of 2023. Year to date the median price is up by 9% in the Harbor area over the same seven month period in 2023.

Interestingly, every month this year has been a growth month for the year over year median price at the Harbor. The lowest increase has been 4% in March and again in June. The highest has been 18% in both February and May.

Hill: Highest Median Price In South Bay

Monthly data for the PV Peninsula came in with 73 homes sold for a 22% increase in volume over June. Annually, sales showed a 46% increase over July of 2023, a welcome change from the 24% drop in June vs June numbers. Year to date sales posted a 4% increase in volume over the same seven months in 2023.

PV registered a 12% annual increase in median price to $2,015,000 in July, so far the highest median in the South Bay for 2024. It doesn’t quite reach the $2,300,000 of May, 2023, but is one of the more impressive months in recent years. The monthly increase from June was negligible, but the timing in 2023 coincided with a downward shift in median sales prices. So, the change shows up as a 8% increase in the year to date median.

Inland: Median Price Hits $1,000,000 First Time

Sales volume for the Inland area jumped in July—up 15% month to month for a total of 142 homes sold, and up 9% since July of last year. Being past the halfway point of the year boosts the value of the the year to date statistics which come in at a mere 2% through July.

At the same time, the July median sales price for the Inland cities climbed 15% above July 2023 and hit $1,000,000 for the first time! Last year’s number was pretty run-of-the-mill so lends some import to this year’s improvement. The 2024 year to date median price calculation supports the strength shown by the monthly and annual numbers with a solid 7% increase over 2023.

Why Use Median?

A brief comment on median price and why it’s often used in real estate: Averages are used for a great many things in making comparisons, and for things that change frequently, averages do a great job. Medians, on the other hand, minimize the ‘jerky’ nature of averages and show directional movement better than a lot of up and down action.

A median is exactly the middle of a group of numbers, so that half are higher and half are lower. So the impact of a single outlier number shows less distortion on the longer term trend line of the values. In other words, it’s easier to see what your investment will likely be worth in 10 years.

Most of us don’t buy houses often enough to care about movement over the last 30 days. We’re interested in staying put for 10 years, plus or minus. The median trend will show us the most likely path.

Photo catalina_from_wayfarers_chapel.jpg by Carl Clark

South Bay Housing Prices Up, Sales Down

Median prices for real estate around the Los Angeles South Bay have risen over 40% since 2019, the year before the corona-virus pandemic. Comparing the median prices and sales activity for the first half of 2024 shows increases approaching 50% for the five year period in all areas across the South Bay.

Over the same time period, sales volume has plummeted by 22%, falling from 4,022 in 2019 to 3,149 in 2024. The Beach cities have been particularly hard hit with a 34% drop in the number of homes sold during the first six months of the year.

Looking at 2024 versus 2023 shows a similar pattern with median prices up nearly 10% from the first half of last year. The Beach area showed the lowest increases, coming in at 5% above the 2023 median.

Sales volume was off by 2% across the area with the only positive being the Beach at a mere 1% above 2023 numbers. As the 2024 year has progressed, the number of sales has declined in total. Simultaneously, more and more parts of the South Bay have fallen into negative growth.

As of the end of June, 2024 sales figures for all areas were negative in comparison to June of 2023. While the number of homes sold has consistently declined through the first half of the year, median prices have been equally persistent at increasing over last year. Most experts are attributing the increasing prices and decreasing sales to the shift from an ultra-low mortgage interest rate during the pandemic, to a comparatively high rate currently.

When rates were at the lowest, many homeowners took advantage of the opportunity to refinance at the incredible rates. Those folks are now in a position where they would incur a painful increase in monthly living costs if they were to move. That has resulted in about a 40% reduction in the number of homes typically available on the Multiple Listing Services (MLSs).

At the same time, the increased mortgage interest rates have pushed a significant number of potential sellers out of the market because they no longer qualify for the loan they would need to trade up to a larger or newer home. That reduced the available inventory of resale homes even further and became another contributing factor to the bidding wars among the few buyers still in the market.

Beach: Down 18% in Sales May to June

Monthly sales volume fell from 110 units in May to 90 homes in June, for an 18% drop. Median price jumped 10% in one month to end at $1,917,500.

Year over year, the number of homes sold declined from 124 in June of last year to 90 this year for a loss of 27%. Median price for the Beach climbed 11% over the year.

Year to date for the first half of 2024 versus the first six months of 2023 shows a modest increase of 1% in sales volume along with a increase of 5% in median price.

Harbor: June Median Price Off by 6%

The Harbor area was the outlier for June. While month over month sales collapsed and pricing jumped for the other three areas, Harbor sales of 342 homes boosted sales by 19%, coming in well above the 288 homes sold in May. Meanwhile, median price went the other direction, dropping from $848K in May to $799,900 in June, for a decline of 6%.

Year over year statistics went the opposite direction, following the rest of the South Bay. Sales volume fell by 3%, dropping from 124 in 2023 to 90 in June of this year. Meanwhile the median price was up 4% for the year, rising from $772,000 last June to nearly $800,000 this year.

The first six months of 2024 brought a year to date sales drop of 4%. The median price in the same period climbed 9%.

Short term changes, as from month to month, have been unpredictable since the pandemic. Looking at the longer term, there is consistency in the declining sales volume and increasing median price. With 2024 a presidential election year, it will be interesting to see how long this direction holds.

Hill: Year Over Year Sales Fell 24%

With a reputation for wildly shifting statistics, the Palos Verdes Peninsula came in with relatively modest decline of 9% from May sales. Similarly, the increase in median price was very tempered at only 3%.

The sales volume for same month last year was anything but mild. June of 2023 reported 79 homes sold versus 60 homes in June of 2024. That’s a 24% drop in volume from last year. While a fourth of the 2023 sales disappeared, the median price eked out a 1% increase, going from $2,000,000 last June to $2,912,500 in June of 2024.

In what is becoming a familiar trend, the year to date sales volume is down 2%, and the median price for the first six months of the year is up 7%.

Inland: June 2024 Sales Drop 24% From 2023

The Inland area showed the smallest month to month change of the South Bay. The 4% drop in sales volume from 128 homes sold in May to 123 in June was minor. Likewise the 1% increase in median price from $945,000 to $955,000.

Like the Hill, the Inland area had a radical drop in sales from June of 2023 to June of 2024. Falling from 161 homes sold last June to 123 sold this June resulted in a 24% drop in transactions. Median price in the same period rose 9%, from $875,000 to $955,000.

Interestingly, there has been no statistically significant change in the sales volume for the first six months of the 2023 and 2024 years. It actually increased by three units from 669 homes sold in 2023 to 672 homes sold in the first half of 2024. For the same time periods, the median price climbed by 6%.

Photo Montemalaga Sunset by Carl Clark

The Law of Supply and Demand

South Bay:

Could it be that after several years of insanely steep ups and downs in the real estate market, we’re finally starting to see normal sales levels and prices? One could draw that conclusion after looking at the year to date statistics for the first four months of 2024 compared to last year. Instead of crazy double digit increases and decreases the rate of change has slowed to single digits almost everywhere.

The Beach cities have been the exception with a 19% growth in the number of homes sold through April compared to 2023. That compares to an average across the South Bay of 4% growth. That’s a good sign, but sales are still off by about 20% compared to the same period in 2019, the last year of “normal business” prior to the economic turmoil of the pandemic.

Median pricing continues to escalate also, though at a much reduced pace. For the first four months of 2024, year to date median prices increased in the 5%-9% range. This is a considerable drop from price jumps of as much as 29% seen just a few months ago.

Looking back at the historical data shows that when the pandemic first hit median prices were operating on a relatively normal upward path. Monthly gains were modest fractions of a percent. Then the Federal Reserve slashed the interest rates to keep the economy moving, and the median price shot through the ceiling with monthly increases frequently topping 30%.

August of 2022 saw a price peak and median prices have been falling since. There’s a lot of resistance on the part of sellers, of course. But the sales volume remains low by historical standards, and buyers are demanding price cuts to compensate for the higher mortgage interest rates, if nothing else.

Expect to see mixed results over the coming months as prices and interest rates ebb and flow around a fluctuating political scene, both nationally and internationally.

Beach:

Monthly sales volume took an insane 55% leap at the Beach in April, after having fallen 1% in March. Seeing the median price plummet by 13% for the same period helps to explain the shift. It’s an isolated example of the push and pull of prices and interest rates. Buyers will remain constrained in their ability to purchase, either by rates, or by artificially inflated prices, until sellers reach a “need to move” point where they are willing to reduce asking prices.

Year over year sales show a similar response in the comparison to last April—a 31% growth in number of homes sold against a 1% decline in the median price.

Trends are better demonstrated in the year to date statistics. Looking at the first four months of 2024 and comparing to the same period in 2023 shows the sales volume increased by 19% while the median price increased 5%

Making the same comparison between 2019 and 2024 shows a 32% decline in the number of homes sold this year. Median price is sharply higher by 43%.

Harbor:

The Harbor area appears to be stabilizing ahead of the other South Bay areas. April sales volume declined at the Harbor by 4% versus sales in March, while median prices increased 1%. Smaller monthly movement, especially in price, is essential to reduce inflation and put the real estate economy back on a solid footing. It’s hard to argue that inflation is near 2% annually, while real estate prices are escalating at several times that goal.

Clearly there’s still a ways to go considering the April 2024 volume had zero growth compared to last April, and is still 24% below April of 2019. The median price has a similar issue being up 7% over April 2023, while holding at 44% above April of 2019.

Year to date, 2024 versus 2023, the number of home sales is off by 1% and the median price is up 8%. The elephant in the room is the constantly increasing median price, which is pushing up hard against the Fed’s inflation battle. The price keeps going up because the inventory is exceptionally limited. There were 18% fewer homes sold year to date in 2024 than in 2019. The limited selection compared to the pent up demand pushed the median up some more.

Anecdotally, many pundits point to the extremely low interest rates of the pandemic years as a big driver for the low inventory and bidding wars. Home owners who refinanced to rates well below 5% are reluctant to sell those properties and take up new loans at often double the interest rate. Consequently, homes that would have gone on the market are now artificially being held off the market.

Hill:

As usual, home sales on the Palos Verdes peninsula have been all over the map in recent months. The number of homes sold in April climbed 28% compared to March, when it jumped 39% versus February, when sales dropped 14%. The median price started with 0% change in January and has yo-yoed it’s way through the first four months, ending down 3% in April from March.

While monthly sales statistics are often sporadic on the Hill, comparing April this year to the same month last year, shows a 28% increase in the number of sales and a corresponding 3% increase in the median price.

Year to date numbers for Palos Verdes were more mundane, with the number of sales for the first four months up 5%. In the same time frame, median prices were up by 9%.

Compared to year to date 2019, PV sales volume was down 9% while prices were up 42%.

Inland:

Business in the Inland cities looks very much like business on the Peninsula right now. Month over month sales volume is growing at 8%—that’s positive because the market needs more inventory! At the same time monthly median prices are dropping by 5%—also positive because interest rates are not going back down to the record-breaking levels of the pandemic! Many of the transactions in the Inland area are entry level buyers embarking on their first home purchase. High prices and steep interest rates work against success for both sellers and buyers in that market.

Year over year sales volume increased at 34%, the kind of activity needed to stabilize the local market. Even with that increase in business, the median price pushed upward by 4%, double the Fed target.

Year to date sales volume is up 9% and median price is up 6%.

Wrapping it Up

It’s going to take some juggling to get more sellers onto the marketplace. And it’s going to require coordination with having able buyers there at the same time. Pundits are betting the Fed will engage in “brake-tapping” until after the Federal election. In the months just before the election interest rates will drop enough to encourage sellers to trade up, and allow buyers to qualify for financing. Those steps would enhance the increasing inventory being seen now. Then in the new year the brakes will be applied again to prevent inflation in the spring buying season. Of course, the outcome of the election promises to influence the market under any circumstance.

Photo by Dez Hester, https://unsplash.com/@dezhester

Mortgage Interest Rates Still Climbing

In a normal year, the interest rate for a conventional mortgage loan would be lower than the rate quoted for a “high balance” loan, which would be slightly lower than a “jumbo” mortgage. (Here in Los Angeles jumbo is more common than not.) The theory behind the differing rates is one of risk management. Lenders generally consider larger loans to be more risky, thus jumbo costs more.

Guess what! It’s not a normal year. It’s a Presidential Election Year. In addition to the political strife, our nation is closely involved in a couple of economy-disrupting wars in other parts of the globe.

The end result is jumbo loans with fixed interest rates that are as low or lower than conventional loans. Despite headlines touting strength in the economy, interest rates have increased by approximately .5% since the first of the year. The most recent announcements from the Federal Reserve System are hinting that anticipated rate reductions aren’t happening at all in the first half of 2024, and the number of potential reductions is expected to be less than previously expected.

Last year saw median prices in the South Bay falling below 2022 prices through July. In August of last year price declines began to abate. By December of 2023 prices had started to stabilize. The new year continued that trend with only one negative median price result in January. Improving on that, February showed solid growth in prices across the South Bay. The real estate market seems to be reacting to what is touted as an improving economy.

However, compared to last February, sales volume this February was a mixed bag with overall positive growth of 2% despite declines of 3% in the Harbor area and 14% on the Hill. These weaker sales figures follow a strong growth in the number of homes sold in January versus the same month in 2023.

Recent month to month history has shown that a decline in sales volume is typically followed by a decline in median price. This “tit for tat” resonance indicates a market where buyers are at the edge of their ability to buy and sellers are feeling the resistance. Indeed, following the upward movement of mortgage interest rate activity for the first two months of the year leads to the conclusion sales volume will drop, followed by more substantial price decreases in coming months.

Beach: Sales and Prices SeeSaw

On a month to month basis, the Beach area has seen serious ups and downs in the number of homes sold and in the median sales price. January started with a massive 46% drop in sales from December, then February showed up with a 48% increase in sales volume. By way of contrast, Palos Verdes sales were down 16% and down 14% for the same months. The median price for Beach homes slipped 1% in February versus a 13% increase in January.

February sales volume versus February of 2023 was also steeply higher at 33%, the largest increase of the South Bay areas. At $1.175M the median price was up 29% over the same month last year. This is a somewhat surprising median price increase in light of other annual increases around the South Bay falling in the range of 5-18%.

Looking at year to date for the first two months of 2024, the Beach area had positive sales volume of 32% with a median price increase of 17%.

Harbor: More Up and Down

Responding to the volatility of the economy, the Harbor area flipped from negative numbers in January to positive in February. The number of homes sold was up by 8% over the prior month, while the median price of those homes increased 6%. The largest of the South Bay areas, the Harbor area typically has less variability in both sales and prices than the other areas.

Annual figures, looking at change from one year to the next in the same month, is usually a predictor of long term direction. February home sales in the Harbor area seem to be close to the bottom of market. Volume dropped by 3% from 2023, the smallest annual decline since the end of the pandemic.

At the same time, the median price rose 18% above that of February 2023. It should be noted that the median price in the Harbor last February was exceptionally low at $675K. In contrast, the $795K for this year appears to be on the high side and should be expected to moderate as the year goes on.

Year to date, the number of homes sold has increased by 2% over 2023. The median price has gone up 12%.

Hill: Numbers Continue to Fall

Real estate on the Palos Verdes Peninsula was off more this month than last. Month to month sales volume dropped by 14%. Median price, which was flat last month, has fallen by 1% this month. This kind of back and forth jockeying in price and volume looks jerky in the month to month statistics.

When viewed against the backdrop of annual data one can more readily see the direction. Annually, residential sales dropped by 14%, roughly the average of the past few months. While sales volume was dropping, the annual median price rose a surprising 10%.

Combining January and February for year over year numbers shows the number of homes sold increasing by 11% and the median price increasing by 9%

Inland: A Mixed Bag for Sales and Prices

Like the Beach cities, the Inland area enjoyed a huge surge in the number of homes sold for February, after suffering a large drop in sales January. Volume was up by 40% for the month. Median price dropped 4% after an 11% jump last month. So far this year the market has been very unpredictable.

As mentioned early, the “same month, last year” perspective is starting to level out. Residential sales volume for February of 2024 increased by 6% compared to 2023. The median price was up 5% over for the same period. The annual percentage of change seems almost stable by comparison the the monthly.

Year to date, Inland sales have increased 7% while the median price has declined by 1%. So far in 2024, only the Inland median price has declined from the first two months of last year.

Beach=Manhattan Beach, Hermosa Beach, Redondo Beach, El Segundo

Harbor=Carson, Long Beach, San Pedro, Wilmington, Harbor City

PV Hill=Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills, Rolling Hills Estates

Inland=Torrance, Lomita, Gardena

Photo by Matt Burt on Unsplash

Palos Verdes Homes Top the South Bay Market

Home sales on the Palos Verdes Peninsula chalked up an impressive set of statistics in October. Comparing the October 2023 sales to October of last year showed a stunning 26% increase in sales volume beside an equally impressive 11% increase in median price. At the opposite end of the spectrum the Beach Cities October sales volume fell 19% from 2022, while the median price dropped 14%.

Elsewhere across the Los Angeles South Bay volume and prices were mixed with the general trend leaning toward decreased number of homes sold and prices struggling to stay level with last month while often slipping below.

Year To Date Sales Continue to Drop

In between the highs and the lows real estate activity in the South Bay has been mixed for the months of August through October. While many commentators are cautiously hopeful, it must be noted that year to date comparisons continue to show significant declines in the number of homes sold, with an average drop of 18% from 2022 for the first 10 months of the year. Likewise, median prices are falling for the January through October time frame. For example, median prices on the Hill were up in October, but have fallen 4% year to date compared to last year. Similarly the Beach area median is down 3% and the Harbor area is off 2%.

Sales volume is clearly down. By this time in 2022 sales were at 6700 units versus 5500 this year. Many buyers have been “priced out of the market” and many sellers are resisting the idea of “prices going backward.” The result has been a lot of deals not being made.

Year to date, the deals that have been consummated are still generally at median prices above last year, however the most recent three months have shown at least half of sold homes required price reductions to make the sale. With winter setting in, we expect continued reductions in both the volume of sales and in the prices of sold homes.

Home Sales at the Beach Hit a Wall

Throughout the year real estate in the Beach Cities has maintained spotty growth. Sometimes median prices improved, sometimes sales volume. But, October brought a wall of red ink for the Beach. Month over month sales volume plummeted by 27%, while the median price dropped 5% from September when it was flat at $1.7M.

Year over year transaction volume dropped 19% from September of 2022. The median price fell 14% for the same period.

Looking at the year to date statistics showed more declines with sales volume for the first 10 months of 2023 coming in 16% below that of 2022. At the same time, the median price was off by 3%.

In prior downturns the Beach area has been among the last to respond to market negativity and one of the first to recover. If the pattern repeats, sales at the Beach will continue to show predominately negative numbers for the late fall and winter months. Most chroniclers project a return to positive market conditions in late 2025 or early 2026 in general.

Harbor Volume and Prices Turn Upward

Home sales in the Harbor area moved from all negative last month to mostly positive this month. Sales volume on a monthly basis jumped from 24% down in September to a 7% increase in October. Similarly, the month to month median price went from -1% to +1% in October.

Annually, the number of homes sold in the Harbor area increased by 6%, a significant change from having fallen 26% in September. The median price came in at $750K, up by 7%.

That’s only the second time this year the Harbor area median price has come up into the positive range when compared to 2022. Overall, the year to date median sits at $739K, 2% below last year’s number of $756K. Sales volume for the Harbor is off 20% year to date. The number of homes sold for the first 10 months is 2824, compared to 3535 in 2022.

Palos Verdes Homes Star in October Sales

Home sales on the Hill came in at 63 homes sold with a median price of just under $2M. Month over month that represented a 13% growth in sales volume and no measurable change in the median price.

On an annual basis October sales were up 26% over the same month in 2022. This year’s median price was up by 11% over last October.

While these numbers reflect impressive growth it’s important to remember that the number of transactions on the Palos Verdes peninsula is quite small, which results in some dramatic percentile shifts. For example, the annual percentage of change in the median price so far this year has ranged from a low of -29% to a high of 17%. By comparison, the Harbor area where monthly transactions number in the hundreds, has an annual range from a low of -11% to a high of 7%.

On a year to date basis, the Hill showed a more common face with the January through October sales volume down by 20% from 2022. During the same time frame median prices fell by 4%.

Inland Area Sales Volume Down, Prices Up

In a surprising turn of events, the Inland area has shown an increased median price for both the monthly and for the annual sales figures. The median price came in at $917K this October, which was 2% above the September median. On an annual basis, the median was up by 7% over the $860K of October 2022.

With 116 units sold for the month of October this year, the sales volume was 11% lower than it was this September. The monthly decline was even greater than the drop of 9% for the year over year comparison to last October.

Year to date, the Inland area has outperformed the balance of the South Bay on median price and on sales volume. For January through October there is no discernible change to the median price from 2022 to 2023. In the same time frame the sales dropped by 14%, the smallest decline of the local areas.

Photo by Julianne Takes Photos on Unsplash

Local Real Estate Meets the Inflation Fight

In August the South Bay real estate market showed some slowing of what has seemed a continuing slide into negative numbers. Closed transactions showed a partial recovery from the July report of declining sales and declining values, across both the past month and the past year.

August showed positive growth over July in sales volume except for transactions on PV Hill. Median prices compared to July were down except at the Harbor.

Annual statistics were similarly mixed with notable increases in sales at the Beach and Inland areas. Median prices compared to August of last year with modest increases in the Beach Cities and Harbor Area.

Beach Cities Show Strength in August

Sales volume at the Beach seemed surprisingly strong, however a look back in history reveals weaker than normal sales in July of this year and August of last year. The 127 units closed in August was much more in line with expectations, than the 91 sold in July or the 103 sold in August of 2022. Sales in a normal year would come in at about 125-135 units, showing that the Beach Cities are currently close to a normal number of transactions for the month.

Median prices came in negative compared to July, though less than a 1% drop. Last year’s weak sales led to an increase of 2% in median price this August, despite an overall downtrend for the year. Hypothetically, assuming the Federal Reserve policy of 2% growth, median price at the Beach should have been about $1.62M in August. As the market stabilizes from the pandemic, the median has steadily dropped from a high of $1.76M in April to the August actual of $1.67M..

Year to date transactions showed a continuing decline in sales volume (-19%) and median price (-4%) versus 2022. Likewise, sales volume was off 31% compared to the baseline year 2019. Median price is still coming in positive compared to the baseline, up 28% from 2019.

August Harbor Area Sales Climb

Looking at August versus July of this year shows Harbor area sales volume up a healthy 22%. While the month over month numbers are positive, sales are off 8% compared to the same month last year. For perspective, note that in 2019, the last normal year of business, there were 436 homes sold compared to 328 this August. Using that reference point, monthly sales are off by 25%.

Median price for last month was $751K, up 1% from July and up 4% over August of last year. Going back to 2019, the median was $575K, giving the current median price an increase of 32% over our baseline year. At the same time, the high median for this year was in June at $772K, and the lowest was $675K in February.

Year to date, the number of homes sold at the Harbor is down 22% from last year and likewise 22% from 2019.That decline in sales volume is driven by the increased median price which is up 32% compared to the first eight months of 2019. Being generally an entry level market, the Harbor area has shown a drop in sales every month of this year. Likewise, the year over year median price has dropped every month until August.

Palos Verdes Volume and Prices Drop

Sales and median prices were mixed everywhere in South Bay except for the PV Hill. All the statistics for August went down on the Hill. Month over month saw a drop in sales of 2% and decline in median price of 6%. Both are modest changes by comparison to most of the South Bay, but are indicative of the direction of the market in general.

Looking at August of last year compared to August of 2023 shows a dramatic decline of 36% in sales volume. Closed escrows dropped from 77 units last year to 49 this year. Annually, median prices dropped 6%, the largest drop of the four areas.

It’s important to note that in 2019, which being the most recent ‘normal’ year of business, August saw 90 units sold on the Palos Verdes peninsula. Monthly sales volume has dropped off by nearly 50% from the reference year.

Year to date through August shows sales volume down 25% from last year, with median prices falling by 10% over the eight month period. Comparing to 2019 year to date volume is off 21%, while median price comes in at 32% above the 2019 figure.

The disparity created during the pandemic is gradually leveling out as the year goes on. Palos Verdes median prices have fallen six out of eight months this year. The same has been true of the balance of homes sold in the South Bay.

Sales Up, Prices Down for Inland Area

From July to August transactions in the Inland area climbed 15%. Simultaneously, median prices fell by 2% for the month. January kicked off the year with a 16% increase in the median price. February saw that pricing promptly reverse and fall 14%. Since then sales volume has gradually dropped each month and median prices have shifted into a pattern of decline.

Year over year pricing numbers are nearly identical with a 15% jump in median price for January, followed by dropping prices every month since. Similarly, most of 2023 has seen falling sales for homes in the Inland area. So far, August has been the only month with growth in closed transactions.

Year to date statistics compared to 2022 have been much the same with the number of homes sold dropping by 17% and the median price down 2%. In keeping with the rest of the South Bay, comparisons to 2019 reflect sales falling 18% while the median price remains 32% above what it was before the pandemic.

Where Is the Real Estate Market Going?

The number of homes being sold has consistently fallen this year. Likewise, the median price of sold homes has generally been falling since the beginning of the year. The driver behind this has clearly been mortgage interest rates rising from under 3% to over 7% in a matter of months. The Federal Reserve managers have been very upfront about continuing these rates into the foreseeable future.

Most estimates state that about one third of potential buyers can no longer afford to continue with their purchase plans. We see a continued decline in the median price, as sellers find it impossible to sell at the price points reached during the pandemic. When ‘’time on market’ increases without a sale, sellers who ‘must sell’ will gradually lower prices.

Polls are showing those who aren’t compelled to sell are finding it hard to let go of mortgage interest rates below 5%. This reluctance, combined with the sliding median prices, will contribute to more stagnation in the market.

Photo by Carl Clark

Price Declines Forecast Through 2025

Median Home Prices Falling

Year to date through July, the gross revenue for South Bay is a mere 3% above that of 2019. At the same time, sales volume, the number of homes sold, is 23% below the sales of 2019. By most standards, 2019 was the pinnacle of real estate business prior to the turbulent years of the Covid pandemic.

Many sources compare current business to that of the pandemic years, partially because it’s easy and partially because the “numbers look better.“ Undeniably, the statistics do look more favorable, however, this analysis takes comparisons beyond the normal “last month” and “same month last year” to include 2023 versus 2019. This allows our readers to see 2023 in a historical context and to more readily recognize the unfolding recession.

While median prices are still above those of 2019 right now, we project the median prices will also drop below the 2019 level before this recession ends. On a month to month basis, prices are falling approximately half the time. On a year to year basis, 2023 prices have dropped below 2022 medians 82% of the time. Median prices for June and July of 2023 fell below 2022 in all four areas both months. Buyers and sellers should anticipate the bottom of the recession in late 2024, or possibly 2025. Normal growth should return in 2026.

The July report from the Federal Reserve Bank (Fed) notes that inflation is expected to continue above the target of 2% through 2025. Accordingly, the Fed efforts to “restrain” the economy (meaning increase interest rates) will continue into 2025. The report indicates that while housing costs are slowing, they continue to increase at inflationary levels, necessitating further reduction.

In the meantime, buyers who are financially able should plan to acquire desirable properties at substantially better prices than will be available after recovery begins. Sellers who anticipate a need to sell before the economic turn-around, should look toward selling sooner rather than later, to minimize the impact of the down-trending market.

Beach Cities Summer Market Fizzles

From June to July the number of homes sold in the Beach Cities fell 27% and those sold for a median price of 2% less. Some of the decline in sales is attributable to fewer homes available, as sellers hold properties off the market in hopes of improving conditions. Even more is a result of buyers who have lost significant purchasing power as mortgage interest rates have rocketed to over 7%.

Compared to July of 2022, the number of homes sold this July dropped 22% with a decline in median price of 4%. This set of statistics is somewhat deceptive in that last July the real estate market was still in the early stages of the downturn. As the current year progresses, year over year figures will demonstrate the slide more clearly.

Comparing the first seven months of 2023 to both 2022 and 2019 (the most recent year of business not impacted by the pandemic) shows the drift of sales and prices. The number of homes sold fell 24% from 2022 (802 homes) to 2023 (607 homes), while it was down 35% from 2019 (930 homes). The Fed dropped mortgage interest rates to essentially zero during the pandemic to keep the general economy afloat, which resulted in rapid price escalation which ultimately made purchasing a home unaffordable for about 25% of potential buyers. Then to control the resulting inflation, the interest rates jumped up around the 7% mark, which further slowed the real estate market by “pricing out” another 10-15% of buyers. With fewer buyers and stagnating prices, sellers are reacting by pulling property off the market and delaying planned sales.

Median prices fell 4% from 2022 and are still 28% above the median price of Beach Cities homes in 2019.

Harbor Area Sales Volume Plummets

Sales volume in the Harbor area has held up better than the Beach, possibly because median price has taken a greater hit. On a monthly basis, 24% fewer homes were sold (269 in July versus 353 in June). Comparing July of 2023 to July of last year, only 18% fewer closed escrow (269 versus 329).

Generally being an entry level market, the Harbor area tends to react faster to changes in market condition. More upscale neighborhoods frequently “stick to the price” for a longer period of time when markets are declining. Month to month median price dropped 4% in July to $565K. For July of 2022 versus July of 2023, the median fell 5%, from $780K to $740K.

Year to date through July, sales volume was off 24% from last year. Median price was down 4% when compared to the same period in 2022. Looking back to 2019, the number of homes sold during the first seven months of 2023 dropped by 21%. Median price for the same time frame shows up at 32% higher than 2019. Given the median price dropped 4% over the past month (from $772K to $740K), it’s reasonable to project the Harbor area median will end the year near $600K, as it was in 2019.

PV Hill Shows Volatility

Month over month, the number of homes sold on the PV Hill fell from 79 units in June to 50 in July, a decline of 37%. At the same time, the median price dropped 10%, ending the month at $1.8M. This despite a high sale of $12.5M, up from the high of $10M in June.

Year to year, July volume dropped 6% from 53 units in 2022, while median price plummeted 18%, from last year’s $2.2M. Palos Verdes is a unique community with large homes on large lots, many of them highly custom. Combined with the small overall number of homes, these properties truly need to be assessed on an individual basis for realistic projections.

Comparing cumulative sales data for January through July, volume is down 23% and median price is down 17% versus last year. Going back to the stable year of 2019, the number of sales is down 16% while the median is up 34%.

Interestingly, if the Fed’s annual 2% inflation target is added to the years between 2019 and 2023, the median on the Hill would be $1.5M today, instead of $1.8M. Under those circumstances, it would only take a decline of $300K to erase all gain from the past three years. Not a comforting thought for anyone who purchased recently.

Inland Cities Most Stable

The Inland area typifies a classic “middle of the road” performance in the real estate world. Generally the homes are everyday family properties, the sales trends are at the middle of the current South Bay market, and everything seems to happen with minimum drama. So there is little surprise at the minimalist 19% decline in monthly sales volume, the lowest of the South Bay. Likewise there is no shock the Inland cities came in with the lowest monthly price decline, a mere 1% below June.

Similarly, the annual sales volume showed July of 2023 only 14% below last July and the median price just 1% below the same month a year ago.

Year to date for the first seven months of 2023 compared to 2022 looks much the same. The number of homes sold dropped by 22%, 799 in 2023 versus 1021 last year. The median price fell 2% to $868K from $883K. Looking back to the 2019 sales volume for the same time period, the Inland area is off by 18% for the current year. Much like the rest of the South Bay, the median price in 2023 ($868K) remains above that of 2019 ($662K) by 31%.

Photo by Alexander Simonsen on Unsplash

2023 Home Sales Volume Below Pre-Covid Levels!

The number of homes sold in the Los Angeles South Bay during the first six months of 2023 is the lowest sales volume for a first half in the past five years. Fewer homes have been sold since the new year than sold during the same period of the worst year of the pandemic.

The first half of 2023 has ended with 24% fewer sales than the same period in 2022, which was itself down 15% from 2021. The peak of the market was early 2021, when interest rates were among the lowest in history, exploding the number of potential buyers. The lowest sales volume was during 2020 when 3311 homes were sold, which was still greater than the 3221 sold the beginning of this year.

Median Price Begins Downturn

Coming right on the heels of the sales volume collapse is a drop in the median price. Prices today are down from where they were in 2022, which was the peak of the recent market. The chart below reflects the median price for the first and second quarters of the past five years. Typically, the first quarter is the slowest, with the number of sales increasing through the second quarter and then slowing again for the third and fourth quarters. Here the growth from Q1 to Q2 shows and we can see the change from year to year.

As always, bear in mind that the Palos Verdes Hill offers a comparatively small sample size, so a couple of significant sales can shift the plot lines dramatically on a chart. The chart above shows one such anomaly where PV the median price actually declines in the second quarter.

Looking across the years from 2019 all four areas show the same upward movement in median price until the second quarter of 2022. Then, comparing it to the second quarter of 2023, we can see the trend shifting downward. For example, the Beach Cities median fell from $1.82M in the second quarter of 2022 to $1.72M in the second quarter of 2023. The weakness in median prices is driven by increasingly steeper mortgage interest rates. Barring a change in market dynamics, anticipate this line turning into a steeper downslope for residential prices starting in winter of 2023/24.

When Is the Bottom?

The market is clearly taking a downward turn. Sales volume is off, median prices are turning down. Sellers are not putting properties on the market. Buyers aren’t buying. The few forecasters willing to make a guess this early are saying real estate won’t come back until 2025, possibly 2026. For those who are “waiting for the bottom of the market,” remember that by the time you read it in the headlines—you’re too late—the bottom is gone.

Beach Cities Sales Dropping Fast

Median prices at the Beach have fallen 5% from last June, coming in this year at $1.72M, an even $100,000 below June of 2022. Year to year sales for June are down 7% from last year, at 124 units compared to 133 in June of 2022.

Month over month statistics have been highly volatile since the beginnning of 2023. Interest rates and prices have changed erratically, making short term forecasts nearly impossible. Month to month sales volume has bounced in a range from 2% to 45%. In just six months, monthly median prices in the Beach Cities have ranged between -18% and 26%.

Year to date sales volume at the Beach is down 25% from last year and is off a full 35% from 2019.

The year to date median is down 3% compared to 2022, though it is still 32% above the median in 2019.

Despite market conditions, homes in the Beach Cities remain highly desirable. For June, 78% of sales transactions closed within 30 days of listing and sold for 2.61 % above asking price. Beach homes also offer a great deal of diversity. June sales showed a 19 million dollar range between the low sale at just over $500K and the high sale at $19.5M.

Harbor Area Home Sales and Prices Down

Year to year-same month sales in the Harbor area have been negative since the first of the year. Prices were still holding up in June of last year, but sales volume had been dropping through all of May and June. As a result, the number of homes sold dropped a mere 1% coming into June of 2023. That looks good until compared with the year to date decline of 24%.

Market conditions in the Harbor last year gradually changed from joy for rock bottom interest rates at the beginning of the year to caution as sales tapered off and sales figures stated taking a hit. Median prices for June of the current year have fallen 7% from the June 2022 median of $830K.

Until now, the Harbor area has shown mixed results in the month over month statistics. For June compared to May sales volume was up by 5% (353 versus 337), while median price was up 7% ($772K versus $720K). Like the Beach Cities, the Harbor Area is following a more normal upward swing from the winter doldrums into the spring selling season.

That upward swing is not expected to go very high or last very long. At 1710 homes sold, year to date sales volume from January through June is down 24% versus 2259 sold in 2022. Sales volume is likewise down 17% from 2071 during the same six months in 2019. The variance in monthly sales is expected to drop into the single digits starting in July.

Median prices are down 4% compared to 2022 though still up 33% versus 2019. (Note: Using The Federal Reserve’s “target inflation rate”of 2% annually would have put the Harbor area median price increase at a little over 8%. That implies an “excess growth” of about 25% in median price during the pandemic buying splurge. Much of that difference, if not all of it, is expected to disappear over the next 18 to 24 months.)

June sales detail shows 77% of sales closing escrow within 30 days. Buyers were still bidding up, with the sales price exceeding the list price by 2.61%. The highest sale recorded in June for the Harbor was $4.25M; while the lowest was $527.5K.

PV Peninsula Volume and Prices Mixed

Palos Verdes, contrasting May versus June of 2023 shows a 22% increase in the number of homes sold for a monthly total of 79. At the same time, the median price dropped by 13%, falling to $2M even. Expectations for month over month statistics include fewer sales and more aggressive price reductions as 2023 wears on. The summer and fall months are projected to have weaker home sales, both in volume and pricing, as interest rates increase and buyers and sellers who “must move” run out of options.

Year over year same month sales, showed a volume growth of 1% (one sale), accompanied by a 14% drop in median price from $2.3M. That 1% increase is the first time in 2023 that any of the areas has shown positive growth in the number of homes sold. As such, and knowing that the PV Hill is considerably smaller that the other areas we measure, readers are cautioned about the wide swings in PV statistics.

Sales volume for the first six months of 2023 is down 26% compared to 2022 (326 homes in 2023 versus 438 in 2022. Similarly, sales are down 9% from 2019 when sales of 358 homes were recorded. Median prices of $1.8M for the same period are down 13% from 2022 prices of $2.1M and up 36% from $1.3M in 2019.

Market time has remained good, with 75% of sales closing withing 30 days. Sellers have enjoyed selling prices 2.3% higher than asking prices, a trend expected to disappear before the end of summer. Once again showing the range of homes available in the South Bay, the high sale in PV was $10M while the low was $610K.

Inland Area Makes Strong Showing

Sales volume of 161 homes in the Inland Area for June was up 33% over sales of 121 in May. With 33% more activity came a 1% reduction in median price, which fell to $875K after reaching $880K in May.

Comparing June of this year to June of last year showed a volume decrease of 3% from 166 in 2022. Likewise, this June showed a median price decrease of 3% from last year’s $905K.

Year to date volume for the first six months was down 68%, for 669 units sold, versus 869 in 2022. Going back to 2019, the most recent “normal business year,” sales volume was down 21% from 799 sold in 2019.

Median price of Inland area homes for the same six month period showed at $863K, down 3% from $887K in 2022; and up 32% from $652K in 2019.
Days on market remained under 30 for 82% of the Inland area homes sold in June. Buyers offered 2.6% above asking price. The high market sale was $2.2M while the low was $390K.

Photo by Sebastien Gabriel on Unsplash

Spring Season Boosts Home Sales

The Snapshot: May 2023

Compared to last month, South Bay home sales look very positive, except for a little tarnish in the Beach cities prices. The sales volume was up by substantial margins in all areas. Prices were mixed with a remarkable median price increase on the Hill. The only exception: After showing positive growth for the past two months, prices at the Beach took a substantial tumble in May.

Year over year activity was an entirely different story. Sales volume was down significantly from last year in all areas. Prices took a hit everywhere except on the Palos Verdes peninsula. (More about that below.) Entry level homes in the Harbor and Inland areas were impacted the least, though even a 3% drop in a single month is significant in the world of real estate.

We report actual statistics rather than “seasonally adjusted”.numbers. May is traditionally the launch into buying season in the South Bay, so a May increase in volume from April is to be expected. On the other hand, a 10-20% decrease from May of last year indicates a heavily retrenching market. Every month since the beginning of this year, the number of homes sold in the South Bay has decreased in comparison to 2022.

Similarly, median prices across the South Bay have dropped from the highs of 2022. There have been scattered instances of positive change, like the 17% increase over May of last year for PV. Overall though, prices have been collapsing at an ever more steeply declining rate since January.

Much has been said about the steep rises and falls of sales volumes and median prices since the Covid pandemic hit in early 2020. That leaves 2019 as the last “normal” year of business. At the mid-year point we’ll give a more in depth comparison to 2023 to hopefully provide a more stable picture of the market.
In the meantime, year to date statistics for the first five months reflect an overall decline of 23% in sales volume, and an increase of 33% in median price. The sales slowdown has most affected the Beach Cities with a drop of 39%, followed by the Inland area at 21%, the harbor at 19%, and finally the PV Hill with a 14% slip. A review of the changing median prices across that many years requires adjusting for desired inflation as opposed to uncontrolled inflation.

Beach Cities: More Sold at Lower Prices

Monthly, the Beach Cities have been on a roll. Even in April, when the other three areas took a nose-dive, the Beach climbed steadily higher in both sales volume and median price. The blue line on the monthly revenue chart below shows surprisingly strong growth.

A closer look at the sales data shows some of the detail. Two of the 121 Beach area sales were on the Strand, with one selling at $18.6M and the other at over $15M. Sales in that rarefied atmosphere tend to be few and far between. In fact, one of those properties sat on the Multiple Listing Service (MLS) for almost exactly three years before it sold. With the April median price at $1.6M, the impact to the aggregate statistics becomes apparent quickly.

Market time for the Beach Cities in May was actually quite prompt, with 79% of the homes sold having spent less that 30 days on the MLS. Pricing was equally strong, with sales prices coming in at two percent above asking price. While the high sale was $18.6M on the Strand, the low was $530K at Brookside Village in Redondo Beach.

Harbor Area: Sales Up – Prices Down

As the red line in the chart below reflects, Harbor area sales entered the spring selling period with a bang! Sales volume was up 27% over April—but, remember April sales were down by 12% in the Harbor and down 13% across the South Bay. Downward pressure on prices has been showing up since the beginning of the year. Out of the first five months of 2023, month to month median prices of Harbor area homes have dropped three times. May saw a 1% decline, which was a repeat of April’s price slip.

Annual statistics cast a recessionary shadow across the picture. Looking back at May of 2022 shows the same month this year with 9% fewer sales and a drop of 5% in median price. Year to date, 2023 has lost 29% in sales volume and 5% in median price.

Compared to the first five months of 2019, the last “normal” business year, Harbor area volume was off 19%. The median price remains positive at 33% above the 2019 median. So far this year the median at the Harbor has declined an average of 5% per month. Given that rate, it’s reasonable to expect a total loss of the price gains since 2019.

Like the rest of the South Bay, the time on market for May was short as 75% of sold properties went into escrow within 30 days of listing. The low sale for the month was $269,500 and the high was $4M, a relatively high price in what is generally considered an entry level market. Interestingly, the high sale was originally listed at $9M in March of 2021, sitting on the market for two years before an accepted offer.

Palos Verdes: Home Sales & Prices Hot On The Hill

On a month to month basis, homes on the Hill came in with a 22% increase in median price, that being on top of back to back 8% increases for March and April. We’ve long said that homes on the Hill are undervalued. It looks as though that will soon be changed.

Monthly sales volume also jumped 30% for PV, though it has slowed since February and March when it was up 50% and 48% respectively. This pattern of sales increases slowing holds true for most of the South Bay. During the first quarter of 2022 the local real estate market was on fire, and then came the interest rate increases.

When the interest rates were bouncing around 5% during April and May of last year, the PV sales volume had already begun a long, slow decline. Sales figures were off by 30%-40%. So far this year, sales have continued to fall and are, in aggregate, now 31% below 2022 volumes.

Again on a year to date basis, median prices in PV are down 11%. Because the PV Hill has a comparatively small amount of homes, statistics can be volatile. June was the peak of PV business in 2022. While the summer months are typically busier and more competitive, expect this June to be less “exuberant” than May, or last June.

Like the rest of the South Bay, about 75% of homes sold on the Palos Verdes peninsula were active on the market for 30 days or less. On average, the sales price was 2.6% above the asking price.

Inland Area: Seasonal Bump In Sales and Prices

In May, the Inland area kicked off the spring selling season by pushing month to month sales volume upward 20%. While the volume of sales increased on a month to month basis, the median price went up by 4%. This seasonal bump in sales and prices contrasts sharply with the longer look of a year over year view.
Comparing May numbers from last year to this year gives a reverse result. The number of homes sold in the Inland area fell 18% from May of 2022, and the median price fell 3%, dropping back to $880K from $910K last year.. The longer perspective shows a clear decline in sales accompanied by a hint of decline in median prices.

Looking at the first five months of the year shows sales volume off in total by 68%, or an average monthly decline of nearly 15%, another indicator of the slow market. It’s joined by a 1% drop in the year to date median price.
On the positive side, 87% of the Inland area sales for May closed within 30 days of being listed. With business slip-sliding away, everyone involved is making the transactions happen as quickly and smoothly as possible. The high and the low sales figures for the Month were $1.7M and $310K, respectively. Sellers rejoiced at, and willing buyers paid, an average sales price of 2.9% above the asking price.

Photo by Lisha Riabinina on Unsplash

Home Sales Plummet 40%

April of 2023 ended with a 40% drop in the number of homes sold across the South Bay compared to 2022. The median price was down 20% from last year in Palos Verdes and is up by a mere 1% at the Beach. Year to year median prices across the South Bay are down approximately 5%. Cumulative sales revenue for the first four months across the South Bay has dropped 39% from 2022 numbers.

Year to date, 2023 has been one of the slowest markets we’ve seen in recent years. Sales are off by 43% in the Beach Cities and are down by 22% across the South Bay compared to last year. Median prices escalated dramatically in 2021-2022, and are still above those of 2019 by 30-35%. However, the median has fallen in all four areas since late last year. We anticipate the median price continuing to drop until interest rates seriously decline again.

Business in the years between 2019 and 2023 was seriously impacted by the pandemic, and the massive government funds released to counter the effect of the pandemic. Looking back at 2019 and comparing it to 2023 offers a perspective on where the market is and where we can expect it to go during the balance of the year. Today we see a huge decline in the number of homes being sold. That has yet to translate into a significant decline in median prices, although 75% of year over year sales show prices falling.

At the same time the Average Days On Market (ADOM) has increased from about 7 days during the sales boom of 2021-2022 to about 30 days now. That’s a four-fold increase in the amount of time it takes to sell a home. For a seller who needs to move, that will feel like an eternity. It’s that sense of urgency that drives prices down and ultimately results in a shift of the market.

At the Beach “Sticky Prices”

Sellers in the Beach Cities had a good month in April—at least compared to March of this year. Compared to April of last year, the picture is far worse.

The number of homes sold in April was up 8% compared to March. That sounds positive, until the realization that sales volume was down 36% compared to April of 2022. At the same time, the median price was up 2% versus last month, and down 2% compared to the same month last year.

There’s a lot of talk among brokers these days about “sticky prices.” Recent sales at the Beach offer a good example of what that means. The statistics show that sales are down 36% from last year, however prices have only dropped 2%. Sales are falling because the number of viable buyers is down.

Interest rate increases have pushed the most tenuous group of prospective buyers out of the market. At the same time, sellers are still revelling in the boost to median prices that came with record low interest rates during the pandemic. Beach area sellers have yet to adjust to the reality of a re-trenching economy. That adjustment is “sticky prices.”

Harbor Sales and Prices Off

The neighborhood can affect how long it takes the median price to respond to changes in the economic environment. While sales volume and pricing has remained strong at the Beach, sellers and buyers in entry level communities are impacted more immediately by shifts in the economy.

Thus we see the give and take of the market bring median prices into a stable range early in the year in the Harbor area. The red line in the median price chart below shows four months of reasonably steady prices. While month over month prices have shown only a 1% drop, the monthly sales volume has taken a 12% dive from March, as shown in the Sales Volume chart, above.

The monthly decline in sales was multiplied in the year over year statistics. April sales volume was down 39% from April of 2022. For the same period, the declining sales volume was coupled with a 9% drop in median price. So the entry level communities demonstrate a much quicker and deeper response to changes in the financial picture.

Part of that response is the time on market, which has risen from 15 ADOM in mid-2021 to 26 ADOM in April of this year. The increasing time required to sell homes contributes to the number of homes available on the market. Both factors contribute to falling purchase prices.

Palos Verdes In Extremes

Through 2021 and 2022 home prices on the Palos Verdes peninsula benefitted from the Covid pandemic more than any area in the South Bay. In the median price by quarter chart, shown below, the yellow line is seen jumping up and away from the blue line of the Beach Cities. Unfortunately for home owners on the Hill, that price boost has already pulled back into line with prices of Beach area homes.

Comparing the first four months of the 2023 to 2022 median prices on the Hill have dropped 16%. It’s a steep decline in view of decreases at 3% and 6% in the Inland and Harbor areas, respectively. Even more so when looking at the 1% increase at the Beach.

The statistics look much better when comparing Palos Verdes sales from 2023 to statistics from 2019, the last “normal” year of real estate business. Sales volume on the Hill is down a modest 13%–modest by comparison to the Beach, which is down 43%. In contrast, median prices in 2023, compared to 2019, are still showing positive growth of 30%.

So, if one were to take the Federal Reserve System position that 2% annual growth is a desirable target, where would prices be today? The median price in Palos Verdes in May of 2019 was $1.5M. Jump forward to 2023 and that becomes about $1.6M. The median on the Hill last month was $1.9M, which suggests further price reductions.

Inland – The Steepest Fall

From an investment perspective, homes in the Inland area of the Los Angeles South Bay are “bread and butter.” These are the homes, much like those in the Harbor area, which reliably increase in value over long periods of time at a slow and steady rate. Most importantly, they house the bulk of our community.

In the short term, Inland home sales volume is down 25% from March to April of this year. Median prices are up 2% for the same period. This is the steepest fall in number of homes sold in the four areas charted.

Year over year, sales volume is off even more at 43% below April of 2022, and prices similarly down by 4%. We expect a seasonal boost to sales for the second quarter, when families most frequently schedule moves. Beyond that, most predictions are for continued softening in the real estate market as the Fed struggles with inflation. (The April Consumer Price Index, [CPI-U] for Los Angeles metro was 5.2% for Housing.)

Photo by Bradley Pisney on Unsplash

The Short & the Long of South Bay Home Sales

A glance at the table below confirms that year over year statistics are overwhelming the monthly numbers. Buyers were out there buying in March, and they were buying more than they did in February, which was up from January. That’s to be expected. We report actual numbers, as opposed to “seasonally adjusted,” so coming from the depths of winter into spring always increases real estate activity.

Because of that simple fact, the year over year statistics are far more important as an indicator of where the market may be headed. The big increase in March sales doesn’t offset how far down sales volume has gone since last year. Nor does it hint at the level to which median prices are taking a hit.

Compared to last year, sales volume is off by a third in nearly all areas of the Los Angeles South Bay. Median prices haven’t dropped nearly as large a percentage, but we can clearly see the direction. The Federal Reserve System (Fed) comment in the April “Beige Book” said it all: “Residential and commercial real estate activity fell, and lending activity declined substantially.”

Beach Cities Median Still Rising

As the over-all real estate market begins a dive into the depths of a Fed-induced recession, we find the Beach Cities as the only remaining local market with year-over-year positive median price growth. It’s not much. A mere 1% growth over March of 2022 is hardly an investment recommendation, especially with inflation running around 6%. And, the rest of the Los Angeles South Bay is already negative compared to this time last year.

This is the second time in 2023 buyers at the Beach have nudged the median price up while the rest of the residential market fell. January showed a 6% increase which collapsed February in a 17% free fall. February’s dismal numbers contributed to what looks like a good March in the month to month measurement.

Staying positive in March appears to be predominately the result of a single sale in Hermosa Beach. At nearly 5000 sq ft, with stunning ocean views, the property was bid up from its $5M dollar list price to just over $6M, closing with a cash offer in only 12 days. Without that transaction the Beach Cities marketplace would have stood at 0% growth.

The big story at the Beach is the sales volume versus the most recent “normal” year of real estate business. The chart below shows the number of homes sold in each of the South Bay areas, with seasonal shifts.

Notice that 2019, the last normal year, begins low, with few sales in the winter months. Sales peak in quarter three, in the heat of summer, then decline back down to about where they started.

Compare that to what happened in 2022, when everything seemed to head down.

Only 83 homes were sold in March of this year, and only 181 homes sold across the first quarter of 2023. In 2019 the area averaged monthly sales of over 100 units; approximately 425 homes per quarter. That amounts to a 43% decline in the number of sales compared to pre-pandemic levels.

As this is written there are 152 homes available in the Beach Cities with an average of 62 days on market. Both, the level of inventory and the time on market are increasing daily. Those factors, especially working together, will cause price decreases. With a constantly increasing mortgage interest rate, there’s little doubt the valuation gains of the pandemic era will not hold up to the recession in the world of real estate.

Harbor Area Sales Volume Plummets 39%

The Sales Volume, by Quarter chart above shows relatively synchronous movement across time by three of the four areas. The fourth area, the Harbor, floats at the top of the sales volume chart. Similarly, the Harbor area sinks to the bottom of the median price chart.

Homes in the Harbor area are typically what’s known as “entry level.” They are small homes, often condominiums, and are priced at the bottom of the scale. These are the homes newly wed couples buy, and the homes that house growing families. They are the type of properties occupied by most Angelenos, whether they be homeowners or tenants.

None of that explains the huge swings, though. What does is family economics—cash flow. When both prices and interest rates are low, the entry level market sings. When the cost of home ownership rises, this is the first area to fall and it usually falls the deepest. March sales across the Harbor dropped by 39% from March of 2022. At the same time median pricing at the Harbor dropped 2%–not nearly enough to offset interest rates that are running in the 6%-7% range. Until the mortgage interest rate goes down, or the asking price drops, or both, this market is going to be slow.

Inventory is currently 336 homes on the market, with time on the market averaging 60 days.

Median Down 20% for Homes on the PV Hill

Even more volatile than the Beach, homes on the Palos Verdes Peninsula dropped over a half million dollars in median price from the first quarter of 2022 to the first quarter of 2023. That steep yellow line on the chart below shows the downward direction of home prices in the area. Interestingly, the Beach Cities and the PV Hill declines have been almost exactly the same for the past 90 days.

As noted above, the Peninsula, with its large lots and relatively few homes, invariably shows a lot of volatility. The 20% drop in year over year median price is matched by a 33% drop in sales volume since March of 2022. Much of the median price increase seen last year resulted from a series of new construction sales. Those newly built homes came in at top dollar and helped elevate the median price nicely.

Builders are now anticipating a long, slow recession/recovery, so the PV market is not likely to see that benefit come back for a few years.

This newsletter focuses on residential, but it should be noted the Palos Verdes commercial marketplace has also taken a significant hit since the pandemic. Retail lease prices are at rock bottom and lots of space is available. It would not be surprising to see some of the older commercial space re-configured to meet residential needs. Such a transition could help the cities on the Hill meet their obligation to the State for additional residential construction to alleviate the housing shortage.

Inventory today shows 83 homes available, with an average time of 80 days on the market.

Stability Marks the Inland Area

The “family friendly” Inland Area is surrounded on three sides by the Beach Cities, PV Hill and the Harbor Area. It’s a quiet environment, usually without the drama and speculation found in the more upscale Beach and Hill areas. Anchored by Torrance, the market direction is normally the same as the rest of the South Bay, without the more radical ups and downs. March real estate activity reflected that nature in price and sales volume compared to March of last year.

The “Median Price by Quarter” chart above shows a year over year decrease of 6%, in keeping with annual results from the Hill and Harbor areas. The chart also shows a long, steady green line that doesn’t offer surprises, or dramatic movements in any direction. The current recession is expected to bring prices down somewhat, making the Inland area an excellent target for home buyers, or investors during the coming months.

Available as of this writing, are 130 homes. In keeping with the Inland image of slow and steady, the statistics still show only an average of 47 days on the market. Compare that to 80 on the Hill and 62 at the Beach. Buyers are more abundant here, as long as mortgage interest rates are affordable.

Footnotes

The areas are:
Beach: includes the cities of El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach;
PV Hill: includes the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates;
Harbor: includes the cities of San Pedro, Long Beach, Wilmington, Harbor City and Carson;
Inland: includes the cities of Torrance, Gardena and Lomita.

Photo by Rich Brents on Unsplash

Recession Drives Price Reductions

Median Price Tumbles

Last year ended with sales volume off, median prices coming down and revenue dropping fast. January showed little change. February of this year shows sales volume up from January by as much as 50%. The reason why is obvious–the median price is simultaneously dropping by percentages as high as 18%.

Comparing February activity to February a year ago shows significant declines in both sales volume and in median price. At that point in 2022 the market was just beginning to dip a toe in the recessionary waters. Now we’re wading into it.

The first week of March Fed Chairman Jerome Powell told Congress, “…the ultimate level of interest rates is likely to be higher than previously anticipated.” Powell’s pointed remark clearly tells us the most recent pause in interest rate hikes is momentary. The lowest local mortgage rates we could find at the time was 6.75%. As such, we anticipate rates in excess of 7% by summer.

February Sales Volume Climbs

About the second week of January mortgage lenders began loosening the interest rates in anticipation of a relaxation by the Federal Reserve. For the most part, local rates stayed below 6% until late in February when the Fed began dropping hints that inflation was still raging.

After a “soft” January, sellers in the market were dropping prices and buyers responding positively by making offers. Now that mortgage rates have resumed climbing, sellers will have to drop prices some more to remain attractive to buyers.

With only two months behind us this year, there are indications lenders will “see-saw” the rates throughout the year. Already this year we have seen retail mortgage rates moving up and moving down without influence from the Fed. It seems to be an effort to induce buyers to accept high interest rates based on the theory they were higher last week so this temporary reduction is a good deal.

Revenue Climbs From January Depth

On a month-to-month basis, revenue across the South Bay is up 21% from January of this year. Don’t get excited—it’s only one month. January was one of the lowest performing months we’ve seen recently.

On a year-over-year basis, revenue is down 34% from last February! January was 38% lower than January of 2022. Year to date through February, revenue in the South Bay is down 36% and is expected to continue falling.

One of the more important statistics to note is how 2023 activity compares to 2019, which was the most recent “normal” year of real estate business. Across the South Bay real estate revenue for the first two months of 2023 is 7% below the same period in 2019. Restated, the South Bay has already lost over four years of gain in real estate revenue.

Median Price Slips, Volume Rises

More units of housing were sold in February than January, and the median price was lower in February. The Beach Cities saw a drop of 18% from January while the PV Hill held the decline to 3%. The Harbor area fell 4% and the Inland area dropped 14%.

Comparing February of this year to February of 2022 brought a harsher focus to the picture. All four areas have fallen from last years median price. The Beach is down 17%, the Harbor down 11%, the Hill is off 29% and the Inland cities down just 3%.

2023 Versus 2019 Shows a Sinking Market

The summary numbers comparing the first two months of 2023 to the most recent “normal” year of 2019 are not encouraging. Overall, sales revenue has fallen 7% below revenue figures for the same period in 2019. The Harbor area has fared the best, showing a 9% increase in revenue over January and February activity in 2019. Of course, that was four years ago and classic inflation would give that type of gain. It’s clear the “inflation on steriods” we’ve been experiencing is gone from the real estate industry.

The Beach cities provide an excellent indication of where the real estate economy is going. The first two months of revenue for 2023 is down 32%. Palos Verdes is down 2%, while the Inland area is up be a mere 1%. After four years of pandemic, recession, inflation and Federal Reserve manipulation the real estate market is tanking.

Disclosures:

Photo by Ussama Azam on Unsplash

2022 South Bay Real Estate Wrap

We’re taking a little different approach with this post. Because it’s not only the end of the month, but the end of the year, we’re doing a quick summary of the monthly data, followed by some more detailed discussion of how the individual areas have fared over the past year. We’ll even try some crystal gazing while we walk through the annual data for each neighborhood.

This is a great place to bring in our At A Glance table. It displays in just a few numbers how all the areas of the LA South Bay are doing compared to last month, and compared to this same month last year.

Looking at December vs November, once again the percentage of unsold homes has increased and the number of homes sold below last month’s median price has also marginally increased. More importantly, on a year over year basis the amount of red ink is even greater. Losses in number of sales and in the value of those sales is clearly growing.

Despite all the negative numbers, there may be a light in the future. For the past couple weeks we have observed a softening in the mortgage interest rates. If that turns out to be more than a mid-winter teaser rate, this spring may shine a bit brighter than previously anticipated. We’re not holding our breath though. Recent speeches from Federal Reserve Bank leaders have stated a clear intent to “hold the line” on driving down inflation with mortgage interest rate increases.

Beach Cities Home Sales Down 47%

Compared to 2021, fewer homes have been sold in the Beach Cities every month of 2022 than the same month the previous year. January started the trend with a decline of 28% versus the number of homes sold in 2021. That difference continued to increase all year. By December sales were 47% lower than the previous December.

As the interest rates climbed, the number of home sales dropped. Looking at the total sales volume for the year, 35% fewer homes were sold in the Beach area during 2022, than were sold in 2021. Of course, 2020 and 2021 were the highly erratic pandemic years. So, looking into sales at the Beach for the last few years we find the number of homes sold has already dropped 21% below the number sold during 2019, our last normal economic year. Effectively, the Covid-19 pandemic created. Then erased any gains of the past three years at the Beach.

Homes sold in: 2019 – 1572 (market normal)
2020 – 1572 (market direction down six months, up six months)
2021 – 1910 (market direction down two months, up ten months)
2022 – 1242 (market direction down twelve months)

While the Beach Cities suffered the largest drop in sales volume for 2022, the South Bay as a whole has also dropped below the sales figures for 2019.

Sales Volume Down Across the Board

All areas started the 2022 year down from the prior month and down from the same month in the prior year. February results were mixed with the Harbor and Palos Verdes areas showing stronger results. March sales jumped up as buyers realized the rising interest rates were about to price them out of the market. From April on, sales volume across the South Bay was trending down on a year over year basis.

In sheer number of sales, the Harbor area fell the farthest. In 2021 annual sales 5292 homes were sold in the Harbor cities, while in 2022 the number dropped to 4017. That amounted to only a 24% decrease compared to the 35% annual collapse in the Beach areas.

On a month to prior month measure, sales declined six months out of nine across the South Bay. Occasionally one or two areas would post a positive sales month, but in the end, 2022 showed a 26% drop in sales volume from 2021 across the South Bay.

Sales Dollars Diving

With the number of sales dropping in a range of 25% to 50% it’s not a surprise to discover the total dollar value of those sales has taken a dive. As the chart below shows, the first quarter of the year was generally positive, then reality set in and the buyers started walking away. The rest of the year was little more than a measure of the recession.

Monthly revenue in the Harbor area alone dropped $200 million between March and December. The Beach cities and the Palos Verdes area lost about $150 million a month in sales value. Inland area sales for the same period are off approximately $75 million.

One should consider these declines in the context of the pandemic. Early on, while much of the world was in lockdown, the government flooded the citizenry with easy money, hoping to keep the economy afloat. Mortgage interest rates were already at the bottom because the economy was just recovering from the last recession. The result was a real estate boom starting in summer of 2021, which continued until March of 2022.

The housing market is now in the “bust” part of the cycle and we anticipate it to last through 2023. Gross sales across the South Bay jumped up from $8 billion in 2019 to $12 billion in 2021. That’s clearly unsustainable, especially from the perspective of a Federal Reserve System which is looking for 2% growth. So far the market decline has taken back about 23% of that $4 billion bubble.

Median Price Is Slipping

There is a lull between when buyers stop buying and prices start dropping. Most sellers need to see headlines about the market change before they make a price reduction. Median prices started to slide in August at the Beach and on PV Hill. The year ended with most areas having experienced multiple monthly declines in the median price. Despite that, median prices still exceeded those of 2021 by roughly 7%.

Comparing 2022 to 2019 better shows the inflation factor. Generally speaking the South Bay ended the year with median prices 30%-35% higher than they were in 2019.

The Palos Verdes market is comparatively small, thus is typically volatile on a monthly basis. The yellow line on the chart above shows the range of high and low median prices. Since mid-year the median price has drifted down and merged into the downward trend.

Year End Versus 2019

We’ve been comparing 2022 to 2019 all year because real estate sales during the height of the pandemic were so out of the ordinary, regular year over year comparisons yielded untenable results. The chart below depicts the current year total sales for the South Bay compared to sales from 2019.

Tracking the blue line, one can see where sales dropped below 2019 values in August, recovered in September, then slipped below again for the fourth quarter of the year. December sales didn’t fall quite as far as projected, but still came in about $200 million less than December of 2019.

The end of the year reflected accumulated sales of approximately $9.3 billion. That would mean 2022 total dollar sales come in at $1.3 billion above the $8 billion total dollar value sold in 2019. Across the South Bay that was an 18% increase.

Broken out by community, we found total dollars sold in the Beach cities to be 4% above 2019, followed by the Inland area with a 20% increase. Harbor came in next with a 21% increase and the PV Hill with a 35% increase.

We expect both sales volume and median price to continue declining through most, if not all, of 2023. By mid-year of 2024 there should be evidence of the beginnings of a recovery.

Disclosures:

Photo by T Narr on Unsplash

The Recession Continues – November Home Sales

Home Sales Plunge

November saw the number of homes sold in the South Bay fall 12% from October totals. Sales volume has declined in seven of the eleven months on a month to month basis since the beginning of the year. Sales tipped up a modest 2% on Palos Verdes peninsula, while volume dropped 7% at the Harbor, 18% at the Beach and 24% in the Inland area.

Year over year sales look even more depressed with a 45% drop from 2021 sales across the South Bay. The Beach Cities led the plunge with a 50% fall, followed by the Harbor area at 46%. Palos Verdes and the Inland area brought up the rear with 35% and 41% respectively. The falloff in sales began with a 17% drop in January and has been increasingly negative since.

Because 2020 and 2021 were both significantly impacted by the coronavirus pandemic and the governmental response to it, 2019 is the most recent year with a normal business pattern. Comparing 2022 sales volume with 2019 provides the truest measure of the current recession. Overall, for the first 11 months of the year, the South Bay has experienced a 9% decline in sales compared to 2019.

Through the month of November, sales on the PV Hill have fared the best, showing a modest drop of 3% compared to the same time period in 2019. The Harbor and Inland areas which generally are entry level for the South Bay both fell back 8% for the same period. So far this year the Beach Area has suffered the largest declines with an 18% drop in number of sales versus 2019.

Annual Sales Dollars Off By $3.2 Billion

Comparing year-to-date sales of homes in the Los Angeles South Bay shows a drop in dollar value from 2021 to 2022 of over $3.2 billion. That represents an over-all decline of 22% in total dollars sold from the same 11-month period last year.

The Beach area has been the hardest hit so far with a drop of 34%. The PV Hill has dropped 29%, while the Harbor area has fallen 22%. The Inland area fared the best, only down 19% for the same 11 months.

On a month to month basis, the decline in sales accelerated from 7% in October to 18% in November. The Inland area which had flipped to a positive gain in October plummeted by 30% in November. Similarly the Beach which had been up 7% in October fell 25% in November. The Harbor and Hill areas were off by 8% and 11% respectively.

At this point year to date South Bay sales dollars for 2022 still exceed the total for 2019 by 22%. We expect the end of year numbers to be positive. However, with monthly sales figures shrinking by 30%-40%, we project 2023 to fall below 2019.

Median Price Shows Mixed Results

Statistically speaking, the Beach cities median price fell 8% from October to November. The reality is that the median in October was unusually high. Multiple sales of Strand property drove the median up 14% that month. The blue line on the chart below shows the one month blip and median prices dropping back to a steeper downward pace in November.

Palos Verdes was flat compared to the previous month. This is a rare event as one can see by the erratic yellow line on the chart. Because the physical area is smaller than the other geographical areas, the number of sales is smaller, and mathematically the sample size is smaller. Thus one or two outlier sales can create wide swings in the chart.

Similar to the Beach area, the median price dropped 7% in the Inland area. This decline follows two months of no change, preceded by three months of month over month negative median prices.

At the same time the Harbor area experienced a month to month increase of 2% in the median price. Researching this anomaly we discovered 11 new construction sales in Carson had been accumulated and posted simultaneously by the developer. It’s worth noting that Harbor area median prices have also been elevated to some extent by the new construction on Western Avenue in San Pedro.

From a year over year perspective, November median prices continued to fall in comparison to those of November 2021. The Harbor and PV Hill areas were down 5% and 2%, respectively. Median price in the Inland area dropped from positive 6% in October to negative .05% in November. The Beach cities remained positive with growth of 1% in November. That being in contrast to an unexpected growth of 20% last month caused by the sale of multiple Strand properties in Manhattan Beach.

Despite increasingly deep reductions in sales volume and in median price throughout this year, the median is still higher than it was in 2019. Palos Verdes home owners have fared the best with the current median price 40% above the November 2019 median. The Harbor area is still 34% higher and the Beach cities still maintain a 31% advantage. The Inland area has proven to be relatively stable throughout the pandemic and currently the median price is 27% above that of 2019 for the same 11 month period.

Year End Projection Updated

Tracking the blue line, one can see where sales dropped below 2019 values in August, recovered in September, then slipped below again in October and November. Assuming the decline continues at the same rate, we are forecasting the December sales to drop another $75 million, or so.

The end of the year would then reflect accumulated sales of approximately $9.4 billion. That would mean 2022 total dollar sales come in at $1.4 billion above the $8 billion total dollar value sold in 2019. Across the South Bay that would be approximately an 18% increase.

Broken out by community, we forecast total dollars sold in the Beach cities to be 6% above 2019, followed by the Inland area with a 20% increase. Harbor comes in next with a 21% increase and the PV Hill with a 35% increase.

At a Glance

As 2022 draws to a close we find the final numbers for both sales volume and median price show the year to be rapidly declining from the final figures for 2021. However, the totals all remain positive. We expect December to continue the trend downward, though the year should end on a positive note.

With the number of units sold decreasing every month by 35% to 50%, and the median price now falling, 2023 should be firmly in the grip of the recession by mid-year.

Disclosures:

The areas are:
Beach: comprises the cities of El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach;
PV Hill: comprises the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates;
Harbor: comprises the cities of San Pedro, Long Beach, Wilmington, Harbor City and Carson;
Inland: comprises the cities of Torrance, Gardena and Lomita.

Photo by Elias Shankaji on https://unsplash.com/

October Home Sales Down 40%

Compared to October of last year, home sales in the Los Angeles South Bay have dropped by 40%. Hardest hit was the Harbor area which fell 47% from last year’s October numbers. The Beach Cities were down 40%, while the PV Hill and the Inland area fell 32% and 25% respectively.

Month to month sales across the South Bay were down another 12% compared to a 9% drop in September. Looking at the different communities found mixed results. The Beach and Inland areas improved sales over September statistics, while the Harbor area and PV Hill continued downward. Harbor area sales plummeted another 20%, falling from -5% last month to -25% in October.

The pandemic created a wild roller-coaster ride for Harbor area real estate. Being the least expensive of the four areas, Harbor area homes are the most affordable and attracted the most attention when interest rates were ultra-low and entry level buyers were able to qualify for purchase loans. Now, with the interest rate already double the 3.5% of 2021, many potential buyers no longer have the cash flow to purchase.

Note that 476 Harbor area homes sold last October versus 252 this October. Looking back to 2019, the most recent “normal” year we find there were 397 homes sold in the Harbor area. This demonstrates how artificially inflated sales figures were in 2021 and how far sales have already fallen in just seven months from the peak.

In mid-November, following another .75% increase by the Federal Reserve System, the Mortgage Bankers Association is reporting a drop of 46% in mortgage applications to purchase a home compared to last year. That decline is accompanied by an 88% decline in applications to refinance a home loan. That amounts to a lot of money out of circulation in the economy.

Total Dollars in Sales Declines $1.8 Billion

As of the end of October South Bay home sales for 2022 total $8.3 billion. That compares to $10.1 billion for the same time frame in 2021. Already this year the gross sales revenue has fallen by $1.8 billion, or 5%. As the market slips deeper into recession, we expect the monthly sales revenue will continue to decline, shrinking the total even more.

The graph above shows the downturn starting in March and generally trending down for the balance of the year. It’s important to remember that home sales are a major driver in the economy. Every home sold results in a miniature boost to the economy as new homeowners relocate, acquire new furniture & appliances, repair and update their new home. Most experts estimate an additional 15%-20% for ancillary economic activity stimulated by real estate sales.

Using 2019 as a baseline, we can trace the rise and fall of the South Bay real estate market through the pandemic. In 2019 the total cumuilative sales was $7.9 billion. In 2020, when the pandemic hit and the government began piling on financial assistance and incentives, the annual sales reached $8.7 billion. When 2021 rolled around the ultra low interest rate alone was enough to drive annual sales to $12.1 billion, an increase of 53% over the 2019 sales figures. Looking now at 2022, we are forecasting a year end total of approximately $9.5 billion, a decline of 22% from 2021.

An additional concern this year is the reduction in local and state tax revenues. The pandemic forced significant governmental expenditures to mitigate harm to citizens. A recession, coming on the heels of Covid-19, threatens to up-end the economy. California’s budget reserves haven’t yet recovered from the pandemic and state revenues are already slipping.

Median Price Shifting Down

Wealth is often measured by the value of owned real estate. For most families their real estate is the home they live in, which is valued per the median price of comparable homes. Thus, nearly everyone is interested in the median price for the area.

Year over year, comparing 2021 to 2022 for the same month, the median price continued to rise until August of this year. Since then results have been “choppy” with median prices down August, September and October for PV Hill sales, down two months out of three at the Beach, down one month in the Harbor area and up all three months in the Inland area. (How the areas are defined may be found at the end.)

Looking month over month, comparing each month to the one prior, shows a clearer picture. January started the year with declines compared to December, both at the Beach and in the Inland area. By July and August all four areas were showing declines compared to the prior month. The repeated monthly decreases in the median prices built up to the annual decreases which began showing up in August and have continued through October.

When Is It a Recession?

Since June of this year the total dollar value of South Bay sales has been declining. Combined, the precipitous drop in number of homes sold and the gradual decline in median price are driving the revenue below that of 2019 on a monthly basis. The chart below shows August as the first occasion where the total dollar value of homes sold in 2022 fell below the monthly sales in 2019. October sales for this year ended just shy of the same month sales in 2019.

Our projections (shown below) for the 2022 year end indicate the total sales for the year will fall below the 2019 total sales dollars. While this isn’t an official definition, or designation, it matches our understanding of a recession. Any time our financial situation is headed backwards in time we think of it as a recession.

The challenge now is to consider how this recession will play out in time. The Federal Reserve System (Fed) has changed the game rules since the Great Recession. A prominent change has been the speed with which the Fed raised the prime rates for member banks. In response to the Great Recession, the Fed gradually raised rates over a period of years. This gradually slowed home sales. This time, the Fed has raised rates much faster, resulting in much more immediate impact on the real estate market.

At the moment, all expectations are for another rate increase in December, despite indications the economy is crashing. A seriously disappointing Black Friday might convince the Fed to ease up, but we’re anticipating that relief. If history and the immediate data proceed along the current path we should see a lot of price reductions in 2023.

For those who must sell, it’s an unfortunate time. There are ways to ameliorate the negatives, but it will probably still be negative. Those who are in a postion to purchase have the benefit of reduced prices, combined with the negative impact of higher interest rates. Generally speaking, very few are happy with a recession, though we have talking to a group of buyers who think pooling cash and buying as a consortium/collective is a masterful idea right now.

At a Glance

In addition to being relatively self explanatory, our At-a-Glance table is discussed throughout the above paragraphs. We won’t bore you with any more chatter about it, but we find it immensely useful as a quick reference. Some of our readers have even said they immediately go to the bottom of the article to see how much red ink there is. (Sorry. It is getting redder, but there are some delightful opportunities out there.)

Disclosures:

The areas are:
Beach: comprises the cities of El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach;
PV Hill: comprises the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates;
Harbor: comprises the cities of San Pedro, Long Beach, Wilmington, Harbor City and Carson;
Inland: comprises the cities of Torrance, Gardena and Lomita.

Photo by jordis small on Unsplash

A Recession on the Horizon

September Home Sales Down 35%

Last year saw home sales in the South Bay escalate dramatically as buyers sought to become homeowners while interest rates were still abnormally low. With interest rates rapidly rising it’s no surprise that sales are plummetting in 2022. The Harbor area, traditionally an entry level market, handily out-sold the balance of the South Bay with a drop of only 26%. The remaining areas suffered sales drops ranging from 42% to 47%, with the South Bay as a whole dropping 35%.

Compared to last year, cumulative South Bay home sales were down 21% as of September. The first three quarters of 2021 saw 7767 townhomes and single family residences sold, versus 6163 during the same period this year.

Recognizing that 2020 and 2021 were exceptionally aberrant, we also compared the 2022 year-to-date sales volume to 2019, the last normal year of business prior to the pandemic. As of the end of September 2022 cumulative sales volume was 4% lower than it was for the first nine months of 2019.

The decline from 2019 sales is uneven in that the biggest drop, 15%, is seen in the Beach area, which is typically at the high end of the market. Sales in the Harbor area only dropped back by 2%, while sales in the Inland area fell by 4%. The Palos Verdes peninsula fared best, actually increasing in quantity sold over 2019 by 4%. As always we offer a cautionary note when looking at statistics for property on the PV Hill. Because there are considerably fewer homes in that area, percentile statistics can take large swings.

Median Prices Mixed in September

The number of homes sold in 2022 has declined, indirectly affecting the median price of those homes, as well as the total dollar value of all the homes sold in the same period. A closer look at the median price of homes sold through September yields some surprising changes.

Since prices increased dramatically during the coronavirus pandemic we anticipated finding the median price from 2022 to be considerably higher than that of 2019. Indeed, that is the case with the median in the Beach area up 31% over that of 2019, the Harbor up 36%, PV Hill homes up a staggering 47% and the Inland area up 30%. But, that is gradually reversing.

July and August of this year showed depreciation in the median price across the South Bay. Prices consistently dropped in a range from 2% down (Inland) to 18% down on PV Hill. September sales broke the pattern with only the Beach cities losing value per the median. The Inland area was flat, showing no change from August. In an unexpected twist, both the Harbor area and the Hill came in with an increase in the median price. The growth was modest, up 6% for the Harbor area and up 3% for the Hill. Despite the slight improvement in September prices we anticipate continued downward pressure as inventory grows and time on market stretches.

Looking at the median price on a year-over-year basis, we find September with minor declines from August. The Palos Verdes cities showed prices dropping by 2% last month and this month. At the same time the Beach cities dropped 2%, while the Harbor and Inland areas increased by 4% and 2% respectively.

Median prices started 2022 with increases regularly coming in well above 10% growth. In April we saw the first negative where the median for the Hill fell 2% from 2021. Since then we have watched the rate of price appreciation decline from double digits until now in September with both the Beach and PV areas losing value.

We fully expect all areas of the South Bay to reflect declining median prices before the end of the year. While prices will be down on both a month-to-month and year-to-year basis, we don’t anticipate the median to fall below 2019 price points this year.

Total South Bay Sales Dollars

When the number of sales is decreasing and the median price of those sales is also decreasing, one has to assume the gross revenue will also decrease. Governor Newsome has been warning for several weeks that the 2022-23 fiscal year will not see the State level revenue surpluses California has been enjoying.

During the first quarter of 2022 gross revenue from real estate sales remained predominately positive, with year-over-year growth rates of about 6% per month. Since March the South Bay has only seen two instances of sales growth, 7% in the Harbor area for April and 3% in the Inland area for June. Every other entry on the chart is negative, with September declines averaging about 40%.

Cumulative sales for the first three quarters of 2022 were off by 29% compared to 2021. Our monthly sales dollars chart shows a zig-zag downward trend since spring of this year. Of course, 2019 is a more realistic point of comparison as a result of market gyrations created by the pandemic and our government’s fiscal response.

Comparing 2022 sales totals to 2019 yields a clearer picture of the current direction of the market. Instead of a sea of red ink, we can clearly see that 2022 sales have remained above those of 2019 with the exception of August. Sales started normally, then in March the Federal Reserve Bank announced a .25% interest rate hike, and promised more to come.

Buyers threatened with increasing monthly payments jumped into the fray and pumped sales up for a couple months. Then a new .5% increase, accompanied with the promise of multiple .75% increases throughout the year began a downward slide in home sales that is continuing.

Following the trajectory of the maroon line, and assuming the interest rates continue to increase, we predict 2022 sales will drop below 2019 again in October. The Federal Reserve Bank has already announced plans for another .75% increase in November, followed by a .5% increase in December. Adding another 1.25% will bring the full increase for the year to 4%. We envision the fall in sales growing steeper, bringing total sales below that of 2019 for the final quarter of the year.

Statistical Summary

This would be the heart of the discussion if we were dealing with a normal fiscal environment. Here we could talk about month-to-month changes and changes from the same month last year to this year. Instead we’re faced with an unanticipated side effect of the pandemic—out-of-control inflation followed by a steep recession.

Goodbye Marymount, Hello UCLA!

Marymount California University, is no more. But, shed no tears! The prestigious University of California at Los Angeles plans to open the site for classes in the fall of 2023-24. Escrow had not yet closed as of this writing, but all appears to be moving forward at good speed.

We are told the finalists included four developers and three educational institutions. We’re pleased that UCLA was the successful bidder. We’ve heard some of their ideas and look forward to having them as neighbors.

However, we’re also interested in what kind of potential the developers saw in this deal. There’s a total of 11 acres already developed as residential and 24.5 acres developed as a campus. What would that have looked like if a residential developer purchased the site?

The 24.5 acres, some of it with gorgeous ocean views, is the jewel in the transaction. A little “back of the envelope” calculation says that using an average of 15,000 square feet per lot, Which is about the average in that neighborhood, one could build about 70 high end homes at the location. New construction on similar sites is selling for about $7.5M today, giving a value for the finished project of approximately $525M. Not bad for a land purchase of $80M, especially considering we haven’t started looking at the 11 acres.

There exist some legal complications in the 86 unit, 11 acre property. Deed restrictions purported to require the land to be used to house students. That can readily be accommodated by an educational institution, like UCLA. Developers on the other hand might have to pay some serious legal costs to do anything else with the land.

And it might have been worth the legal expense. A quick look at the apartment building market in the South Bay shows roughly comparable buildings selling for about $420K per unit. That would make 86 units worth about $36M, almost half the stated purchase price.

We’ll never know what might have been. The entire South Bay can look forward though, to an educational revival. A refreshed campus with UCLA’s academic resources and access to the university program at AltaSea and other port projects is a great starting ground.

Photo by D koi on Unsplash

South Bay Median Home Price Plummets

With four months left in a very chaotic real estate year, we want to take this opportunity to lay some ground work for understanding why the market has headed into a recession. And, to keep things on a positive note, we end with a couple of suggestions on how you might profit from this turn of events.

Some of the nation’s most respected analysts (including Ivy Zelman of Zelman & Associates and Mark Zandi of Moody’s Analytics) are predicting recessionary price drops ranging from 10-20% and lasting through the next two years. (Arguing that we’re only looking at a brief correction, pundits at Goldman Sachs and the Mortgage Bankers Association continue to predict single digit growth.) Meanwhile, here on the street, we’re watching prices drop across the board for the second month in a row.

In August we reported that median home prices across the Los Angeles South Bay fell from July, the prior month. Now looking at August sales we find all four areas of the South Bay showed declining median prices again. The month-over-month price drops ranged from 6% at the Beach to 25% in the Inland cities. (See bottom for description of areas.)

Underlining the month-to-month price slippage, three of the four areas also showed declining prices versus the same month last year. Only in the Harbor area are homes still selling for more than they did in 2021. Even there, median price has slid from 9% down to 4% above August of 2021.

2022 Compared to “Normal” Business in 2019

The past two years have seen real estate stumble with the Covid lockdowns in 2020, then skyrocket with the low interest rates in 2021. It’s worth a look back to 2019 to see how the current conditions compare to the most recent “normal” market.

Looking at sales volume in the period January through August of 2019, 1064 homes had sold in the Beach cities. So far this year only 905 homes have sold. That is a 15% drop in sales since the last normal year of business. The trend line for the Beach area has been sliding downward since April.

For the first eight months of 2019 the Harbor area showed sales of 2955 compared to 2945 for this year. That is a drop of .3% – a statistically insignificant change. However, the trend line has been dropping since March. August sales were up slightly from July, which was an unusually slow month for the Harbor area. We expect sales to continue a downward trajectory into 2023.

Palos Verdes home sales for the same period in 2019 totaled 537 versus 568 in 2022. The Hill is the only part of the South Bay where year to date 2022 sales exceed those of 2019. At 6% it’s a healthy increase, too. Despite being the best performing area in South Bay, Palos Verdes sales volume peaked in March and continues to slide. Sales in July were unusually weak, so August shows an upward step in the trend line.

Sales in the Inland area, very much like the Harbor area are down only .4% from 2019 sales for the same period. The difference is statistically insignificant, and the trend line is headed downward.

Declining sales volume creates a larger inventory of homes to sell. As the inventory grows, sellers have more competition and buyers become more demanding and prices start declining. We anticipate continuing growth of available inventory, followed in late fall or early winter by a spate a price drops.

Median Price Up 54% Since 2019

Palos Verdes homes have seen the greatest impact of the Covid-era buying mania. Comparing median prices from the first eight months of 2019 to the first eight of 2022, we find a 54% escalation on the Hill. Normal growth over a three year period would have created 9-10% in price appreciation. Expect much of that excessive price expansion to be erased over the coming months.

Compared to 2019, Beach area median prices have shot up by 32%. This is easily three times normal growth. As we see in the chart below prices started adjusting downward as early as May in the Beach cities.

Since 2019 median prices for the Inland area have climbed 30%. Here in the August 2022 chart below we see Inland area prices have been dropping steadily since May when the median was $910K. During that four month period values have slipped by over $50K.

In the Harbor area home prices have escalated 34%. From 2019 at $565K to 2020 at $607K the Harbor area median grew $40k. Then in 2021, it added another $90K reaching $700K. So far in 2022 the median has reached as high as $830K – another $130K increase, but has now dropped back to $725K, losing $105K off the June median.

Most home buyers are constrained by their income to a particular price range, and salaries have not increased at a rate even remotely similar to real estate prices. Recent studies have shown about 25% of potential buyers were priced out of the purchase market in California by the soaring Covid-era prices.

Interest Rate Shrinks Annual Sales Dollars

In total sales dollars for January through August of 2019, the South Bay weighed in with $5.3 billion. During the same period in 2020 the aggregate amount shrank back to $4.9 billion, followed in 2021 by an upward explosion to $7.9 billion. So far in 2022 the area has reached $6.9 billion.

Each time the Federal Reserve System (fed) increases the short term interest rate the pool of potential buyers shrinks again. As this is written, the Fed is preparing to increase the rate by at least .75% in mid-September and two more increases are anticipated by the end of 2022.

At the current rate of declining value, we estimate the 2022 annual sales value to be approximately $9.5 billion, a decrease of 27% from 2021. Remember that huge budget surplus California had last year? Do not anticipate another this year, and possibly not for a couple of years as the state works its way through this recession.

The Silver Lining in the Cloud

One theory of success in real estate is “Buy low, sell high.” Flippers subscribe to that concept, buying at the bottom, updating and selling at the top of the immediate market. Another theory, not as well supported, but statistically more profitable, is “Buy and Hold.” Buy a piece of property at the best price you can and use it or lease it but – never sell it.

A deep market adjustment doesn’t come very often, so when it does one should take maximum advantage. At the moment it appears there will be a heavy price contraction starting late this year. We’ll know better in late fall and early winter, but all indications today are that a wise property investor should be preparing to buy at the bottom of the market – soon. We constantly search the Southern California coast for outsstanding investment bargains. Tell us what you want to invest – we’ll tell you where to buy.

Methodology

For purposes of comparing homes in the LA South Bay, we have divided the South Bay into four areas. Each is composed of homes of roughly comparable style, geographically similar location and physical characteristics, as well as approximately similar demographic characteristics.

The areas are:
Beach: comprises the cities of El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach;
PV Hill: comprises the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates;
Harbor:. comprises the cities of San Pedro, Long Beach, Wilmington, Harbor City and Carson;
Inland: comprises the cities of Torrance, Gardena and Lomita.

Main Photo by Amelia Noyes on Unsplash

South Bay Home Sales Drop -17%

The 2022 recession appears to be coming in stronger and faster than predicted. Year to date home sales in the South Bay have dropped -17% compared to 2021 sales through July. Month to month, the change from June to July was -12%. The July drop followed a lackluster June performance of only 1% over May which was itself down -13% from April.

Money was cheap and readily available in 2021, and the Federal Reserve Bank (Fed) was fore warning everyone that the mortgage interest rates were going to rise. The number of homes sold sky-rocketed, purchased both by owner-occupants and by investors hoping to snag interest rates at the absolute lowest in decades. Along with that came the bidding wars and the escalating prices. Looking back, one can readily see a correction in the making. At the time most experts were considering 2021 a trade-off for all the transactions lost during the 2020 lockdowns.

The last year we could consider normal was 2019. Compared to 2019, the number of homes sold during the first seven months of 2022 is nearly identical, hinting at a return to normalcy. However, a deeper look shows recent months dipping as much as -25% below 2019 sales volume. If sales volume continues to drop at this pace, we can anticipate starkly lower prices before the end of the year.

Steeply climbing interest rates have cost today’s buyers over 25% of their purchasing power so far in 2022. Some of those potential buyers will simply buy a less expensive home. Some of them will wait and save longer for the down payment. Some of them will become permanent renters. On the other hand, sellers have fewer options. They can decide not to sell, if that’s possible for them, or they can lower the price until a buyer can afford the home.

Median prices fell in all four market areas for July versus June of the current year. The overall drop was approximately -5%. (See chart below for detail.) So far in 2022, median prices have remained higher than those from last year. But, since April of this year median prices have consistently fallen on the year over year comparison. As noted earlier, we anticipate the median price dropping below last year sometime this fall or early winter.

“Should we wait to purchase?”

We hear this question a lot, and the answer is an unequivocal “No.” In the end result, chasing the elusive “bottom of the market” is a fool’s quest. By definition, when one recognizes the bottom of the market, it‘s already gone. We recommend that when you find a home that meets most of your needs and is within your budget, you should move on it.There are several reasons.

First, because the Fed is already projecting future interest rate changes which could easily eclipse the savings to be found in a correction. Alternatively, those future rates will prevent some potential purchasers from qualifying for a loan.

Second, because economics today is a web that reaches around the world. As we have seen just in the first few days of August; allowing grain movement on the other side of the world will affect our stock market, and available interest rates overnight. We live in a very volatile world and a perfect deal today may not exist tomorrow.

Sales Volume Down, Inventory Up

In March of this year there was essentially no inventory of homes for sale in the South Bay. Sellers were reporting literally dozens of competing offers on the few homes available. Today, in August, there is easily two months of inventory and homes are sitting on the market for increasingly long periods of time.

Sales in July fell in all four sectors. The Harbor area has now shown declining sales in four consecutive months. PV Hill sales have been off three of the last four months.

The Average Days On Market (ADOM) for the homes sold in July was 17, meaning it took 17 days from the time it was listed on the MLS until an offer was accepted. The ADOM for the homes currently active on the MLS is 46 days, a full month longer than those closing escrow in July.

A lesser known indicator of market condition is the number of homes that don’t sell before leaving the MLS. In July alone, 194 homes fell off the MLS. Of those, 41 Expired never having received an acceptable offer. The remaining 153 were removed because buyers were not showing interest at the listed price. Some of those sellers truly need to sell and will come back at an improved price. Most of them were hoping for a financial windfall and have set aside their plans.

Median Price Falling for South Bay Homes

The median price fell in July for all areas. The hardest hit was the Harbor area with a -6% drop in the median. The Hill was next, with a -5% loss, followed by the Beach and the Inland areas with -4% and -3% respectively.

Of the 116 homes sold at the Beach, 22 (19%) required a price reduction before getting an offer. The Harbor required 59 out of 329 (18%), the PV Hill 9 of 53 (17%), and the Inland area 17 of 153 (11%). Those were price reductions necessary to get an offer on the property, followed by a successful sale. Let’s look at properties active on the market, still trying to get an offer.

As this is written, the Inland area, shows 211 properties available with 77 having taken one or more price reductions already, without receiving an offer. That represents 35% of the currently available Inland homes. Homes at the Beach show 96 reduced of 228 (42%), on the Hill 53 reduced of 140 (38%), Harbor 215 reduced of 547 (39%).

So we see that nearly 20% of the homes sold in July needed a price reduction to get an offer. We also see that roughly 40% of the homes currently on the market have had one price reduction and may need further changes to stimulate offers.

Total Sales Revenue

The decrease in the number of homes sold in July, combined with the decline in median price for those homes pretty much guaranteed that the total sales value would drop as well. Across the South Bay revenue fell from last month by -16%. This will not make our tax assessor happy. Interestingly enough, Los Angeles County Tax Assessor Jeff Prang recently announced with pride a $122 billion growth in County property tax assessments as of January 1, 2022.

The Beach area fared the best, dropping only -2% in value. We noted quite a number of homes being sold as furnished rentals in July, like this one in Hermosa Beach. The Beach Cities are noted for their short stay vacation rentals (often referred to generically as AirBnBs) whether approved by the various cities, or not. Unfortunately there is no official accounting system for these properties. Even if one existed, many of the operators would be very resistant to a governmental accounting which could cause them taxation issues.

For the moment, Beach values seem to be the strongest of the South Bay. The Inland area followed with a -9% decline in total sales dollars. The Harbor area was next, off by -17%.

On the surface homes on the Palos Verdes Peninsula took the worst beating with a -41% decline in value from June sales. We remind our readers that the PV Hill is small by comparison to the other areas. As such, statistical measurements often appear distorted because many of the homes are unique and generate significant sales prices. Having said that, this month was a relatively mundane one for PV. Of the 53 sales, the low was an attached two bedroom, two bath condo which sold at $557K. The high sale was a six bedroom, 8 bathroom house in Rolling Hills which sold at $8 million. (For your valuation purposes, click here to see photographs and descriptions of the two homes.)

Lots of Red Ink

The table below shows the percentage of change in the number of homes sold and the median price of those homes two ways. The yellow shows change for the current month versus the prior month. The green shows change for the current month versus the same month last year.

From a seller’s perspective, these numbers would ideally all be black/positive. When any of them become red it shows a retrenchment in the South Bay real estate market.

From a buyer’s perspective the red ink is a good sign. It means purchasers can get more home for their money. For them, the real savings will come when that last column turns red.

Photo by Sandy Millar on Unsplash

PV Prices Surge; Beach Plummets

Palos Verdes Median Up +19% From May

We’ve said for years that land on the Palos Verdes peninsula is undervalued. We may not be able to say that much longer. Last month property on the Hill took another big jump upward in median price. That’s the second time in six months. When that yellow line peaked in February we found several new construction homes closed escrow in the same month boosting the median price dramatically.

**PV Median Up $364K while Beach falls by $80K**

This time we found two homes, selling in the same month, at over $10,000,000. To put that in perspective, during the past 12 months only four properties on the Hill have reached the $10M mark. So what are these rarefied houses that bring in over-the-top median prices? Let’s take a closer look. (Photos at link.)

The listing agent described 2005 Paseo del Mar as a single level with 5 bedrooms, 4 1/2 baths, formal living and dining rooms, 2 family rooms, pool, 4 car garage with gated entry and circular driveway. So what makes it worth $12.4M instead of $2M?

It seems 4582 square feet of house sitting on over an acre of land on the bluffs above the Pacific Ocean is worth about $10M more than if it had an inland address.

Similarly, 1417 Lower Paseo la Cresta is a grand estate offering over 15,000 square feet of lavish living space spread over 3 levels, with 9 bedrooms,13 bathrooms and two full kitchens. Additional highlights include the custom 15-seat theater, Italian Fantini mosaic pool, elevator, generator and an extensive home automation system.

Beach Cities Sales Down -34% From 2021

The Inland cities clearly leap-frogged the other three areas in volume of sales for June. Sales in the Inland area out-paced the rest of South Bay, erasing a -17% decline from May of this year and adding a +13% increase for June .

The next closest monthly sales volume was a +2% at the Beach. Harbor area sales showed the poorest comparable performance, dropping by -4% for the month, continuing a three month slide. Monthly sales volume in the Harbor area has declined 135 units just since March.

Let’s focus on the Harbor and that red line on the chart for just a moment. Remember this is an entry level market, where a little rise in the mortgage interest rate can quickly price a new buyer out of the running. Notice that sales in the Harbor area were at about 300 homes per month in January. By February a few buyers had noticed the interest rates climbing and took the leap.

Then March became the proverbial “last chance” to buy in the fast moving current market. Sales volume shot through the ceiling with a 61% increase in homes sold. Since then we have watched a classic collapse with prospective buyers melting into the woodwork, waiting for another opportunity.

Annual statistics are still reflecting the impact of two plus years of pandemic. Compared to June of last year, sales were down dramatically. The Inland area fared the best, coming in with a drop 0f -6% from 2021. Sales in the Beach cities and the Harbor area fell the farthest with a -34% and a -29% respectively.

Total Dollars Sold Up 71% In Just Two Years

Back in 2020, the first six months of the year had netted slightly over $3.1B in South Bay home sales. Fast forward to the first six months of 2022 and total sales is slightly over $5.3B. Restated, that’s a 71% increase in dollars spent on real estate in just two years.

Much of that increase was the result of the phenomenally low interest rates created by the Federal Reserve Bank (Fed) to offset the financial impact of the pandemic. It was good for all those people who wanted homes and had down payment money. Investors did especially well, though we saw another big expansion of the inequality gap.

Coming out of the pandemic, we’re seeing the four areas moving erratically. The steep climbs of 2020 and 2021 seem to be leveling off, as the Fed tries desperately to slow what is viewed as a runaway real estate market.

Total sales dollars in 2019 were $7.9B, in 2020 up to $8.7B, and in 2021 up again to $12.1B. Since mortgage rates are still climbing, it’s a little early for forecasting, but we anticipate 2022 total sales to come in at about $11.3B.

Where Are We Going?

Comparing last year’s market to 2022 shows a continuing decline in sales, while simultaneously a continuing increase in median prices. That may still change before the end of the year.

In May we saw the quantity sold drop into the red numbers across the South Bay. For June the sales volume is only off in the Harbor area, but the Hill and the Beach are both marginal. We expect sales to gradually slow as the year closes. Indications are the Fed will ratchet up the mortgage interest rate another 2% which should bring transaction volume down substantially.

May also saw the median price drop at the Harbor. Then in June the median fell for the Beach cities and the Inland areas, while the Harbor bounced back. We expect both the median and the sales volume to fall back into the red zone by the end of the year.

Sales volume should move first. Then as sales slow and buyers become more selective, sellers will begin retrenching on price. We don’t anticipate major price reductions until 2023. However, there are a lot of moving parts to this years economy. Events on the other side of the world may still make big changes here.

Photo by Josephine Lin on Unsplash