2018 South Bay/PV Real Estate Market Annual Report
As I sit down in my office to write the first newsletter of the year, I’m looking out at a beautiful sunny morning. It’s funny how the weather can mirror other things in life. After all the rain this winter, I have a new appreciation for a “typical” sunny morning, Like the weather, the real estate market seems refreshed. After one of the slower 4th quarters in recent memory, 2019 seems to be going in a new direction. Mortgage rates have once again dipped under 4% after teasing 5% in late 2018. Inventory is on the rise, and buyer activity at open houses has been gangbusters so far. Despite a recent stock market recovery, the larger economic picture has people concerned; but the largest problems are manageable – namely trade talks with China and troubled waters in Europe. Even amidst the fears, the consensus among economists is that the United States is the best bet to weather the potential slowing in the global economy. In terms of the local market, the economy is diverse, unemployment is low, and even with high taxes, people still love living in California, especially the South Bay.
South Bay Estate in 2018
2018 was another year for the record books with the median price hitting an all-time high of $725,000 and the average price/foot topped out at $561/foot for the greater South Bay real estate market. However, the second half of the year slowed down significantly with the number of homes sold for the year dipping 16% after peaking in the summer of 2017. Prices leveled off in the fall after a steady climb through the first half of 2018, largely the result of rising inventory. As I predicted in last year’s forecast, the entry level homes continued to push the market, but homes over $1.5m were a different story. Not only did the more expensive homes take longer to sell, but they typically sold for more of a discount to the asking price. It’s definitely moving towards more of a buyers market for more expensive homes, while homes around $1m continue to see multiple offers and even bidding wars.
Inventory: <iframe style=”border: 0;” width=”800″ height=”600″ src=”http://crmls.stats.10kresearch.com/infoserv/s-v1/HtZY-9nA?w=800&h=600″></iframe>
Are the good days behind us?
The short answer is NO! Even with 6 years of steady price growth there are still reasons to feel good about the local real estate market. I’ve poured over dozens of articles over the last few weeks in an attempt to get a feel for what economists feel is in store for this year. The consensus is that the economy is expected to continue growing, but at a slower pace. Equity markets are expected to be volatile with trade concerns, instability in Europe, and waning effects of tax stimulus. The stock market, which reacts much more quickly than the real estate market closed out 2018 in the red, but has rebounded over 10% so far in 2019. Could the same be in store for the real estate market? So far this year, the National Association of Realtors reported homes sales had the best January since 2015 and prices continue to rise moderately. Here’s how things look for the broader South Bay real estate market.
- The Economy is Strong – Job growth continues to outpace new housing starts, wages grew 3.2% in 2018, and the US economy continues to grow, just at a slightly slower pace than 2018. While maybe not as strong as 2018, 2019 is expected to still be a good year for the US economy.
- Interest rates are still historically low – In fact, mortgage interest rates are 2 to 3 points lower in this market cycle than they were in 2005 and 2006. These low rates are a countermeasure to rising home values.
- Inventory is limited – As mentioned above, inventory has 2 stories – over $2m and under $2m. If you are selling a home under $2m, it remains a seller’s market. Over $2m and it’s leaning more towards a buyer’s market. Overall, with rates at or below 4%, it is still an excellent time to sell a home, but the key is to price it competitively.
What can we expect for 2019
With a recent rebound in the stock market, a more dovish Fed in terms of interest rates, and the potential to a resolution of a trade war with China, here are our predictions for the coming year.
- Interest Rates – Interest rates continue to drive the story. When rates tick up, buyers step back; when they drop, they come back into the market. After rising nearly a full basis point in 2018, rates have pulled back to start the new year, but how long this will last is the million dollar question. The Fed has promised to take an almost lethargic wait and see approach, but for now, that means stable mortgage interest rates.
- Price deceleration, not depreciation! – While price appreciation has slowed compared to the double digit growth we saw in 2013, housing demand is not being met with new inventory, resulting in a scarcity for homes. As a result, as long as interest rates remain favorable, I expect price growth around 2-4%, and even higher at the lower end of the price spectrum.
- Strength at the entry point – As the more expensive homes will continue see limited gains, the entry level homes will see strong demand. I expect to see home prices rise 5-7% for homes under $1m, while the more expensive homes in each neighborhood will see growth around 3% in 2019.
- Increased Buying Power – According to Mark Flemming, First American Economist, wage growth, low interest rates, and slowing price appreciation means housing affordability will improve. This all means more buying power, something first time home buyers as well as move-up buyers need in order to keep the housing market moving along.
- Return to Balance – As buyer demand slows with rising prices, inventory tends to rise, resulting in buying opportunities when prices adjust. I like to think of this as a balancing of the market as opposed to a correction. While this won’t necessarily be a full-on buyer’s market, the combination of lower mortgage rates and rising inventory is spelling out a buying opportunity early in 2019. As more buyers enter the market in late spring and summer, I expect these opportunities to fade until inventory piles up again or prices start to drop.
The top neighborhoods to watch in 2019
- Hermosa Hills
- South Redondo SFRs
- West and South Torrance
- Palos Verdes Estates under $1.8m
- Rancho Palos Verdes under $1.25m
Thank you for taking the time to read through the If you are wondering how the changing economy affects you and your real estate, please give me a call, I’m happy to help!
See you in the neighborhood, Kyle