Happy 2024! I hope the year so far is off to a good start and you are excited for things to come. I am grateful to get to call PV home, and am reminded daily of why this is such a special place to raise a family. I was recently chatting with several parents while attending my son’s soccer game at PVIS in Lunada Bay. Besides being a fantastic school, while standing at the field we had amazing views of the Queen’s Necklace and the Santa Monica Mountains to the north, and Catalina Island and the sun setting over the ocean to the south and west. It might arguably be the most scenic middle school in America!
In terms of real estate, 2023 was supposed to be a year of doom and gloom, but the Palos Verdes market once again proved to be resilient despite fears of the economy falling into a recession and 20 year highs in mortgage rates. For the most part, homeowners have retained nearly all their equity gains of the past decade of price appreciation, and the worst is likely behind us in terms of a slow real estate market. The 4th Quarter of 2023 brought new momentum to the market with mortgage rates having fallen to the mid 6% range, the stock market reaching new highs, and there have been several remarkable sales of homes over $8M.
Looking at the numbers, the average price/sqft declined less than 3% in PVE and RPV, while it increased slightly in RHE and was up 3% in RH. The biggest story was the overall drop in sales volume for the past year. PVE saw a 12% drop in sales, RPV dropped 22%, RHE was down 33%, but Rolling Hills increased 28%. Looking back prior to 2020, sales activity is still off 25% with 612 total units sold in 2023 compared to sales in the 800 unit range in the pre-pandemic years. According to Doug Duncan, Fannie Mae Chief Economist, “a full recovery to the pre-pandemic sales rate is expected to take years, as housing affordability remains stretched extremely thin by historical standards relative to household incomes.”
2024 will be all about supply.
Given that 60% of current mortgages are locked in below 4% rates, the scarcity of motivated sellers persists, leading to a likely continuation of constrained housing inventory for the second consecutive year. Meanwhile, buyers who have come to terms with today’s mortgage rates have resumed their home searches. Buyers decide to move based on life changes. No one says “Interest rates are too high, let’s not have kids.” Some buyers right-size to a smaller one-level home with less maintenance, others need more space because their family is growing, and some just want to move for lifestyle reasons. Ultimately, rates are important, but still are a secondary factor.
Chris Thornburg, Chief Economist at Beacon Economics in Los Angeles, expects the housing market to begin to recover in the second half of 2024. In the meantime, the Fed remains cautious as they walk a fine line of controlling inflation while not causing a recession. Based on the latest data, the US economy remains resilient and a soft landing seems possible. Ask any mortgage lender and the number one item on their wish list is a Fed rate drop. However, relying on Federal Reserve interest rate reductions as the sole factor in determining when to purchase a home undermines essential considerations such as your family’s requirements and lifestyle preferences. Wise market players make housing decisions based on 3 key factors – what you need, what you can afford, and what location makes the most sense for you. If you need help finding clarity in this market, I am here to help. Cheers to a great 2024!
