What we are seeing across many submarkets in the South Bay is even more extreme in Palos Verdes and in particular, Valmonte – Sellers aren’t selling. It’s not that they are trying to sell and properties are just sitting, it’s that would-be-sellers aren’t even attempting to sell. Meanwhile, there are plenty of buyers waiting in anticipation for the right home to come available so they can settle in and get busy living their lives.
Why is the market so slow this year?
The number one culprit is higher interest rates, but not for the reason you would expect. In this case, the higher interest rates are disincentivizing sellers to sell, while most buyers have adjusted their expectations to the higher cost of borrowing. Many would-be sellers are locked into low interest rates and balk at selling and buying into a new home at rates that may be double that of their current mortgage rate. A recent article on CNN’s website state’s that a recent survey suggested that an interest rate under 5.5% is the tipping point where borrowers feel rates should be. “A majority of respondents — 71% — said they are not willing to accept a mortgage rate above 5.5%. Meanwhile, 62% of consumers believe a historically normal mortgage rate is below 5.5%.” Historically, average rates are in the 7% range for the last 50 years, so until expectations change, we can expect friction when deciding to sell unless life factors make that decision more urgent (death, divorce, and job transfers for example).
2023 vs. 2022
So far in 2023, we only have 4 closed sales in Valmonte, with just 1 in escrow, and 3 overpriced fixers sitting on the market. In contrast, during the first 4 months of 2022, there were 14 sales in Valmonte. That’s 57% more closed sales last year by this time, with several more in escrow. But 2023 is even more of a seller’s market compared with one year ago. Days on Market (DOM), just one indicator of buyer’s demand, is averaging just 6 DOM compared to 23 a year prior; and seller’s have far less competition this Spring. All 4 properties that have sold this year have had at least 3 offers, and 3601 Via La Selva (currently in escrow), had 4 offers and is on target to sell nearly 10% over the list price of $3.299M. The average price/sqft has dropped $120/sqft from $1,190/sqft to $1,070/sqft; but this is due to what is selling, not the actual price trajectory of the local market. For example 2 of the 4 properties that closed were trust sales in need of repair, compared to many of the recently updated homes that sold last year. Move-in condition homes, or those with unique locations or lot sizes, continue to be in high demand, and as a result are selling with multiple offers when they come available.
As the Fed navigates higher than their desired rate of inflation, we can expect that rates will remain high for the foreseeable future. Yes, that means expectations need to change and typically, as time goes on, consumers will adjust to the new normal. In the meantime, we will continue to see high demand for properties in Palos Verdes Estates, and those that are willing to sell will reap the rewards of having little competition and a steady stream of interested buyers so long as properties are priced appropriately.
If you have any questions about the market, whether in Palos Verdes or in another local market, please feel free to reach out directly via email – kyle@kyledanielsrealestate.com. Thanks for reading.
