The June numbers are out. The number of closed homes sales in the South bay and Palos Verdes rose 22% to 511 units sold compared to May. This is slightly higher than the 486 sales in June 2016,and is a sign that there is still plenty of life in the market despite 5 years of rising prices.
But what should be the peak of yearly activity for home sales, pending sales dropped from 473 pendings in May to 259 pendings in June, and a 41.7% year over year drop from June 2016. Looking back 10 years, this is the lowest number of June pending sales since 2011, the lowest point over the last market cycle. The 259 recorded pending sales is the equivalent of numbers we typically see in December, historically the slowest month in terms of pending sales (see the chart below to get a better idea of the cycles).
So the big question is “Why?” It’s not for lack of inventory as there were 200 more listings available in June compared to May; although new listings that came to market dropped slightly over the same period. Additionally, homes are closing in record time – in an average of 26 days. But high prices are likely to blame for the drop in pending sales as buyers are growing weary of paying more for the same house that was nearly 5-10% cheaper a year ago. It’s pretty normal for sellers see their neighbors’ homes selling for record prices and they get a little aspirational with their own home price.
What this signals is that there will likely be price drops coming if sellers are in any hurry to sell. In fact, some of the price drops may have already started. Overall, median prices fell slightly (4.3%) from May to $920,000 throughout the area. But there were some bright spots. Manhattan Beach, which saw median prices fall in the short term from record highs in March 2017, rebounded to a median price of $2.6 million. Buyers in Manhattan Beach were also willing to pay a premium, with average sales closing 2.1% over the original listing price. The same goes for Hollywood Riviera where prices closed 1.6% over the original listing price.
The next few months will be very telling. Interest rates are back to the low 4% range despite the recent increase in the Federal Funds Rate. The overall economy continues to improve and consumer confidence is up. But buyers are much smarter today than they were in the last market. They have more information available and when a house is overpriced, buyers are punishing sellers for the mistake. Where we come out in the fall after the summer slowdown should be interesting.
If you are wondering what your home is worth, give us a call. We’re happy to take a look and give you a complimentary opinion of value.