December Market Report

We saw prices decrease MoM after a surprising increase in November. However, prices continue to increase YoY as inventory remains tight. We are very close to the historic inventory low of January 2022, and with new listings at record lows in December, odds are we will hit that low inventory record again this month.

We saw the typical end-of-year slowdown in the market, with new listings sharply declining MoM. Despite there being fewer homes to buy than the same time last year, there were more homes in escrow. This indicates a good number of serious buyers and sellers wanted to put a deal together before the new year.

Rates

Rates continued to drop last month, providing additional relief for buyers in the market or homeowners contemplating a move. Any rate drop is welcome, although there’s a feeling, especially in the first-time home buyer price points, that maybe rates staying higher for longer could have cooled the market even further. Remember that when hearing what rates are on CNN, CNBC, etc., rates in LA tend to be lower. That’s because the reported rates are the national average, where buyers put less down, have less in reserves, and potentially lower credit scores. Therefore, they get charged a higher rate.

Affordability

Affordability was a common talking point when chatting to friends and clients over the break. Some homeowners purchased with rates in the 2’s or 3’s during Covid and are now outgrowing their homes, but they’re stuck. They can’t afford a larger house at today’s prices and rates. Other people told me they couldn’t afford the house they own today for the same reasons, so it would be a downgrade if they were to sell and buy in the same area. I spoke to a contractor who told me most of his work involves homeowners who are expanding or converting garages to ADUs because they also feel stuck. It’s not only high housing costs; everything is expensive, causing homeowners to stay put.

Where will prices be in 2024?

Considering what I mentioned above, I’m starting to reassess if the market will go crazy this year, provided rates continue to drop. Yes, it seems there will be an inventory squeeze, but the buyers who are looking are also facing the same affordability issues. Therefore, they likely won’t be able to push much higher. With that in mind, here are two scenarios that could play out. Either prices remain steady because buyers simply can’t go much higher. Or, this affordability crunch causes buyers to temper their expectations and drop down into what is a more affordable price point for them, pushing prices higher for buyers who had been looking in that price range. Effectively squeezing buyers in the lower price points down into lower price points themselves or even out of the market.  

Google Data

I run ads through Google, and they have a keyword planner tool, so you can see what people are searching for on Google. Some interesting data here in LA County could indicate more inventory is coming.