For the first time since January, home prices in Los Angeles County fell month-to-month in July after LA’s all-time price record had been shattered in each month leading up to July.
In the South Bay we are seeing a similar trend in that many homes are not selling now for prices they may fetched last Spring and early Summer.
In my mind, there's littel doubt that the real estate market is going through a periodic shift. Sellers can no longer just assume that their home will sell for more than the most recent comparable sale. Buyers are just saying no to over priced properties, homes needing lots of updates and properties that are just weird. A little balance in the market isn’t entirely a bad thing.
Many Real Estate "experts" have predicted that Southern California’s hot real estate market could be cooling off. A recent analysis from Zillow found that the number of homes on the market with price cuts is up since the beginning of the year, suggesting that buyer interest may be waning.
“It’s not unusual for a regional median sale price to fall back a bit from an all-time high,” says CoreLogic - a firm that compiles market data.
The “continuing erosion of affordability” is a likely culprit for sagging price growth.
Rising mortgage interest rates are making even small jumps in sale prices significantly more difficult for buyers to cover. Factoring in interest rate growth, median mortgage payments were around 13 percent higher in July than a year ago and simply put that's a lot of payment.
That may also be contributing to an drop in the overall number of home sales. In LA County, 6,971 homes sold in July—down from 7,607 a month earlier. LePage says declining sales can’t be explained by the number of houses on the market.
The overall trend in recent months, has been toward more listings and I do see inventory building up because many home shoppers are simply “unable or unwilling to buy.”
And whenever this happens, we start to see the doom and gloom articles about the softening and slowing housing market. To be expected for where we are in the current cycle but not necessarily factual.
Here's some markers to watch:
New construction is a great barometer for the health of a real estate market. Look in your area and determine the new construction permits and completions and starts. Without a healthy new construction market home prices must go up because there simply isn’t enough inventory.
Days on Market
It is important to watch the trends in days on market numbers but not panic every time that number goes up. It could just be a natural seasonal fluctuation. Compare last months or last year’s days on market number and you will easily be able to spot the trends.
Just because inventory goes up does not mean the market is significantly changing. Especially in areas where inventory has been low, it could simply be another sign of a natural season fluctuation. If the listings continue to climb and pendings fall then you have something solid to base your concern on, but rarely does this happen suddenly. Tracking these numbers on an ongoing basis is critical for being able to spot trends.
Pending sales show the “moment” of the market and this is one of the most important numbers to track. Pendings do fluctuate but you need to track pendings using comparable time periods and similar areas or product type.
List to Sale Price Ratios
This number clearly shows what people are paying for property and you can easily spot an aggressive “auction” type market when you track this number.
To look for signs of what the market is doing don’t forget to compare previous months and years to get a clear idea of where the market has been and look for the clues that show you where it is going.
Population Growth and the Economy
Is the economy in your area shrinking or growing? If the economy is growing, the population in your area is likely growing. That is going to put pressure on housing demand. Markets stay strong where there is demand for housing due to population growth and a strong economic climate.