Our team is committed to continuing to serve all your real estate needs while incorporating safety protocol to protect all of our loved ones.
In addition, as your local real estate experts, we feel it’s our duty to give you, our valued client, all the information you need to better understand our local real estate market. Whether you’re buying or selling, we want to make sure you have the best, most pertinent information, so we’ve put together this monthly analysis breaking down specifics about the market.
As we all navigate this together, please don’t hesitate to reach out to us with any questions or concerns. We’re here to support you.
– Vivian Yoon & Dennis Hsii , DRE #01925833 / DRE #01919746
Welcome to our August newsletter, where we’ll explore residential real estate trends in the North Beach, West Side, and South Bay markets in Los Angeles and across the nation. This month, we examine the state of the U.S. economic recovery using Real Gross Domestic Product (GDP)1, the potential effects of the Delta variant on the housing market, and the ways in which the homebuyer profile changed over the last year.
In terms of GDP, which is the broadest measure of goods and services produced, our economic recovery stands at about 70% of where we would likely be if the pandemic had never happened. Unfortunately, the Delta variant has diminished the likelihood of the pandemic ending with any sort of speed and caused a return to mask mandates in many parts of the country. Although full lockdowns are unlikely, high case counts and a return to near-universal masks and social distancing will disrupt our economic recovery.
The uncertainty surrounding the Delta variant and its effects on the economy caused rates to fall. Participants in our financial markets know that the Federal Reserve will try to stabilize the U.S. financial markets in times of uncertainty. At this point, it’s a given. The further decline in interest rates reflects that. Mortgage rates are now extremely close to the all-time low. At the same time, however, prices have risen, and the profile of homebuyers has shifted. More homebuyers are investors and full-cash buyers. With low-rate financing and a high number of qualified buyers, the rising prices haven’t reduced the demand for homes as one might expect.
As we navigate this period of high buyer demand and low supply, we remain committed to providing you with the most current market information so you feel supported and informed in your buying and selling decisions. In this month’s newsletter, we cover the following:
- Key Topics and Trends in August: Uncertainty around the Delta variant will keep rates extremely low, which will likely drive up the already-high demand for housing. The number of home sales is on pace to be the largest since 2006.
- August Housing Market Updates for selected Los Angeles areas: Single-family home inventory has returned to pre-pandemic levels, and demand in the areas is high, driving prices in North Beach and the West Side to their highest levels in two years.
1Real GDP is inflation-adjusted GDP. All references to GDP use Real GDP figures.
Key Topics and Trends in August
We’re about a year past the initial economic devastation caused by the pandemic. The second quarter of 2020 saw the largest single-quarter drop in GDP in history (-9%). GDP and employment together reveal much about the economic climate and typically trend with housing prices, but they do not explain the current rise in home prices. We’ll still discuss GDP and employment, however, because they are useful longer-term indicators.
The U.S. Bureau of Economic Analysis reported a 1.6% quarter-over-quarter gain to GDP in 1st Quarter (1Q) 2021, which is about 1% higher than the long-term quarterly growth rate of 0.6%. We need to outpace the long-term growth rate to get back to pre-pandemic levels. If it weren’t for the Delta variant, we might actually get there. The substantial infusion of cash into the economy has boosted GDP, but we’re still only at 70% of pre-pandemic levels. At the same time, there are about 10 million fewer jobs due to the pandemic. As the Delta variant runs through the country, our recovery will likely stall and the loss in GDP could be permanent.
The chart below illustrates the cost of a recession. While it depicts U.S. GDP from 2016 to 1Q 2021, it also illustrates economic patterns that occur in all recessions. GDP tends to grow at a fairly consistent rate during economic expansions. The green line illustrates the expected GDP had the pandemic never happened. As that green line shows, we are 30% below where GDP was expected to be in 1Q 2021. In other words, we’re still underwater despite the impressive quarterly increases in GDP.
The fresh uncertainty surrounding the Delta variant caused rates to drop. The Federal Reserve is expected to support the financial markets by infusing money into them, which lowers rates and, in this instance, causes inflation to rise. As shown in the chart below, we’re currently hovering at historically low mortgage rates, which will likely remain for the rest of the year. Low rates and inflation both incentivize buying. When consumers know that the dollar’s purchasing power is diminishing quickly, it makes more sense for them to buy a home sooner rather than later.
Demand for homes hasn’t diminished as prices soared over the last year. In a typical year, we would expect that a 20% increase in home value would price many potential homebuyers out of the market, thereby causing a price correction. In this instance, we’ve found that to be half true. First-time homebuyers are usually the first to get priced out of the market. Over the past year, we are seeing fewer first-time buyers coming into the market. However, even though there may be fewer buyers in one category, there are plenty of buyers in other categories to make up for them. In this case, we are seeing more investors coming into the market. Cash sales have jumped considerably, and homes are selling extremely quickly. As a result, it looks like prices will climb higher in the near future.
While the market remains competitive for buyers, conditions are making it an exceptional time for homeowners to sell. Low inventory means sellers will receive multiple offers with fewer concessions. Because sellers are often selling one home and buying another, it’s essential that sellers work with the right agent to ensure the transition goes smoothly.
August Housing Market Updates for selected Los Angeles areas
In this newsletter, we break down three luxury areas in Los Angeles as follows:
- North Beach: includes the Pacific Palisades, Santa Monica, and Venice
- West Side: includes Beverly Hills, Brentwood, West Hollywood, and Westwood
- South Bay: includes Hermosa, Manhattan Beach, and Redondo
During July 2021, the median single-family home price rose month-over-month in the South Bay, reaching an all-time high. The median home prices in North Beach and the West Side declined slightly. Year-over-year, single-family home prices increased across the selected Los Angeles areas.
Single-family home inventory grew much higher for North Beach and the West Side in 2020 relative to 2019, while the South Bay trended similarly to 2019 (a “normal” year) in 2020. The unusual spike in inventory was short-lived due to demand in the area. In the selected markets, inventory retracted as quickly as it increased and is now trending similarly to pre-pandemic levels. Since the start of 2021, more new listings have been coming to market, but these were met with increased sales. Demand in the area is significantly higher than last year, and we expect many of the new listings that come to market this summer to be absorbed quickly. The sustained low inventory will likely cause prices to appreciate throughout 2021.
Days on Market has declined substantially since the start of 2021. Homes are still selling relatively quickly for luxury markets. As we’ll see, the pace of sales has contributed to the low Months of Supply Inventory (MSI) over the past several months.
We can use Months of Supply Inventory (MSI) as a metric to judge whether the market favors buyers or sellers. The average MSI is three months in California, which indicates a balanced market. An MSI lower than three means that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI means there are more sellers than buyers (meaning it’s a buyers’ market). In July 2021, the MSI remained below three in the South Bay, highlighting the demand in the area. North Beach and the West Side are more balanced with MSIs near three.
In summary, the high demand and low supply present in the selected Los Angeles areas have driven home prices up. Inventory will likely remain low this year with the sustained high demand in the area. Overall, the housing market has shown its value through the pandemic and remains one of the most valuable asset classes. The data show that housing has remained consistently strong throughout this period.
We expect that the number of new listings will continue to increase in the remaining summer months. The current market conditions, however, can withstand a high number of new listings coming to market, and more sellers may also enter the market to capitalize on the high buyer demand. As we navigate the summer season, we expect the high demand to continue, and new houses on the market to sell quickly.
As always, we remain committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home or condo.