February Sales Activity in Los Angeles Promises a Solid Start to the 2017 Homebuying Season

BY OUR COMPANY CHIEF ECONOMIST, SELMA HEPP

Executive Summary:

  • February Los Angeles County home sales posted a 2 percent increase from last year, with the largest gains in San Gabriel/Foothills (up 14 percent), Central L.A. and the Santa Monica Mountains (up 7 percent), and Harbor (up 6 percent).
  • The overall home sales increase is higher than the average 6 percent year-over-year decline seen over the last four years.
  • Inventory levels are a concern and are lower than they were in February 2016, with all regions declining by 16 percent, on average.
  • The median home price appreciation across Los Angeles increased by 7 percent on an annual basis, with relatively stronger appreciation in San Gabriel/Foothills and South Los Angeles.
  • Housing demand remains solid, with homes entering contract 10 days faster than last February.

February home sales in Los Angeles County continued to increase from the year before. Following a 3 percent annual increase in January, home sales were up 2 percent in February year over year. Figure 1 shows the monthly home sales trend for Los Angeles County and illustrates seasonal patterns in spring and summer months, when sales are usually 80 percent higher than in the first months of the year. While February is generally the slowest month of the year for home sales activity, February’s year-over-year sales increase suggests a positive entry into the 2017 homebuying season, particularly given the average 6 percent decline seen in the last four years. Overall, Los Angeles County home sales in 2016 were 18 percent higher than the year before. Home prices also continued to rise steadily, posting a 7 percent year-over-year increase, with February's median price at $545,000. Annual price appreciation in Los Angeles has averaged 6 percent since the summer of 2014, when a competitive housing market and lower home prices led to a couple of years of double-digit-percent price appreciation.

The home sales gains and price appreciation is not consistent across all the cities in the county; the following analysis takes a closer look at February activity in 11 large Los Angeles regions.

Figure 1: Total home sales in Los Angeles County

Source: Terradatum, Inc. from data provided by local MLSes, March 6, 2017.

Figure 2 depicts the 11 regions with their median prices in February 2016. Prices range from the high $300,000s on the Eastside and South L.A. to $1.25 million on the Westside. Home prices in Los Angeles County were about 7 percent higher on an annual basis in February, but appreciation rates differed widely. Home prices remained relatively flat on the Westside, in the Santa Monica Mountains, and in Northeast L.A, while San Gabriel/Foothills and South L.A. saw the highest appreciation rates -- 16 percent and 12 percent, respectively. In general, home price appreciation remained relatively subdued on the Westside and the Santa Monica Mountains throughout 2016, as rapid price appreciation in the preceding years caused the gains to plateau. Also, affordability constraints are limiting further home price increases in some areas. Consequently, South L.A. has benefited from relatively stronger price growth, as its proximity to the coast and transit and employment centers make it a desirable alternative for affordability-constrained home buyers.

Figure 2  

Source: Terradatum, Inc. from data provided by local MLSes, March 6, 2017.

At the same time, home sales activity also varied from area to area. The San Gabriel/Foothills area, which encompasses neighborhoods from Pasadena to Glendale to La Canada Flintridge, saw the largest relative increase in home sales from last February, at 14 percent. Other areas with strong relative increases include the Santa Monica Mountains, Central Los Angeles, and the Harbor Area. In contrast, with Northeast Los Angeles leading, the Southeast, Eastside, San Gabriel Valley, Santa Monica Mountains, South Bay, and South Los Angeles areas all saw declines in sales from last February. Figure 3 shows February's year-over-year change in sales. It’s important to understand where most of the sales activity occurs in the county. As Figure 4 shows, most sales occurred in the San Fernando Valley, Harbor, and Central L.A., which drove the overall countywide increase.

Figure 3 also shows February's annual change in inventory of homes for sale, which declined by 16 percent. And while the decline was consistent across the regions, the Eastside, Northeast, South L.A., and Harbor areas saw relatively larger declines exceeding 20 percent. In raw-number terms, San Fernando Valley and Harbor had the largest decline in for-sale inventory. In fact, after a small buildup in inventory over the last summer, year-over-year supply has been trending lower in the entire L.A. region since last November. Moving forward, the lack of inventory may be the largest impediment to future improvements in sales activity, as the correlation between sales and inventory is stronger than between sales and home price appreciation. In other words, an increase in inventory is more likely to mean higher home sales than higher price appreciation.

Figure 3

Source: Terradatum, Inc. from data provided by local MLSes, March 6, 2017.

Figure 4: Distribution of year-to-date sales by 11 L.A. regions 

Source: Terradatum, Inc. from data provided by local MLSes, March 6, 2017.

Still, several other housing-market indicators suggest that areas with greater home affordability will remain hot spots for housing activity in 2017. According to the California Association of Realtors' median days on market data, the number of days it takes for a home to enter contract declined throughout 2016, from high of 51 days at the beginning of the year to 35 days in December. The high of 51 days in January was in part due to the new he TILA–RESPA Integrated Disclosure (TRID) rule that went into effect on Oct. 3, 201.5. However, the low of 35 days has not been seen since the fall of 2013, when the Los Angeles housing market was very competitive. By region, the South Bay is the most competitive area, with homes going into contract in only 29 days. The other areas with a relatively quick sales pace include Harbor at 31 days, and South L.A, Southeast, and Northeast, all at 35 days. Homes in the Central L.A., Eastside, and areas are now taking a bit longer to sell than they did last year, which again may reflect a more cautious pool of buyers.

What does it all mean for the upcoming homebuying season? While anticipation remains over the impacts of the new administration’s policy on the Los Angeles economy and housing market, there are some encouraging signs in February's housing-market indicators. Both sales and home prices continue to increase, and demand is not fading, particularly in transit- and employment-accessible areas that are also affordable.

Falling inventory levels do pose some concern going forward. Since the decline has been consistent across the state, it does to some degree illustrate that owners have decided to postpone selling their homes until more economic and policy certainty is in place. And with only two months since the inauguration, it may be too early to tell what’s to come. At the very least, the inventory shortage will constrict home sales going forward and continue to put pressure on prices.

The recent decision by the Federal Reserve to increase borrowing rates added an element of concern, as higher mortgage rates could limit some market activity. However, mortgage rates have since decreased, as markets overshot in anticipation of the Fed rate hike and forward-looking rate increase forecasts. The Fed is still expected to gradually increase rates two more times this year.


Selma Hepp is the Chief Economist and Vice President of Business Intelligence for Pacific Union and John Aaroe Group. Her previous positions include Chief Economist at Trulia, senior economist for the California Association of Realtors, and economist and manager of public policy and homeownership at the National Association of Realtors. She holds a Master of Arts in Economics from the State University of New York (SUNY), Buffalo, and a Ph.D. in Urban and Regional Planning and Design from the University of Maryland.