March sunshine lights up LA housing markets

los angeles real estate market insights

BY OUR COMPANY CHIEF ECONOMIST, SELMA HEPP

Executive Summary:

  • Los Angeles home sales rebounded in March, with almost 50 percent increase in volume from February, higher than the historical 30 percent increase between the two months.
  • On a year-over-year basis, home sales are up 8 percent in March, with the largest increase in Eastside, Southside, and San Fernando Valley
  • For-sale inventory improved from the winter months but continues to decline over the long term.
  • Buyers show renewed optimism and engaged in competitive bidding wars again, spurring the increase in the number of homes selling over the asking price.
  • Home prices continue to surge, with the region’s median price jumping 6 percent year over year in March. Santa Monica Mountains and South L.A. saw largest increases, at 28 and 14 percent, respectively. Larg e increase in Santa Monica Mountains median price mostly due to jump in sales of homes priced above $1million.

Sunshine has finally warmed up Los Angeles housing markets and the home buying season is off  to a strong start. With about 6,000 homes sold in March, the monthly increase of almost 50 percent from the month before is higher than historical seasonal increase of 30 percent between February and March. March’s strong bounce back is consistent across the state and suggests we are in for a solid housing market this year.

The biggest increase in housing market activity from February was in Northeast L.A., Eastside, and San Fernando Valley, with 112 percent, 65 percent, and 61 percent increase in home sales, respectively. San Gabriel/Foothills and Santa Monica Mountains fared relatively weaker in comparison, but still saw around 30 percent gains in the number of home sales.

On annual basis, there were 8 percent more home sales in Los Angeles neighborhoods than last March. Nevertheless, the gains were not nearly as consistent as the monthly gains. In fact, some of the neighborhoods saw declines with largest decline in Santa Monica Mountains of 13 percent, followed by a 6 percent decline in San Gabriel/Foothills, and a 5 percent decline in Northeast L.A. Central L.A. was on par with last year’s sales volume.

Figure 1 illustrates March increases in sales from the previous month and from last March. Note that when looking at percent changes, some increases are from a low base and thus reflect large percent increases. For example, a 112 percent increase in Northeast L.A. reflects a sales increase from 41 properties to 87 properties.

Figure 1 Percent Change in Home Sales, YOY and MOM March

Source: Terradatum, Inc. from data provided by local MLSes, April 7, 2017.

While the reasons for March decline from last year in the three regions is several fold, previous dominance of Chinese buyers in San Gabriel/Foothills and Northeast L.A. could be driving the decline. Following January 1, 2017 changes to foreign exchange rules for Chinese nationals, it has been more difficult for Chinese buyers to purchase outside China. In Santa Monica Mountains, on the other hand, for-sale inventory of homes priced below $1 million saw the largest drop from last year, at 28 percent; which contributed to largest, 35 percent, year-over-year decline in sales of homes priced below $1 million.

The lack of for-sale inventory in Los Angeles and generally in California’s large metropolitan area has been an ongoing issue for the last several years. In March, the inventory of Los Angeles homes for sale was down about 11 percent lower from one year earlier, with for-sale inventory of homes priced below $1 million down 15 percent. Figure 2 illustrates the changes in inventories from last March and February. Harbor and South L.A. on the south side and Eastside and Northeast L.A. on the east side are the regions with largest decrease in inventories from last March.

Nevertheless, as March is seasonally the kick-off month for the spring homebuying season, sellers are more likely to start listing their homes at a higher rate than during the winter months. Thus, March for-sale inventory has shown signs of rebuilding, and the region overall has 11 percent more homes for sale than in February. Northeast L.A. and South Bay saw largest gains of 20 and 19 percent, respectively.

Figure 2: Inventory changes by Los Angeles neighborhoods

Source: Terradatum, Inc. from data provided by local MLSes, April 7, 2017.

March’s pickup in demand also reflects renewed competition among buyers in some neighborhoods. About 4 in 10 homes in March sold above their asking prices. But, some neighborhoods saw a notably greater competition than at the same time last year, especially in San Gabriel/Foothills, Eastside, and the Harbor areas. In San Gabriel/Foothills, the share of homes selling over the asking price increased by 11 percentage points, from 38 percent to 49 percent. in other words, every other home sells over the asking price.

Figure 3 illustrates the share of listings selling over the asking price in March this year the premium paid over the asking price. A six percent premium means that home listed at $500,000, sold at $506,000 or 6 percent over the asking price. Central L.A., followed by South L.A. were the two areas where competition weakened some from last year. After Santa Monica Mountains, Central L.A. sees far lesser competition than some other parts of the L.A., which is mostly due to relatively higher prices of homes in the area. Following the fast home price appreciation over the last few years in Central L.A., in the last year the area has seen more balanced market between buyers and sellers.

Figure 3: Percentage of properties selling above asking price and premium over asking price

Source: Terradatum, Inc. from data provided by local MLSes, April 7, 2017.

Buyer competition combined with tight inventory conditions pushed home prices higher in March. In Los Angeles County, the median price increased 5 percent from last year, ending the month at about $555,000. The increase in median prices exceeded 10 percent in Santa Monica Mountains, South L.A, and San Fernando Valley, where median prices were 28 percent, 14 percent and 11 percent higher. Keep in mind that median prices are affected by the types of homes being sold, thus 28 percent median price increase in Santa Monica Mountains is largely due to more higher priced homes sold in March versus last year. There were 48 percent more homes sold priced between $1 and $2 million than last March.

Central L.A. is the only area where median prices were 5 percent lower from last March, but again, the mix of sales may play a role. Generally, Central L.A. market was relatively weaker going into the end of 2016 than some of the other L.A. markets. Figure 4 summarizes March price appreciation by Los Angeles neighborhoods.

Figure 4: March annual price growth by Bay Area county

Source: Terradatum, Inc. from data provided by local MLSes, April 7, 2017.

Overall, March numbers suggest that Los Angeles is in for a strong homebuying season this year, with renewed enthusiasm among buyers and competition brewing. Declining inventory levels will pose a constraint to any significant increases in market activity, though markets with more affordable inventory will continue experiencing stronger demand pressures and higher price increases.

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.