The real estate market is regional. The San Fernando Valley Los Angeles residential real estate market has been slowing for the last few months, but it’s just now showing up in the statistics.
Visually you can see in the charts a spike in the inventory, and the quantity of sales dropping off substantially. These numbers are lagging indicators, and reference what happened a month or two ago. The market is based on supply and demand.
Leading indicators are the quantity of open houses, the quantity of multiple purchase offer scenarios, price reductions. The quantity of multiple offers are down, and price reductions are up. This is not a seasonal adjustment, as can be seen on the year over year charts.
There are a few wild cards that the market is dealing with:
Interest rates – The Federal Reserve has continued their systematic Fed Funds Rate increases of ¼% every quarter. That has affected the rates on the adjustable rate mortgages and home equity lines. The long rates like the 30 year fixed has been affected by the liquidation of the Fed’s Balance Sheet. They accumulated $4.5 trillion dollars of mortgage backed securities and US bonds to artificially drop the interest rates during their Quantitative Easing. The fixed mortgage rates are up approx. 2% over the past year and a half, now pushing 5%.
Housing Affordability – Higher prices, and higher interest rates depress the housing affordability and capability for potential buyers to qualify for purchase money loans, or come up with the required down payment.
New Tax Law – The $750,000 mortgage interest limitation and the $10,000 local and state tax write-off will affect high cost areas like Los Angeles.
Loan Underwriting Guidelines – The passing of S.2155 – Economic Growth, Regulatory Relief, and Consumer Protection Act, a bi-patrician bill allowing portfolio lenders and credit unions to ease some of their loan underwriting guidelines will allow for some flexibility in specific portfolio loan programs. Flexibility is one thing, don’t expect the “free for all” money that we saw in 2006. Underwriting loosens when property values are going up. Tighten when prices are prices languish or drop.
The real estate market is not like the stock market. The stock market is like a speed boat, and can go up and down fast. The real estate market is like an ocean liner, reacts very slow to conditions.
The take away, there is fluff in the local real estate values. Each price range and immediate neighborhood has it’s own dynamic. We still have too many people living in the area for the quantity of existing units. Rents are still escalating, and owning real estate still acts as an insurance policy against rising rents. The passing of more rent control elements sounds like it would help, but will only make the the scenario worse.
If you are in the Los Angeles area, have any questions or real estate sales or financing needs, feel free in contacting me.
Ron Henderson GRI, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
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