The pendulum swung too far one direction as it was stimulated by artificially low mortgage rates and low inventory, now the pendulum is swinging in the other direction as the mortgage rates are being pushed higher and the pool of capable buyers is being squeezed.
We’re in the later stages of the Federal Reserve increasing their overnight Fed Funds Rate to slow down inflation, but the effect of rate increases takes several months to fully take hold throughout the economy. The housing market has felt the more immediate effect.
The attached charts reflect the latest October 2022 statistics of the San Fernando Valley (Los Angeles) housing market. Observe the existing inventory level is elevated but has stayed consistent for the last few months, while new listings have dropped. Well priced properties are still selling, many times with multiple offers… Mis-priced properties and those with issues will sit. Qualified buyers have the ability to be more selective compared to the last couple of years. New listings are being held back by potential sellers that are hesitant to sell their property with a 3% mortgage rate, to buy a new one with a 7% rate. It’s also a seasonal drop.
Long term, the present dynamics will shift back to a more neutral, and healthier housing market. The 2008 real estate malfunction was caused by the mortgage secondary market imploding because of poor underwriting standards, and an over-leveraged financial system. Underwriting and reserve requirements for the financial system are in much better shape. Pricing will make an adjustment but will continue to appreciate over time.
There is a pent-up buyer base, millions of households have been created and Millennials are hitting their prime purchasing age target. Builders have not constructed an adequate quantity of units to house the population for many years. Builders are presently scaling back on building, and they don’t what to get stuck with completed units while the buyer activity has slowed. When we have the Fed created recession takes hold, rates will come back to the 5% range. That may be the beginning of the market stabilizing.
Unseasoned House Flippers (mom and pops, and corporate) will be taking a hit. Zillow was smart to get out of the iBuyer market early, now Redfin and others are feeling the sting of the market change. A rising market will make any house buyer look smart. One that’s dropping is a much more difficult environment. Fewer buyers, longer holding costs, and inflated labor and material costs… you have to sharpen your pencil to make sure the numbers work.
Selling “right now” can still make sense to lock in recent equity gains, and “if” the plan is to move within the next couple of years.
Seasoned guidance is critical. I’ve been a real estate and finance professional through several economic cycles. The sky is not falling, we are going through a reset.
Buying “right now” can still make sense. But it’s a case by case. Inventory is higher so you have property choices not seen over the past couple of years. Expect to refinance when rates drop, and you should plan to stay in the property for a few years… It’s all on a case by case.
If you are in the Los Angeles area and have any questions or real estate sales or financing needs, feel free in contacting me
Ron Henderson GRI, SRES, SFR, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
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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