We are now more than halfway through 2022, and the Los Angeles real estate market has been through its fair share of ups and downs. Between the Federal Reserve raising interest rates and Californian housing inventory improving by leaps and bounds, there’s a lot of opportunity and uncertainty for both buyers and sellers.
By understanding the major trends that occurred in the first half of this year, we can anticipate and be better prepared to enter the market in the next few months. Here’s an overview of everything that has happened so far in the Los Angeles real estate market, and what you can expect from your own home buying or selling journey:
Table of Contents:
- Beginning 2022: Riding off the housing market frenzy
- End of Q1 2022: Record-high prices and positive home sales
- End of Q2 2022: Market stayed strong, but corrections are starting to take effect
- Q3 2022: What now
- Looking forward: Q4 2022 and 2023 outlook
- Navigating rising mortgage rates: tips for buyers
- How to sell your Los Angeles home fast: tips for sellers
- Work with a top Los Angeles brokerage
Beginning 2022: Riding off the housing market frenzy
Despite coming out of seasonal slowdown with reports of rising interest rates, the California housing market began the year strong. Home sales remained above pre-pandemic levels, up by 3.4% compared to December 2021 and down by 8.3% compared to January 2021. California home prices also continued to decelerate, going down by 3.9% from December 2021 and up 9.4% from January 2021.
Los Angeles home sales declined by 33.9% month-to-month and by 12.4% year-over year, while home prices had a double-digit rise at 13.6% year-over-year. The median sold price for existing single-family homes in Los Angeles was at $800,960.
Market competition: not too cold, not too hot
Buyer demand was not as frenzied as the pandemic market of 2021, although statewide median sales-price-to-list-price ratio still remains above 100%. More than half of the homes sold in January 2022 sold above asking price, and the median number of days it took to sell a single-family home was 12 days.
The cooling market allowed California’s housing inventory to improve, with new active listings increasing by 37.2% compared to the previous month. The 30-year fixed-mortgage interest rate also averaged at 3.45%, which was up from 2.74% last year.
What does this mean for us?
The market momentum from the last two years carried into 2022. Many upmarket buyers took advantage of still favorable lending rates, slower competition, and leveled prices during this month, which explains why there were low sales but high median home prices. However, the uptick in interest rates had started to pose concern in terms of affordability, and this would have a substantial impact on housing demand in the next few months.
End of Q1 2022: Record-high prices and positive home sales
The first quarter of 2022 ended with median home prices hitting another record high at $849,080, which is 11.9% higher than the same time last year. This is interesting considering that, by contrast, total home sales statewide were down by 7% year-to-date. According to the California Association of Realtors (CAR), the surge in million-dollar home sales – which had a month-over-month increase of 32.9% in March 2022 – was the main reason for the median price jump.
All major California regions experienced sales decreases and home price surges. In Southern California, sales declined by 7.5%, while also reaching a record high 13.8% year-over-year price growth.
In Los Angeles, however, home sales soared. March 2022 brought a 36.3% month-to-month increase in sales, and while it’s still 5.8% lower than last year, it is a welcome development for sellers given the tepid sales at the beginning of the year. Median sold prices were around $781,050, which amounts to a 1% month-over-month increase and a 13.3% year-over-year increase.
Recovering housing supply amid strong buyer demand
The 30-year fixed-mortgage interest rate averaged at 4.17%, which is almost one point higher than the interest rate at the beginning of the year. Despite this, market competition and buyer demand remained strong, with statewide sales-to-list-price ratio staying at 103.9%, and the median number of days on the market going down to 8 days.
California’s housing supply showed great signs of recovery, with the Unsold Inventory Index (UII) remaining unchanged from a year ago at 1.7 months in March. That was the first time in almost two years that the index did not decline on a year-over year basis. Moreover, active listings saw its highest level in five months and its first year-over-year increase since June 2019.
What does this mean for us?
Many buyers entered the market to get ahead of rising mortgage rates, which explained the continuously high demand and rising home prices. They were also more inclined to search for homes given the increase in active listings, which provided more options and helped mitigate the competition. All in all, Q1 showed great buyer interest and a strong housing market.
End of Q2 2022: Market stayed strong, but corrections are starting to take effect
By the end of the second quarter, demand in the California real estate market had cooled down, with June recording its biggest dip in sales in the past two years. Existing, single-family home sales were down 8.4% month-over-month and 20.9% year-over-year. Statewide median home price was at $863,790, which is a 4% decrease from May 2022 but a 5.4% increase from June 2021.
This dip in the median home price after four consecutive months of increase simply showed the market moderating itself, especially with regards to the luxury housing market. Home sales for properties priced $2 Million and above went down by 17.9% compared to the previous month.
Moreover, with interest rates hiking up, all major regions in California began to experience the intended corrections on its housing market. Southern California had the biggest drop out of all of them, with existing single-family home sales going down 27.1% year-over-year. Los Angeles, in particular, had a -20.6% year-over-year change in sales despite median sold prices hiking up to $860,230 (8.1% year-over-year).
Massive supply growth and sustained buyer demand
Because of the increase in supply and a slight pullback in demand, housing inventory in California rose to its highest level in two years. Total active listings shot up by 64.4% in June, which is the largest year-over-year supply growth that California had seen in seven years.
Despite the 30-year fixed-mortgage interest rate shooting up to an average of 5.52%, the state’s housing market remained as competitive as ever with a sales-price-to-list-price ratio of 101.3%. The median number of days single-family homes stayed on the market was 11 days, which is just 3 days more than last year’s.
What does this mean for us?
The second quarter of 2022 was a good time for buyers, with the housing market starting to normalize after the feverish levels of the past two years. Rising interest rates and moderate price growth, paired with more listings entering the market, has allowed buyers to have more options and less competition.
Take note, however, that the California housing market will continue to correct and adjust itself for the next few months, characterized by softer sales and slower price growth.
Q3 2022: What now?
As of writing, we are more than halfway through the third quarter of the year. August 2022 ended with a slight uptick in single-family home sales due to a brief retreat in mortgage rates, with home buyers taking advantage of the friendlier lending environment to close on homes.
Statewide, home sales were at 313,540, and while it is down by 14.9% year-to-date, it is up by 6.1% compared to the previous month. Home prices across the state have also started to stabilize at a less-than-2-percent growth pace on both a monthly and yearly basis, with a median home price of $839,460.
At the regional level, sales continue to show a sharp decline on a year-over-year basis. In Southern California, home sales went down by 28.8%, but the declines are notably less extreme compared to the previous month.
Los Angeles, on the other hand, had a 1.2% month-to-month increase in sales. Median sold prices for single-family homes here amounted to $854,960, which is a 1% increase from last month and a 3% increase from last year.
A favorable time for buyers
The 30-year fixed-mortgage interest rate was at an average of 5.22% by mid-Q3, but that might’ve worked towards buyers’ favor. Housing supply and inventory continued to improve, with active listings increasing by 57.1% year-over-year. And at this point, the California real estate market had less competition, with single-family homes staying for a median of 19 days.
Because of this, home buyers who were still in the market had more negotiating power, with many homes selling for less than the asking price. For the first time since June 2020, the sales-price-to-list-price ratio fell below 100% (at 98.4%).
What does that mean for us?
With mortgage rates on a temporary reprieve in July and August, the price growth and sales pace in the California housing market stabilized. Active listings passed their annual peak and homes took longer to sell, but the amount of homes experiencing price reductions have also gone nearer to pre-pandemic levels.
The monthly and annual price growth, and the amount of closed and pending sales, all point to a rebound for homes priced $2 Million and above. But it may take more time for the market to bounce back completely, especially with the Federal Reserve planning to raise interest rates again to control inflation.
Looking forward: Q4 2022 and 2023 outlook
Inflation is at its highest in 40 years, and we can expect that it will continue to stay elevated. While this may deter some buyers, buying a home in Los Angeles is still a good investment if you know how to navigate the current market.
Based on Q2 data, California experienced one of the largest average equity gains in the country, averaging at $117,000 according to Corelogic. This means that Los Angeles homeowners enjoyed property assets with market values that were significantly higher than the amount they paid for it.
Expect high mortgage rates and slow sales
Mortgage rate increases have stalled and slowed down for the past month, but they will most likely climb again in the coming months and well into 2023. Mortgage payment is projected to be up more than 50% by the end of 2022. We can expect mortgage applications to go below pre-pandemic levels in the latter half of the year as well.
Consequently, home sales are expected to continue at a slow pace for the rest of 2022 and possibly until the first half of 2023. Median prices will remain high, but it is predicted to increase at a more relaxed pace. Many potential buyers are also entering prime home buying age in the coming months and in 2023, so there might still be some tight competition in the market, especially in Los Angeles.
Navigating rising mortgage rates: tips for buyers
There is a lot of fear and anxiety around rising mortgage rates. But as we’ve seen in the first two quarters of 2022, rising mortgage rates helped ease the tight competition in the Los Angeles real estate market by cooling down demand, moderating price growth, and ultimately allowing the housing inventory to recuperate.
Whether you’re trying to gauge if it’s the right time to push through with a home purchase or looking for ways to recalibrate your housing budget to buy your dream LA home, here are some tips that can help:
Review all your monthly expenses
Calculate all of your monthly expenses before deciding on your housing budget. Ideally, you should spend no more than 30% of your monthly income on housing costs, including mortgage payments, property taxes, homeowners insurance, and maintenance. Your buying power might also be reduced as interest rates continue to climb, so make sure to include a little wiggle room in your budget. Keep in touch with your lender to stay updated on your rates and avoid sticker shock.
Consider a range of mortgage terms and financing options
If you’re planning to sell your current home and have a large amount of equity available, you can put down a larger down payment to lessen your mortgage payment each month. You can also lower the final cost of your home by getting a 15-year fixed mortgage instead of the usual 30-year fixed loan. Make sure to ask your lender about different scenarios, particularly what your monthly payment will be like when the interest rate increases.
Improve your credit score
The actual rate your lender will give you will be based on your credit score. To boost your credit score and strengthen your mortgage application, pay off high interest debts like credit card bills. You can also go over your credit report to check and correct any mistakes you might find.
How to sell your Los Angeles home fast: tips for sellers
The Los Angeles housing market is cooling down, with increases in mortgage rates pricing out some buyers and increases in housing supply providing more options to others. Either way, competition and demand is not how it used to be, and many sellers are more amenable to lowering their prices or risk letting their home stay too long on the market.
In this market, selling your Los Angeles home for top dollar means selling it fast, so here are some tips that can help you accomplish this:
Declutter and depersonalize
When preparing your home for sale, the goal is to create a space where buyers can imagine themselves living their dream life. Remove all personal items that are on display like photographs, books, toiletries, and more. Focus on deep cleaning areas such as kitchen and bathroom counters, fireplace mantels, shelves, and table tops. Try to hire professional stagers, since they would know how to highlight the best selling points of your home.
Address problems early on
Taking care of any repairs and issues in your home before listing can save you time and money in the long run. Prioritize parts of your home that will be reviewed during home inspections, such as plumbing, roof quality, electric system, and HVAC. You can also talk with your Realtor about ways to improve your curb appeal and home value at little to no cost, such as adding a fresh coat of paint, doing simple landscaping, or buffing hardwood floors.
Work with a top Los Angeles brokerage
CLUTCH / ABODE is a boutique real estate team that designs and executes highly personalized strategies for both buyers and sellers in Los Angeles. Led by Clinton Wade, you can enjoy a smooth and successful real estate transaction based on over 20 years’ worth of experience in the Los Angeles luxury market.
Schedule a consultation with the CLUTCH/ ABODE team today. Get in touch with us via phone or email.