Home sales fell again in August, declining 13% year-over-year, according to research from Pacific Union International. With home sales continuing to decline in August, total home sales are down 9% for the year, according to the report. This year, the housing supply is also decreases, down 11% year-over-year in August—the largest drop in months. In addition to the supply shortage of for-sale housing, affordability issues also contributed to the decline in sales volume.

“Continually declining inventories is the main driver of slowing sales in central part of Los Angeles,” Selma Hepp of Pacific Union International tells GlobeSt.com. “At the outer parts of Los Angeles county where there was some increase in inventory, lack of affordability is holding sales back particularly in lieu of rapid price growth we've seen at the beginning of 2018.”

The housing supply decreased in all markets except Brentwood and Westwood. Glendale, Hollywood, North Hollywood, Redondo Beach and Woodland Hills led the supply shortage, with 50 to 100 fewer homes for sale. “Supply has decreased for many reasons related to California's tax structure, namely Prop 13, capital gains taxes, but also lock-in effect from low mortgage rates in the past half a decade, and very simply because if people sell their homes, they don't know where to go since there is no inventory. So the problem is circular,” says Hepp.

The decreases in home sales isn't a reflection of the strength of the local economy, however. The Los Angeles economy is healthy with strong job growth—which should fuel housing growth. “Local economy has been doing very well and adding a solid number of jobs,” says Hepp. “Our supply shortages started years back and are not necessarily a function of the strong local economy though do exacerbate the shortage issue and drive rapid price appreciation. In other words, because we are adding jobs to the economy at much higher rate than we are adding new housing, we have a severe housing shortage and affordability crisis.”

Housing sales should pick up as a result of the strong economic fundamentals, however. “I do believe we will maintain the economic momentum and continue adding jobs,” adds Hepp. “The wildcard at the moment is the trade war since California is relatively more exposed to China than some other states. However, there are many strong economic and housing fundamentals that suggest buyer demand remain solid, increasing number of millennials becoming buyers, wage growth.”

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Los Angeles Home Sales Volume Drops 13%

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