L.A. Home Pricing Will Fall By Spring

Los Angeles home sales declined last year, and it could shift the market in favor of buyers in 2019. According to a report from Pacific Union, home sales in Los Angeles home sales dropped 18% in the second half of 2018 after pricing surge 14% in the spring. As a result, the city began posting inventory increase in the late fourth quarter of the year. The increase in inventory led to 34% of homes reducing pricing in in December, followed by 30% of marketed homes reducing prices in January. These are the largest reductions in the past three years, signaling a turning market.

“I definitely think it was the combination of strong price growth in early 2018 combined with declining inventory, which created a very competitive market,” Selma Hepp, chief economist and VP business intelligence at Pacific Union, tells GlobeSt.com. “I don’t think buyers were expecting so much competitive this late in the cycle so it may have scared them away. Of course, economic and political rhetoric at the end of the year fueled the fears that we are heading for a downturn. However, price growth has also led to further deterioration of affordability, which has been the Achilles heel of the L.A. market.”

Hepp estimates that Los Angeles home prices will return where they were in early 2018, before the surge. This has already started to happen. In January appreciation slowed to 2% to 3%. “I think market has already responded to weaker buyer demand and that’s why we saw an increase in price reductions,” she says. “Price growth, too, has moderated in last couple of months and pretty much remained flat year-over-year.”

While appreciation is slowing and returning to the more moderate levels or 2018, Hepp reminds that this is a slowing rate of growth rather than a declining market. “We are talking about declining rates of growth, from about 15% year-over-year last spring to maybe 0% to 3% this spring,” she explains. “So, the home prices are not falling per se but the rates of growth are falling. We may see some negative growth year-over-year if buyers do not show up this spring. However, based on our buyer traffic reports of open houses, buyers are definitely still interested. They may just be less willing to engage in bidding wars and demand some discounts.”

Despite the slowdown at the start of the year, Hepp believes there will be healthy activity for home sales in the spring season. “I think the year started off with some jitters, but I believe we may have a good spring selling season. Quick look at sales in greater Los Angeles for February suggest sales are up about 2% year-over-year so we are out of the negative territory,” she explains. “I think lower mortgage rates are helping and overall economic rhetoric has improved in recent weeks.”