It’s the Economy!
Yep, it sure is. The National Association of Realtors reports that the sharpest drop in three years in existing-homes just took place in November/December as the nationally annualized rate of 4.99 million homes fell an unexpected 6.9%. This is after interest rates dropped from 4.94% to 4.55% in just a matter of weeks in December. And it gets worse, after you understand that those figures are captured after escrow “closings”, meaning they were negotiated one or two months prior when interest rates were higher. Doesn’t that mean that January would show higher unit sales with the lower rates? Not at all; no bounce in January so far. If there was going to be a bounce up anywhere in this country, it would be on the west side of Los Angeles.
It’s the Student Debt!
The WSJ reports “The Federal Reserve has linked rising student debt to a drop in homeownership among young Americans…The effect of student debt on the economy…has soared to $1.5 trillion, surpassing credit-card and car-loan bills.” The Feds directly tied the loss of 400,000 potential homeowners to student debt and the burden it placed on the shoulders of people between the ages of 24 to 32, who saw ownership fall 9%. This presents a huge issue for this country, since surveys have identified millennials as a group being more interested in “experiences” than “things” such as homeownership. Those millennials, including my own two daughters, somehow have followed the misguided goal of thinking “startups” represent a better chance of achieving financial security than real estate does. But I’m sure, as they have in the past, my two brilliant daughters will prove themselves right.
It’s in the Past!
Last year saw some real devastation in the real estate business throughout the country. It started on the east coast in January and worked west until it reached us in December. While the amount of inventory remained at historically low levels, actual sales began to fall apart as sellers and buyers found themselves in complete disconnect; the buyers sensed the oncoming downturn and wanted better deals while the sellers remained in La La Land thinking they owned the market. Let me give you some statistics as reported in The MLS.
Comparison of Single Family Homes
(units sold) in Each Area by Year
Beverly Hills (Area 01) – 2018 was 82% (118) of 2017 (144)
Beverly Hills Post Office (Area 02) – 2018 was 103% (153) of 2017 (149)
Sunset Drive / Hollywood Hills (Area 03) – 2018 was 86% (407) of 2017 (474)
Bel Air / Holmby Hills (Area 04) – 2018 was 79% (143) of 2017 (180)
Westwood / Century City (Area 05) – 2018 was 95% (160) of 2017 (168)
Brentwood (Area 06) – 2018 was 97% (244) of 2017 (251)
Prices still remained high, due largely to the diminished inventory and the increasingly higher demand. You can see that very clearly in the average sales price of homes and condos.
Average Sales Price 2018
Homes and Condos by Area
Area 01 – Beverly Hills
Up 7% to $7,659,512 for Homes
Down 1% to $1,462,771 for Condos
Area 02 – BHPO
Down 9% to $4,000,597 for Homes
No data for Condos (only one sold for both years at $555,000)
Area 03 – Sunset Drive / Hollywood Hills
Up 17% to $2,691,480 for Homes
Down 5% to $811,338 for Condos
Area 04 – Bel Air / Holmby
Up 9% to $4,970,852 for Homes
Down 14% to $875,700 for Condos
Area 05 – Westwood / Century City
Up 7% to $2,512,583 for Homes
Up 3% to $1,285,247 for Condos
Area 06 – Brentwood
Up 4% to $4,454,921 for Homes
Up 6% to $1,054,876 for Condos
You’re still not convinced? How about the broadest of measurements that grabs $/sq ft as a stationary stat across all properties;
Dollars/Square Feet 2017-2018 Homes and Condos By Area
Area 01 – Beverly Hills
Up 8% to $1,508.00/sq ft for Homes
Up 7% to $793.72/sq ft for Condos
Area 02 -BHPO
Up 5% to $977.36/sq ft for Homes
No data for Condos (only one sold for both years at $771.91/sq ft)
Area 03 – Sunset Drive / Hollywood Hills
Up 6% to $893.15/sq ft for Homes
Up 3% to $662.89/sq ft for Condos
Area 04 – Bel Air / Holmby
Up 9% to $986.27/sq ft for Homes
Up 28% to $563.49/sq ft for Condos
Area 05 -Westwood / Century City
Up 6% to $940.19/sq ft for Homes
Up 10% to $725.60/sq ft for Condos
Area 06 – Brentwood
Down 1% to $1,067.92/sq ft for Homes
Up 5% to $686.69/sq ft for Condos
So, when is this correction going to take place and how long is this strange drought on supply going to dominate the market forces on the west side of Los Angeles? Your guess is as good as mine. We are in the 3rd year of minimal inventory which is now defined as the single dominant market force attributable to the continued rising prices, even as the rest of the country settles in for “the correction”. The gods of supply and demand are very powerful, even more powerful than Mr. Powell of the Federal Reserve. But they will talk to you if you want to listen, and for all of you out there thinking about selling your home, now is the time to do it. Any time now this supply shortage could shift back to a normal market and your home’s value is going to plunge to catch up with the market forces.
Last weekend was our annual client appreciation brunch, thanking the hundreds of people who have entrusted us over the years with the single most important financial decision they will make in their lives; the sale or purchase of their home. It’s always at Hillcrest Country Club and Lynn and I always take a few minutes out to give a broad overview of the market. I gave them this report verbally and offered up this same advice; “Don’t sell your home unless you want to (capital gains tax). But if you want to, now is the time. Call us and let’s talk about it.”
–Mark
