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From our company chief economist, Selma Hepp
- February sales activity was constrained by the lowest inventories in the previous two months since 2004, though homes priced between $1 million and $2 million saw sales increase by 9 percent
- Northeast and Downtown L.A. saw home sales surge, up by 35 percent from last February, largely driven by more sales of homes priced between $1 million and $2 million.
- While affordable inventory continues to shrink, more homes are available above $2 million, especially in West Side communities.
- Median home prices jumped by another 13 percent year over year, while affordable Eastside and Downtown L.A. saw as much as a 30 percent-plus increase in median prices.
- Buyer competition continues to intensify, with almost half of homes selling for more than asking price and receiving an average 6 percent premium.
- Homes in Northeast L.A. and the Platinum Triangle (greater Beverly Hills) received the highest premiums, 14 percent and 13 percent respectively.
- While higher-priced homes are maintaining their sales momentum, buyers are still strongly attracted to value and affordability.
- The number of homes under contract increased by 12 percent from last February, suggesting a strong spring homebuying season.
In February, the strong sales trend for homes priced between $1 million and $3 million, which started in 2017, continued, and February sales increased by 9 percent year over year. Sales of homes priced above $3 million were slower when compared with last February, with the decline coming from a few key areas with high-end homes, such as Beverly Hills and Malibu. West and East Valley communities picked up some of the slack, keeping the decline at only 7 percent. Overall, sales of all homes priced above $1 million continued to improve, with a 6 percent increase from last year.
Regionally, some neighborhoods continued to see home sales surge, particularly Northeast Los Angeles and Downtown Los Angeles where sales jumped by about 35 percent year over year. In contrast, areas on the West Side, the Hollywood Hills, as well as areas in and around Pasadena, saw home sales slow from last February. Table 1 summarizes total sales below and above $1 million and year-over-year changes.
Source: Terradatum, Inc. from data provided by local MLSes, March 7, 2018.
Figure 4: Share of homes that sold for more than asking price by price range, February 2017 and February 2018
Figure 5: Number of homes selling for more than asking price, February 2018
Homes that sold for more than the asking price generally received 6 percent premiums, up from 5 percent premiums recorded last February. Homes in Northeast L.A. and the Platinum Triangle received the highest premiums – a respective 14 percent and 13 percent-- while Malibu ranked the lowest, averaging 3 percent premiums. And while premiums have not increased as notably considering how many more homes sell for more than asking price, Beverly Hills saw a notable jump from 2 percent to 11 percent, mostly driven by larger premiums obtained for homes priced between $1 million and $2 million. Northeast L.A. followed, with a 5-percentage-point increase in premiums.
Though it is difficult to separate the true increase in bidding wars from changing pricing strategies, higher absorption rates in Northeast L.A., Downtown L.A., Baldwin Hills, South L.A., Silicon Beach, and the East Valley suggest that buyer demand is strong and heightening further -- especially in more affordable areas. The number of homes under contract in February jumped by 12 percent from last February, also indicating a strong spring homebuying season.
All told, those planning to buy a home in Los Angeles this spring will face strong competition. Continued strength in the local economy and robust job growth suggest that plenty of buyers remain. Nevertheless, with affordable inventory continually shrinking, buyers face increasingly fewer options. Affordability remains the key driver of local housing markets. At the same time, some improvement in higher-priced inventory coupled with wealth impacts from the financial markets and the tech industry suggest that sales activity for higher-priced homes will remain strong and likely to increase. Lastly, the increase in mortgage rates may be a concern going forward, though the increases over the last month may still be too recent for the data to reflect. According to Freddie Mac’s latest Primary Mortgage Market Survey, 30-year, fixed-rate mortgages climbed to 4.44 percent as of March 15, 2018, which is still some of the highest rate since the spring of 2014, however down from the week before. But the rise in mortgage rates may be creating urgency among buyers. According to the Mortgage Bankers Association, the unadjusted Purchase Index increased 5 percent from last week and was 3 percent higher compared with the same week in 2017. Also, the recently enacted tax reforms will take some time for the data to reflect, though it may be a few years before the housing market sees the full impacts.
Selma Hepp is the Chief Economist and Vice President of Business Intelligence for Pacific Union International. Her previous positions include Chief Economist at Trulia, senior economist for the California Association of Realtors, and economist and manager of public policy and homeownership at the National Association of Realtors. She holds a Master of Arts in Economics from the State University of New York (SUNY), Buffalo, and a Ph.D. in Urban and Regional Planning and Design from the University of Maryland.
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