Straight Talk
March Home Prices Rise by Double-Digit Percent Rates in Most Los Angeles Neighborhoods

From our company chief economist, Selma Hepp

The median home price in Greater Los Angeles was up by 14 percent in March from one year earlier. Homes are selling faster than they were one year ago, and almost half of homes sold in March commanded premiums.

Main Takeaways:

  • Sales of affordable homes in Los Angeles further declined in March from a year ago, while higher-priced sales picked up by 20 percent to 28 percent.
  • While there is no clear impact from the tax-reform package, tech stock volatility, or rising mortgage rates, Silicon Beach saw slower sales in the first quarter compared with last year.
  • Foothill and East Valley communities had almost 50 percent fewer homes for sale below $1 million in the first quarter compared with last year, which represents almost 1,000 fewer properties.
  • Homes generally sold in 30 days, down from 36 days last year. But in a few communities, home sold in less than 20 days: Eastern communities, 16 days; South of 210, 18 days; and Silicon Beach, 18 days.
  • Almost half of homes sold over the asking price, compared with 38 percent last year, with competition increasing the most in South L.A. and Downtown from the month before.
  • The median home price across greater Los Angeles jumped by 14 percent from last March to $910,000, with West Side communities posting even higher appreciation.

Detailed Analysis
The first quarter of 2018 for the greater Los Angeles housing market can be characterized by two trends: a lack of homes for sales and rapidly increasing prices. Overall sales activity has been constrained by an insufficient number of homes for sale, which led to a 9 year-over-year percent decline in sales in the first quarter of 2018 and an 8 percent decline in March. March, which generally starts off the spring homebuying season, was unseasonably cold and wet in Los Angeles and thus may have put a lid on activity. Condominium sales saw a similar decline as single-family homes in March following a relatively larger decline in February.

Still, spring sales in some neighborhoods are off to a promising start. In particular, more expensive areas between Beverly Hills and Santa Monica and the Hollywood Hills and Malibu saw solid growth in March on an annual basis, with activity increasing by about 8 percent. Sunset East and the North Valley also saw increases of 5 percent and 8 percent, respectively. Other Los Angeles neighborhoods saw slower sales when compared with last March.

Generally, sales of homes priced between $2 million and $3 million were up by 20 percent, while sales priced above $3 million were up by 28 percent in March compared with last year. Neighborhoods that drove the increase in higher-priced sales include more expensive West Side neighborhoods, but also increases in sales of homes between $2 million and $3 million in East Valley and Foothill communities. Both neighborhoods experienced some weakness in higher-end sales over the last year, thus the recent improvement is a welcome turnaround. Among homes priced below $1 million, sales continued the falling, down by 17 percent year to date, as inventory is rapidly disappearing.

Again, the first quarter does not suggest that the tax reform, mortgage rates, or stock-market volatility are driving forces in the current market. Nevertheless, Silicon Beach did see a notable 26 percent decline in sales in March, with drops in most all price ranges. For the quarter, Silicon Beach sales were down by 14 percent, mostly due to lower sales of homes priced below $2 million. Taken together, it may be a marginal impact of tech market volatility seen through March. However, a persistent downward trend would need to be more obvious to relate it to changes in homes sales in tech-driven communities.

Figure 1 summarizes March's year-over-year change in total sales across three price ranges, below $1 million, between $1 million and $2 million, and above $2 million. In the Beverly Hills area, sales of homes priced below $1 million increased by 67 percent, however that was an increase from three to five homes. Thus, it is important to keep in mind the relative size of the individual markets when examining percent changes.

Figure 1: March year-over-year change in total sales in Los Angeles communities
Source: Terradatum, Inc. from datsa provided by local MLSes, April 7, 2018.

Furthermore, while slower sales activity in lower price ranges may indicate some impacts from the tax- reform package and higher mortgage rates, the impact is masked by persistently shrinking options for buyers. Figure 2 illustrates year-to-date supply changes of homes priced below $1 million, which is 30 percent lower than last year’s first quarter. However, in some neighborhoods, affordable inventory is shrinking at even faster rates. For example, Foothill communities (which include La Canada-Flintridge and La Crescenta–Montrose) and East Valley communities (between Glendale and Sherman Oaks) are all seeing inventories of homes priced below $1 million fall by almost half. Between the two areas, nearly 1,000 fewer affordable homes were available for sale in the first quarter.

Figure 2: Year-to-date change in for-sale homes priced below $1 million.
Source: Terradatum, Inc. from data provided by local MLSes, April 7, 2018.

Falling inventory has been a trend for several years now. Figure 3 illustrates the declining trend over the past three years, with Los Angeles neighborhoods grouped in four larger regions for easier data visualization. Clearly, 2018 has begun with much lower levels than in the years prior. For example, West Los Angeles neighborhoods had 13 percent fewer homes on the market in the first quarter than the year before; Central and South were down by 25 percent; Downtown and greater Pasadena were down by 19 percent; and the Valleys were down by 21 percent. The decline was particularly notable in the second half of last year, after which it barely recovered.

Furthermore, new listings available in March, which is a good indicator of forthcoming sales activity in spring months, do not indicate future improvements, with total new listings down across all neighborhoods and most price ranges. There are a few areas where there is a slight increase in the number of new listings of higher-priced homes.

Figure 3: Inventory in four L.A. regions for all homes
Source: Terradatum, Inc. from data provided by local MLSes, April 7, 2018.

Facing  a lack of options, homebuyers remained competitive, and bidding wars persisted across neighborhoods. Overall, 45 percent of homes sold for more than asking price, up from 38 percent last March and consistent with the month before. However, South L.A., and Downtown saw solid jumps in the share of homes selling over the asking price from February, both up about 15 percentage points. In South L.A., six in 10 homes sold for more than asking price this March, while in Downtown, three in 10 homes received premiums. Foothill communities, on the other hand, saw less competition, with the share of homes selling for premiums declining by 7 percentage points, from 65 percent in February to 58 percent in March.

Homes continue to sell faster than they did a year ago or last month. While homes generally sold in 30 days, this is a decrease from the median of 36 days last March. Neighborhoods where homes sold at the fastest rates, generally in less than 20 days, include Eastern communities,16 days; South of 210, 18 days; Silicon Beach, 18 days; South L.A., 21 days; and Northeast Los Angeles, 21 days. Those neighborhoods also saw days on market drop on average by 8 days from last March.

Lastly, home prices in greater Los Angeles continued increasing at double-digit percent rates in March, with the median price at $910,000, an annual gain of 14 percent. Figure 4 ranks neighborhoods by year-over-year change in median home price. Malibu ranks on top with a 59 percent increase, however, prices there generally range widely, as the inventory of homes for sale varies greatly. Thus, the March increase could be driven by a couple of very high-priced sales.

Figure 4: Annual home price appreciation by L.A. community

Taken together, March housing market conditions suggest that the spring season may be frustrating for some homebuyers, who are facing more competition and fewer options. Declining inventories are becoming the Achilles' heel of the Los Angeles housing market, and while demand remains strong, there will probably be fewer total sales this spring than there were at the same time last year. Ultimately, the solution to Los Angeles' housing supply-and-demand imbalance will hinge on building more homes – especially more affordable ones.

Selma Hepp is the Chief Economist and Vice President of Business Intelligence for Compass. 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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