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Straight Talk
Los Angeles Median Home Prices Rapidly Approaching $1 Million

From our company chief economist, Selma Hepp

Key Takeaways:

  • While April home sales equal those in the prior year, strong demand continues for homes priced between $2 million and $3 million
    • NELA and Foothill Communities see jump in higher-priced sales
    • Overall sales surged in Malibu and Beach Communities North and West LA, followed by Eastern Cities, Hollywood Hills and Greater Pasadena
    • Communities South of 210 continue to see weaker sales in 2018 as a result of slower demand from Chinese buyers. Mid-City also seeing weaker sales in 2018 so far 
  • Median home prices up 14 percent from last April, reaching $939,500 
    • Higher-end sales push median prices up considerably in Foothill Communities and Malibu areas 
    • Among more affordable communities, strong price growth in Mid LA/Baldwin Hills, East Valley, and South of 210 
  • For-sale inventory 21 percent below last April, with all price ranges lower than last year
    • Inventory priced below $1 million down 33 percent and once again up to 50 percent in some traditionally affordable areas, such as Eastside, NELA, and East Valley
    • A few neighborhoods have seen some growth of higher-priced inventories: South of 210, West Valley, Foothill Communities, Eastern Cities, West LA and Hollywood Hills
  • Rising interest rates have not slowed buyer competition 
    • Homes sell at faster pace than last year, with a median of 31 days
    • Eastside homes sell in less than two weeks
    • 67 percent of NELA homes sell over the asking price
    • 47 percent of total homes in Los Angeles sell over the asking price

Following slower March, homes sales in April similar to last year

With Spring home buying now in full swing, overall April home sales in Los Angeles communities lined up with last year’s sales. However, some Los Angeles communities saw home sales kick into a higher gear. While total sales in April were on par with last year, there was a continued decline in sales of homes priced below $1 million, and strong growth in sales of higher-priced homes. Nevertheless, some communities managed to see some increase in sales of homes priced below $1 million despite continually shrinking inventories, particularly Greater Pasadena, North Valley, South LA and Eastern Communities. 

In April, the strongest year-over-year increase was among homes priced between $2 million and $3 million, up 39 percent. Homes priced between $1 million and $2 million were up 17 percent, while homes priced above $3 million increased by 23 percent. Among higher priced homes, year-over-year relative increase was largest in NELA, up 350 percent, followed by Malibu and Beach Communities, up 157 percent, and Foothill Communities, up 150 percent. NELA’s large increase in higher-priced sales was driven by a jump in sales of homes priced between $1 million and $2 million, increasing from 4 homes last April to 18 homes this year. 

Overall, compared to last April, home sales surged on the west side’s Malibu and Beach Communities and North and West LA, followed by Eastern Cities, Hollywood Hills, and Greater Pasadena. In contrast, sales continued to fare more slowly in neighborhoods South of 210, greater Beverly Hills, and Mid City. But April sales activity should not be taken as a sole indicator of strength in the local markets. Sales activity fluctuated noticeably from month to month, and some areas showing declines in April had strong March year-over-year increases, particularly the greater Beverly Hills area. Table 1 contains two columns ranking LA communities by their stronger year-over-year sales activity (first column) and weaker activity (second column). 


Table 1
Source: Terradatum, Inc. from data provided by local MLSes, May 7, 2018.


Median home prices jump another 14 percent
 
Median home prices in Los Angeles rose 14 percent year-over-year to $939,500. Foothill Communities saw near-doubling of median home prices due to doubling of sales of homes priced above $1 million. Last year, 14 homes sold over $1 million in Foothill Communities; that number jumped to 35 this year. Similarly, in Malibu and Beach Communities North, higher priced sales more than doubled. With 22 more sales priced over $1 million, the median price jumped 80 percent. 

Because few monthly transactions can lead to large variations in median home prices, the year-to-date change in median price gives us a better idea of where price appreciation has been persistently strong. Table 2 ranks Los Angeles communities by year-to-date change in median prices. Foothill Communities overall have seen the greatest price growth this year, with overall higher end sales once again driving the change. Changes in median prices suggest that while some higher-priced areas such as West LA, Malibu and Sunset East still dominate in terms of price growth, some more affordable areas of Mid LA/Baldwin Hill, Valleys and Eastside continue to see a robust upward price push. 


Table 2
Source: Terradatum, Inc. from data provided by local MLSes, May 7, 2018.


For-Sale Inventory Continues to Dwindle
 
In last month’s analysis, we took an in-depth look at shrinking for-sale inventories in Los Angeles neighborhoods, particularly among homes priced below $1 million. In April, inventories were 21 percent lower overall, with all price ranges showing less inventory than last year. Overall inventory dropped most noticeably on the Eastside, 41 percent below last April, followed by NELA, down 38 percent. 

Again, inventory priced below $1 million declined by 33 percent with some critical traditionally affordably priced communities — Eastside, NELA, and East Valley — losing inventory at an almost 50 percent rate. 

A few neighborhoods did gain some inventories in higher price ranges. In NELA, low inventory below $1 million was offset by a 31 percent increase in inventories priced between $1 million and $2 million. Mid LA/Baldwin Hills, Eastern Cities and East Valley also had more inventory in that price range than last year. Among homes priced between $2 million and $3 million, Malibu Beach, Silicon Beach, West Valley and Hollywood Hills fared better than last year. For homes over $3 million, the largest increase was South of 210, followed by East Valley, West Valley and Foothill Communities. Table 3 summarizes where inventories have seen some improvement. 


Table 3
Source: Terradatum, Inc. from data provided by local MLSes, May 7, 2018.


Rising interest rates have not slowed buyer competition
 
Buyers have not yet thrown in the towel despite rising mortgage rates, more competition and fewer options to choose from. Generally, homes selling in April sold in 31 days, 3 days faster than last April. Table 4 ranks Los Angeles communities by shortest time on the market, along with share of homes that sold over the asking price. Generally, many of the more affordable areas saw homes being snatched up much faster than higher-priced areas, with more selling over the asking price. The reason for longer sale times in traditionally affordable areas such as NELA could be that buyers may still be largely tied to traditional mortgage financing terms, which take about 30 days to close. NELA is also the most competitive market in Los Angeles, with 67 percent of homes selling over the asking price. 


Table 4
Source: Terradatum, Inc. from data provided by local MLSes, May 7, 2018.


Bidding above asking prices has intensified in Los Angeles communities, especially over the last year. Figure 1 illustrates the trend toward an increasing share of homes selling over the asking price over the last three years, for Los Angeles communities combined and for NELA. NELA is singled out since it has seen the largest increase from April 2016. Other communities experiencing large increases in bidding were Eastern Cities, West Side/Central or Mid City, South of 210, and East Valley. In contrast, Mid LA/Baldwin Hills saw a 10 percent point decline since April 2016, to 53 percent. 


Source: Terradatum, Inc. from data provided by local MLSes, May 7, 2018.


Overall, home buyers continue to face stiff competition amid a rapidly diminishing inventory of homes to purchase. Lack of supply remains the biggest impediment, keeping a lid on homes sales. While home prices have risen considerably in 2018, expectations of higher mortgage rates may be partially responsible for attracting buyers still trying to lock in relatively favorable rates. Nevertheless, with home prices continuing to reach new heights and expectations of higher mortgage rates and fierce competition resuming, buyers may soon find themselves reaching their affordability ceiling and unwilling to move forward.


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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