Recessions and Real Estate.

2022 in Real Estate was a wild ride! The year started off strong for sellers, pulling in multiple offers and record high sale prices. Then the end of the year was marked by record high interest rates creating more balanced market dynamics.

With the start of 2023, both buyers and sellers are entering a market with looming fears of a recession.

As of now, the National Bureau of Economic Research (NBER) has not officially announced a recession (though the official declaration comes after the economy has entered one). Every month, the NBER looks at data that includes unemployment, personal spending, GDP and more. And with employment rates and GDP being positive right now, one can assume that there is not an active recession.

But while we’re on the topic of a recession, you might be wondering how it impacts home buyers and sellers. So here we go:

For Buyers

• A recession may lead to more affordable housing options
• Home prices may fall
• Mortgage rates tend to remain lower
• But overall lending conditions may tighten in general

For Sellers

• Equity utilization: One of the benefits of selling our home during a recession is that it allows you to utilize your equity. And you can use this equity to make a move to a new property with the advantages of a buyer outlined above.
• A shortage of available homes for sale means that your home is unlikely to sit on the market for the extended lengths of time

What does the data tell us?

In the absence of a crystal ball, what we do have is data, which all goes back to supply and demand. Let's talk SUPPLY:  despite the year over year drop as you can see below, what's even more aggressive is the month over month drop. From November heading into December, new listings for Single Family Homes dropped 59% and condos dropped 62%. Conclusion: Supply is LOW and sellers may be hoping to ride this out due to the belief that there are fewer buyers in the market due to higher interest rates. Let's talk DEMAND:  Buyers are entering 2023 to find mortgage rates at their lowest point since September and responding in kind according to the Mortgage Bankers Association's seasonally adjusted index. Conclusion: More buyers may be entering the market as mortgage demand jumped nearly 28% in one week as interest rates dropped to the lowest point in months.   

One more data point is around the holy grail of LISTING and SALES PRICE. Compared to a year ago when the market was ON FIRE....listing prices and sales prices have only dropped 5-6% compared with 20% plus in other parts of the country. Additionally...these homes are selling close to the list price with a list/sales price ration of 99% for Single Family Homes.  As I always tell our clients: if their home is appropriately priced, it WILL SELL and the data seems to confirm this. 

Net/Net:

Unlike other markets, Los Angeles continues to be stable despite the looming fears of a recession. And even if a recession were to occur,  they aren’t fun but they are a normal part of the economic cycle and they don’t last forever. 

Just remember this: even if we do officially enter a recession, home buyers and sellers are still in much better shape than they were before the pandemic.  And one more thing to remember: Real Estate is a long game; especially in a market like Los Angeles where short-term hiccups in the market shouldn’t be a worry in the long run.

And now for the latest data on Los Angeles County real estate trends:

Single family homes  I Los Angeles County I December 2022

New Listings: 1,828 (Down 33.55% year over year)

Homes Sold: 2,414 (Down 47.34% year over year)

Median List Price: $875,000 (Down 1.57% year over year)

Median Sales Price: $860,000 (Down 5.49% year over year)

Median Days on Market: 25 (Up 92.34% year over year)

Average List Price: $1,340,134 (Down 2.83% year over year)

Average Sales Price: $1,302,571 (Down 6.3% year over year)

Average Days on Market: 39 (Up 50% year over year)

List/Sell Price Ratio: 99% (Down 4.13% year over year)

Condo homes  I Los Angeles County I December 2022

New Listings: 618 (Down 39.77% year over year)

Homes Sold: 831 (Down 50.71% year over year)

Median List Price: $619,000 (Down 4.62% year over year)

Median Sales Price: $601,000 (Down 7.54% year over year)

Median Days on Market: 28 (Up 86.67% year over year)

Average List Price:  $774,890 (Down 2.8% year over year)

Average Sales Price: $761,232  (Down 5.38% year over year)

Average Days on Market: 39 (Up 34.48% year over year)

List/Sell Price Ratio: 98.7 (Down 3% year over year)