Beach Cities Market Snapshot October 2023

Beach Cities Real Estate
Written By Ellis Posner
 

With nine months of sales in the books, we can start to identify some very strong storylines and trends for 2023.

Whether you are a frequent visitor to the this blog or follow me on the socials, you’ve heard this message from me before. Even though mortgage interest rates are at multi decade highs, prices are close to or at their all time highs. How can that be? It’s all about supply and demand. The inventory of available homes for sale in most of Los Angeles county and nationally is at an all time low. That’s simply because something like 70% of the mortgages are at rates lower than 4% and just under 50% are under 3%. So most of the people selling are the “have-to” sellers or those who are leaving the state. And yes, that’s still happening. As for buyers, family formation and job relocation are the drivers there.

The Case Shiller Home Price Index which is considered the gold standard for appreciation showed that home prices rose 0.6% and are up 1% from last year. This is a new all-time high for home prices and until inventory levels start to come back nationally I don’t see this trend stopping anytime soon. There is no question that the U.S. Housing industry is facing an inventory crisis with inventory levels being around 25% of a “normal” market in a best case scenario.

And make no mistake about it, even with far fewer buyers in the market right now, there still aren’t enough available listings to meet demand and we are still seeing multiple offers and overbids in many instances.

The buyers I’m working with now all are buying with the assumption that at some point in the next few years, they will be able to refinance. That’s a pretty good bet and I’m thinking some will be able to refinance multiple times. For those waiting for rates to come down, as soon as they do, prices will go up - possibly as much as 15% (or more). And we’re not likely to see 3% and lower rates again. That was a real anomaly. Most economist peg the tipping point for rates to be 5% and indicate that’s where both sellers and buyers reengage on a massive level.

So as we enter Q4 of 2023 the outlook is much different than we expected at the beginning of the year. It’s certainly much different than what most had expected when they made their early-year forecasts. If you recall Q4 was supposed to be when we saw mortgage rates decline, the 10 Year Treasury was supposed to start moving down, and many experts expected negative economic data to start getting released. I read recently that Treasuries might hit 6% before we’re done with this tightening cycle. That could push mortgage rates even higher than the 8% we are now approaching.

Many economists were also calling for Q4 to be the tipping point for a recession to start, as well as the Fed starting to cut rates. As we start October none of those forecasts have come true, at least not yet. And clearly not in the cards as the FED is forecasting keeping rates higher for longer.

So let’s take a look at how this all has played out in the Beach Cities.

OVERALL BEACH CITIES SALES FOR SEPTEMBER AND YEAR TO DATE*

  • Manhattan Beach: 28

  • Hermosa Beach: 20

  • South Redondo Beach: 14

  • North Redondo Beach: 26

*If you are new here, I report Redondo Beach as per the two separate zip codes, 90277 and 90278.

So how does this compare to September sales the last few years?

BEACH CITIES SEPTEMBER SALES

FIVE YEAR COMPARISON

BEYOND THE NUMBERS

I’m big on number crunching and analysis. Numbers don’t lie but often require some interpretation beyond the initial impressions.

WHAT I’M SEEING HERE

2020 was clearly a stand out year. We had a few things happening. To start with, the “great migration” fueled by the pandemic era shift to work from home and the record low mortgage interest rates pushed a lot of people into the market. The feeding frenzy fueled a FOMO effect. So with healthy inventory and huge demand people were on the move and 3 of the 4 zip codes far outperformed their historic trends.

But what about Hermosa?

Hermosa Beach always performs somewhat differently than the other Beach Cities - both better and worse. For many people, they “settle” for Hermosa Beach when they can’t find or afford what they want in Manhattan Beach. (Full disclosure, I used to live in. Hermosa and loved it.) So in 2020 when rates dipped low enough to make Manhattan Beach attainable for many, Hermosa just didn’t have the pop the others did.

On the other end of the spectrum, North Redondo Beach has always been the most affordable Beach City and with the low rates it really benefitted in 2020. Over the last few years, North Redondo Beach has even become a destination with many people buying their “forever” homes there. So demand is strong and typically the prices are attainable comparatively.

WHY WERE SEPTEMBER SALES LOWER IN 2021?

While many of use remember 2021 as a really strong year, by the time we got to September, the great migration started to wane and a lot of people who had rebalanced their housing needs had made their move. That started the reduction in inventory which hasn’t abated yet.

Then 2022 hit and the rates started to rise in the latter half of the year pushing many buyers out of the market. Looking back, I bet a lot of those people who didn’t want to pay 5% at that time probably wish they could get those rates today.

And here we are in 2023 with high rates and high prices.

Let’s take a look at the 5 year year to date numbers.

BEACH CITIES YEAR TO DATE SALES

5 YEAR COMPARISON

YOU CAN’T TIME THE MARKET

  1. There has been a drop off in sales since 2021.

  2. Sales are below the historical trend line.

Since around 2012 (I’ve been in real estate a lot longer), I’ve been hearing buyers waiting until prices drop and I want to ask them how that has worked out. Rates have gone from around 6% pre financial crisis down to 2% and are now back up to over 7% and approaching 8%.

That’s why my advice to buyers is if you find a property that you want to live in and it works for you, buy it.

Ellis Posner
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