Beach Cities Real Estate Update: Q1 2023
HAS THE MARKET SHIFTED AGAIN?
January, February and March sales are now in the books and surprises abound. The biggest of which is that as we enter the traditional Spring selling season inventory is low almost everywhere.
That wasn’t supposed to be happening, right?
The story since last summer has been that buyers were just saying no to high mortgage interest rates coupled with high prices. But as I correctly mentioned in my 2023 forecast, eventually the buyers would be coming back. And they have - in greater numbers than anyone anticipated and now there aren’t enough listings to meet demand.
Two observations:
Some listings are selling for over the asking price with multiple offers again.
There are lines - like outside the front door, at some of the Open Houses I’ve been to lately.
Before I get further into the weeds on my big picture prognostications, let’s take a look at some numbers.
REDONDO BEACH Q1 2023 SALES
There were 97 sales in Redondo Beach January through March 2023. That’s down significantly from 2022 when we saw 151 sales the first 3 months and even below the initial pandemic year of 2020 when there were 136 sales.
Of the 97, 63 were in North Redondo Beach 90278 and 34 were in South Redondo Beach 90277.
Here’s what sales have looked like going back to 2019.
REDONDO BEACH Q1 SALES 2019 - 2023
There’s been a steady decline in Redondo sales and even compared to 2020 when we lost the latter part of the month to pandemic related cancellations, 2023 has NOT gotten off to a great start. How bad? Well, there were 20 total sales in January. I could not find a worse month on record in the MLS.
HOW HAVE REDONDO BEACH PRICES BEEN AFFECTED?
The median sold price for Q1 2023 was $1,275,000 blended meaning both North and South Redondo Beach, condos/townhomes, SFRs. That is a significant increase from the same period in 2019 when the median was $998,000. Here’s the trajectory from 2019-2023.
Redondo Beach Median Q1 Sales Prices (1000s)
So, while prices are down from the $1,385,000 median sold price of 2022, they are EXACTLY where they were in 2021 which was an increase of 25% over 2019 pre-pandemic.
Let’s hold that thought for a bit.
*please note that while I aggregate all of Redondo beach for some of the analysis, I really consider 90278 and 90277 to be two markets. Or as I refer to it, a tale of two cities. (isn’t there a book with that name?)
HERMOSA BEACH Q1 2023 SALES
Speaking of sales in the 20’s, now does 22 sales TOTAL sound for Hermosa Beach for Q1? Not very good right? Let’s take another trip down memory lane.
HERMOSA BEACH Q1 SALES 2019 - 2023
The median sold price in Hermosa Beach for Q1 was $1,851,000 compared to $1,680,000 in 2019. A nice pop for Hermosa Beach home owners. Here’s the trajectory.
Hermosa Beach Median Q1 Sales Prices (1000s)
Hermosa Beach definitely on its own trajectory. Prices went down when the pandemic hit and then peaked in 2022. While the have since declined, not far off from 2021.
MANHATTAN BEACH Q1 2023 SALES
Continuing onward and upward in price, how did Manhattan Beach - one of the most expensive zip codes in not only California but the entire US, fare in Q1? How does 39 sales total sound? Here’s how it stacks up going back to 2019.
MANHATTAN BEACH Q1 SALES 2019 - 2023
The median sold price for Q1 2023 in Manhattan Beach was $2,599,000. That is an increase from the same period in 2019 when the median was $2,150,000. Here’s the trajectory from 2019-2023.
Manhattan Beach Median Q1 Sales Prices (1000s)
It should not be a complete surprise that the most expensive neighborhood did not fare as well as the other two Beach Cities.
WHAT ARE WE SEEING HERE?
Prices down but up substantially from 2019. Back then, if I had told most home owners that their property values would increase 25% or more over the next 5 years they would have thought I had totally lost it.
On the other hand, if you had told me a year ago that mortgage rates would about double. I would have thought that you were on something. While we expected the Fed to raise, no one expected the unprecedented run up. And we still have inflation.
INVENTORY AND ABSORPTION RATE
As of this posting there are:
64 Active Listings and 54 in Escrow in Redondo Beach
38 Active Listings and 16 in Escrow in Hermosa Beach
42 Active Listings and 32 in Escrow in Manhattan Beach
This means that at the current run rates and based on under contract sales, there’s a little more than one month of inventory in Redondo Beach and Manhattan Beach and slightly over 2 months inventory in Hermosa Beach.
In other words, we are still well within being in a Seller’s Market even if buyers do not thinks so.
“Perception generally lags about 6 months behind the current market which means that buyers and sellers may be making decisions based on what happened six months ago.
That’s why when the market shifted in the second half of 2022 it took sellers months to realize they had to reduce their prices to sell.
That kept new sellers from entering the market leading to the inventory shortage. we are now seeing.”
GENERAL MARKET OVERVIEW
BLAME 3% MORTGAGES FOR THE “LOCK IN EFFECT”
For most people, locking in fixed mortgage rates between 2% and 3% during the pandemic was a financial win. While it isn’t often sited as a contributing factor to high inflation, it would be foolish to think that some of the savings weren’t used to fund car purchases, vacations and in general led to more disposable income. But now that rates are hovering around 6% and have even topped 7%, many homeowners, are feeling trapped, or as one of my clients said “We’re prisoners at these low rates.”
Many people who would like to sell their home and move simply can’t make the increased monthly mortgage payment work (to say nothing of the property taxes). And that’s even with the equity they could pull out. If they do qualify at the higher rate, they just don’t like the payment and additional financial burden. As I’ve written about elsewhere on this site, the payments for move up buyers are a lot higher. I’ll spare you the examples.
For those lucky few who can afford higher payments, many of them are NOT selling their departing residence because they can rent out the property and use the income to offset their new higher payments. Let me give you an example of that.
Let’s say someone is paying $3500 a month all in on their mortgage for a property that could rent for $5500. That gives them $2K each month to defray the cost of the higher mortgage (yes, I know they will be paying income tax on some of that). While I don’t always think that’s the best decision (check with your accountant), it is keeping a lot of homes off the market.
NEIGHBORHOOD / PROPERTY TYPE SUBSTITUTION
I’m referring to something different here that the principle of substitution which is the basis for the market data approach to appraisal. That states that the maximum value of a property usually is established by the cost of acquiring an equivalent substitute property that has the same use and design.
The substitution I’m referring to states that buyers will always go for a cheaper alternative that meets the required criteria in the market. And here’s what we’re seeing: for many buyers the “required criteria” in the Beach Cities may be to just be in Redondo Beach, Manhattan Beach or Hermosa Beach. There simply isn’t that much difference between the three these days unless you are within walking distance to one of the downtowns (if that’s your thing) or to the beach. Or put another way, the Avenues in South Redondo Beach offers an equivalent, and for some people more desirable lifestyle, than let’s say the Manhattan Beach Tree Section. It’s all about personal taste.
FOR THE RATE SENSITIVE AND FED WATCHERS
While many people, including yours truly, believe that Powell has already done enough damage, there will most likely be another rate hike coming. While that may not dramatically affect mortgage rates it certainly won’t help.
At some point, however, the rate hikes will stop and we may even see some cuts. If that works to lower mortgage rates you will see even more buyers in the market than we have now. And that might start prices on another upward spiral even as affordability becomes more unattainable.
WHAT ABOUT THE BANKS?
Depending on further fall out in the banking industry, credit standards may become tighter. But at least for now, it appears that the fall out from Silicon Valley Bank and the others has been “contained”.
THE SMART MOVES
If you are a buyer and can afford to buy now, you a) most likely will see very nice appreciation over the next 3-5 years and b) have an opportunity to refinance into a lower rate. That’s a win-win.
For sellers, right now, 2023, is not a bad time to sell. But if you don’t have to, you might be looking at even more favorable conditions a few months from now or later.