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Hot Topics: South Bay Home Market Shifting & Rising Mortgage Rates

We are back to consistent blogs again!

I have so much information to share that the plan this week is to kill two birds with one stone. The hot topics – South Bay home market shifts and rising interest rates – are going to get covered this week and I will dive deeper into them in my upcoming podcasts.

Unfortunately, my lingering cold has turned into a sore throat with laryngitis-type symptoms. You really do not want to hear my voice, so there will be no new podcast episode next week.

That said, I might do a big recording dump of three podcasts all within days so you can listen to multiple topics as you choose. More on that in the coming weeks…

For now, let’s get into this week’s post.

As mentioned, I am going to discuss the shifting winds in the South Bay home market and the impacts from rising interest rates. There will be data and anecdotal evidence provided.

South Bay Home Shifts

Without question, our residential sales business has been “feeling out” a slight shift in our local housing market. That is purely gut feel from judging new deals we have made on behalf of buyers and the demand for our latest listings.

Other agents and colleagues in the local South Bay industry agree. Pair that with national news stories about slowing markets, and perception has turned into reality. But, how does that add up when we look at the pure numbers in our own backyard?

I am going to share stats on new listings, active listings, pending sales, and closed sales in four South Bay cities to give you a big data gauge on what is truly happening.

Before you read the numbers below, you will want to focus on new listings and active listings the most as those will be early indicators that sellers could be losing leverage. A rush of new listings or a growing supply of active listings on the market swings in favor of buyers.

I am going to blow it for you upfront, but if you eyeball the new and active inventory, we are still at lows for the past five years with the exception of lower active inventory during the 2020 stay-at-home orders. For now, the numbers are not showing a rise in inventory which is still a strong sign for the market.

Manhattan Beach (May):

  • New Listings:
    • 2022 – 48
    • 2021 – 60
    • 2020 – 76
    • 2019 – 70
    • 2018 – 53

  • Active Listings:
    • 2022 – 64
    • 2021 – 113
    • 2020 -167
    • 2019 – 146
    • 2018 – 119

  • Pending Sales:
    • 2022 – 26
    • 2021 – 55
    • 2020 – 33
    • 2019 – 39
    • 2018 – 45

  • Closed Sales:
    • 2022 – 35
    • 2021 – 52
    • 2020 – 20
    • 2019 – 46
    • 2018 – 39

As you can see here, Manhattan Beach is sporting the lowest new and active listings in the month of May for the past five years. Pending and closed sales continue to stay at their lowest points in the five-year window due to supply squeezes (with of course the exception of 2020 during the early stages of the pandemic).

From an anecdotal standpoint, much of the lingering inventory is on The Strand or other high-priced luxury product. The Tree Section feels impossible to land a deal and properly priced homes around median home values are still selling efficiently (my MB townhome listing last week sold in four days with multiple offers).

Palos Verdes Estates (May):

  • New Listings:
    • 2022 – 25
    • 2021 – 33
    • 2020 – 20
    • 2019 – 31
    • 2018 – 33

  • Active Listings:
    • 2022 – 35
    • 2021 – 54
    • 2020 – 73
    • 2019 – 98
    • 2018 – 70

  • Pending Sales:
    • 2022 – 13
    • 2021 – 20
    • 2020 – 11
    • 2019 – 20
    • 2018 – 20

  • Closed Sales:
    • 2022 – 11
    • 2021 – 23
    • 2020 – 1
    • 2019 – 14
    • 2018- 18

Essentially, Palos Verdes Estates is the same story as Manhattan Beach. New and active listings have not risen significantly enough to warrant a shift of power back to buyers. There are a few blips in the numbers due to the pandemic, but the market remains strong.

Anecdotally speaking, it is a similar story with high-end luxury properties sitting, whereas in the second half of 2020 and 2021 those expensive properties were moving at record prices. Fixers at good deals are flying and move-in ready homes priced within the comps are making deals.

Palos Verdes Estates and Manhattan Beach are healthy, but the numbers suggest slowing only in the very high end unless those listings are priced aggressively.

Redondo Beach (May):

  • New Listings:
    • 2022 – 79
    • 2021 – 83
    • 2020 – 78
    • 2019 – 111
    • 2018 – 99

  • Active Listings:
    • 2022 – 85
    • 2021 – 101
    • 2020 – 154
    • 2019 – 162
    • 2018 – 141

  • Pending Sales:
    • 2022 – 60
    • 2021 – 84
    • 2020 – 56
    • 2019 – 97
    • 2018 – 85

  • Closed Sales:
    • 2022 – 60
    • 2021 – 90
    • 2020 – 52
    • 2019 – 87
    • 2018 – 74

Redondo Beach’s new and active listings are not as distinctly lower as the preceding cities, but it is still better than last year. Pending and closed sales are low due potentially due to the supply squeeze, however, since active inventory is similar to 2021, perhaps a slowing market/interest rate surge is affecting buyers dependent on loans? If anything, it seems to still be a strong sellers’ market according to the numbers – but not quite as much as Palos Verdes Estates and Manhattan Beach.

Anecdotally, it is more of the same. Price cuts on the high-end that were over-priced and deals being made below asking price for expensive homes in South Redondo. That said, North Redondo is seeing its higher-priced homes fly off the shelves due to there affordability relative to Manhattan Beach and South Redondo options. It is an interesting dichotomy.

Rancho Palos Verdes (May):

  • New Listings:
    • 2022 – 47
    • 2021 – 49
    • 2020 – 50
    • 2019 – 75
    • 2018 – 74

  • Active Listings:
    • 2022 – 58
    • 2021 – 63
    • 2020 – 103
    • 2019 – 154
    • 2018 – 118

  • Pending Sales:
    • 2022 – 24
    • 2021 – 57
    • 2020 – 43
    • 2019 – 53
    • 2018 – 57

  • Closed Sales:
    • 2022 – 54
    • 2021 – 54
    • 2020 – 26
    • 2019 – 50
    • 2018 – 49

Lastly, Rancho Palos Verdes is mirroring much of Redondo Beach. What more is there to say? Go eyeball the numbers yourself!

Affordable properties with access to commercial districts or the beach are selling, however, inventory is building in the more “far away” areas of RPV like the P.V Drive East, Mira Catalina, and P.V. Drive South submarkets, which tells me the need for pandemic privacy/work-from-home in distant places might be coming to an end.

All in all, there might be more new listings and slightly more inventory in May and to start June (compared to the last month or two) throughout the South Bay, but nothing significant to truly swing the market.

That said, real estate shifts happen slowly so it does not mean the market is not shifting. It can take months, if not multiple quarters, to truly see a shift come to light. The perception is that the market is turning and that is oftentimes all that is needed as it becomes a self-fulfilling prophecy.

We do see buyers finding negotiating power in some pockets of the South Bay market and while our latest listings are receiving multiple offers, rather than four to six offers, it is now two to three offers. Much of that might have to do with interest rates which brings us to the next topic…

Rising Interest Rate Effects

Interest rates are without a doubt affecting our local South Bay market.

Our current buyer clients have become even more picky due to rising rates and the newfound confidence of a potential slowing market. Not to mention, there have been a handful of buyers stepping back for the next six months to see if the perceived slowing accelerates or a recession hits.

Surly rates jumping from 2.65% in January 2021 to a whopping 5.30% in May 2022 is going to slow down many buyers. I think that is what we are seeing with our latest listings with two to three offers, instead of many more.

That said, we are seeing examples of buyers who have sold a free & clear home to move closer to loved ones or move-up buyers selling their current home/are sitting in a free leaseback, or of course, professionals growing their income, career, and wealth where rising interest rates do not change the story for them.

I still think it is worth your time to read my: “Part 2: Interest Rates are Surging; Is the South Bay Home Market Set to Cool?

In that post, I discuss that although homes have become more unaffordable and eliminated buyers – now, there is even less motivation for owners with a 2.5% fixed interest rate to sell. If they do sell, does one really want to buy their next property with a 5.3% rate amidst low inventory and still brisk competition?

We need more inventory and a lot more recessionary factors to really swing this market.

But, there is no question that rising rates are mainly the only reason for this market’s slow down. Without rising rates, the market would be a run-a-way freight train locally here in the South Bay.

There are still much lower rates on jumbo loan with larger down payments, interest-only options, and cash buyers – which effectively keeps the South Bay from feeling the whole effect of 5.3% rates.

Conclusion

Without question, we can sense a market shift here in the South Bay. How significant is that shift? It seems to be minimal.

The numbers show little slowdown for sellers; however, rising mortgage rates are certainly cooling demand for property.

Normal home market shifts are like turning a cruise liner – they take a long time.

Sellers have plenty of time to get property ready to sell and most home listings, when priced correctly, will fly off the market and still achieve near record prices. At the same time, it looks like buyers can begin to negotiate on certain home-types and stay patient thanks to perception becoming reality; surging prices with 10+ offers are now a thing of the past.

At the current moment, prices are still moderately rising and are unlikely to go down – light growth or plateauing prices seem more likely.

Perhaps the shifting winds will continue to create a material market trend. We need more time to see it develop. I’ll be here to watch and report on it for you.

Cheers.

DRE: 01779425

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