As we approach the end of the year, I thought it would be beneficial to review sales and median prices from 2018. This data includes median income and how it relates to affordability.
South Bay Median Prices and Closed Sales
Home sales are down, not just in California, but all over the nation. Median price increases are also decelerating. How is this impacting the South Bay market? Take a look at these numbers from November YTD (year-to-date).
Every area mentioned above shows that sales are down in 2018. In my opinion, this is a direct result of rising interest rates pushing buyers to the sidelines.
On the flip side, every area shows that prices are up. For now, rising prices are a good sign, but decreasing sales can be a leading indicator that drag prices down later.
Next year will be a big year in our real estate market. If prices continue to move higher on lower sales, then we are in great shape. However, if prices start to decrease due to slower sales, then the market could be in for some pain.
Median Incomes in L.A. County
I strongly believe median income should be discussed more in real estate. It is the key to real estate prices rising or falling.
If median incomes double, then residents can afford more, therefore, prices increase. But, if median income is cut in half, prices can fall dramatically lower.
The CAR (California Association of Realtors) released their 3rd Quarter Affordability index. This shows us how many people in a certain area can afford the median price home. Currently, in Los Angeles County, only 22% of the population can afford the median price home with 20% down. Compare that number to 2011 when 42% of the population could afford the median home price. Check out the data…
As you can see only 22% of the population makes $134,000+ in L.A. County, which would allow them to afford a $628,940 home, the median price in the county.
Median Incomes in the South Bay
Based on what I have from the L.A. Times census data from 2010 and a few other websites, I am going to give you very unscientific median income calculations for the South Bay.
DO NOT take this to the bank, but I want to run a loose example for this post. I will dig in further on a later blog. I repeat, the current median income is not 100% accurate.
As you can see, it takes significantly more than the local median income to afford a home here in the South Bay.
Using Median Income to Predict Price
The Norris Group uses median income, median price, and interest rate fluctuations to see potential upside or downside. See below for their analysis of L.A. County.
This chart is very beneficial to South Bay residents as you can watch how rates might affect prices throughout Los Angeles County. If upside is limited or needs to come down in the county, that could be a good signal for how to manage your South Bay real estate portfolio.
It will be interesting to see how the market changes in the New Year. Will fewer sales lead to lower prices? Will prices continue to move higher despite fewer sales? As an agent in this business every day, the market feels slower and as a result, much softer. If I had to go one way, the slowing sales should affect prices negatively. How much will that be? Only time will tell.