SHLTR’s resident real estate expert Tara Rodgers shares her advice on learning how to navigate the real estate market now with particular attention to the Westside in Los Angeles, and what to expect in the months ahead. “According to the National Association of Realtors, 29% of existing sales in August went to first-time buyers,” explains Rodgers. “All-cash buyers accounted for 24% of transactions in August. There are more than 1.7 million homes currently under construction nationwide, the most ever recorded. 81% of homes sold in August were on the market for less than a month. Now, here we are today and on the Westside, the average price for a single family home has increased by over 30% from 2019. We all know that there have been many political and economic stressors over the past year that have created new uncertainties, but how is that changing the real estate landscape?”
Here, Rodgers breaks down information on interest rates, what this means for buyers and sellers, and everything in between.
If You’re A Buyer
“Given the continued increase in interest rates, it’s important to remind prospective buyers that their rate today does not have to be permanent. A buyer should be conservative and prepare for the reality of how increasing interest rates impacts their budget and general affordability. With that said, we do also want to be educated on refinancing (or re-fi) strategies and how one can potentially alleviate their mortgage costs in the long term and then choose a loan product accordingly. Sellers are not sure what to expect in this market and the rise in interest rates does cause concern whether a financed buyer will be able to perform. Cash offers then become that much more attractive. If you are a financed buyer, come to the table prepared. You will want to show a seller that you are not only pre-approved but formally underwritten approved. Your agent needs to also show the seller that you have done your homework with regards to interest rates and your ability to perform if rates shift slightly during your purchase. If you can show the seller that you are informed, confident and ready, you will give yourself an advantage over other interested parties.
Interest rates will continue to increase for the rest of the year and we may not see any significant relief for another 12-18 months. We have not seen any significant price depreciation as of yet. I would not obsess over trying to time the market. I find that the clients who try to time the market perfectly almost always ultimately miss out on their opportunity to participate in the market and end up on the sidelines for much longer than they hope or expect.”
If You’re a Seller
“An effective pricing strategy is more crucial than ever. It is really important for you to build any concessions that a buyer needs to consider into your pricing strategy and show the value of the home, and more, through your list price. There is still a huge amount of demand and your initial list price is going to be one of the greatest marketing tools to capitalize on. We are either already in a recession or quickly approaching one. It is important for sellers to remember that we have seen a dramatic increase in value in recent years which does provide many homeowners with substantial equity and will help compensate for any softening of the market.”
A Little Perspective
“I remember the day in March when the Dow fell by almost 3,000 points paralyzing the stock market. I was sitting in my home office trying to adjust to our new lives with Covid. The kids were out of school, my husband was working from our garage that was far from ‘work friendly’, and my own work environment was pure chaos. The phone rang all day and every conversation was centered around how Covid and the state of our financial market would impact real estate. Our sellers were fearful that they would not be able to sell at the values we planned for, our buyers were nervous that the real estate market would come to a halt and no inventory would be available, and almost everyone was concerned with the stability of their jobs.
I don’t believe anyone anticipated what came next and what we have all experienced between the summer of 2020 to the summer of 2022. The pandemic created an entirely new demand for real estate. Our lives with Covid and our ability to work from home created a curiosity and desire to explore new spaces, new neighborhoods, and a new way of living. Mortgage rates were being offered in the 2% range allowing many buyers to present offers at premium values that were unprecedented.”
What This Means and Where We Go from Here
“Interest rates are now firmly in the 5’s. Over the past two years, a buyer’s primary focus was to secure cash to purchase or a healthy down payment. Our discussions were largely centered around the ultimate purchase price needed to secure a property. Clients have switched their focus to what their monthly payment is and they are much more disciplined. This is how it should be. We are hopeful that we will begin to see some relief in interest rates next year. However, it may take 12-18 months before we see any significant changes. We are helping our buyers to leverage any current market uncertainty now and they will plan to strategically refinance to lower their payment when the timing is right. Sellers are capitalizing on the continued demand. A conservative pricing strategy is crucial to a seller’s success. The demand is there, but it is more important than ever to show a buyer the value in a home at the outset.
Over the past two years, buyers were focused on finding a home (any home), that would meet their needs. Buyers will still match current values but are less and less are willing to create a new premium value for their neighborhood. As of August 2022, Westside values remain flat in most neighborhoods. We have not seen any significant depreciation in value, roughly 1% on average.
Westside transactions are down by nearly 50% YTD. Pricing has not adjusted tremendously but the number of transactions has. This is the largest change. There is less pressure in the market to make dramatic moves and buyers have become much more deliberate and disciplined. We are still seeing multiples in our market but the days of 20 offers are lessening. It was time. We have roughly 3 months supply. A balanced market has closer to 5 months supply. Buyers are actively seeking purchases, and agents are struggling to support the continued demand. This means that there is still an imbalance between supply and demand. This is great news for sellers, bad news for anxious buyers.”
