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Ocean Views – Fall 2018 South Bay and Palos Verdes Real Estate Insights

The Stock Market Just Suffered a Bloodbath - Is Real Estate Next?

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As I write this, I’m looking at the rollercoaster that has been the stock market over the last week, and the headlines in my news feed look rather glum.  I guess I’m not all that surprised since bad news tends to sell more than good news.  Take the subject line of my email – If I instead wrote “The Stock Market Is Off From Record Highs, Is Now the Time to Buy?” You may have been less likely to open the email.  But my guess is that you, like myself, see the negative news headline and start to wonder if this bad news will affect me, so you click on it to read more.  Well, I’m not psychologist, so I’ll get back to what I know best, but I bring this up because psychology seems to be running the financial world more than fundamentals are these days.  It seems that whenever we get too used to hearing good news, we start to worry that the story may change, and we start to look for the bad news.  Is that what is happening now, or should we really be thinking about stockpiling cash in anticipation of the next crash (or buying opportunity depending on how you roll)?

In terms of real estate data, the 3rd Quarter numbers are in, and despite slowing sales, the South Bay real estate market is still relatively solid.  I say that with some hesitation, because mortgage rates are fast approaching 5%, real people (which includes buyers and sellers) are watching their investment portfolios lose value, and that usually creates a hangover effect on major purchases like real estate.  But when you step back a few feet, it’s easy to see that there are still few homes on the market compared to the number of buyers out there looking.  We tend to see a drop in the number of buyers during the Fall and Winter compared to Spring and Summer, but the month’s supply numbers don’t lie, and in general, by that measure it’s still a seller’s market.  As you move up in price, typically over $2 million, months supply does shift more towards a buyer’s market, but then again, how many buyers are there for multimillion dollar homes?

Here are some highlights from the broader South Bay and Palos Verdes Markets:
For the 3rd quarter (ended September 30th) the number of homes sold is off over 14% compared to Q3 2017, and pending sales are off nearly 18% from a year ago.  Month’s supply is up 19% year-over-year, but at 2.5 months, we are still in a seller’s market.  But before I instill panic in those considering selling, sales prices (12 month moving average) for the overall South Bay market are only off slightly from an all-time high set in August, and are up 8.3% compared to 2017.  Plus, days on market is still hovering around 30 days, consistent with 1 year ago.  But where we continue to see challenges is a mismatch between buyer and seller expectations.  Sellers are expecting top dollar for their home, and list prices reflect this.  On the other hand, buyers, weary from record prices, rising interest rates, and a volatile stock market, are fatigued.  This translates to slowing buyer demand and price reductions by seller’s that overshot the market.  Take a quick glance at the market, and it looks like prices are dropping, when in fact values have actually risen for the year and prices are just adjusting to what the market will tolerate.

Sellers, What does this mean for you?  
A couple months back you may remember me discussing the market shift.  This is still the case.  For those planning on selling, I have 2 messages.  One – If you are looking to sell in the next 1-2 years, I would consider doing that much sooner than later, as I have not heard that our current growth story lasts much past early 2020. Two – Those getting ready to sell or are currently on the market need to really analyze their pricing strategy.  Simply put – don’t reach for the stars.  Your best chance of selling your home for the most money occurs during the first 2-4 weeks on the market.  Think of your price as an invitation to buyers, not what you hope you might get for your home.

Are you a Buyer?
Buyers, your time has come!  But, like sellers, don’t wait too long unless you are impervious to rising interest rates.  The 3.5% mortgage rate days are gone; and the 4% days are numbered.  Unless you are a cash buyer, you probably should be actively trying to find the best deal on the market and writing aggressive offers.  The best deals are in the homes that have been sitting on the market for 40+ days.  If you missed my Monday Minute about price reductions, check out the video at this link to see what I’m talking about.  In most markets, over 60% of homes sitting on the market greater than 40 days have had price reductions and usually the best deals are had during November to January.  That means get out there and take some chances.  Write that lower offer.  The worst thing that can happen is you get a “No” back, but maybe you’ll get a deal.

The next 3-6 months?
We didn’t see a bump in inventory after Labor Day as I hoped, but the market hasn’t seized up completely.  As long as the economy remains strong and interest rates don’t rise out of control, there is still plenty of life left in this real estate market.  With limited supply, it will take a significant adjustment in demand to flip the market completely to a buyer’s market.  However, at certain price points, mostly above $2m in most markets, months supply looks more like a normal market at 5.2 months (6 months supply is considered balanced).  Finally, as I mentioned above, rising interest rates will be the biggest threat to further growth in home values as higher mortgage rates erodes buying power in any buyer needing a mortgage to buy a home – an that’s most people these days.

Win Dinner for 4 to the Riviera Mexican Grill
I’m doing something new this year.  Instead of just reading economists reports and studying the numbers, I want to hear what YOU think about the current real estate market.  If you could take a few minutes and answer the survey at the link below, I’d like to reward your time and insights by giving away dinner for four to the Riviera Mexican Grill to one lucky respondent.  Just complete the survey by October 31st and make sure to include your email address.  I’ll share the results of the survey in my November newsletter and of course will let the winner know about their dinner on me.

Survey Link

If you made it this far, thanks for reading, and as always, feel free to contact me directly if you have any questions or would like to know about your particular neighborhood or home.

All the best!

Kyle Daniels

If you’d like to hear the latest about the real estate market on a more regular basis, tune into to my weekly videos where I discuss current market trends in a short video clip each week.  To subscribe, click here or reply to this email or feel free to call or text and ask to be signed up.

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