With the first quarter of 2025 in the books and plenty of news headlines to keep things interesting, I figure it’s a good time to check in on where we are in the market and how things are looking for the remainder of 2025.
The first quarter has been anything but normal – if normal even exists anymore! From tariff policies to DOGE and Musk, Trump 2.0 has captured his market share of media attention, and with it the nerves of investors, CEO’s, and most households. This has created a level of uncertainty that has not been seen since the early days of the Covid shutdown. Interest rates have been one of the victims of uncertainty and as a result, mortgage rates jumped nearly a quarter point in the past week alone. This is having a direct impact on the real estate market in the South Bay with March pending sales down nearly 23% from a year earlier.
The first quarter of 2025 has brought some noteworthy shifts to the South Bay and Palos Verdes real estate market as a whole. The median price reached $1.4 million, representing a 7.7% increase year-over-year, which is a positive indicator for property values. When we look at market segments as a whole, despite a recent decline in pending sales, we are seeing a quarterly increase in sales of 8% compared to Q12024. (Note: For specific markets, please take a look at the link to the Q12025 Market Report). However, as mentioned above, a decrease in pending sales was observed in March, a trend that will be monitored closely in the coming months.
Performance of the High-End Market
The higher segment of the market has shown particularly strong performance. Specifically, closed sales for properties priced between $2.7 million and $4 million saw a substantial 125.7% year-over-year increase. This highlights significant activity in the luxury market, likely spurred by those buyer’s ability to pay all cash for properties – a sort of immunity to higher mortgage rates.
Inventory and Pricing Dynamics
Active listings have increased by 23% for the quarter, providing greater inventory for prospective buyers. However, it’s important to note that overall inventory remains approximately 16% below pre-pandemic levels. Properties are selling at an average of 99.3% of the list price, indicating that sellers are pricing their properties in line with market conditions, and buyers are willing to meet those prices.
Months’ Supply of Inventory
An analysis of the months’ supply of inventory reveals that for properties priced under $2.7 million, there has been an increase, suggesting a higher inventory relative to demand. In contrast, for properties priced above $2.7 million, the months’ supply has either remained stable or decreased, reinforcing the strength of the high-end market.
Who’s Market Is it?
Over $4 Million: This segment favors buyers, offering increased negotiation opportunities with the increase in inventory.
$1.7 Million to $4 Million: This segment presents a more balanced market dynamic between buyers and sellers.
Under $1.7 Million: This segment remains a seller’s market, with buyers likely to encounter competition.
What is selling and why?
Almost all entry level priced homes are still highly competitive and are experiencing multiple offers with many homes selling over the list price. Even with higher mortgage rates, buyers are motivated to get out of rentals and into a property of their own. Southern California continues to remain in high demand and new inventory remains constrained.
New construction or recently updated homes remain in high demand as the increasing costs of new construction ($1000+/sqft in some areas) has and the high end of the market has seen the most growth compared to Q12024. Months supply is up from a year ago to 6.4 months for homes priced $4M and above.
Hollywood Riviera remains a hot market with most ocean view properties selling over the list price with multiple offers.
What are the experts saying?
With the uncertainty around tariffs and no clear path forward for the Fed’s incentives to lower rates, the market is hard to predict. According to this week’s Fannie Mae press release, “a panel of more than 100 housing experts forecasts home price growth to average 3.4% in 2025 and 3.3% in 2026, according to the Q1 2025 Fannie Mae (FNMA/OTCQB) Home Price Expectations Survey.” This is a downward revision as a result of the impacts of tariffs on the overall economy. Despite the overall sentiment, the local real estate market remains resilient as there is still a level of pent up demand, especially at the entry levels in most neighborhoods. As mentioned above, the luxury market, despite having more inventory, has yet to see a price correction.
Looking ahead, I see a buying opportunity for qualified buyers as inventory slowly increases and determined sellers seek to cash in on over 10 years of market gains.
