Year to date throughJuly, the gross revenue for South Bay is a mere 3% above that of2019. At the same time, sales volume, the number of homes sold, is23% below the sales of 2019. By most standards, 2019 was the pinnacleof real estate business prior to the turbulent years of the Covidpandemic.
Many sources comparecurrent business to that of the pandemic years, partially becauseit’s easy and partially because the “numbers look better.“Undeniably, the statistics do look more favorable, however, thisanalysis takes comparisons beyond the normal “last month” and“same month last year” to include 2023 versus 2019. This allowsour readers to see 2023 in a historical context and to more readilyrecognize the unfolding recession.
While median prices arestill above those of 2019 right now, we project the median priceswill also drop below the 2019 level before this recession ends. On amonth to month basis, prices are falling approximately half the time.On a year to year basis, 2023 prices have dropped below 2022 medians82% of the time. Median prices for June and July of 2023 fell below2022 in all four areas both months. Buyers and sellers shouldanticipate the bottom of the recession in late 2024, or possibly2025. Normal growth should return in 2026.
The July report from theFederal Reserve Bank (Fed) notes that inflation is expected tocontinue above the target of 2% through 2025. Accordingly, the Fedefforts to “restrain” the economy (meaning increase interestrates) will continue into 2025. The report indicates that whilehousing costs are slowing, they continue to increase at inflationarylevels, necessitating further reduction.
In the meantime, buyerswho are financially able should plan to acquire desirable propertiesat substantially better prices than will be available after recoverybegins. Sellers who anticipate a need to sell before the economicturn-around, should look toward selling sooner rather than later, tominimize the impact of the down-trending market.
BeachCities Summer Market Fizzles
From June to July thenumber of homes sold in the Beach Cities fell 27% and those sold fora median price of 2% less. Some of the decline in sales isattributable to fewer homes available, as sellers hold properties offthe market in hopes of improving conditions. Even more is a result ofbuyers who have lost significant purchasing power as mortgageinterest rates have rocketed to over 7%.
Compared to July of 2022,the number of homes sold this July dropped 22% with a decline inmedian price of 4%. This set of statistics is somewhat deceptive inthat last July the real estate market was still in the early stagesof the downturn. As the current year progresses, year over yearfigures will demonstrate the slide more clearly.
Comparing the first sevenmonths of 2023 to both 2022 and 2019 (the most recent year ofbusiness not impacted by the pandemic) shows the drift of sales andprices. The number of homes sold fell 24% from 2022 (802 homes) to2023 (607 homes), while it was down 35% from 2019 (930 homes). TheFed dropped mortgage interest rates to essentially zero during thepandemic to keep the general economy afloat, which resulted in rapidprice escalation which ultimately made purchasing a home unaffordablefor about 25% of potential buyers. Then to control the resultinginflation, the interest rates jumped up around the 7% mark, whichfurther slowed the real estate market by “pricing out” another10-15% of buyers. With fewer buyers and stagnating prices, sellersare reacting by pulling property off the market and delaying plannedsales.
Median prices fell 4%from 2022 and are still 28% above the median price of Beach Citieshomes in 2019.
HarborArea SalesVolumePlummets
Sales volume in theHarbor area has held up better than the Beach, possibly becausemedian price has taken a greater hit. On a monthly basis, 24% fewerhomes were sold (269 in July versus 353 in June). Comparing July of2023 to July of last year, only 18% fewer closed escrow (269 versus329).
Generally being an entrylevel market, the Harbor area tends to react faster to changes inmarket condition. More upscale neighborhoods frequently “stick tothe price” for a longer period of time when markets are declining.Month to month median price dropped 4% in July to $565K. For July of2022 versus July of 2023, the median fell 5%, from $780K to $740K.
Year to date throughJuly, sales volume was off 24% from last year. Median price was down4% when compared to the same period in 2022. Looking back to 2019,the number of homes sold during the first seven months of 2023dropped by 21%. Median price for the same time frame shows up at 32%higher than 2019. Given the median price dropped 4% over the pastmonth (from $772K to $740K), it’s reasonable to project the Harborarea median will end the year near $600K, as it was in 2019.
PV HillShows Volatility
Month over month, thenumber of homes sold on the PV Hill fell from 79 units in June to 50in July, a decline of 37%. At the same time, the median price dropped10%, ending the month at $1.8M. This despite a high sale of $12.5M,up from the high of $10M in June.
Year to year, July volumedropped 6% from 53 units in 2022, while median price plummeted 18%,from last year’s $2.2M. Palos Verdes is a unique community withlarge homes on large lots, many of them highly custom. Combined withthe small overall number of homes, these properties truly need to beassessed on an individual basis for realistic projections.
Comparing cumulativesales data for January through July, volume is down 23% and medianprice is down 17% versus last year. Going back to the stable year of2019, the number of sales is down 16% while the median is up 34%.
Interestingly, if theFed’s annual 2% inflation target is added to the years between 2019and 2023, the median on the Hill would be $1.5M today, instead of$1.8M. Under those circumstances, it would only take a decline of$300K to erase all gain from the past three years. Not a comfortingthought for anyone who purchased recently.
InlandCities Most Stable
The Inland area typifiesa classic “middle of the road” performance in the real estateworld. Generally the homes are everyday family properties, the salestrends are at the middle of the current South Bay market, andeverything seems to happen with minimum drama. So there is littlesurprise at the minimalist 19% decline in monthly sales volume, thelowest of the South Bay. Likewise there is no shock the Inland citiescame in with the lowest monthly price decline, a mere 1% below June.
Similarly, the annualsales volume showed July of 2023 only 14% below last July and themedian price just 1% below the same month a year ago.
Year to date for thefirst seven months of 2023 compared to 2022 looks much the same. Thenumber of homes sold dropped by 22%, 799 in 2023 versus 1021 lastyear. The median price fell 2% to $868K from $883K. Looking back tothe 2019 sales volume for the same time period, the Inland area isoff by 18% for the current year. Much like the rest of the South Bay,the median price in 2023 ($868K) remains above that of 2019 ($662K)by 31%.
