Los Angeles Real Estate Market Update – August 2021

The coronavirus pandemic and lockdowns starting in March of 2020 significantly impacted the Los Angeles real estate market. In this market update, we recap the initial impact of the pandemic, how the market has reacted in the past year, and where we are headed.

Supply Drops After Covid And Remains Low

We begin our analysis with supply of single family homes in Los Angeles. The supply trend of real estate is generally cyclical and easy to predict. Supply typically reaches its peak during the summer months, likely because homeowners with children prefer not to move during the school year. It then ordinarily bottoms out in December, likely due to homeowners and buyers not wanting to move during the holiday season.

The pandemic, however, broke that cycle. Inventory of homes for sale dropped dramatically in April of 2020 shortly after lockdowns began. As expected, supply rebounded during summer months, but not to the same heights as prior years. This can likely be attributed to the ban on open houses and the reluctance of homeowners to have visitors in their homes. Supply reached relatively new lows in the winter of 2020-2021. While supply has increased since then, it remains historically low.

The trendline below shows that the typical number of single family homes for sale during the summer months in LA County is approximately 20,000, whereas that number is currently at less than 15,000, reflecting an approximate 25% drop in supply.

Los Angeles County Homes For Sale Per Month

Demand Remains Consistent Despite Decreased Supply

As with supply, demand for housing, as reflected by the number of closed sales per month, follows a cycle of dropping during winter months and rebounding during summer months. The coronavirus pandemic again changed that cycle.

One would expect that with less supply, and with people spending more time inside rather than out house-hunting, demand would decline. The data, however, tells a different story. Demand dropped sharply after March into April and May of 2020. However, unlike supply, demand rebounded quickly, reaching “normal” heights shortly thereafter and continuing into this year.

The trendline below shows that not only did demand quickly rebound, but it has already recovered to “normal” heights.

Los Angeles County Closed Home Sales Per Month

Decreased Supply With Consistent Demand Pushes Prices Up

Not surprisingly, decreased supply without a substantial change in demand has contributed to rising prices. Exacerbating this issue, mortgage interest rates have consistently declined, thereby decreasing the cost of borrowing and effectively making homes “cheaper.” What has logically followed is a surge in the cost of homes. The median price per square foot of single family homes dipped slightly in April of 2020, but has consistently increased since then, and at a faster rate than before March of 2020.

Los Angeles County Single Family Home Median Price Per Square Foot

What Does This Mean For The Future?

As always, the million dollar question is what does this mean for the future? Will prices continue to surge, will we see a decline in prices, or will the market stabilize? Predicting the future is always a guessing game. With that caveat in mind, we predict housing prices will continue to rise, but at a more stable and sustainable rate as we enter the fall and in 2022. As we hopefully exit the pandemic, and as people become more accustomed to living in the covid world, we anticipate homeowners will become more comfortable with putting their homes on the market, thereby slowly driving up supply. We also anticipate that while interest rates will not increase dramatically, they will slowly rise (nowhere to go but up) thereby putting some downward pressure on demand.

The remaining summer months and the fall of 2021 will be significant indicators of where the market is headed. Absent an increase in supply to match consistent demand, buyers can expect home prices to continue to steadily increase. As business and outdoor activities continue to reopen, we anticipate that apartment living will once again become a sustainable way of living. The other “X factor” to consider is the moratorium on foreclosures and evictions, which is set to expire in September of 2021, potentially resulting in an increase in supply of housing as renters and homeowners are evicted. Only time will tell, but the remainder of 2021 will surely be an interesting time for the LA real estate market.

For more information on how Esquire Real Estate Brokerage, Inc. can help you in the Southern California real estate market, feel free to give us a call at 213-973-9439 or send us an email at info@esquirereb.com.