Los Angeles Home Market: Lower Prices, More Sales

With all the recent hype about the market turning, we thought we’d check in with a stretch of “middle” Los Angeles to see what’s happening with the single family market there. Are rumors of bidding wars true or is it just bluster to cast wind into the sagging sails of SoCal real estate?

The news is not all bad. Sales are declining, but a lot less than a year ago. Prices are still coming down. The high end of the market is suffering, but buyers are out in force on the low end.

These charts look at the MLS areas Sunset Strip / Hollywood Hills West, West Hollywood, Beverly Center / Miracle Mile, and Hancock Park / Wilshire. The area covers the Hills and the Flats, and stretches between Doheny and Western, Mulholland and Wilshire.

The 12-month moving average of sales has been trending down to roughly 600 sales a year from 912 sales seventeen months ago. This is a reduction of over one-third in sales activity. The rate of decline has been slowing and the curve is flattening out and appears to be heading for a bottom within the next 6 – 12 months. When sales activity hits a bottom, prices also tend to hit a bottom.

The median sale price is down in this area. Not a big surprise. The decline has been from approximately $1.35 million in January 2008 to $1.12 million in May 2009, a 17% decline in seventeen months – or a neat average of 1% a month.

What are the causes of the median sale price decline? The usual suspects: high-interest rate jumbo mortgages (over $729,750 in LA County); high downpayment requirements and difficult underwriting guidelines for jumbo mortgages; job losses; and sales of short sale and foreclosed properties creating a drag on the market.

When looking more closely at sales activity, we learn there are two markets and the break-point between them is at about $1.2 million. Properties under $1.2 million are selling, while properties over $1.2 million are sitting.

Up until March of this year, the entire market was bad. Fewer than 10% of properties were under contract (and often significantly less). In the past two months, sales under $1.2 million have skyrocketed. In May, over 21% of properties priced $1.2 million and under were in contract, triple the percentage of three months earlier. There is a sales boomlet going on.

Interest rates have crept up in the past week, and boomlets can easily become derailed. But there are signs that, day by day, things are getting a little less worse.