Kevin D. Shelburn | December 2, 2022
If you’re keeping up with recent real estate headlines you may think the sky is falling and your precious equity could be in jeopardy. There are claims the market is set to plummet anywhere from 10% to 20%+. While values in the long-term will be fine, it’s always interesting to debate near-term market movements for those with imminent buying or selling needs.
Before we dive in, let me make an important distinction. 2020 was a COVID year and 2021 was an anomaly in terms of real estate. The pace of the 2021 market was officially deemed an “insane seller’s market.” Sales were instantaneous, above asking price with multiple bidders. Comparing 2020/2021 to 2022 can, at times, be misleading. In order to best gauge the current market, we will examine against 2017 - 2019, which were far more normal or neutral, which is where we currently stand.
The argument made by those who will have you believe we are in for a massive price drop rely heavily on affordability, which is a function of demand. Affordability is the combination of home prices, interest rates and household incomes, which then create or dismantle demand. Currently, unaffordability is decimating the buyer pool, a concept which I fully agree with. This can be easily observed when examining closed escrows:
In September & October 2022 within 90066 just 40 single family homes sold, down 33% from the three-year average of 60 home sales for 2017 – 2019.
Demand, however, is just one side of the equation. We also need to examine supply. Using the same criteria as above:
The number of homes for sale in Sept/Oct 2022 was 30% below our 2017 – 2019 average, or 160, down from the historical average of 226.
Note the similarity? The number of closed transactions reduced 33% while the number of homes for sale reduced 30%. The 3% difference is de minimis and within our standard deviation. The same pattern can be seen with new listings, which are down 23% compared to our baseline years of 2017 – 2019.
Therefore, it’s important to recognize when supply and demand reduce in lockstep, the net effect is negligible, which is why your home value is hovering at its peak value and will likely remain at that level for the foreseeable future. In fact, median single family homes values in 90066 zip code were up 2.0% in October over September 2022.
Going forward, expect Mar Vista and other coveted W. LA areas to have very limited supply when compared to historical averages. This shortfall will offset waning demand creating a relatively flat market cycle for the foreseeable future.
About the author: Kevin Shelburn is a 20-year real estate and wealth management specialists with a BA from UCSB. He is an active member of the LMU Real Estate Advisory Council and licensed real estate broker for Shelburn Realty Group in Mar Vista.
Stay up to date on the latest real estate trends.
You’ve got questions and we can’t wait to answer them.