A few weeks ago, Glenn Kelman, the CEO for Seattle-based real estate broker Redfin, triggered alarm bells when, on a conference call with investors, he commented on the nation's slowing housing market. Redfin's stock (Nasdaq: RDFN) immediately cratered 22.4%, the biggest one-day dip since the company went public in July, 2017.
Rising mortgage rates, new restrictions on the deductibility of mortgage interest and state property taxes and new post-recession highs in median home prices for most major metropolitan areas would seem to offer support for a market slowdown.
And the national data on home sales seem to back Kelman up as well with total existing home sales (completed transactions that include not just single family homes but also townhomes, condos and co-ops) decreasing in July for the 5th straight month. Sales are now 1.5% below a year ago.
As Lawrence Yun, chief economist for the National Association of Realtors, said recently, "Too many would-be buyers are either being priced out, or are deciding to postpone their search until more homes in their price range come onto the market.”
The real estate data and home search company Zillow, meanwhile, has found that home price growth has slowed in more than half of the nation's largest metropolitan markets, even though their survey of real estate economists found that most don't see it becoming a buyer's market nationwide until 2020 at the earliest.
Yet, just as they say all politics are local, one can make the same claim about real estate. So let's assess the overall residential housing market here in the South Bay.
Let's start with months of inventory based on closed sales in the beach cities. This is what is sometimes referred to as the absorption rate, ie, the number of months it would take for the existing inventory to be completely bought up or 'absorbed' based on the number of homes sales in the past 30 days (divide existing inventory by the last 30 days' home sales).
So long as the absorption rate remains at 3 months or below, you have a seller's market while a buyer's market does not appear until the absorption rate hits 6 months of inventory. Between 3-6 months, you have a market in equilibrium that favors neither buyers nor sellers.
Below is the absorption rate for the beach cities:
|City||July, 2017||July, 2018|
|Manhattan Beach||2.7 months||1.9 months|
|Hermosa Beach||3.0 months||3.4 months|
|North Redondo||0.9 months||1.1 months|
|South Redondo||1.8 months||2.1 months|
Sure, relative to demand, inventory is creeping up a little, except in Manhattan Beach, but the gains are far from substantial. In any case, it's still a seller's market, with the exception of Hermosa Beach where the market is more balanced between buyers and sellers.
And what about home price appreciation? Below is the year-over-year 12-month median home sale price for all residential units (single family, townhomes and condos) in each of the beach cities for the month of July.
|City||Median Price - 2017||Median Price - 2018||Percent Gain|
Again, the balanced market in Hermosa Beach, where the median sale price has stalled, is the exception as the other beach cities have posted solid year-over-year gains.
What's more interesting is how the rate of increase in median sale prices seems to be slowing. For example, the increase in the year-over-year median sale price in Manhattan Beach back in January was 7.8% and in Hermosa Beach it was 8.7%.
The takeaway is that home sales may have stalled for a while here in the South Bay and, as a result, median home prices have stopped going up quite as fast as they have in the recent past. But that doesn't mean the underlying housing market is in decline.
In fact, there are many factors that could cause home prices to resume their previous sharp upward trajectory. The economy and the labor market remain quite healthy. And mortgage rates, which are still relatively low from an historical perspective, have pulled back from recent highs.
But for the moment, the data seems to show a slowing real estate market locally - not a dramatic slowdown and certainly not a declining price environment like one would see if it was a buyer's market but a slowdown in the rate of price appreciation nonetheless.