As we step into the new year, hopeful home buyers and future home sellers in Los Angeles County are wondering whether 2024 will be a good year to buy and sell real estate. With several factors at play, including interest rates, home prices, housing inventory, and opportunities in new construction, it can be difficult to know what the next move should be, and the right time to make it.
In this blog post, I will share my predictions and trends likely to shape real estate in Los Angeles County and Long Beach, CA in the new year.
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Interest Rates and Mortgage Predictions:
Let’s start with interest rates. We hit a high not seen in decades in October 2023 when mortgage rates surpassed 8%, sending the housing market into a major slow down as affordability was crushed. However, around the holidays, we were granted a Christmas miracle when the Fed announced that they were done increasing the base rate. The mortgage industry responded favorably and mortgage rates started to decline shortly after. We ended the year at around 6.75% for a 30 year fixed.
So, what’s in store for rates in 2024?
Experts are speculating that the Fed will cut base rates by 75 basis points as inflation continues to decline. Inflation coming under control and the Fed announcing that they are done with interest rate hikes is welcome news. But, even so , forecasters suggest that mortgage rates will remain in the 6% range throughout much of the coming year.
This forecast is based on the idea that the Fed’s actions may not immediately translate into significantly lower mortgage rates. While a base rate cut could influence overall interest rates, other economic factors come into play. However, for those who secure a mortgage during this period, the rates are likely to be favorable compared to historical averages.
Although 6% is a massive improvement from the high of 8%, it’s a far cry from the 3% rates that many homeowners secured a couple of years ago and it remains to be seen whether consumers will scoff at 6% and continue to hold out for historically low rates of yesteryear which are highly unlikely to return.
Home Prices: A Mixed Bag Across the Nation
The consensus among real estate experts is that home prices in most markets in the USA will either remain flat or experience modest gains in 2024. However, the picture is not uniform. I’ve said this before and I’ll say it again, there is no such thing as THE real estate market. There are only thousands of hyper local markets and each has its own set of unique factors that influences prices. Some markets arevexpected to see more significant spikes than others.
For example, Realtor.com released a list of 10 markets they predict will see the biggest price gains in 2024. Here’s the list:
- Toledo, Ohio – 8.3%
- Oxnard-Thousand Oaks-Ventura, Calif. – 3.3%
- Rochester, New York – 10/4%
- San Diego-Chula Vista-Carlsbad, Calif. – 5.4%
- Riverside-San Bernardino-Ontario, Calif. – 2%
- Bakersfield, Calif. – 2.3%
- Springfield, Mass. – 4.2%
- Worcester, Massachusetts-Connecticut – 4.8%
- Grand Rapids-Kentwood, Mich. – 7.2%
- Los Angeles-Long Beach-Anaheim, Calif. 3.5%
Let’s take a look at the numbers California Association of Realtors released for November 2023.
Median Price of Existing Single Family Homes: $870,000
That’s a 7.4% increase from same time last year
Median Price of Existing Single Family Homes: $952,000
That’s a 12% increase from same time last year
Housing Inventory: A Controversial Outlook
The question of housing inventory remains a topic of debate among real estate analysts. On one hand, realtor.com’s prediction of double-digit growth in the Los Angeles metro area suggests a strong demand for housing. On the other hand, some studies indicate that housing inventory might increase in 2024, challenging the prevailing narrative.
One key factor influencing inventory levels is the threshold interest rate at which homeowners with “golden handcuffs” may be willing to sell. Golden handcuffs refer to homeowners who have locked in low-interest rates and are hesitant to sell and lose those favorable terms. Studies suggest that a 5% interest rate could be the tipping point for many of these homeowners.
However, the forecasted mortgage rates for 2024 hover around the 6% range. This raises doubts about whether the interest rate environment will reach the hypothetical 5% threshold that could unlock more inventory. As a result, some skeptics argue that inventory levels may not improve significantly in 2024.
When we talk about inventory, all we are talking about are the number of homes available for sale. For DECADES California has been struggling with a housing shortage. There are simply not enough homes for everyone who wants to buy one. A healthy or balanced market is when there are enough homes for sale that would take 6 months to sell them all if no more homes came on the market. We call this “months worth of inventory.” For several years we’ve been operating with just 3 months worth of inventory.
Why does inventory matter?
Lack of homes create bidding wars which causes prices to rise. If 10 buyers are bidding on the same house, each one is going to offer just a tad more to win the house. Can you guess how many months of inventory we have now?
LA county: 2.2 months worth of inventory
LAcounty saw 20% fewer homes for sales last year than in 2022
Long Beach: 1.67 months worth of inventory
Long Beach saw 23.6% fewer homes for sale last year than in 2023
Due to this lack of homes, I predict another year of multiple offers and bidding wars in the 2nd half of 2024, although nowhere near the frenzy we saw in 2020-2022.
So, where are the opportunities?
MOVE UP BUYERS
If you’re looking to upgrade from a condo to a single family home or from a starter home to something bigger or in a better neighborhood – this market is especially favorable: 1) you can shop for your replacement home without getting outbid by buyers on something you really loved AND with interest rates already trending downward, you can refinance into something lower in the near future 2) if you need to sell your current home to buy your next home, the lack of inventory means you can still price it agressively and count on getting what you asked for.
List to sale ratio
In november 2023 LA county homes sold for 100% of asking price and Long beach homes sold for 100.5% of asking price. It’s a win win for move up buyers.
If you’re looking to move out of state, the same applies for you. Are you simply cashing out, or selling due to a major life change? The housing market remained a sellers market in the worst of 2023, and will continue to be a sellers market in 2024 – you’ll do fine
FIRST TIME BUYER
The first time buyer is the one that will struggle the most as affordability with HIGH prices and relatively HIGH rates will be the case for the foreseeable future. If you’re looking to buy your first home, don’t be discouraged, there are first time buyer programs to help. Long Beach has extended a grant of 25k for 1st time buyers through 2024, for example. If you’re wondering whether you meet the requirements to buy a home, watch my video “minimum requirements to buy a home” I’ll link to it here
- Rates will hover 6%
- Prices will either increase or stay flat depending on the market
- Inventory will remain low
- It will be a seller’s market
- Move up buyers have unique opportunity due to equity they’ve built
- First time buyers will struggle the most
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(all data current as of 2/20/2024)
Listing information deemed reliable but not guaranteed. Read full disclaimer.