What a crazy start to the year it has been! It’s like a switch was turned on the second week of January, and everyone wanted to buy again. I’m seeing homes sell within a week with multiple offers. However, I also see homes in good areas that are not selling. Despite the huge swing in buyer sentiment, it appears that they’re not prepared to buy the home unless it checks most of their boxes.
|
Year-over-Year (YoY) |
Month-over-Month (MoM) |
|
|---|---|---|
|
Homes for Sale |
-1% |
+2% |
|
New Listings |
+13% |
+110% |
|
Homes in Escrow |
+7% |
-8% |
|
Closed Sales |
+5% |
-15% |
|
Median Sale Price |
+3% |
-2% |
We saw a massive uptick in new listings MoM, and as encouraging as it is, it’s also not uncommon coming out of December. Still, it’s great to see new listings up YoY. Remember that the typical escrow is 30 days, so the big swing in buyer sentiment we’re seeing now will not be fully reflected in the numbers until after February.
What Caused the Swing?
I haven’t seen a January swing like this before. Typically, it’s the slowest month of the year for new transactions. Most buyers retreated to the sidelines when rates peaked in October, and then because that led into the holidays, most buyers decided to hold off until more inventory hit the market. As you can see in the numbers, we saw a significant uptick in new listings, which was enough to get buyers off the sidelines again. The real estate market is mainly driven by sentiment, so the increased activity caused by the new listings also benefited homes that had been sitting on the market for months. I heard of one instance where a house had been on the market since October and suddenly received multiple offers and entered escrow above the asking price. Another agent told me of a condo in WeHo receiving 15 offers. I am still seeing properties close below the asking price. However, most of the time, those properties entered escrow last year and had a longer than usual escrow. I expect those to be the last of the deals we see for a while.
Rates
Another reason buyers have jumped off the sidelines is the anticipation of rates coming down and more buyers entering the market. A perfect storm of lower rates and increased demand could cause prices to increase significantly. This has been spoken of for the past few months, and even though rates coming down is speculation until they do, it appears that enough buyers are factoring this into their decision-making right now.
2022 Vs 2024
When this market started taking off, it reminded me of the first half of 2022. It appears we’re thankfully not going down that same path just yet, as that was ridiculous, and buyers are being more selective now. What’s so interesting is that the market was then driven by the anticipation of rates going up, and now the market is driven by the anticipation of rates going down. However, what really is the deciding factor here, as it always has been the past few years, is inventory. Until inventory catches up with demand, which we’re still far from, prices will continue to increase.
ADU Loan Qualification
Last October, the government announced that anticipated income from ADUs can help a buyer qualify for a loan. A lender will use up 75% of the anticipated rental income as qualifying income. However, the rental income can’t exceed 30% of the qualifying income. As always, there’s a fine print with these types of loans, so check in with your lender. In addition to this, here in California, you can now sell an ADU as a single-family home. However, that’s a longer conversation for another time once the details are better ironed out, as I expect cities to implement their own rules.
Worst Year for Real Estate
2023 was the worst year for closed sales in decades. There were even fewer closed transactions than in 2008. That’s the power of interest rates, combined with inventory, and how they affect both affordability and buyer sentiment.
