One of the most common questions a real estate agent gets is “is now a good time to buy?”. It’s a tough question to respond to, as the answer is most often based on the potential buyer’s personal circumstances. In terms of pricing, historically speaking, now is a better time than it will be five years from now and it is a worse time than it was five years ago. Admittedly, it is a challenging time to buy right now, especially if you are getting a loan. Inventory is scarce, interest rates are as high as they’ve been in over 15 years, and prices are very close to their peak. With economic uncertainty and sticky inflation, it is difficult to picture values going up immediately, even with limited supply.
Low inventory is something that we have faced for 11 years now. I just viewed an old blog post of mine from December 2012 saying the same thing. The difference between then and now is that sellers were waiting for values to go back before selling following the financial crisis, and they soon would due to tremendous demand. The reason for sellers holding their properties is different now and demand is sparse for the majority of condos in the Playa Vista market now. As of the third week of September, there are currently 14 active condo listings in Playa Vista and only 6 under contract, which is well below the recent average of around 15 under contract at any given time. 11 of the 14 actives have been reduced in price or re-listed at a lower price, some more than once. Most of these listings are attractive enough to sell in a more active market and have a comparable sale in the past 6 months that sold for more than the asking price for the active listing. This shows demand is waning, or at least affordability due to interest rates have reached a point where a buyer cannot or will not pay peak pricing.
While listings have not accumulated to the point where inventory has increased above the 1-2 months of supply level, the recent slowing of absorption (under contract condos) is likely to lead to increased inventory, which serves to reduce buyer urgency even more. A summer slowdown in the local market is typical and the next few months are crucial to market stability. If most of these sellers prove to be either too unmotivated or stubborn to sell at lower prices, values could hold next year when seasonal demand increases and/or interest rates are expected to decrease, improving affordability and boosting transaction volume. If not, and I suspect some of these sellers seeing inventory increasing, financial headwinds, or just wanting to move on, are going to capitulate and unload their properties for 5-10% below what they might have sold for in the spring, this is an opportunity for buyers to get the best deal they might get in the next few years.
This will be a short-term buying opportunity caused primarily by interest rates and compounded by seasonality. After interest rates come down to the 5 to 5.5% level (they are currently around 7% for an owner-occupied property), absorption will increase and prices will likely go back up, particularly in desirable neighborhoods of the Westside. If you’re a buyer, getting ready now and being prepared to make an offer during the typically slower holiday season could be a winning strategy. Buyers who purchase during the current high rate environment can refinance when rates eventually come down. Just remember, if you plan to refinance, an appraisal is necessary. If the appraised value is lower than what you paid, you might need to bring in extra cash to meet the lender’s minimum loan to value.