Increasing Inventory Will Test Market Strength
Rapid price increases over the past 9 months in Playa Vista have brought a lot of would-be sellers off the fence in recent weeks. The number of homes for sale in Playa Vista has gone from a low of 9 in February to 22 as of today. Prices rising over 15% in less than a year have brought back a huge portion of home equity lost during the downturn making now a desirable (or at least feasible) time to sell.
With every market cycle, demand in excess of supply causes prices to rise, which decreases affordability and increases equity for those who own property incentivizing them to sell, thereby increasing supply which puts downward pressure on prices. The current inventory, which represents under a 3 month supply is still well below normal, but the question is will prices continue to go up if there is not a massive lack of inventory or is there still room for growth?
Another question that is yet to be answered is will more sellers rush off the fence to take profits and will there be enough buyers to keep them from undercutting each other on price?
No matter what happens, we have seen over the past decade that cycles are shorter and steeper than in the past, especially in the less established communities that may have originally been sold during the sub-prime heyday. At the moment, demand still exceeds supply in Playa Vista and buyers still see the value in a community that is very desirable and newer construction prices that are still lower than in other comparable Westside areas. My prediction is that price growth will continue through the year, but will slow. I do not expect see a significant reduction in buyer demand until interest rates rise to closer to 5% at which point we may see a longer term price plateau.