We're very local here, normally.
Time was, Manhattan Beach Confidential didn't even cover townhomes, or anything east of Sepulveda. But we've branched out.
While we do sometimes pull in data from other parts of the South Bay or SoCal, today we're going to look at a bit of statewide data for some bigger-picture perspective.
The graphics here come courtesy of Jordan Levine, chief economist for the California Association of Realtors (CAR). We recently heard Jordan speak at an event hosted by the CAR Board of Directors, where Dave serves as a state director and member of two policy committees. Jordan has given permission for us to use his data.
Low Rates on Mortgages Hinder Sales
The first chart here pertains to the prevalence of ultra-low mortgage rates.
Everyone loves their 3%-and-under rates, whether obtained in a pandemic-era purchase, or through a re-fi during those times of ultra-cheap money.
Everyone loves them, except current home buyers and your local real estate brokers.
Low, locked-in rates diminish the potential motivation for people to sell their homes. This contributes to a chronic shortage of inventory, and higher prices overall for buyers. Oh, and please pull out a tiny violin for your local realtors, too, who have had less business to do at a time with markedly fewer sellers.
The chart here shows that about 2/3rds of all homes in California have a mortgage rate under 4.0%. Add in those between 4-5%, and it's 82.8% of all mortgages under 5.0%.
The data here only go through the first quarter of 2024, describing a drop of about 6% total in mortgages under 5.0% spanning 2 years, from early '22 through early this year. There's a corresponding increase of about 6% in mortgages over 5.0% – which only stands to reason, because all new mortgages are going to be over 5.0%.
A big question for the real estate market generally – whether it's your block, your city, your state or nationally – is when those low, low mortgages on existing homes are going to become scarce, such that more normal rates of home-selling might return. A decline of just 3% a year in the total number of mortgages under 5% is not going to lead to a busier market any time soon.
What we don't see here is the timeline on those low rates – how long will they be in effect? In 2020-21 and into '22, ultra-low rates here were not usually offered only as short-term "teaser" rates. We saw clients offered 7- and 10-year rate locks on interest-only loans, and plenty of buyers found the rates attractive enough to take out new 15-year and 30-year long-term mortgages, meaning you won't ever see those reset.
To the extent that low rates on existing mortgages hinder home listings, the problem will be with us for a while.
Perhaps the best news is that the delta between those low rates and new mortgage rates is getting smaller. You can get a mortgage notably below 6.0% today, and the outlook for the next couple of years is for rates to be declining or flat, all things being equal. (Will they be equal? Discuss.)
Inventory Is Bouncing Back
What we've seen in Manhattan Beach has been true statewide, also: There are somewhat more homes on the market this year, compared to last year, with levels even approaching kinda normal.
Here in the gold color, you can quickly see, at a glance, that much of 2024's inventory is above the levels for most of 2020, 2021 and 2023. The latest figure of 47,000 active listings is on a par with the very highest totals of the past five years (early 2020 and peak 2022).
Only 2022, the year the pandemic party in real estate stalled out, had appreciably higher levels of inventory through much of the year, although the current moment here in Fall 2024 is above the equivalent moment of Fall 2022.
Our inventory data for Manhattan Beach don't precisely track this statewide data, although the numbers here do rhyme. For instance, parts of 2020-21 saw spectacularly high levels of inventory in Manhattan Beach to go along with a rapid sales pace. That's different. But we are generally seeing more homes on offer now than in 2023.
(Note: The statewide inventory data above are for a large segment of the market, but not the whole market – existing SFRs.)
Lower Sales Totals Projected for a While
With more homeowners chained to their homes by low rates, and only a start to inventory bouncing back, the projection is for depressed sales totals to continue for a few years at least.
There's a lot going on in this chart, and we'll talk about a few points after sales totals.
Let's start at the very top line, pertaining to resales of single-family homes.
If you'll just look at 2016-2019, you see that, on a statewide basis, we often have about 400,000 home transactions in California.
That's somehow nicely correlated to the fact that Manhattan Beach often sees about 400 total home sales each year within the city.
State totals went well above that typical 400K in 2021, hitting 445,000, or 11% over 400K.
(Locals-only note: That's not nearly the degree of acceleration in home sales seen in Manhattan Beach that year – we exceeded 500 sales in 2021, more than a 30% increase over what's typical. That's because people wanted to buy in Manhattan Beach, specifically, more than in California, generally.)
Both 2022 and 2023 retracted deeply from normal sales totals, with a 23% year-over-year (YOY) decline from 2021 to 2022, falling well under 400K to 343K. There was a further 25% YOY decline from '22 to 2023, ending at 258K, or 35% below that rough average of 400K sales.
Interestingly, here's another place where the state numbers appear to echo local stats. Just as we average 400 sales in Manhattan Beach, while the state averages 400K, in 2023, we had 253 sales while the state had 258K, both numbers being about the same degree off from normal.
Now look at a couple of projections. First, with almost three quarters' worth of data, CAR's economists project a state total of 275,400 sales in 2024. That's not fully 7% over super-depressed 2023's totals.
And for 2025? The forecast is for a robust 10%+ further increase in sales statewide, but a final total of just 304,400 sales – still 24% below a baseline of 400K sales.
These are the stats and forecasts that CAR is presenting to its own members, with some goal of rallying the troops, and certainly to help brokers with business planning by setting expectations.
It's worth one last look at some other projections. CAR is expecting median home prices to balloon, reaching over $900,000 by 2025. In 2016, a period of time that most people reading this can remember, the median price was barely over $500,000.
Alongside that, housing "affordability" would stay ultra-low, with the affordability index at 16%, about half the rate it stood at from 2016-20.
There's much to worry about, broadly, in lower home affordability ratings for the state of California. That won't directly impact Manhattan Beach, which is already pretty unattainable for most Californians, but you do want to watch for policy responses – ongoing and new – that may come out of legislators trying to address that broader crisis. All state laws do impact us locally, just as we get caught up in the broader trends of what's going on in the market.
