Is this a sign that the market is shifting toward buyers?
Home prices in Los Angeles County have never been higher, but there are signs the local real estate market may be getting slightly more buyer-friendly, according to a new report from Trulia.
The report finds that 16.5 percent of homes for sale in LA during the month of August were listed with a price cut.
That may not seem like very many, but according to Trulia it’s the largest percentage of homes with price reductions since 2011, when the company began tracking this statistic.
It’s also a sizable increase over August 2017, when prices had been reduced on 12.1 percent of homes listed in LA.
The median reduction in August 2018 was 2.5 percent of the home’s prior asking price. Based on the median home price given in the report ($612,809), that amounts to a roughly $15,000 discount.
Some areas have more price cuts than others. By Trulia’s calculation, prices had been reduced on more than 20 percent of listed homes in parts of Calabasas and Malibu during the month of August. In Southeast LA, on the other hand, prices had been reduced on only 5 percent of homes.
Price reductions aren’t only affecting neighborhoods filled with luxury housing. In Pico Union, for instance, 15 percent of listed homes were advertised with a reduced price in August—up from 5.3 percent a year before.
As the report notes, price reductions are a key indicator that the market is shifting away from conditions that benefit sellers, as opposed to buyers.
Since sellers typically only cut prices when homes aren’t attracting much buyer interest, those who make offers on these houses often have less competition from rival buyers and more ability to negotiate on the final purchase price.
Leslie Appleton-Young, chief economist for the California Association of Realtors, confirms that a “shift” is taking place in LA’s real estate market—though it’s not clear yet how it will affect sales in coming months.
On the one hand, Appleton-Young says, the number of homes on the market has increased recently, giving buyers more options to choose from. But prices are high enough that many home shoppers are abandoning their searches.
A recent report from Attom Data Solutions found that housing affordability in LA is at a 10-year low, factoring in rising mortgage interest rates that are driving up monthly payments.
Increased supply and lower demand is usually a formula for lower prices, but Appleton-Young explains that buyers undeterred by rising mortgages are still willing to shell out for quality homes.
“We’re seeing that older millennials and dual income couples aren’t willing to settle for a fixer-upper,” she says. “They are paying what we call a ‘pinterest premium’ for a home that looks great already.”
For now, home values continue to climb.
“I wouldn’t call it a buyer’s market yet,” says Appleton-Young. “But it is certainly less of a seller’s market than it has been lately.”