Welcome to July's Monthly Market Report. We are moving into the year's second half and taking stock of how the market has fared. The good news is that despite many gloomy forecasts from early January, residential real estate markets have returned toward more typical seasonal trends as buyer demand has improved. While challenges remain for today's buyers and would-be sellers, the data has hope and growth. Importantly, as we go through the latest numbers, remember that consumers today come to market with great research and are looking to you for validation and confidence that they are making the right decision. With that in mind, let's look at the numbers closer.

It is important to remember what a challenging last three years we have lived through, both on the personal health and economic front, but also from the standpoint of the real estate market. We have lived through an unprecedented period fraught with uncertainty and challenges. However, we are now seeing signs of normalization in the market.

Here are the top good news:

Housing is normalizing after two unprecedented pandemic years. Normalization shows up in demand, prices, and a return to seasonality.
Prices are rebounding, reflecting a more stable market. This should offer confidence to homeowners who have been hesitant to sell.
Buyer demand is returning to the market after a period of decline in 2022. Americans are showing a strong desire to buy a home, driven by life changes and a desire to move on from the challenges of the pandemic.
Buyers are coming to the market with stronger financial shape, higher credit scores, and a willingness to accept higher mortgage rates as the new normal.
New construction is growing, offering more options for buyers and sellers. This is particularly important to address the limited supply of existing homes and improve affordability.

However, there are still challenges to be aware of:

Supply remains constrained, limiting options for homeowners looking to trade up or downsize. This, coupled with higher mortgage rates, is making affordability a primary challenge for many.
The number of new listings coming to the market is still declining, indicating that homeowners who want to sell or downsize are concerned about the interest rates and don’t understand the current market conditions.
Affordability remains a concern for many buyers as prices rebound and mortgage rates remain relatively high.

Despite these challenges, the outlook is positive:

Home prices continue to show stronger growth than expected, indicating the strength of demographic-related demand.
Builders recognize the supply shortage and ramp up production, offering more options for buyers and sellers.
Housing is expected to support the economy, providing opportunities for real estate professionals.

According to a recent Freddie Mac survey of buyers and sellers, 18% of Americans expressed their intention to purchase a home within the next six months, a significant increase from the average of 8% to 10% before the pandemic. This surge reflects a strong desire for stability, personal growth, and a fresh start after the past year's challenges, underscoring individuals' confidence and determination to secure their homes.

As for home sellers, 16% of surveyed May homeowners expressed their likelihood of selling their homes within the next six months. These figures are strong indicators of a market steadily reverting to a more typical seasonal pattern while gaining momentum in overall activity.

Supply is Constraint

Existing home sales are experiencing a notable decline due to the current supply being approximately half of what it was in 2019. From 2011 to 2019, the average month's supply of inventory was around five months, indicating a balanced market. As of May 2023, we are currently at a three-month supply, an improvement from the unprecedented levels seen during the pandemic. However, we still need to catch up to what would be considered a balanced market.

Buyers in different markets have varying options available to them. One notable change is that homes for sale stay on the market longer, giving buyers more time to consider their options and make preparations. This is generally positive for the real estate market. However, it's important to note that the current inventory levels are still lower than those in 2017, 2018, and 2019. When compared to the pre-pandemic period, the number of properties available for sale nationwide is still lower.

According to Realtor.com, the number of newly listed homes for sale in June decreased by 25.7% compared to last year. Additionally, new listings remained nearly 28% below the levels seen before the pandemic. This data highlights an interesting trend. This year, the pace of new home listings is 16.4% lower than in the first half of 2020, when the real estate market was still dealing with pandemic-related closures, restrictions, and uncertainties.

Tom Barkin, President of the Federal Reserve Bank of Richmond, admitted that he underestimated the significant impact of fluctuating interest rates in the past year on homeowners' reluctance to sell their houses. This observation highlights a common trend where homeowners often seek to upgrade their homes or downsize as they approach retirement. Unfortunately, the recent rise in mortgage rates has further complicated their decision-making process, presenting them with additional obstacles.

Home Buyer Qualifications Is Strong

The housing market is experiencing a positive shift as credit scores for mortgage applicants reach new heights. According to the New York Fed, the median credit score for mortgage applicants now stands at an impressive 765. This upward trend signifies a promising future for the housing market, demonstrating a departure from the loose lending practices that contributed to the housing crash 2008.

What is Happening in Los Angeles?

Rocker Mortgage reports that homes in Los Angeles have seen a slight decrease of 0.7% in their selling prices compared to a year ago. However, if you're looking to purchase a home in Los Angeles, there is a possibility of paying more than the asking price, as 50.2% of homes sold last month were above the listed price. In terms of sales timeline, 1,137 homes were sold in under 30 days, 325 homes were sold within 30-90 days, and 115 homes took over 90 days to sell. Inventory also is challenging in the Los Angeles market.

In conclusion, while the real estate market has faced challenges in recent years, there are positive signs of normalization and growth. Buyers are returning to the market, prices are rebounding, and new construction offers more options. As a real estate professional, it is important to stay informed about market trends, provide guidance to buyers and sellers, and build confidence in their decision-making process.

July Real Estate Report