As mentioned in our 2022 Local Real Estate Review in January, although home prices remained stable, sales volume declined considerably compared to the first six months of last year and the previous year (2021). This was primarily due to a slowing economy, inflationary concerns, and the average 30-year fixed rate mortgage climbing from below 3.25% for much of 2021 to 5.78% in mid-June (2022). We concluded with the following observations for 2023: “Housing supply remains tight in the Greater South Bay. While sales volume is expected to continue to soften, housing prices in our local market should remain relatively stable to down slightly as long as people have jobs, the unemployment rate does not increase significantly, and inventory remains low.”
We’re nearly halfway through 2023, and the residential SFR market is trending in line with what we anticipated. Based on local MLS statistics (through mid-April), there were 70 homes sold in San Pedro, down from 92 homes sold during the same period in 2022. The average sales price during this period was $874,000, compared to $920,000 during the same period last year. Average Days on Market (DOM) increased to 25 days, up from 9 days the previous year. In neighboring RPV, there were 74 homes sold in 2023 compared to 104 last year during this same period. The average sales price was $1,668M through mid-April of this year, compared to $1,915M last year. DOM increased by 10 days this year. In the Greater South Bay, there were 754 SFR sales thru mid-April of this year compared to 1,050 sales in 2022. The average sales price during this same period was $1M compared to $1,153M last year. DOM also increased by approximately 11 days in 2023.
It’s evident that sales have slowed, with home values softening to some extent this year. However, the market has remained mostly stable due primarily to the ongoing lack of inventory in the South Bay. We believe limited inventory will remain a constant theme for the remainder of 2023 as long as the job market holds strong and consumers are employed.
Mortgage rates will be an important factor during the next six to eight months and something to keep an eye on. According to Freddie Mac, a leading source of financing for mortgages in the United States, the average 30-year fixed-rate mortgage in the U.S. was 6.27% (as of 4/13/23).
One of our local residential lender partners, Michael Mannino of California Coastal Loans, offered this insight: “When it comes to interest rates, inflation is the arch enemy of mortgages because it erodes the buying power of future fixed monthly payments. If inflation is rising, investors demand a higher rate of return to combat that, causing interest rates to rise like we saw throughout much of last year. The tide has started to turn in our favor recently. We received some positive news regarding inflation last month, with the Consumer Price Index (CPI) declining a whole point year over year from 6% to 5%. That should relieve some pressure on the Federal Reserve when it comes to their pace of interest rate hikes. The outlook for the remainder of 2023 is that mortgage rates will improve, especially if the Fed meeting in May leaves the markets believing the Fed will be forced to stop hiking rates after one final shot. Any drop in mortgage rates should help support home values, especially given the lack of current inventory.”
While some economists maintain a tempered outlook for U.S. and California real estate, we remain optimistic regarding our somewhat insulated local market. With the spring and summer months upon us, we expect to see an uptick in South Bay home sales activity. A stable job market and the possibility of lower mortgage rates in the second half of 2023 should only help our local market for the remainder of the year. spt