In these uncertain times there is plenty of information and unfortunately, misinformation, about the current state of the housing market. The misleading predictions and status updates about the market apply both here locally in Los Angeles and the country as a whole. Given the potential for ambiguity and confusion, I want to set the record straight and help both current homeowners and future buyers understand the complete picture and what to expect in the days, weeks, and months to come.
First and foremost, don’t let anyone tell you otherwise: we are already in a recession.
The good news? It is absolutely not a housing recession.
I would compare this recession to the one we encountered in 2001. Let me refresh your memory: the stock market bubble burst (but not like we experienced in 2009, that downturn was much more significant), there was a 6.6% increase immediately after that burst, and the Federal Reserve lowered the federal fund rate to 2.5% — the lowest level at the time since 1962. That move allowed buyers to borrow and pay next to nothing.
The bottom line here is simple: Supply vs Demand. The current inventory here in L.A. is below three months. What does that mean exactly? Anything below 6 months of inventory means the housing market is at a healthy level.
Time the Market
If you only have one takeaway from this blog today, let it be this: Time the Market. Understand I am not trying to push buyers to purchase immediately. Whether you buy now or later does not matter to me in the slightest. However, consider 2009, 2010, or 2011. Did it really matter when people purchased? No, because next to no one ever buys and sells in 6 months. If you choose to buy now you will enjoy your home for many years to come. In fact, in a few months the worst of the Coronavirus pandemic will be behind us — and you will fully enjoy the beautiful home you love, which you purchased at an extremely low rate!
Consider for a moment: what if they are wrong? What if prices do go up? What if, as a result of low interest rates, stimulus funds, and low inventory — prices shoot up again? The possibility is real, and I’m hoping you at least see the value in purchasing sooner rather than later.
Last but not least, allow me to address the potential housing dip. If housing does dip, the dip might be a loss of 2%, which means rates shot above 5%. Quite simply, if you waited, your rate would be higher. To make matters worse, you would pay markedly more for your home than what you’re paying now. At the heart of the matter is the current federal funds rate of 0.25%. This is hugely advantageous for home buyers right now.
Take a look at this amortization table (https://www.amortization-calc.com/) Play around with it a bit. A quick example: A loan of $600k at 3.5% will cost a total of $970k in 30 years. Compare that to a rate of 5%, which will cost a total of $1.160k in 30 years. That’s nearly $200k more that you owe!
The Bottom Line
I hope this has been beneficial for you. My goal is to provide the best possible advice for the LA housing market. Most of what you read online applies to the entire country, penned by those who don’t understand the local nature of real estate. The healthy Los Angeles housing market cannot be compared to any other market in our nation — no ifs, ands, or buts about it.
In the end, all buyers and sellers should look at their situation and take action based on their own needs. We at JohnHart mentor our agents on strategy and always stress putting the clients’ needs ahead of anything else. Every situation is unique and decisions should never be based on propaganda.
Surround yourself with people that give you energy and help you navigate through these uncertain times. Never have I seen our world come together the way we have. All 7 billion people right now share a common goal: to rise above it all. I can’t tell you how confident I am that in a few months, because of the way we have come together, we’re going to see things go back to normal. The challenge is to keep moving forward, one foot in front of the other.
If you have any questions or concerns, please don’t hesitate to reach out to me. I am here to help.