Market Insights: Supply, Demand, and Rates

The real estate market in Southern California is a multifaceted area, affected by a variety of factors including supply and demand, interest rates, and insurance considerations. Here’s a closer look at the current state of the market, focusing on these three key elements.

In Southern California, the market is characterized by low supply and high demand, particularly for entry-level properties such as three-bedroom, two-bath houses, and even two-bedroom houses priced up to about $1.5 million. These high-demand properties in good locations can still attract a large number of offers. For instance, it’s not uncommon to see properties receiving over 30 offers.

However, this isn’t uniform across the region. In areas like Tarzana and Studio City, there are pockets where supply is high and demand is low, resulting in fewer offers and longer times on the market. The historical absorption rate—how quickly properties are sold—helps gauge market conditions. Typically, six months of inventory indicates a balanced market, with more than six months shifting to a buyer’s market. Currently, most parts of Los Angeles remain a strong seller’s market, but variations exist depending on location and school districts.

Interest rates have a significant impact on the housing market. Historically, since 1972, the average interest rate has been 7.74%. Comparatively, from 1990 to 2003, the average was around 5.98%. Today’s rates are not far off from these historical averages. Many homeowners are hesitant to sell properties purchased with low rates, which can contribute to a tighter market. Research indicates that a rate of around 5.5% might prompt more sellers to enter the market, despite the pain of higher rates.

Insurance is becoming a need in the real estate market, particularly for properties in fire zones or areas prone to natural disasters. Reconstruction costs have risen by about 40% since 2020, and reinsurance costs increased by 37% in 2023. Moreover, the United States has experienced above-average extreme weather conditions in nine of the last ten years, further driving up insurance rates. Ensuring that a property can be insured at a reasonable cost is more important than ever for buyers and sellers alike.

The Southern California real estate market is interesting, with conditions varying significantly by location and property type. While high-demand areas see fierce competition, other pockets experience slower activity. Interest rates remain a factor, influencing both buyer and seller behavior. Lastly, rising insurance costs add another layer of complexity to market dynamics. Each property is unique, and understanding these factors is key to understanding the current market. For more advice, you may consult with us by giving us a call or an email.