To put it simply, 2021 was an interesting year in the world of real estate. With the coronavirus pandemic in full force, interest rates at record lows, and limited inventory, 2021 was a challenging year for buyers looking to purchase homes. Sellers, on the other hand, enjoyed rising prices. With the Fed indicating that it will raise the target interest rate in 2022 in response to inflation, it will be interesting to see whether 2022 brings a slight cooling to the extremely hot real estate market. In this article, we summarize the Los Angeles real estate market’s performance in 2021, and we provide our insights into our 2022 real estate predictions.
Recap Of The 2021 Los Angeles Real Estate Market
Low inventory, low interest rates, and high demand is the story of 2021. That story is backed by the data shown below. These factors resulted in continuing increasing prices in the Los Angeles market.
Demand has always been high for real estate in Los Angeles, and so it is no surprise that demand has regularly exceeded supply. However, since the coronavirus pandemic began in approximately March of 2020, supply has dropped substantially. In prior years, the volume of single family homes available for sale typically reached 20,000 during the summer months. 2020 saw that high drop down to approximately 16,000. The drop was even more drastic in 2021 when the high dropped below 15,000, and reached a recent record low of less than 10,000 in December of 2021. This represents a 25% drop in supply below “normal” levels.
Single Family Homes For Sale
Meanwhile, demand for homes remained high, and in fact exceeded demand in prior years. Demand reached its typical seasonal peak in June-July of 2021. While demand typically tapers off after the summer months, 2021 saw relatively consistent high demand through the winter months. The graph below depicts the number of closed sales remained relatively consistent, particularly in comparison to prior years, from the summer of 2021 through the winter.
Single Family Home Closed Sales
As a result, when homes became available for sale, they tended to sell relatively quickly. The graph below depicts the median number of days a single family home sat on the market before it sold. Since the coronavirus pandemic began, the median number of days on the market has dropped to about 10 days, about half of what it was at its lowest before the pandemic.
Single Family Home Days On Market
The continuing high demand is attributable to numerous factors, not the least of which is record-low interest rates, thereby giving buyers more buying power. Although interest rates hit their lowest in December of 2020, the lows continued steadily through 2021. In fact, the average interest rate on a 30-year fixed mortgage in 2020 was 3.11, whereas that annual average dropped down to 2.96 in 2021.
Average 30-Year Fixed Mortgage Interest Rate
As a result of these factors, real estate prices rose substantially in 2021 to new highs. Whereas years prior to 2020 have shown relatively predictable seasonable fluctuations, with prices rising in the summer and declining in the winter, 2021 was interesting insofar as prices remained steady during the winter and even continued to rise in December.
Single Family Home Median Sale Price
What Others Are Saying About 2022 Real Estate Predictions
As with prior years, we first look to what others are saying about what the real estate market holds for 2022. The following is a sample of 2022 real estate predictions from some well-established publications and real estate organizations:
• Zillow is anticipating an 11% increase in home prices in 2022.
• Realtor.com is predicting a rise in the median sale price of existing homes by 2.9% in 2022.
• Redfin predicts rising interest rates, and annual price growth of around 3% in 2022.
• National Association of Realtors Chief Economist Lawrence Yun predicts 2022’s performance will not exceed 2021, with more inventory and higher interest rates.
Esquire Real Estate Brokerage’s 2022 Real Estate Predictions For The Los Angeles Market
Our 2022 real estate predictions are generally in alignment with other experts. With the Fed expected to raise the target interest rate three times in 2022, we anticipate a slight rise in mortgage interest rates. This rise will decrease buying power, which will both decrease demand as well as the ability of buyers to afford high prices. We further anticipate that as homeowners become increasingly comfortable with living and operating in the covid environment, homeowners will be more comfortable with putting their homes on the market, likely leading to at least a slight increase in inventory. In short, 2022 will likely see continuing rising prices, but at a slower, more stable rate than 2021.
If you would like to further discuss Esquire Real Estate Brokerage’s 2022 real estate predictions and how we can help you in the Southern California real estate market, feel free to give us a call at 213-973-9439 or send us an email at firstname.lastname@example.org.