A number of people have asked me what I think is going to happen to the Southern California housing market in light of high interest rates, shortages of inventory and now the fallout from one of the nation’s most costly disasters.  If only I had a crystal ball… However, given the interest in my perspective I’ll dig into some of the information we know and from there share some likelihoods.

5143 Bakman Ave #208 – For Sale

First let’s look at inventory, the supply and demand equation and then we’ll look at it in the context of the pre-fire landscape.  Going into the year, inventory locally was up marginally over the previous January.  Sales were actually up at the end of 2024 and total sales eclipsed 2023, which is pretty surprising given most agents say 2024 was their worst year ever.  This I believe is largely explained by the decline in rates at the end of the 3^rd quarter.  This led to a mini boom and a whole bunch of homes sold, and pre-approval letters were issued.  By the end of 2024 however, those rate declines had not only retreated, they jumped upwards.  Despite 4 cuts equal to a 1% point in the Fed’s overnight rate, the 10-year treasury bond moved in the opposite direction.  So where in September the pre-cut 10-year bond was trading at 3.5%, by January it had risen to 4.79%.  The retail reality created was a 30-year mortgage that went from high 5%/low 6% to 7.5%.  This threw cold water on whatever hot market we had going into the 4^th quarter.  The result is one of the things we are trying to understand.  It’s like water flowing uphill.  How does the Fed cut 1% but the bond yields increase by 1.25%?  While I can only speculate, my best guess is that because the Federal government printed so much cash during the pandemic, the deficit ballooned and there are just too many bonds being sold by the treasury for the number of buyers.  Moreover, with Quantitative Tightening making the Federal Reserve a net seller rather than a net buyer, demand was eroded even further.  Looking forward, however, I am optimistic that the inflation data will continue to come down albeit more slowly than we might hope.  This in turn will bring the rates down, which is desperately needed. [Contact Tim here]

The Fires… I am already receiving calls from agents looking for certain types of homes for buyers who’ve lost their homes in the fires.  Like before the fire, attention will likely be focused on turn-key homes since the victims will have plenty of repairs and updates ahead of them rebuilding their burned-down homes.  This group of buyers will probably be fairly small in number, when compared to the total of lost homes.  However, the number will be significant enough given the affluence of The Palisades and Malibu victims, to put additional pressure on the spring market inventory.  This will push prices higher by some measure. 

Should you consider selling your home now as a result?  Provided you know where you’re relocating to, why not [Find out what your home is worth here]?  Spring has traditionally been the strongest market for sellers and coupled with the added pressure on inventory, there is an opportunity to capitalize on.

What about rentals?  We are already seeing the gross gouging that disasters can bring out.  This week brought rents like $9,600 for a furnished 1,900 SF 4/2, several at $10,900 for 2,200 SF and even a couple 4,500 SF homes upwards of $28,000/Mo!  I’ve seen even higher for some super luxury homes.  All I can say to that is, resist the temptation to cash in on other’s misfortunes.  Sure, it costs to furnish a home.  For example, if I was staging a 4,000 SF home it would cost me $7,500/mo.  So, adding for that is fair as is respecting market dynamics. Perhaps if you are going to rent your fully furnished home, offer it for less and should the market bring multiple offers, then let the market dictate market value.

Finally, it’s fairly obvious that this is going to take a long time to recover from.  Even with insurance paying $ Billions, the cost to rebuild, the where with all to rebuild, is going to be more than anyone can imagine.  My friend lost his home and was then offered less than wholesale for rebuilding costs by his insurance company.  Some will have the resources to rebuild but many will not, and they will sell for what they can.  It’s going to be tough so be kind whenever and wherever possible because rents and prices will probably go up due to this unprecedented catastrophe and we with roofs over our head need not make the suffering worse.