The hottest topics in residential real estate are high mortgage rates and low home inventory levels. Many pundits predicted falling mortgage rates and rising inventory as major themes of 2024.
Some saying, for example:
“How could interest rates possibly go higher? And low inventory cannot possibly stick around for this long, can it?”
With the fresh Q1 statistics tabulated, those professional forecasts will have to wait until future quarters to see if their prophecies will come true. For now, it seems low inventory and high mortgage rates are here to stay.
Mortgage Data – St. Louis FRED
The St. Louis FRED economic data, provided by the St. Louis Federal Reserve, has wonderful historical numbers on the 30-year fixed mortgage going back to 1971.
For the purposes of this post, we only need to go back about a year. But if you want to nerd out with some fun charts, then check their website for over 50 years of historical data.
To refresh your memory, at the end of 2023 we saw the average 30-year fixed mortgage rate in the United States at 6.61%.
As of today’s writing, the St. Louis FRED website reports 30-year fixed rates at 6.88%.
It has been a slow march higher throughout the course of the year, and higher by about ¼ of a percentage point since I last reported on it in January.
Mortgage rates are still down from their peak when they touched 7.79% in October of 2023. That said, home borrowing rates are dangerously close to 7% and that really does not feel so good.
What’s more, Fed Chair, Jerome Powell, on Tuesday said:
“We’ve said at the [Federal Open Market Committee] that we’ll need greater confidence that inflation is moving sustainably towards 2% before [it will be] appropriate to ease policy. The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence.”
This means higher rates for longer and lowers the probably of rate cuts in 2024. Woof.
South Bay Q1 Home Inventory Levels
Now let’s get into home inventory levels from the beach to Palos Verdes.
The lack of listings on the MLS is the #1 reason for price strength in our South Bay market. Too few homes to satisfy demand.
Let’s explore home inventory (listings) in the 1st quarter. Below I have pulled the rolling three-month average, compared to the same quarter of last year:
Manhattan Beach Inventory – Down 3.8%
- Q1 2024: 77 Listings
- Q1 2023: 80 Listings
Palos Verdes Estates Inventory – Up 34.5%
- Q1 2024: 39 Listings
- Q1 2023: 29 Listings
Redondo Beach Inventory – Down 1.1%
- Q1 2024: 90 Listings
- Q1 2023: 91 Listings
Rancho Palos Verdes – Up 28.1%
- Q1 2024: 73 Listings
- Q1 2023: 57 Listings
Rolling Hills Estates Inventory – Down 12.5%
- Q1 2024: 14 Listings
- Q1 2023: 16 Listings
Hermosa Beach Inventory – Down 14.0%
- Q1 2024: 37 Listings
- Q1 2023: 43 Listings
Rolling Hills Inventory – Down 11.1%
- Q1 2024: 8 Listings
- Q1 2023: 9 Listings
Five of the seven cities have lower inventory levels year-over-year in Q1.
The two marketplaces that saw inventory rise, and rise significantly, were Palos Verdes Estates and Rancho Palos Verdes. Both cities are well-known as marketplaces that experienced strong demand during the pandemic, and now see that inventory growing.
If you zoom out historically, Rancho Palos Verdes has higher levels of home inventory from last year, however, over the long-term when eliminating the pandemic years, inventory has never been lower. So don’t let the one-year numbers mislead you as home listings are still excruciatingly low on much of The Hill.
When it comes to the beach, Manhattan Beach saw its for sale listings drop. This city is its own anomaly as Manhattan Beach has seen lower inventory levels in its history both during the pandemic and well before the pandemic. All in all, inventory is low here, lower than last year, and squeezed especially for median-priced homes.
Hermosa Beach and Redondo Beach saw their home inventory fall in Q1 which only makes the low inventory levels across the Beach Cities even worse. Again, both markets are not at historic lows, but the options are still very tight for buyers.
In conclusion, many experts (and as a result Realtors, buyers, etc.) believed home inventory would begin to climb in 2024 to allow for more home options and closed transactions. Instead, inventory is down in five of seven cities and the supply squeeze reminiscent of last year with little change.
Final Thoughts
The conclusion here is simple: home inventory is lower and mortgage rates are back to trending higher.
It makes for a tough marketplace, both for buyers and sellers.
Unless we see a reversal in these trends, home affordability will deteriorate and we will see median prices continue to hold their records, if not rise throughout 2024.
Mortgage rates fell from 7.79% in October on the belief that six rate cuts would come from the Federal Reserve. It looks more and more like there will be zero cuts, and perhaps just one cut. Are we on our way back to almost 8% rates? I sure hope not.
As rates stay high, the more incentive sellers have to keep their properties with low, fixed interest rates. Further, many buyers will continue to be priced out due to the lack of affordability.
With spring break behind the South Bay and spring selling season supposed to be in full swing, the Q1 data is a tough pill to swallow for many, including myself!
Let’s hope for a reversal of fortunes.
A little more inventory and a softening of mortgage rates would go a long way in keeping our local South Bay home market healthy.
Richard Haynes
DRE: 01779425
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The Richard Haynes Real Estate ShowA leader in South Bay real estate for the better part of a decade, Richard thrives as an advisor to his clients with over $248 million in sales as a broker or investment principal at his boutique agency, Haynes. Richard is known for his keen local market insights which have been featured in the L.A. Times, The Street, and Forbes, along with his weekly South Bay real estate blog. [read more]