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Strong Q2 South Bay Home Results but is the Market Leveling-Off?

Richard Haynes
Strong Q2 South Bay Home Results but is the Market Leveling-Off

What an exciting time in the real estate market!

For real estate nerds like me, I love to study the quarterly numbers – even more so when the market is shifting to help find clues within our South Bay home marketplace.

The market sentiment was so different in Q1 compared to the recent conclusion of Q2. Additionally in this short time period, we saw 30-year fixed mortgage rates at 3.22% to start Q1 and rates now stand at 5.7% to end Q2. It feels like a completely different world.

If you want to reference the 2022 Q1 blog post from early April, see it here: “Scorching Hot Q1 South Bay Home Numbers to Start 2022”

Some of the numbers you will see below have some strange movements due to the market shift. I believe median prices and inventories remain key indicators, whereas closed sales at this point do not give us the right context due to limited supply (not necessarily a softer market).

Last quarter, I mentioned we might use trailing 12-month data to smooth out numbers, but I have opted not to utilize that information just yet as it would take us into some earlier pandemic days.

Without further ado, let’s get started with the 2022 Q2 results.

Manhattan Beach

In the previous quarter, Manhattan Beach had anemic growth of just 0.8% year-over-year, but I noted it was a small blip because prices were likely constrained by low inventory. The luxury beach city is back with very solid growth up over 8% from just a year ago.

Look at median prices for Manhattan Beach homes:

Manhattan Beach had been on fire in 2021, so to see the price gains with low inventory, slower sales, and higher-priced listings beginning to sit on the market, these numbers show strength in the Manhattan Beach home marketplace.

While sales are dropping which normally suggests weakness, I still believe low inventory is to blame. Look at closed sales below:

Inventory has been rising since the start of the year, but it is still lower than the previous year which you will see below. That is saying something!

Perhaps lower sales is an early indicator, but we need to see more data in the coming quarters before coming to a conclusion.

Palos Verdes Peninsula

Palos Verdes real estate has really had an amazing two years for prices. That said, the meteoric growth in prices seems to be leveling off this quarter. The Palos Verdes market is split this quarter and I’ll dive deeper after you see the numbers.

Below are 2022 Q2 prices vs. 2021 Q2 prices:

Palos Verdes Estates is still seeing strong price growth with its median price up 25.7% year-over-year. The percentage jump is not as strong as last quarter and the median price is lower, but Palos Verdes Estates really shows few signs of slowing down.

The Rolling Hills Estates market seems to be acting up in whacky ways and might need bigger chunks of data, like Rolling Hills, to truly gauge what is going on. Rolling Hills Estates was down a surprising 9.4% when just last quarter it was up 87.6%. To put that into context, the median price last quarter was $2.7 million compared to just about $1.5 million this quarter. I believe the Rolling Hills Country Club development and smaller condos amid light sales are giving us volatile numbers.

Rancho Palos Verdes, up against record comparables from the previous Q2 in 2021, still managed to be higher – albeit only by 7.7%, but that is incredible considering its performance in 2021.

Finally, “behind the gates” in Rolling Hills is down 10.3% on median price. This makes for back-to-back quarters on declining prices for the best performing submarket during the Coronavirus surge. Perhaps there are signs of a top in Rolling Hills, but the massive gains over two years can cushion weakness – if there even is weakness.

Now onto closed sale in Palos Verdes:

Sales are down throughout the entire Hill and it is a continued trend from last quarter with the exception of Rolling Hills Estates. Low inventory is still mostly the culprit, but if it continues, then it could be something noteworthy in future quarters.

Hermosa Beach

The small city of Hermosa Beach is as steady as they come.

Every quarter, I find myself saying that Hermosa is up nicely. It feels like Hermosa is up between 5% and 10% every single quarter. It is really an amazing story throughout stay-at-home orders and over the past two-year growth surge.

Sales are down, yet again, mostly due to low inventory. We will continue to watch.

Redondo Beach

Redondo Beach had a very strong quarter despite some of the weaker inventory data you will see later on in the blog.

Below are median prices year-over-year:

Despite rising interest rates, which will affect entry-level buyers in affordable North Redondo, the city had a double-digit rise in median price. There were some difficult comps to beat, and Redondo’s home market passed the test with flying colors.

Now onto closed sales for Redondo:

Sales are down in Redondo, much like every city. That said, you will see that inventory levels in Redondo might be the one pocket of concern, or at least the weakest compared to the other cities we cover in the blog. So lower sales will be a big deal next quarter if it continues here.

Home Inventory Numbers

I started a section dedicated to home inventory…aka how many homes are on the market for sale. The reason is to potentially spot a slowing market where buyers might have negotiating power again. This will only happen if historically low inventory begins to rise back to normal levels.

Nationally, there are rising inventories in other markets. Sure, we are seeing rising inventories in our South Bay home market, but they are still at lower levels than 2021.

I still believe year-over-year numbers are most helpful in reading whether our markets are set to cool, however, I will comment on short-term inventory levels after the year-over-year numbers below.

Look at the active listings data:

Manhattan Beach Active Listings: DOWN -23.9%

Palos Verdes Estates Active Listings: DOWN -11.1%

Rancho Palos Verdes Active Listings: DOWN -5.5%

Rolling Hills Estates Active Listings: UP +64.3%

Rolling Hills Active Listings: DOWN -40.0%

Hermosa Beach Active Listings: DOWN -26.2%

Redondo Beach Active Listings: DOWN -2.6%

All in all, you can see there are fewer homes for sale across the South Bay home marketplace except for Rolling Hills Estates, a small market with volatile swings using small datasets.

Most markets are still lower on inventory in a strong way – Redondo Beach seeing inventory almost match 2021 numbers, which I see as the only area of weakness now, and Rancho Palos Verdes perhaps second behind them if you are looking for weakness.

Inventory does not need to just match 2021, it needs to be higher than 2021 for buyers to truly take back negotiating power. That can happen, and, rather quickly. It is just not there yet.

I want to touch on short-term inventory levels which are rising sequentially just about every month. The cities we cover here saw their inventory levels bottom between December 2021 and February 2022 – since The Fed put pressure on the economy with the threat of higher rates, every market has seen its homes for sale rise from the low points at the beginning of the year.

This is noteworthy. If homes for sale continue to rise every month, they will start exceeding 2021. Additionally, we now have anecdotal evidence (if you have read recent blogs) that sellers are seeing two to three offers instead of five to eight offers. And of course, overpriced homes are now sitting with many cutting their prices to get back to realistic asking prices.

Inventory is still lower year-over-year, which makes it tough to argue the market is soft, but depending on which city you study, inventory has risen since January consistently which could be a very early sign of our markets leveling off.

Conclusion

The South Bay real estate market has had an incredible two-year run, and quite frankly, the growth in prices this quarter continues that run throughout our local home market.

Prices are still higher up against tough comps, and inventory levels remain lower than last year, despite higher interest rates.

That said, short-term inventory growth, fewer offers, and rising rates might take a couple of quarters to show up in the data. A slowing market is showing up anecdotally and the numbers could confirm that in Q3 or Q4 of 2022.

Will it be a “summer swoon” for the South Bay home market or a “hot, hot summer?”

I’ll be sure to watch it for you as always and report three months from now.

See you next week.

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