Lower Ranges Fading Away

The lower, entry-level price ranges have been slowly disappearing with far fewer closed sales and homeowners choosing not to sell their homes.

Entry Level Changes

There were an astonishing 44% fewer closed sales and 51% fewer FOR-SALE signs below $1 million this year compared to before COVID.

Thanks to inflation, everyone is paying a lot more for just about everything. From 2019, pre-pandemic, to today, a loaf of bread has increased by 55%. Milk has risen by 31%, ground beef by 34%, and potato chips and a 2-liter soda have soared by 48%. Used cars are up 41%. A Big Mac was priced at $3.79 in 2019 compared to $5.17 today. Wallets have been squeezed. While the inflation rate may be cooling, higher prices are here to stay.

Housing is no exception. According to Freddie Mac’s Home Price Index, since the summer of 2019, the Los Angeles/Orange County metro has increased by 40%. As home prices climbed, what was considered the entry-level to homeownership slowly diminished over time.

Looking at 2013 helps illustrate how the goalposts have been moved for the lower ranges. In 2013, 61% of all closed sales were below $500,000, and 25,752 were detached. In 2019, only 29% were below $500,000, and 9,592 were detached. In 2023 through July, it sank to 3,366, and 1,442 were detached. Buyers today have low expectations in securing a detached home for less than half a million dollars. That price point has faded away.

The data illustrates just how severe the shortage of lower-range homes has become. In 2023, through July, 77% fewer homes were placed on the market below $500,000 compared to the 3-year average before COVID. There were 48% fewer between $500,000 and $750,000. From $750,000 to $1 million, 3% fewer homeowners opted to sell. In total, below $1 million, there have been 21,651 missing FOR-SALE signs. Overall, in Los Angeles County, 36% fewer homes have been placed on the market. Yet above $1 million, there were 6% more sellers, an extra 843. Due to fewer sellers in the lower ranges, the active listing inventory has plunged to unprecedented ultra-low levels, 8,072 homes, the lowest mid-August reading since tracking began in 2012.

More sales in the higher ranges and fewer sales in the lower ranges demonstrate how rising home values have impacted the Los Angeles County housing market. More and more homes have appreciated above and beyond $750,000. Before COVID, 66% of all closed sales were below $750,000. In 2023 it dropped to 41%. Before the pandemic, below $500,000 accounted for 34% of sales, and the $750,000 to $1 million range accounted for 14%. Today, only 12% of sales are below $500,000, and 23% are from $750,000 to $1 million.

The erosion of home affordability has gone on for years. This trend will continue as long as the inventory remains severely limited, allowing home values to grow despite today’s sky-high mortgage rate environment.

For buyers anticipating more homes in the affordable price ranges coming on the market soon, it is simply not in the cards. The number of opportunities diminishes over time. Buyers who wait will be confronted with fewer available options to purchase. More and more homes are surpassing the $750,000. In 2013, there were 35,032 detached single-family home sales below $750,000, 78% of all detached closed sales, compared to 26,125 in 2019, or 61%. There have only been 5,407, or 37% of all closings through July of this year.

The lack of homes available in the lower ranges combined with fewer homes placed on the market has resulted in extremely hot market times for all homes priced below $1 million. The Expected Market Time, the time between initially listing a home to accepting a contract, is at 46 days, insanely hot. At 46 days, most homes acquire plenty of attention with throngs of showings, multiple offers, and sales prices at or above their asking prices. It is challenging to isolate a home in the entry-level price ranges today. Yet, as homes continue to appreciate, it will only become more challenging in the future since the lower ranges are slowly fading away.

SOUTHERN CA HOUSING