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ECONOMIC OVERVIEW
The counties covered by this report—Los Angeles, San Diego, San Bernardino, Orange, and Riverside—added 130,300 new jobs between November 2016 and November 2017. As a result, the unemployment rate dropped from 4.7% to 3.8%. Employment growth in Southern California picked up a bit as we moved through the final quarter of last year, and I expect this to continue as we move into 2018.
HOME SALES ACTIVITY
There were 45,342 home sales in the final quarter of 2017. This was 2.4% lower than the same period in 2016.- The number of homes for sale remains well below the levels seen a year ago (-18.1%), and down 14.8% from the third quarter of 2017. However, I attribute this to seasonality.
- Home sales were a mixed bag, with ongoing increases in San Bernardino County, but a drop in sales in all other counties contained in this report. This mirrors a trend seen over the past three quarters that can clearly be attributed to woefully low levels of inventory.
- There was an average of 29,623 active listings in the fourth quarter, well below what is needed for a balanced market.
HOME PRICES
- Year-over-year, average prices in the region rose by 6.5%, but are only 0.1% higher than the third quarter of 2017.
- Home prices in the region keep rising, but the pace of growth is slowing. This is not a concern for now because it is likely due to an ongoing lack of affordability. Home prices cannot continue to appreciate at the rates they have been in recent years, so I expect to see an ongoing slowdown in appreciation. That said, I believe prices will continue to rise for the foreseeable future.
- Orange County had the greatest annual appreciation in home values (+8.5%) but there were solid price increases across the rest of the region.
- Pending home sales rose by 4.1% compared to a year ago, which is an indication that closings in the first quarter of 2018 are likely to be fairly robust. Demand for homes in the coming year will remain positive but, with limited inventory in the markets, demand is likely to outstrip supply.
DAYS ON MARKET
- The average time it took to sell a home in the region was 43 days. This is a drop of 11 days compared to the fourth quarter of 2016, but five days longer than the third quarter of 2017.
- The biggest drop in the number of days it took to sell a home was in Orange County, where it took 18 fewer days to sell a home than in the same period last year.
- Homes in San Diego County continue to sell at a faster rate than other markets in the region. In the fourth quarter, it took an average of just 29 days to sell a home, which is five fewer days than a year ago.
- All five counties saw a drop in the amount of time it took to sell a home between the fourth quarter of 2016 and the fourth quarter of 2017.
CONCLUSIONS
The speedometer reflects the state of the region’s housing market using housing inventory, price gains, home sales, interest rates, and larger economic factors.
Southern California continues to add new households and job formation remains positive, which intensifies the demand for housing. Mortgage rates remain very favorable and low inventory is driving prices higher as demand exceeds supply. The number of homes for sale in the region is still well below the levels needed for a balanced market. Given all of these factors, I have moved the needle a little more in favor of sellers.
Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has more than 30 years of professional experience both in the U.S. and U.K.
