Yesterday, we wrote about how the low inventory of homes for sale, combined with historically low mortgage rates, has created the current highly competitive real estate market in the Larchmont-Hancock Park area. A brokers’ open house yesterday attracted more than 79 realtors to a newly listed house in the Sycamore Square neighborhood, just south of Wilshire. More than 95 brokers visited an open house in Hancock Park.
A recent article in the Los Angeles Times noted the same is true for the entire Southern California region. Last year there was a 5.2 month supply of homes on the market in Los Angeles County, according to the Times. This year the number has dropped to 4.9. In Larchmont-Hancock Park, the supply is just 2 months, according to Anne Loveland, Loveland Carr Properties.
“Year to date, in the neighborhood, 22 single family home sold and 24 are in escrow. At this rate, there currently is 2 months of inventory available for purchase,” said Loveland.
The number of months of inventory is another indicator of the competitiveness of the market. According to the Times, realtors consider a six- to seven-month supply a market that favors neither buyers nor sellers.
So if it’s a such a hot market, why aren’t more people selling?
According to Loveland, there are plenty of Gen Xers waiting for Boomers to sell their 3,500-5,000 square foot homes. But, speculates Loveland, Boomers are resistant to pay massive capital gains and are uninspired about what they can buy, which makes them reluctant to sell.
Many Boomers are also part of the “sandwich generation” and still have a full house because their adult children have come back home or they are caring for elderly parents (and in some cases are doing both), so they have put off down-sizing to smaller homes.
Some realtors also cite the recent passage of the Interim Control Ordinance (ICO) that limits the size of new homes as another factor causing low inventory. The ICO is aimed at preventing residential teardowns and subsequent construction of oversized replacement homes in neighborhoods that don’t have Historic Preservation Overlay Zones. The new replacement homes are often built by developers, because they can re-sell them for higher prices and a large return on investment, said Rick Albert, realtor with LAMERICA Real Estate. He asserts that developers now make up a large part of the market for older, smaller homes. But since the ICO was put in place, at the request of neighborhoods opposed to mansionization, developers are no longer buying small homes at premium prices…so current owners of those homes, like those with full houses in larger homes, may not be as motivated to sell.
Albert points to 801 South Citrus Ave. as a recent example of a developer-driven sale. The developer purchased the original, approximately 1,500 square foot cottage-style bungalow for $1,052,000 in 2014, then added a second floor and increased the square footage to 4,270 square feet, with a new Spanish-revival-style exterior. They recently re-sold the new home for $2,468,000. According to Albert, two other large homes are currently under construction on that same block; both were started before the ICO went into effect. But now, Albert says, it would not be financially feasible for developers to come in, since the size of the replacement homes is restricted. So that limits the number of potential buyers for smaller homes, which may decrease current owners’ interest in putting their homes on the market.
Regardless of the reasons, it seems the market is not likely to change in the short term.
“It’s crazy year. Interest rates could change, there’s the (Presidential) election coming up,” observed John Duerler. “It feels like people are frozen right now, but maybe after the election this fall things will open up again.”
Both Duerler and Loveland are optimistic because the local market has been so strong and resilient in the past. It’s also diverse. Properties in the local area range from $500,000 condos to $11 million dollar homes.
According to Loveland, there’s a lot of activity in the “Ultra -luxury” segment, which has been most influenced by outside investment and renovation.
“We anticipate at least a dozen homes coming to market over $7 million in the months ahead,” said Loveland.
The most competitive market, though, she said, remains 4 bedroom homes under $2.7 million…as the next generation of home buyers move from their starter homes to the next level, followed closely behind by their younger cohorts, who are knocking at the door to gain entry to the market.