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    South Bay Home Demand, Interest Rates, and Building Costs

    September 26, 2020

    By: Richard Haynes
    South Bay Home Demand

    It has been a wild year.

    And, the same can be said for South Bay real estate too.

    For this post, I am going to share some numbers and anecdotal thoughts on what is happening right now in the South Bay marketplace. The market seems to be shifting every month and we might experience more movement as we go from the third to fourth quarters.

    Present Demand and Inventory

    If you read my “South Bay August Home Market Update,” then you know inventory is down throughout the South Bay and Palos Verdes in a significant way. And, if you haven’t had the chance to read that past blog, then you can find that post here.

    Although Manhattan Beach is the lone area where inventory is up, the city is showing a record amount of pending sales for this time of year.

    The real estate market is still very, very hot and there are plenty of properties with lower comps making deals at much, much higher prices. Just in the last month, I have experienced tough losses with two clients that pushed on price and still did not win their bidding war.

    On the flip side, we have been fortunate enough to bring out multiple listings in the past 30 days with another two this week that I will feature later in this post.

    For context on just how hot this market is…all of our listings went into escrow in under a week from the start of showings.

    But noticeably, each successive week later, we are experiencing fewer offers.

    Is buyer fatigue starting to creep in a bit?

    Further, we have clients relocating from out of area and they were certain that their house would sell in a week, and much to their surprise, showings have been a bit sluggish.

    Sometimes you have ebbs and flows in the marketplace where things can change ever so slightly, and you have to adjust in real time. As the election approaches along with the colder holiday months, the winds can start to shift direction.

    All things considered, the numbers are still in the Sellers favor.

    The National Association of Realtors (NAR) reported that sales of newly built homes were at the highest level in 14 years, and supply is down nearly 19% annually for existing homes.

    That said, our newest listings below are still getting calls like crazy and the demand/supply imbalance looks to continue its strength even with some buyers slowing down.

    Interest Rates Driving the Market

    It is obvious that interests rates are a massive factor driving this market.

    For reference, we have had two clients with recent purchases. Their jumbo loan rates on 7- and 10-year fixed loans were 2% and get this…1.65%.

    That is essentially free money.

    Compare that to rates last year in the mid-3s…it is a massive, massive difference and huge contributing factor to rising prices.

    I do not care how disciplined you are with money and budgets, rates at those levels will absolutely increase the amount of money you are willing to spend on a home. And, potential buyers will start to catch onto how much more they can afford.

    How do you slow a market with low inventory and low rates along with a Fed committed to keeping it that way?

    If the Fed’s goal long-term goal is to drive inflation beyond their normal 2% mandate, then real estate as a hard asset paired with low interest rates is going to be a popular place to put money and take on debt.

    And as always, I promise to have a full blog dedicated to interest rates coming in the next couple of weeks.

    Building Costs: Why Build? Just Buy

    In last week’s blog post, I briefly touched on our lumber friends at the publicly traded Weyerhaeuser.

    If you are a real state and construction nerd like myself, Weyerhaeuser reported that lumber prices are up 170% since mid-April.

    Have you talked to any local contractors lately? Right now, lumber is all they can talk about, among other rising prices and shortages of kitchen appliances like refrigerators.

    If you thought construction was expensive last year, just wait until more labor is drained and headed up north to continue to rebuild homes lost to the wildfires, along with large home builders paying top dollar for more skilled labor to bring out more needed inventory.

    Building is only going to get more expensive.

    So, why even build?

    Some things to consider…

    • Two to three years of painstaking process
    • Risk of rising materials
    • Risk of rising labor
    • Tying-up a huge chunk of your dry powder

    Personally, I would borrow at 2% or lower and leave it to the pros to build.

    I would invest a large chunk of money elsewhere and save the headache since you can borrow so cheaply…and this is coming from someone who has quite a few spec builds under his belt.

    Low interest rates will keep demand strong for new, turnkey homes. And, it will also throw out the benefits of building for the next six months to a year until there is more certainty around pricing.

    If the reasoning is not solely economic, and really the desire to create a “dream home” or “work of art,” then build. But, if your motivations are purely financial, it is going to be hard to beat buying new with rates at 2%.

    Take on the crazy low debt and leave the building to the professional spec builders.

    New Listings for the Week

    I am super fired up to highlight two of my new listings this week.

    • 1120 6th Street, Manhattan Beach
      • 5 bed, 5 bath, 3,573 sq. ft., 7,488 sq. ft. lot
      • Asking Price: $3,499,000

    Look at these incredible pictures and the description. How can you not fall in love? The home is exceptionally finished, has an incredible backyard with an entertaining patio, and offered at an amazing price point.

    This is one of those properties where you wouldn’t even consider going through the headache of building. Take your 2% debt, move right in, and enjoy this amazing retreat and backyard oasis.

    And, if that price point seems a bit out of budget right now, then I have another incredible opportunity for a craftsman home that just hit the market in which I am co-listing with the incredible Frank Sabatasso.

    A stone’s throw from the incredible Riviera Village, and offered at a little over $1 million.

    • 23607 Susana Avenue, Hollywood Riviera
      • 3 bed, 2 bath, 1,225 sq. ft., 8,834 sq. ft. lot
      • Asking Price: $1,125,000

    How can you not fall for this adorable craftsman? This home is in that incredibly popular price point and it gives buyers a chance to get into Hollywood Riviera at a low, low price.

    And, did you see the finished backyard as well? This is another backyard sanctuary with an outdoor gym, built in BBQ and seating area, along with plenty more space to add your own personal touch to create your dream retreat.

    We are so lucky to have clients that trust us to represent them with their incredible homes.

    See you next week.

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