We are coming off a highly charged election cycle with the relative strength of the economy serving as a recurring storyline across the country. Unemployment is at a low point and the gross domestic product for the country has been growing at a solid pace for a couple of quarters. With this backdrop, it is surprising that home sales are slowing in Manhattan Beach, reversing a few year trend of increasing sales. Prices in the higher end of the market appear to be on the decline as well. The year-over-year median sales price for homes selling for over $3 million has actually dropped. Strand sales for both Manhattan Beach and Hermosa Beach are off as well. The reasons for this are unclear, but there can be no doubt that something is causing a cooling off of the high end of the local market.
I have had a number of conversations with investors, agents and property owners in the beach cities over the past few weeks that have piqued my curiosity about the state of the market. I have been hearing expressions like “the big money is on the sidelines” and “many buyers are waiting to see what will happen with interest rates” and so I wanted to find out first hand if something has changed in the local real estate market or if all the chatter is just speculation. To determine this, I looked at Manhattan Beach home sales, including single family residences, townhomes and condos, for the first three quarters of each of the last four years based on MLS data. This does not include private sales that are not tracked by the MLS, which I am told is an increasing percentage of sales transactions buyers and as sellers increasingly seek privacy.
The vast majority of areas in the beach cities have experienced greater than 7 percent annual appreciation for more than six years running with some exceeding 12 percent. The number of total home sales in Manhattan Beach has been growing for at least the past three years, but has dropped by over eight percent this year compared to last year. The data appear to confirm that the pace of home sales is leveling off.
At the high end of the market, this may not be a total surprise given that we had a highly unusual and perhaps unsustainable 44 percent bump from 2016 to 2017 in the number of $3 million or higher homes that sold. The market ramped up but is now finding a more stable grounding.
As for the total number of Manhattan Beach and Hermosa Beach strand single family residence sales, the number of closings is at a low point with only two reported closed deals in the first nine months of this year. This is the lowest number in several years.
Whether it is the anticipation of rising interest rates, the uncertainty of the impact of new tax laws, or a decline in confidence in the direction of the economy there are signs that the tremendous ride that we have had in residential real estate may be easing up for now.
By Tony Cordi