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The Big Story

Rising rates may not normalize the housing market, but they may help inflation

Quick Take:

• Record high home prices aren’t going away, even with rising rates. However, the rising rate environment will prevent a significant amount of money from entering the economy.

• With nearly full employment, the Fed is hyper-focused on price stability — the other half of the Fed’s dual mandate — which means higher mortgage rates through the rest of the year.

• Demand is softening slightly now that the average mortgage rate jumped 2% in the past four months.

Prices continue to rise as mortgage rates hit 13-year highs

After the Fed’s May meeting, Fed Chair Jerome Powell announced that they are raising their benchmark rate by 0.50%, the largest hike since 2000. Earlier this year, the Fed was expected to raise interest rates by 0.25% at least six times this year, going from 0% to 1.90%. Now that each increase will most likely be 0.50%, the market expects the federal funds rate to reach 2.75% to 3.00% by the end of the year, which would be the highest in 15 years. Although the fed funds rate doesn’t directly affect mortgage rates, the rate hike moves into the broader economy quickly. Over the past four months, mortgage rates have moved about 2% higher for both 30- and 15-year fixed mortgages. Economists now estimate that 30-year mortgage rates could climb above 6% by mid-2022, which is fast approaching. Because the Fed indicated the path of rate hikes for the rest of the year, we expect mortgage rates to top out at around 7% this year for prime borrowers.

A rising rate environment increases short-term demand as buyers try to lock in lower mortgage rates, which is what we are seeing now. The increased short-term demand is driving prices right now outside of supply, which begs the question: Will higher mortgage rates actually drive down prices? No, they sure won’t.

Using history as our guide, we can see that home prices continued to rise even as mortgage rates peaked at over 18% in the 1970s, which would translate to about $7,500 per month on a $500,000 loan. Luckily, we aren’t going back to those rates. Higher rates, however, will do exactly what the Fed intends, which is to take money out of the economy and decrease overall demand. The average 30-year mortgage rate was 3.11% in December 2021, rising to 5.10% by the end of April 2022. If you bought a home in December and financed it with a $500,000 mortgage loan at 3.11%, your monthly spend on principal and interest would be $2,138 — versus $2,715 if you got the same loan in April 2022 at 5.10%. Over the life of the loan, you’ll spend $207,720 more at 5.10%. From the Fed’s perspective, that equates to roughly $500 less per month to spend on goods and services, bringing down aggregate demand when we multiply that reduction of disposable income across households. The gradual rate increases are meant to avoid sending the economy into a recession.

In addition to rising rates, supply still drives home prices. In April, the housing supply ticked up ever so slightly, but it’s still 60% lower than the number of homes on the market in April 2020. We are entering what is traditionally the hottest time of year for the housing market with a record low supply of homes. Over the past four months, which had the lowest inventory on record, home prices increased 12%.

If you are considering buying a home, there aren’t many reasons to wait. Home prices and rates are still rising. The low supply continues to make the market extremely competitive. We are starting to see some softening in demand, but not nearly enough to balance the supply side of the market.

The Local Lowdown

Quick Take:

• Home prices in Southern California reached record highs in April; short-term demand boomed as buyers tried to lock in lower mortgage rates.

• The second quarter of 2022 will indicate whether the market is moving toward or away from normalization. April data show that the number of homes for sale decreased, protecting home prices from a reversal.

• Despite some minor softening of demand as rates increase, low housing supply will continue to drive prices up unless an unexpected number of new listings come to market.

Home prices continue to rise despite rising rates

Single-family home and condo prices rose to all-time highs in April 2022, but it’s still too early to determine how increasing rates will affect the market. Mortgage rate hikes only lower demand in the long term. In the short term, demand increases as buyers try to lock in lower rates. Over the past four months, the average 30-year mortgage rate has increased 2%, which means a 27% increase in monthly mortgage payments, yet prices keep moving higher.

The factors now affecting home prices are anticipated to have mixed results, unlike the past two years when all factors caused prices to increase. Rising interest rates, which will hopefully curb the rising 40-year-high inflation rate, will make homes less affordable and dampen demand over the rest of the year. They may, however, also lower supply as current homeowners reconsider their plans to sell.

Many homebuyers are also home sellers, moving from one home to another. Newer homebuyers and homeowners who refinanced over the past two years locked in one of the lowest rates in history, making moving a more difficult financial decision. This could keep supply unseasonably low with fewer new listings coming to market, as we saw in April. In general, the Fed doesn’t have a tool to deal with supply-side issues: It uses monetary policy to affect demand, making money more or less expensive. As a result, the Fed’s rate hikes may result in unintentional effects on supply. In Southern California, the lack of housing supply will keep prices rising in the coming months.

Inventory dips, seasonally abnormal

Southern California’s housing inventory declined in April, which deviates from the seasonal norm and serves as an early indicator that home supply will remain depressed this year. The high demand and lack of new listings over the past year brought single-family home and condo supplies to record lows. Although the first quarter of 2022 had the lowest inventory on record, we were pleased to see that inventory increased, a trend that usually holds until mid-summer. With April inventory declining rather than rising, the next three months will help us forecast how inventory levels will trend for the rest of the year.

Even though inventory is low, sales remain incredibly high, especially when we account for available supply. This trend once again highlights the high demand in the area. Sellers can expect multiple offers, and buyers should come with competitive offers.

Months of Supply Inventory further indicates high demand relative to supply

Homes are selling faster than ever. Buyers must put in competitive offers, which, on average, are around 4% above list price, but vary county to county.

Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The average MSI is three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). Currently, single-family home and condo MSIs are exceptionally low, indicating a strong sellers’ market.

Our team is committed to continuing to serve all your real estate needs while incorporating safety protocol to protect all of our loved ones.

In addition, as your local real estate experts, we feel it’s our duty to give you, our valued client, all the information you need to better understand our local real estate market. Whether you’re buying or selling, we want to make sure you have the best, most pertinent information, so we’ve put together this monthly analysis breaking down specifics about the market.

As we all navigate this together, please don’t hesitate to reach out to us with any questions or concerns. We’re here to support you.

– Dominic Pietrangelo, LIC #01860025

Get this designer-perfect, gated Modern Farmhouse with a lot with ADU and open concept floor plan and a jaw dropping kitchen. It’s a comfy home with spacious bedrooms and kitchen.

It’s compact luxury that’s livable and comfortable. Any foodie will love the large kitchen and the mini one that’s made for more intimate gatherings.

Keep scrolling for a tour of this striking estate.

This modern farm house is listed at $1,699,000. It’s expected to sell fast and you do not want to miss out! 

Reach out to your favorite Landon Pacific realtor if you’re interested in this property or want to know if you’re qualified to purchase!

Photo and listing courtesy of Jennifer Landon | DRE #01281552 | Landon Realty Group

Address: 1437 Belfast Dr, Los Angeles, CA 90069

Neighborhood: Sunset Strip – Hollywood Hills West

List Price: $6,295,000

The Place

Designed and re-invented by OSKLO, this Connecticut-inspired slate roofed estate with motor court sits behind a gated drive on one of the most private cul-de-sacs in lower Sunset Plaza. Step inside to experience the gorgeous finishes throughout including white oak herringbone flooring, steel French doors and windows, dramatic stonework, fireplaces, and a custom bar that is perfect for entertaining. Natural light highlights the clean design and amplifies the warm and inviting atmosphere echoed in 20-ft. ceiling living room, bespoke white paneling and intricate design details second to none. The primary suite encompasses an entire floor and features vaulted 16-ft ceiling, bathroom lined in Calcutta Viola marble and beautiful city views. Originally designed by Robert Byrd AIA, a further three guest bedrooms includes city views, spacious floor plan and individual bath suites. The pool, spa, and meticulously manicured gardens with integrated fire pit work in combination with unparalleled interior design define this tranquil mini-compound, just moments above the Sunset Strip.

[Description from listing]

Why we love it

This home’s interior has a unique structure! The rooms are tight knit, but at the same time spacious with the way fixtures and furniture is arranged. It’s very homey and not at all intimidating, like a home you would actually see yourself living in and not just for bragging rights. It’s the type of estate that would have you calling your house a home in no time!

By the numbers

Selling Price: $6,2965,000

In Property Taxes: $6,557

Square feet: 4,218 sqft

Beds: 4

Baths: 5

Parking Spaces: 5

Fireplaces: 6

The Tour

Listings and pictures courtesy of Rayni Williams & Branden Williams | Realtor® | DRE #0149678 DRE #01774287 | The Beverly Hills Estates

If you or anyone you know is an unrepresented buyer that would be interested in this property, message us and let’s go take a look!

Address: 521 N Formosa, Los Angeles, CA 90036

Neighborhood: Beverly Center – Miracle Mile

List Price: $2,995,000

The Place

Hip, sleek, Down-To-The-Studs-Pretty-Much-New reimagined Single Story Spanish with 3 beds/3.5 baths in the main house and 1 bed (no closet)/1 bath in the ADU. Gated for privacy and security. Handsome enclosed front courtyard with fire feature. Living room surrounded by tall windows, high beamed ceiling and majestic fireplace opens to large dining room. WOW kitchen with abundant marble, custom cabinets/storage, pro appliances, pot filler, large pantry and broom closet. Separate breakfast room. Master suite has a large built-in master closet, designer bath with double vanities, soaking tub, large shower. Both master suite and adjacent office open to the backyard with floor-to-ceiling glass doors. Ultra high ceilings and extra deep windows make for an especially regal spacious light filled space. Tall interior doors with handsome hardware, wide plank hardwood floors, exquisite fixtures throughout. AV system for surround sound controlled by iPad or phone, alarm TV’s , CCTV camera surveillance with 8 cameras. Backyard is surrounded by brand new ficus trees and features a large swimmers pool with a baja step, jacuzzi, and waterfall. ADU with over-the-top entertaining center with BBQ/rotisserie, double burners, sink, garbage can drawers, bar area with fridge, ice maker, storage doors. Gym or bedroom with adjacent bath. Roof top deck with views of The Hills and The Hollywood Sign. All new systems including plumbing, electrical, roof, AC with linear vents. ADU had one existing garage wall and is otherwise new. Pool is brand new. No expense spared renovation intended for the owners. Absolutely magical!

[Description from listing]

Why we love it

Staging can really bring out the potential of a house and turn it from an empty vessel to the coziest place on Earth, and that’s exactly what staging did to this property. Just looking at it makes us want to live in it! The property itself is not as spacious, but the potential it has to be turned into something extravagant is extraordinary. It’s like a magic house that’s small on that outside, but big on the inside. Stand alone, this house has amazing geometry. There’s not a hallway that’s too narrow, nor a room that would feel like a tight squeeze. And we cannot NOT pay attention to the tall, panel windows! High enough to give the people inside privacy and low enough for the people outside to peak at the ceiling and get an idea how the insides must look like.

By the numbers

Selling Price: $2,995,000

In Property Taxes: $3,120

Square feet: 2,545

Beds: 4

Baths: 4.5

Parking Spaces: 2

Fireplaces: 1

The Tour

Listings and pictures courtesy of Sheri Bienstock | Realtor® | DRE #01746994 | The Bienstock Group

If you or anyone you know is an unrepresented buyer that would be interest in this property, message us and let’s go take a look!

Address: 4164 Edenhurst Ave, Los Angeles, CA 90039

Neighborhood: Atwater

List Price: $1,589,000

The Place

Spectacular Spanish on a coveted tree-lined street in Atwater Village. Originally built in 1926, this thoughtfully designed 2 bedroom plus office, 2 bath charmer, which has been featured on the likes of Elle Decor and Apartment Therapy, has been beautifully updated for modern living while boasting authentic details to delight vintage-loving purists. The living room features a vaulted wooden ceiling with exposed beams and a fireplace, both which are the hallmarks of the period. The open-spaced kitchen boasts quartz counters, a farm sink and stainless steel appliances. The primary suite features a spacious bathroom with plenty of designer touches and an attached office or nursery. A true entertainer’s dream, prepare your meals at the outdoor built-in grill and dine alfresco under the playful twinkle of string lights while warmed by the fire pit flames. Unleash your creative soul in the detached garage – an inspirational space for an art/music studio and/or a home office for a mogul in the making. A short distance to Los Feliz Blvd and the last remaining Equestrian District in the City of LA, this enticing home is what California dreams are made of. 

[Description from listing]

Why we love it

If we could only name one thing we absolutely adore about this house, it’s the living room ceiling! It’s made up of only wooden beams and it looks so unique and fun, really accentuating the area and giving it personality.

By the numbers

Selling Price: $1,589,000

In property taxes: $1,655

Square feet: 1,366 sqft (livable)

Beds: 3

Baths: 2

Parking Spaces: 2

Total Floors: 1

The Tour

Listings and pictures courtesy of Leah Lail | Realtor® | DRE #01400267 | Coldwell Banker Realty

If you or anyone you know is an unrepresented buyer that would be interest in this property, message us and let’s go take a look!

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