Crystal Ball Gazing

By Michael Edlen | Special to the Palisadian-Post

We have arrived at that point in time when we take a look back and ponder about the future of Pacific Palisades real estate. Though fully aware of the bizarre path the world has taken since March, this has been an astounding year in real estate.

Our profession has had to make a series of major adjustments in how we perform our work. It took several weeks to learn what was needed to remain safe, provide services within a framework that was evolving rapidly, and utilize technology to help accomplish the many activities and functions required of us.

Open houses are not possible during a pandemic, face-to-face meetings are much more difficult to arrange and coordinate safely, and the processing of escrow actions has been challenging to complete in a timely fashion.

Despite all of the hurdles in the world, we have just closed the books on an extraordinary year of buyers and sellers achieving their goals. Because interest rates have been reduced more than 12 times during last year, an increasing number of buyers have been able to succeed in purchasing a home. Correspondingly, more sellers have been able to sell their homes at record new highs.

Indeed, the buying pressure that began in earnest by June has resulted in a classic “seller’s market” environment, wherein an increasing number of buyers are entering the market at the same time that the number of homes available for purchase has declined steadily.

The net effect, as we begin the new year, is that median sale prices are higher by about 7%, with about four months of inventory at the current rate of sales. Another indication that, at least as of December, we have been in a strong seller’s market is that 40% of the Palisades homes sold over the last several months have had multiple offers and sold at full price or higher, and went into escrow within two weeks of being on the market.

So what does our crystal ball say about 2021? Let’s make a few assumptions: Interest rates are going to remain near historic lows for at least six months, the pandemic environment will be lessening both actually and psychologically, and there will not be a large increase in the number of Palisades owners who will choose to sell soon.

Given that set of assumptions, it is logical to conclude that the increasing number of buyers who can still afford the higher prices here will be paying somewhat more than what the prices were on average over the last several months.

As prices do continue to increase, however, we might anticipate that the rate of increases will steadily slow down as the year progresses. Perhaps over the course of the entire year we may see 5% appreciation rates on average.

Sellers of homes above the median level, which is now about $3.5 million, may find that the market slows down sooner. This is of particular concern because at the current rate of sales there is more than a year of inventory of homes available in the higher price ranges.

Obviously, that look at the crystal ball could easily be altered by any number of events, as this past year has shown. The market would be impacted by an unexpected increase in interest rates, which might occur if the economy shows stronger signs by mid-year.

It would also be affected if there is a slowdown in the rate of new buyers trying to purchase a home here. Conversely, the market might react due to an increase in the number of people putting their homes on the market to benefit from the all-time-high value of their home or perhaps to relocate to a more tax-friendly state.

The value of a home is always determined on an individual basis. Homes in different neighborhoods and varying price ranges have their own uniqueness.

Before deciding whether the time is right to sell or purchase a home, many other factors need to be considered, especially in times of great uncertainty such as the present.

Michael Edlen is available for no-cost and no-obligation consultations about real estate related issues and decisions. He can be reached at 310-600-7422 or michael@edlenteam.com.