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The competitive housing market in the United States continues to be a major barrier to people looking to buy a home. In many places, houses are put up for sale and in just a few days they sell for thousands more than the asking price.

Perhaps nowhere was this problem more prevalent than in the Greater Los Angeles area. Demand for homes has skyrocketed during the COVID-19 pandemic, and at times it looks like it will continue into 2022.

But new research published by real estate giant RE/MAX shows that the total number of homes sold has dropped sharply over the past year compared to the previous year, and homes that are on the market are delayed longer.

The study shows that between May 2021 and May 2022, there were almost 25% fewer homes sold in Los Angeles compared to the same period in the previous year.

The 24.4% year-on-year decline in home sales is the largest decline of any metropolitan area in the country, according to the study.

May is one of the busiest months for homebuyers, according to RE/MAX, but despite that, nationwide, 8.5% of homes have been sold this year compared to May last year.

The reason for the drop in sales? This is likely due to increased inventories and higher mortgage interest rates.

James Sanders is a broker and owner of RE/MAX Estate Properties in Los Angeles. He says the housing market frenzy has been “unsustainable” and expects the market to become more stable.

“Rising interest rates have returned the Los Angeles housing market to a more typical real estate market,” Sanders said. “We are seeing a drop in demand from 10 to 15%. Our inventories are up 36% year-over-year, but still more than 75% below our typical pre-pandemic levels.”

Sanders said homes stay on the market longer, in most cases for 40 days or longer. During the peak of the “crazy market”, houses were snapped up in about 25 days. Sanders also said that homes are receiving several offers at competitive prices, compared to more than a dozen offers for each property in the last year and beyond.

But don’t expect prices to drop sharply because there are fewer homes for sale and demand seems to have cooled off. Homes sold in Los Angeles over the past year sold for 3.3% more than their asking price, according to RE/MAX. This is 3.8 percentage points more than in 2021, when homes were selling for 99.6% of the asking price.

“We’re not seeing a price correction like we did during the great recession,” Sanders said. “Homeowners have too many shares in their property, and as a result, we don’t see a big troubled sales market.”

This is true for the entire nation. The median selling price of a home sold in the US has risen by about $50,000 from May 2021 to May 2022.

Thus, fewer houses are sold, fewer offers are made, and houses stay on the market longer. But prices still continue to rise despite these factors, at least for now.

“Even if interest rates hover around 6%, they are still historically low, and real estate in Los Angeles has historically been a great investment,” Sanders said.

The decline in home sales is not limited to Los Angeles. A little further south, in San Diego, home sales were down 20.4% over the same period.

Below are the top five markets that experienced the largest annual decline in home sales from May 2021 to May 2022.

Top 5 Markets with Biggest YOY Declines
Market May 2022
Transactions
May 2021
Transactions
Year after year
% Change
Los Angeles, California 7553 9991 -24.4%
Miami, Florida 8835 11 392 -22.4%
San Diego, California 2858 3591 -20.4%
Trenton, New Jersey 332 410 -19.0%
Washington 8673 10 391 -16.5%

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