Pacific Palisades: Buyer or Seller Market?

By MICHAEL EDLEN | Special to the Palisadian-Post

 What Differentiates a “Buyer’s” from a “Seller’s” Market?

A “seller’s market” is when there is a relative shortage of homes for sale as compared with the number of active buyers wanting to buy. Prices will tend to have an upward pressure in such a market at least until the inventory of homes available is about in balance with the number of qualified buyers seeking to purchase them.

In general, a “buyer’s market” is when it would take seven months or more to sell the number of homes for sale in a particular area and price range at the current rate of sales averaged over the last several months. A “seller’s market” is when this level of inventory is at or below a four-month supply. If there are about enough homes for sale that would sell in five or six months, it is most likely a balanced market.

The Overall Market in Pacific Palisades

In 2008 the entire country experienced a falling real estate market, reacting to the melt-down of the savings and loan industry. The recovery from that tremendous adjustment period began by 2013, and we experienced an upward moving market for nearly all the time through 2022, especially accelerated by the historically low interest rates created to stimulate the economy.

Since early last year, the combination of increased prices and doubling of interest rates resulted in a significant slowdown in the number of homes sold, and gradually the average sales prices have gone down. Although we still often hear about multiple offers and bidding that raise prices above the listing price, these are becoming less and less frequent. Also, when they do occur, there are usually fewer bidders than there would have been a year ago.

A “snapshot” of the local market as we enter the month of May shows that as compared with the same first four-month period last year, there have been 40% fewer homes sold and the prices are about 15 to 25% lower now, depending on which measures one uses.

Based on the current rate of sales each month, there is a five-month inventory, which indicates a generally balanced market. It is also interesting to observe that while the median average sale price for the last six months is about $4.25 million, the current median list price is a remarkable $7.3 million.

A More Careful Look at the Local Market

A fascinating set of observations can be made of the upper half of the market vs. the lower half. For this article, $5 million was selected as the mid-point, because in 2023 almost the identical number of homes here sold above and below that level. Some of the differences are dramatic when comparing the two time periods for each level of the market.

 The Top Half of the Market

The six-month period ending in April 2023 was a culmination of steadily increasing prices for homes listed at $5 million or more. There were 57 homes that sold for a median price of $7.5 million, which was 5% above the original list price average.

The recent same six-month period was substantially different. Only half as many homes listed above $5 million sold, and the median price level is at $6.925 million, 8% lower than last year. Moreover, they sold with an average of 10% discount from the original list prices this year.

Perhaps most significant is the current inventory of homes available above $5 million. With nearly 65% of the homes now on the market being in that price level here and calculating the current average number of homes selling each month, there is now an inventory of 11 months available for buyers to select from. By any measure, this is clearly a “buyer’s market” in the Palisades’ upper end.

The Bottom Half of the Market

In contrast, while the six-month period ending in April 2023 had also been a time of increasing prices, the tremendous pressure of far more buyers than there were sellers led to a sale level only slightly lower than the earlier period. The result was a slight increase in median prices from $3.22 million to $3.34 million this year.

With only 23 Palisades homes on the market now below $5 million, at the current rate of sales there is only two and a half months of inventory. Thus, in this half of the market, this is clearly still a strong “seller’s market.”

A Few Conclusions About the Present Market

For sellers of homes below the $4 to 5 million level, prices may be expected to be stable for some months more. Inventory would have to double in size in relationship to the pace that buyers are able to continue paying the higher prices and interest rates, before it would be a balanced market. Buyers in that range are likely to still experience frequent multiple offers, and they will likely still be paying very close to the list prices.

For sellers of home above $5 million, pricing and home preparation for sale are critical ingredients in order to succeed. There is a growing inventory of unsold homes, and most of them are languishing on the market if not sold within three months. Buyers in that range will be wise to work with an experienced agent who can carefully assess the probable value of homes before presenting an offer. Discounts below the asking price have averaged about 8% in that range, which adds up to a substantial amount of money.

Michael Edlen has been carefully analyzing Pacific Palisades real estate for more than 30 years, observing the dynamics of three major market cycles. He can be reached for information about property values at 310-600-7422 or michael@edlenteam.com.