Have Bidding Wars Come to an End in Los Angeles?

Why are we getting less bids on properties nowadays? What factors are affecting this change in the real estate market?

Have bidding wars in Los Angeles come to an end officially? To answer that, we need to answer another question: Why was January, February, and March of 2022 crazier than the previous two years combined? The answer to that question was that buyers were trying to get in before the impending interest rate hikes that we are now seeing. 

At the beginning of the year, the interest rates was at 3.25%. Currently, we are looking at interest rates hovering closer to almost 6%. Back for the first three (3) months of the year, buyers were doing everything possible, including insane offers, to try to be able to get into a home and have their offer accepted. We literally were seeing in February and March over 100 groups of people a day, not for a weekend, but a day, at open houses. 

That number has dramatically come down due to the fact that the interest rates are now at almost 6% (although rates have come back down to 5.5% this week) and the buyer’s affordability is significantly less. Now a buyer on a $1,000,000 property with 20% down payment at 3.25% at the beginning of the year had a $4,700 a month payment. Now, with that same sales price and down payment and sales price, but at 6.0% interest rate, the monthly payment would be $1,300 more. That is a big difference that has really affected buyer’s affordability.

The good news is that the inventory is still really low for a variety of reasons and the demand is still there. This is keeping the market going right now. But now, due to the lack of affordability, a lot of buyers are the sidelines because they cannot afford to buy.

Bottom line, we do not receive as many offers on properties. Gone are the days of seeing 10 to 20 offers on your home unless the property is underpriced. We are currently seeing one (1) to three (3) offers currently on most homes. This brings us to a more normal and healthy market. Also, gone are the days where we are seeing 15% month over month gains. Today, we are at 4 to 5% gains monthly, or maybe 7 to 8% on the high side throughout the rest of the year. Again, this is an indication of a more normal and healthy market.

Another thing that is affected by the increasing interest rate is that homes are selling but they are taking longer a bit longer to sell. Normally they would sell on the first weekend but nowadays, it’s not uncommon to see a home be on the market a week or two. 

“While there are fewer offers on homes, because of the low inventory, homes are still selling!”

To wrap things up here are the things that you need to know about the real estate market: (1) there are fewer bids on  most properties due to interest rate hikes (2) homes are still selling because of the extremely low inventory and (3), we are not seeing a market collapse.