Real Estate sales on Los Angeles’ Westside ended strongly, as they had been doing all year. Significant increases in pending and closed sales continued as they had been doing all year. Looking at the first slide, we can see that pending home sales increased by more than 18% year over year, and closed sales increased by almost 30 percent. The fourth quarter compared to 2011 saw increases of 21% and 32% respectively.
It has been quite an interesting trend to watch as inventories have continued to go down. The second slide shows that the number of homes listed for sale fell by 61% year over year for the month of December and 61% for the fourth quarter. As noted before, a balanced market of sellers and buyers (consider that to be supply and demand) is about six months of inventory. During a substantial part of 2012 the available inventory hovered around three months, but in December that dropped to 1.6 months! Buyers have been very motivated to find the homes they wanted and to negotiate through multiple offers.
What has this done to home prices? As I’ve said many times before, be wary of looking at the oft-quoted Case-Schiller index as a measure of home prices. I consider that to be more of an indication of activity in different price ranges. We’ve seen a lot more homes in the mid to upper prices selling over the past year. That has an effect of bringing the Case-Schiller index up, but it doesn’t necessarily mean the market value of any specific home will have changed according to the change in that index.
Perhaps a bit more insightful statistic is the average price per square foot of homes sold. While this also is affected by a number of factors, I suspect that recent data does correlate to a gauge of how homes actual selling prices have fared over the past year.
As the third slide shows, The average price per square foot of homes sold gradually increased in the early part of 2012, then dropped in June before moving into a steady rise over the last seven months. It’s unclear what caused the drop in June, but the trend in prices over the majority of the year is unmistakable. Throughout most of 2012 they rose steadily.
Seeing this kind of trend over that long a period of time is strong evidence that home prices have been in the kind of slow rise that we’ve experienced over most of the past several decades. While I expect the increase in home values will be gradual, due to the still-modest improvements in our overall economy, there is cause to have increased confidence that home ownership is now back in a mode of being a good investment, as well as a desirable quality of life choice.