How Rising Interest Rates Will Change the Westchester Real Estate Market
Home to LAX, Loyola Marymount University, Otis College of Art and Design, and nestled within the cradle of Los Angeles’ tech industry, Westchester is an increasingly in-demand Los Angeles neighborhood. The gently curving streets, tidy homes, and well-manicured lawns create a small-town feel. The proximity to tech hubs in Venice, Playa Vista, Culver City, and El Segundo have helped boost buyers’ appetite for Westchester houses. Still, even though the latest statistics indicate a thriving residential real estate market, there are questions about how rising interest rates may affect home buying.
House prices in Westchester were up a healthy 8.1% in the fourth quarter of last year, reaching an average of $1.6 million. Single-family properties spent an average of only 23 days on the market during the quarter, indicating extreme demand for houses in Westchester. Condo prices in the same period remained virtually unchanged, averaging $639,000. As interest rates rise, real estate pros forecast that the Fed’s hikes are unlikely to tank prices. However, many believe that buyer demand will be affected, changing the nature of Westchester’s real estate market.
The era of historically low rates is ending
The Federal Reserve has signaled that it plans to gradually increase interest rates throughout 2022, following an initial hike in March. While the rates have remained unchanged for years, the increases are meant to address the current inflation rate.
While the Fed does not control the rates banks charge for consumer loans, the increases affect how much banks pay to borrow money, and that, in turn, is passed on to the rates of consumer loans such as mortgages. In 2021, the rates for a 30-year mortgage averaged around 3.0%, and Freddie Mac forecasts a steady increase in 2022. While mortgage rates are still near historic lows, an upward trend is now perceptible.
Owners with houses for sale in Westchester are unlikely to see the rate hikes affect buyer demand in the near term, but that may change as the year progresses and buyers realize how much more they will need to pay over the life of the loan.
Houses in Westchester will eventually be out of reach for some
When we think of a quarter of a percentage point, we perhaps don’t see it as a considerable sum. However, buyers financing a home worth upwards of $1 million — and the average house price is $1.6 million in Westchester — will find that fractional increases significantly affect their monthly payments.
Hundreds of dollars would be added to monthly payments for buyers with large loans, and for many buyers, that may make their dream of owning a home in Westchester unattainable. These potential buyers will have to choose a less expensive home that may need updates or a location elsewhere in the Los Angeles area.
Inventory constraints will ease
It’s common knowledge that the housing market has been on fire for the past couple of years. People are moving to locations that better suit their lifestyles, mainly searching for additional space or amenities. It has been a seller’s market in Los Angeles as buyers frantically search for houses for sale in Westchester, often offering cash and accepting few contingencies to sweeten the deal. Bidding wars have also been common.
This intense demand created a real estate market in which inventory was low, and prices skyrocketed. As interest rates increase, some buyers will no longer be able to afford the Westchester home they had hoped for, and this will gradually cause an increase in the number of homes for sale. As inventory increases, buyers will have more opportunities to shop for a home that fully meets their needs, and owners are likely to find that homes don’t sell at lightning speed.
The increase in options is also likely to lift sales overall. In the fourth quarter of last year, there were 75 home closings in Westchester, a decrease of 17% from the same period a year earlier. Such trends are likely to reverse with more properties on the market.
New construction will move at a slower pace
New construction is already a rarity in Westchester, but finding brand-new homes will likely become even more difficult due to the rate increases. The development cost will increase along with the rate hikes, adding to a development environment moving slowly in recent years due to labor and supply-chain constraints.
The most recent new construction in Westchester has been of the rental variety, including the large, 87-apartment building now rising at Sepulveda Boulevard and Manchester Avenue. Another new project at 6733 S Sepulveda Boulevard is also poised to be a rental with 176 apartments.
One of the few new Westchester homes for sale is a one-of-a-kind, 3,750-square-foot farmhouse on McConnell Avenue. The five-bedroom, five-and-a-half-bathroom residence has high ceilings, wood floors, and three fireplaces and comes with a two-story guest house that features an upstairs suite, full bath, and balcony.
The changes in interest rates will start to affect the Westchester market as the year marches on and the financing landscape changes. There will likely be a slight increase in inventory, and the seller’s market will start to cool. There may also be fewer new-construction residences on the market. Still, the fundamentals of Westchester real estate expect to remain solid despite the rate increases and rising mortgage rates.
Judy Deane and Orlando Ravelo, the two principal agents of The Ravelo & Deane Group, are Los Angeles experts who have experience dealing with the nuances of a changing market. Judy and Orlando are ready to put their drive and connections to work for you as you search for Westchester homes for sale or consider selling your house in the area. Reach out today for expert guidance with all aspects of the L.A. real estate market!
