Katie Davis has whiplash.
A longtime renter, she’s in the market for her first ever home, but she needs mortgage rates to drop in order to afford the monthly payments. Anything under 6% would be feasible.
For the last year, she’s been tracking them like a hawk. She watched them fall from 7% last spring to 6.5% last fall until they finally dipped below 6% in February.
“I thought my time had finally come,” Davis said.
Days later, a series of airstrikes kicked off the Iran war, spiking mortgage rates. Then, in April, the U.S. struck a ceasefire deal, bringing rates back down again. During that stretch, Davis has waffled between hopeless and hopeful on a weekly basis.
“I just want a little starter house in El Sereno, but somehow it feels contingent on whether the Strait of Hormuz is open or not,” she said.
A small swing in mortgage rates might not feel like much, but for many first-time homebuyers, the margins of affordability are razor-thin in Southern California’s expensive market, and $200 more for a monthly payment is the difference between keeping up with a loan or being crushed by it.
L.A.’s housing market was already cold; according to Zillow, only 3,072 homes traded hands in L.A. County in January, the lowest monthly total in three years. The Iran war all but froze it, sending mortgage rates back up to 6.46% and pulling would-be buyers out of the market.
In February, the median L.A. home for sale spent 80 days on the market — the longest median in the last five years, according to Redfin. In addition, 17.6% of home listings had price cuts, up 1.4 percentage points year over year.
There’s a growing chasm between the number of sellers and buyers in the market in L.A., mirroring a national trend. According to a March Redfin report, there are 630,000 more sellers than buyers in the active U.S. market — the largest gap on record dating back to 2013.
Bret Parsons, a real estate agent with the Craig Strong Group at Compass, said the war is having a psychological effect on buyers.
“Buyers are slower to pull the lever,” he said. “It’s human nature. When a big event happens, buyers get nervous.”
He said the ceasefire could calm their collective nerves if it holds.
“It’ll have a momentary effect, no doubt about it. Humans are very reactionary,” Parsons said.
He said mortgage rates are only one piece of the puzzle in thawing L.A.’s market, citing skyrocketing insurance rates and Hollywood’s bleak job market as other factors keeping demand down.
But sub-6% rates would be the quickest way to bring cautious buyers back into the market, so sellers are hoping the ceasefire will stabilize rates. Until then, for buyers, the ever-shifting rates mean that even with more leverage, it still doesn’t feel like a buyer’s market.
“February was brutal because we thought we were in a buyer’s market. Lots of properties had been sitting since the fall,” said Ashley Moorhead, a lawyer who’d been shopping for homes since December. “But rates dipped just before the war, and everyone seemed to come out all at once to bid for homes that had been on the market for over 20 days.”
Moorhead said for every house she bid on, there were at least four other offers. In one case, she was outbid for a home in Pasadena by $225,000.
Her ideal budget was $1.25 million. She ended up spending $1.39 million.
Depending on how you look at it, Moorhead got lucky. She locked in a 5.99% mortgage rate right before the war started. Had she waited a month, the rate would’ve been 6.5%. But had the war never started in the first place, she said, it could’ve been 5.75% or lower.
“I am not optimistic rates will go down,” Moorhead said. “I think time in the market beats timing the market.”
Real estate agent Matthew Hoult said the spring market has been slow for a handful of reasons. For buyers, affordability is king, and many are second-guessing what they can afford if rates spike. For sellers, many have the “golden handcuffs” of low interest rates locked in during the pandemic, so they’re not incentivized to move.
“It’s not as simple as supply and demand because there’s plenty of pent-up demand,” Hoult said. “Lots of people want to buy a house, especially Millennials and Gen Z, but there’s so much uncertainty over mortgage rates and cost of living that they’re being picky.”
He had two clients lock in a 6.1% mortgage rate in December. If they waited until the spring, they would’ve been paying $200 more per month on a million-dollar loan.
“The frustrating part is nobody really knows when this settles. Oil could stabilize, tensions could ease, but there’s no crystal ball,” he said. “I’ve seen people wait for better rates and end up paying more six months later because prices kept climbing while they sat on the sidelines.”
He said for some, the suspended state of the market could be an opportunity, pointing to a famous Warren Buffett quote: “Be fearful when others are greedy, and be greedy when others are fearful.”
“Now’s the time to find deals. Use the war for leverage,” Hoult said, urging buyers to ask for concessions from sellers tired of waiting for more buyers to emerge. “Ask them to cover fees, buy down the rate or for a lower sale price.”
Real estate agent Daniel Milstein said the market is already picking back up, but sales numbers don’t show it yet.
“There’s a clear disconnect between what people are reading in public data and what is actually happening on the ground,” he said. “Most widely cited housing metrics lag reality by 30 to 60 days, meaning the narrative many are reacting to today is already outdated.”
He cites as evidence new escrows, which don’t record as sales until they close weeks or months later. According to his colleague at an escrow company, Milstein said, new escrows have increased up to 50% in markets across L.A. County in the last few weeks compared with the month prior.
“Because most of the current activity exists in escrow and has not yet closed, it’s not reflected in public records. In the next two to four weeks, we expect to see a noticeable influx of recording transactions,” he said. “In other words, the market is already moving — people just haven’t seen it yet.”
