Drop in Interest Rates Spurs Market Enthusiasm

The Playa Vista real estate market has rebounded from a dreadful second half of 2018 and a lukewarm first couple of months of 2019 to become red hot in late March and early April. While some of this may be attributable to the finally dry weather conditions, this seems mainly due to lower interest rates, which are the lowest in 18 months. In the last week of March, the 10 year treasury note experienced its largest weekly drop in over 10 years (27 basis points) following the Fed announcement of no expected rate hikes in 2019.

The market throughout Los Angeles seems to be squeezing the last bit out of this cycle with sales becoming very sensitive to interest rates and buyers starting to move into areas in the periphery with longer commutes that may not have been in consideration several years ago. 12 homes have gone under contract in Playa Vista in the past 3 weeks, which is about double the typical rate.

While this is good for today’s home sellers, people looking to refinance, and buyers who are intending to stay in the property for a while, this is mainly pushing demand forward and creating a psychological barrier once rates inevitably rise again. Further, the Fed announcement and the strength of the bond market (i.e. safe haven investment) indicate future economic concerns.

My prediction is that rates increase and demand slows creating a weak 2nd half of 2019, similar to last year. Home sellers should enjoy this surge in demand while it lasts. On the other hand, the strong employment base of Playa Vista, many of whom are new to the area and currently renting, creates a future pool of buyers that should continue to grow, reducing the chances of a prolonged downturn.