Soaring home prices and limited availability of homes for sale have set the scene for a home seller’s dream—homes getting snatched off the market days after listing, bidding wars between buyers sending sale prices sky-high. It’s left many buyers frustrated or even heartbroken as they’re outbid for yet another perfect home.

However, predictions for 2019 show LA’s red-hot market might be slowing down a bit. Here’s your 2019 LA real estate forecast.

Real House Price Index for LA Predicts a Buyer’s Market

First of all, what is the Real House Price Index (RHPI)? Simply put, this data measures the price changes of the “real house price” of single-family homes—in other words, the price of the home adjusted for the impact of income and interest rate changes. In short, it measures how affordable homes are.

The most recent RHPI data shows a decrease in real home prices from January 2019 to February 2019. It also found that consumer buying power (i.e. how much home a person can afford based on changes in income and interest rates) increased, as has average household income.

Why RHPI Matters to Buyers & Sellers

If you analyze straight numbers between today and the 2006 real estate boom, unadjusted home prices have actually climbed 2.3%. However, the RHPI shows that real house prices are 39% below 2006 real prices.

For buyers, this means that even though the dollar price of homes has risen, they're still much more affordable, probably due to an increase in income. For sellers, this means increased equity, and thanks to increased affordability, an influx in buyers.

What Affects RHPI?

The three main factors behind RHPI are mortgage interest rates, average household incomes, and unadjusted house prices. For example, the rising income of 2018 was offset by rising interest rates and rising prices—leading to an overall increase in RHPI, or homes becoming less affordable.

Early 2019, however, has been much more friendly towards buyers, with mortgage rates and home prices leveling while income continues to rise. The result is a rise in house buying power and an increase in overall affordability.

Increasing Inventory = Increasing Affordability

One of the main reasons affordability has been increasing in the LA area is the number of homes for sale has also been increasing. Looking back to the first half of 2018, the LA market was strapped tight, with very few options for buyers. This encouraged more sellers to list and drove an influx in new construction in the area, drastically increasing the number of homes for sale on the market.

Increased inventory gives buyers more options, making bidding wars less likely to break out and drive prices up.