08 Jan Los Angeles Real Estate Forecast
Housing Forecast for Los Angeles 2018 to 2020
The real estate market in Los Angeles enjoyed good growth during 2017 and 2018 is looking good for sellers. Prices grew $41k over the last 12 months and active listings have dropped 1,000. DOM are falling so bidding wars might increase this year.
The wild fires had an effect, in the LA County region hard including Sonoma and Napa valley regions which were hit the hardest. The insurance driven recovery should revive the housing market in LA.
The losses were estimated at nearly $10 billion with a $500 billion hit to the economy. The numbers are similar to the floods experienced in Houston TX or Miami FL . Some homeowners are discovering they weren’t covered sufficiently with their home insurance.
The California Department of Insurance said the fires cost $9.0 billion in insurance claims so far, which was 3 times the $3 billion claimed previously. For the next few months however, California housing will be in extra short supply.
Fires might actually be an unfortunate distraction from the housing crisis that’s existed for many years now in Los Angeles and across the whole state of California. The state just can’t seem to get a handle on the need for more homes. The OC Register reports that CEQA lawsuits against developments are a serious issue for housing, especially in the LA area. As Los Angeles residents suffer financially, and while housing crash rumors float around, prices are rising. You’ll need an income of $120,000 to buy a home in LA in 2018.
Prices of condos in downtown LA are reportedly $90,000 higher than last year.
Insurance Companies Begin Fielding Claims from Homeowners
Is it instinct or just common sense that California will continue as the most desired place to live on the planet? Whether it’s the weather, great jobs, interesting geography, and recreation, California is a magnet for people around the world.
In 2017, real estate sales in 2017 in California have eased however house prices remain high in Los Angeles, Orange County, San Diego, and San Francisco / Bay Area housing markets which had previously approached prerecession highs. But will they rise further and is this the right time to invest in an income property?
The short answer is Yes. Houses for sale in Los Angeles County and Orange County are in short supply and new residential development is not keeping pace. It would take a market crash to stop the price rise and even then it would only be for a few years. For wealthy investors, a few years is well worth the wait. The question is where to get a realistic price? The hunt continues.
Average House for Sale Still Sells
CAR reports the average house price in LA rose about 10% in September compared to August 2017. San Bernardino, Riverside, and Orange County also strong price growth from 8% to 10%. Contrast that with the drop in the Bay Area of more of about 3% or $14k to $33k for detached homes and you realize LA is a more attractive housing market.
The effect of the fires will be to reduce availability and raise prices. So not much relief in site for the LA market. As in most markets across the US, millennials have been shut out of the markets. They’re in their child bearing years and have saved up small fortunes to ready them to finally purchase. They’ll be buying in LA or Orange County somewhere.
Sales volume actually increased 11.5% in the last month, so homeowners appear to be loosening up finally. Realtors are wondering how they can get people to sell their homes. Inventory is the big story for the fall of 2017.
This graphic from CAR.org’s latest report shows inventory in California is sharply down from last year. Sales above $500k were up up. Active listings in the lower price ranges are down considerably ( -10% to -28%).
Screen capture courtesy of CAR.org
real estate investors are hopeful they can find the right property in the right city or zip code. Zillow has forecast house prices in Los Angeles to rise throughout 2018 while CAR shows it moderating. A lot depends on the political climate and interest rates.
Screen Capture courtesy of Trulia
We should keep in mind that only 30% of Californians own a home so the door is wide open for opportunity and new sales, particularly with first time buyers. The problem is that homeowners don’t want to sell and buyers can’t afford the prices.
Why are Buyers Buying in California?
CAR’s 2016 survey showed only a small portion of buyers buy property as an investment. Only 13% are real estate investors.
Buyer Survey – Screen Capture courtesy of CAR.org
The Telling Stats about LA’s Forecast
If buyer’s are hoping for bargains in the next 4 years, they’re unlikely to find them. Despite a dip in September, prices for homes and condos are up $24k to $30k from one year ago. Are the Asian and Persian buyers pulling out of LA? The Trump instability and trade issue might be a pause before even more money pours into the reviving American economy. Make American Great Again, also creates excellent investment opportunities in California, paying out in $US.
- jobs being repatriated back to the US from Mexico and China
- employment already good and rising
- the end of Obamacare?
- the end of Dodd-Frank restrictions on lending
- general Federal easing of real estate development expected
- it will take some time for mortgage rates to rise
- still isn’t enough housing to house LA’s growing population (recession)
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It’s the Los Angeles housing forecast that is perhaps one of the most interesting forecasts for the US for the next few years. California’s housing developers are hard pressed to build homes to house the population. We can speculate that homes will rise in price for the next 4 years. It’s not easy to predict though when people are talking real estate bubbles, NAFTA cancellations, Brexit, skyrocketing prices, vacillating oil prices, reduced immigration, and presidential elections.
Overall, the Los Angeles forecast was very good for sellers with plenty of demand and with the average price of a home hitting $690,000 last summer. Affordability is dropping though and only 30% of LA county residents own a home.
Given the nasty commutes Los Angeles workers are enduring, this housing crisis should be a top priority for the California state governor.
A few pundits are suggesting homeowners need to build granny flats in everyone’s back yard. Political battles are forming over the effect of regulations on LA’s and California’s home construction. Who will win? Will they battle Trump head to head to stop new development?
Save your Money on Auto Insurance Quotes in LA
Are you paying too much for car insurance in Los Angeles? Some zip codes and neighborhoods are subject to higher premiums. Are you okay with that? How about finding lower car insurance rates and making it a habit of shopping for auto insurance every year? 2017 is a good year to save:)
Here’s the Hottest Zip Codes in Los Angeles
LA Curbed’s list of hot zip codes: Los Angeles’s 90012 zip code is shaping up to be the 2nd fastest growing area in the nation at 8.8% growth, 2nd behind only Gilbert AZ. The 90012 zip code includes Chinatown, the Civic Center, Elysian Park, Victor Heights, parts of the Arts District and Bunker Hill, and most of Little Tokyo.
Here’s the LA Times hot zip code list:
Santa Monica 90402 – Average home price: $3,237,500
Hermosa Beach 9025 – Average home price: $1,693,500
Lincoln Heights/Montecito 90031 – Average home price $458,500 +14.6%
City Terrace 90063 – Average home price: $320,000 +18.5%
Marina Del Rey 90292 – Average home price: $2,157,500 +23%
Manhattan Beach 90266 – Average home price: $2,100,000 +10%
Compton – 90220 – Average home price: $285,000 +9.8%
Playa Del Rey 90293 – Average home price: $1,517,500 +26.5%
Toluca Lake Studio City 91602 – Average home price: $1,022,500
Read more on the best zip codes in the US for investors and homebuyers.
LA Home Prices Fully Recovered?
The Los Angeles home price graph below courtesy of Zillow shows how prices have almost returned to pre-recession values and are beginning to level off. To forecast prices and demand for the LA region, we’d have to examine the cause of the moderation and if it’s a fact. Here’s LA’s hottest zip codes.
Last year, home prices in LA rose 7.8%. That’s a fairly strong ascent to just snap out of, so we’re left wondering what really is the outlook is for the 2017 to 2020 period? With prices high and rising, it makes sense that the number of buyers will dwindle (preferring to rent) and a leveling off would occur. It seems however, this is more of a guess by forecasters not really backed up by a solid consideration of all the factors that will be in play during the next 4 years – defeated regulations, growing economy, and reduced immigration.
Homes for Sale in Los Angeles: Prices, Trends from Zillow
Try the Zillow Home Search Widget to learn more about LA Homes for Sale. Realtors, click here to hear more about the Zillow leads program:
Home Sales Volume Chart: Los Angeles
Is there a Housing Bubble Market?
Here’s the thing. According to a Harvard real estate guru, bubbles don’t burst until demand dries up — an increase in unsold inventory.
Do you honestly think there will be no demand for coastal California property, especially Los Angeles county or Orange county? As you’ll see from the data in this post below, there is huge demand for property. Supply is the problem.
Factors Affecting House prices and Availability in LA
- Housing Demand – High overall demand – “all cash bidding wars” in some cases
- Housing Supply – Throttled, supply is far from what’s needed
- Mortgage Rates – Continuing Low, especially in light of global economic slackening
- Down Payment and mortgage rules – Banks are withdrawing FHA loans however some are offering downpayments as low as 3%
- Regional Employment – Very low and remaining low
- Buyer Income – low and not rising much
- Home Prices – High and rising – out of reach for many buyers – many consider LA homes grossly over-priced
- Demographics – Millennials coming into family and home buying years and LA millennials have had the lowest rate of home buying (pent up demand)
- Number of Renters – increasing fast
- New Home Construction: slow (100k to 140k per year)
- Economic-Foreign Trade – Trump expected to reduce US deficit
- Election Year – Voters uncertain of what Trump will create
- Taxes on Sale of Home – Tax situation is great for sellers
This intriguing graphic courtesy of http://journal.firsttuesday.us/ reveals that home sales in Los Angeles is actually well down from historical levels. The likely reason for that is lower income buyers simply have even less income to buy and of course the high prices. Home ownership is lowest in California.
A complete recovery of around 110,000 annual home sales will likely occur in 2019-2020, as end user demand in Los Angeles County is buttressed by a Great Confluence of Baby Boomers (Boomers) and first-time buyers who are lured by further employment (needed to accommodate population growth of roughly 1% annually since the beginning of the Great Recession).
That’s a forecast growth of about 20,000 homes per year over current current 2016 levels.
Another interesting stat provided by firsttuesday is the very low rate of home ownership and how much it’s plummeted. It’s on the uprise now, and you’re left wondering whether Trump’s renewed emphasis of America First will encourage the growth of home ownership?
LA Economic Forecast – Very Rosy
The forecast for economic growth for the Los Angeles is optimistic at this point. Visit http://laedc.org/2015/09/30/new-2016-2020-economic-forecast-published-93015/ for the most recent info and their forecast up to 2020.
This Stat from CAR shows homes have been on a rollercoaster ride of sorts yet, 2016’s expected resale volume is still well down from 2011 and 2012’s highs. If incomes should rise in the LA area, it could have the effect of stimulating new housing construction and increase sales of homes. With the number renters skyrocketing, there’s a huge pool of potential buyers.
Home reSales Forecasts 2016f
This graphic reveals the exceptionally high cost of renting in Los Angeles compared with other major centers. The housing availability problem isn’t isolated to California or LA, it’s a US wide issue. The high housing costs in the coastal California areas however may prevent many skilled workers from migrating to LA to work. Startups for instance may be forced to leave San Francisco, Bay Area and LA because of the cost. San Diego County may be a better option for the short term.
This is a short term forecast from LA realtor James Campbell, who believes prices will drop?!
What can we conclude from the above data? That LA’s market for realtors is very promising, yet just as it is in San Francisco, Toronto and Vancouver, finding sellers and convincing them to sell will be a key challenge. Digital marketing efforts could be vital to any realtor hoping to maximize demand and achieve highest price for their clients. Is this the right year to buy rental income property? Find out which are the best investments in 2017 including investing in real estate.
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