Housing Market Outlook Los Angeles Forecast

LA home buyers and sellers just want to know where the market is going in the next 3 months to 6 months. That depends on the economy.

Economic predictions in this period are difficult with the threat of a second wave of Corona Virus, the China US trade war, mounting debt problems, increasing bankruptcies, growing homeless numbers, burned out font line health workers and police, slow return to work, and whether a second bail out from President Trump will happen.

 

In fact, these factors plus the time to vaccine can’t be gauged accurately. So the 3 year and 5 year forecasts are sketchy as well. A 2020 election loss for the President could be catastrophic sending the US into a nightmarish depression.

The key question is “how much more money can the President print to deal with the Corona Virus recession? Whether you’re in LA or Dallas, or New York or Chicago, everyone is waiting for additional bail out funds. Without them, and with a second virus wave/shutdown, cities including Los Angeles and New York could face bankruptcy.

 

California’s deficit is now $64 Billion, with many pensions in crisis. With 20% unemployment and 9% less personal income, the tax base is disappearing. Businesses are moving away because they simply can’t pay the high rents. Some hope that overturning Proposition 8 will help generate more revenue.

 

April 2020 Sales Stats

April’s housing market sales stats show home prices dropped 1% in the greater Los Angeles region, yet were up 2.5% over last year.

Inventory dropped 20%. Growth in listing prices has stopped as homes come back on the market and business reopens.

I’ve forecasted high prices for the LA housing market for years, because the housing shortage won’t allow it to fall. The California government keeps enacting laws against construction, raising taxes, repelling investors, and chasing votes with rent control legislation.

The outcome of this an exodus of residents to Texas and other states, but rents haven’t declined and home prices are ready to rocket as we pass the through the Corona Virus era. Job losses across California have been significant and stay at home kept Realtors from listing or showing homes.

Now, with the reopening, more listings will appear, but not as many as February as the economy is too uncertain.  Sellers are resisting. However, foreclosures are likely to rise creating some inventory for eager buyers. CAR says we’re see some light at the end of the tunnel.

Yet, consumers will be tightening their belts as governors ask for more Federal bail out cash.

Prices drops and rise varied across California cities in April reflecting perhaps the migration of Californians to areas with cheaper housing or some availability.

The work at home directive of most employers is allowing workers to move to less expensive towns.  However, sales have plummeted in most cities, ranging from -10% to -36%.

In greater Los Angeles proper, home sales plummeted in April by 25.6% and by 15.5% in Los Angeles proper.  Sales in LA County dropped 30.6% compared to 12 months ago. Home prices however rose 3.9% from last year. The change from March in price was only .5%.

April’s statewide median home price was $606,410, 1.0% lower than March and up 0.6% from April 2019.

However sales receded in many counties including Los Angeles, Napa, San Bernardino, Santa Barbara, Santa Cruz, and Kings.  In some counties it was a steep drop so March’s number likely will be well down.  See more below and please do share this post. The market will come back in the summer.

Condo Sales in Los Angeles

Condo prices across California also fell 1% in April and price is 3.8% higher than last April.

Los Angeles condos sold for .7% more in April yet sales dropped 42% in the month.

Will the Los Angeles Housing Market Crash?

Will there be a housing crash in LA this fall if a second wave appears?

California Recession Factors to consider:

1. housing construction continues to fall
2. housing permits way down and may not come back this year
3. tax base has been seriously eroded and property tax might have to rise highly
4. buyer credit ratings go down
5. buyer income down
6. unemployment up sharply
7. recession could last 3 months or 6 months
8. Californians leaving reducing the tax base
9. end of bail out funds and loans
10. trade with China ends

With the crash of the stock markets, we’d have to expect luxury home sales and prices will also recede.  Check more on the Stock Market Forecast and predictions for 2021.

Pending Sales grew strongly. People want a home.

The Coming Big Shift Downward in Sales

The slowing economy and stay at home work stoppage will bite harder each week it’s in place. Housing market experts are struggling to forecast sales and the effect on the long term economy but they’re likely working on that now. Bookmark this page and I’ll keep you updated on the future outlook.

Across California, listing prices surged to double digit growth for the first time in 3 years. Just as things we’re rolling, the virus has pulled the plug. Prices were accelerating hard.

Housing Market Southern California – Los Angeles Region

To get a better picture of home prices in and around the Greater Los Angeles region, we have Car’s latest housing chart for September. Similar to the California housing market as a whole, home prices are rising while sales have plummeted. That’s due to some buyer pessimism but mostly due to a severe lack of supply. The California housing crisis and homelessness are hot political issues.

Los Angeles Inventory Up and Sales Up

Los Angeles saw home prices fall about $37,000 or 6% but were still up 7.3% year over year. Mortgage payments dropped by 3% but down payments required rose 8.9% to $101,000 on average.
More sellers reduced their listing prices across the state.

An uneasy trend toward lower supply of homes and soon, lower demand will likely stagnate the housing market.

Mortgage Rates are falling with no support for higher rates

Mortgage Rate history. Screenshot courtesy of St Louis Fed.

Although the volume of affordable homes available for sale remain constrained in LA County, mortgage payments have declined considerably potentially enabling more buyers to get into home ownership.

California Housing Market

Sales within the California housing market are slumping with the exception of the San Francisco region.  However, sales are up strongly year over year.  Buyers are finding some reprieve in prices.

Lack of Affordable Housing is Holding the Market Down

Low home affordability continues to depress buyers in Los Angeles and across California.  After a lull in housing and economic activity, it looks like the spring market is starting strong. That’s likely due to a renewed confidence in the US and California economy and the health of Silicon Valley.

High cost of living and too high real estate prices have some businesses exiting for Arizona, Florida, Colorado, and Texas. That exodus may help ease keep home prices from running away again this summer.

This is the same issue in San Francisco Bay Area, San Diego, Sacramento, Florida, Denver, Chicago, and Seattle where buyers simply can’t afford the lower end of the detached housing market.

 

Is it instinct or just common sense that California will continue as the most desired place to live on the planet? Does the climate in San Diego, Sacramento , Bay Area, and Los Angeles, high paying jobs, interesting geography, lifestyle and recreation, make California a magnet for people around the world. Price growth is predictable.

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.

Sales volume actually increased 11.5% in the last month, so homeowners appear to be loosening up finally.  Realtors

And 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.

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 US economy will pick up steam and Californians will be buying a home again even if they have 1 hour+ commutes, higher interest rates, and out migration to remote towns.

Check out the top housing factors below affecting housing prices in discover a better homes for sale search process.

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)

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?

The situation may become worse than what San Francisco, Vancouver, and Toronto have been through, and what Miami, New York, and Boston may be into now.

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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.

 

Is there a Housing Market Bubble?

Do you believe we’re in a California housing bubble? According to a Harvard real estate guru, bubbles don’t burst until demand dries up — an increase in unsold inventory and that’s not what’s happening. Sales are strong and California home prices are predicted to rise further.

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

1. Housing Demand – High overall demand – “all cash bidding wars” in some cases
2. Housing Supply – Throttled, supply is far from what’s needed
3. Mortgage Rates – Continuing Low, especially in light of global economic slackening
4. Down Payment and mortgage rules – Banks are withdrawing FHA loans however some were offering down payments as low as 3%
5. Regional Employment – Very low and remaining low
6. Buyer Income – low and not rising much
7. Home Prices – High and rising – out of reach for many buyers – many consider LA homes grossly over-priced
8. Demographics – Millennials coming into family and home buying years and LA millennials have had the lowest rate of home buying (pent up demand)
9. Number of Renters – increasing fast
10. New Home Construction: slow (100k to 140k per year)
11. Economic-Foreign Trade – Trump expected to reduce US deficit
12. Election Year – Voters uncertain of what Trump will create
13. Taxes on Sale of Home – Tax situation is great for sellers

Historical Data

This intriguing graphic courtesy of https://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 https://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.

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.

Realtors: Check out other posts providing realtor tips, prospecting strategies, social media strategy, and tactics used by top flight luxury realtors and even lead generation companies.

See additional housing market reports on New York NYC, San Diego CA, and San Francisco CA.

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Housing Market Forecast – copyright Gord Collins

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