Spring of 2024. That's when rates may noticeably ease, and therefore open up the market to more buyers. Right now there's no inventory and not much affordability.
The sweet spot is in homes bought in 2008 and 2022 and either held, or doubled their value in 2017, and tripled their value in 2021-2022.
Interest rates are up, there's a war that could expand, there's been banking failures and likely more to come, yet real estate is holding on. Why is that?!
There is absolutely no doubt the first reason is inventory. There just isn't enough. When you have more homes that have sold than are on the market, that's very telling. Santa Monica has 39 homes for sale under $5M right now and 38 sold in the past month. Culver City has 8 for sale and 12 sold in the past month. West Hollywood has 16 active and 22 sold. Pasadena has 94 active and 171 homes sold. There just aren't enough homes compared to the demand. On the flipside, DTLA has 192 for sale and 83 homes sold, so now you know where there are deals to be had.
The second reason prices are still going up is safe haven aspect of real estate. Unlike the volatile stock and crypto markets and low yield treasuries, real estate is very malleable. You can rent out, update, flip, etc. And those who need to park some of their money are putting some of it in real estate.
Lending is going to get worse. If you think this banking thing is over, it's not. Banks will be under more scrutiny, and will be lending less. 10/90 loans will likely be hard to come by. Most conventional banks will want to see at least 20% down for buyers. So anyone holding onto their nice 2.9% loans is likely gonna just stay put. And why put your house on the market when you can just Airbnb the house, rent it out, or add on to it if you need the size?
Let's face it, selling as-is, 20% over asking and within 7 days, is so 2021. 2022 has been humbling to a lot of sellers, and the ones that were aware of the softening market, and the obvious outcome of doubling interest rates, still won out. These sellers priced accordingly, prettied up their properties, staged them, and still sold at or above list price before the market fell further.
And there will be more slowdown in 2023. I don't think there will be a massive contraction, but unless there is a big interest rate cut, the housing market will stagnate. Don't get me wrong, there are still a lot of wannabe buyers out there, but the rates are hindering them, and the recent price slowdowns are not enough to get them to make the move just yet.
So if you're needing to sell, upgrade to a larger house, sell to relocate, etc., it's time to get real. Be prepared to pay for rate buy-downs for buyers, spend a couple thousand on painting or staging, and at the very least, declutter. And be real about what's going on in the market. Just because your neighbor sold for $1M three months ago, doesn't mean that your similar property is going sell for the same or more 3 months from now.
Interest rates may not go down for a while, and buyers are taking advantage of the softening market before it begins to head up again.
Some buyers are waiting it out, seeing if the market will implode like it's 2009. But that doesn't seem to be happening while supply remains tight.
I don't know anyone who is giving up their 30-year fixed 2.5% interest rate anytime soon.
INFLATION. PERIOD.
This is such debated topic when home prices are through the roof (no pun intended). I get the perspective of renting a place while the market cools. But my issue with this is that the market may not cool. It may go up or stay the same. Secondly, rent paid is money you'll NEVER get back. And rents are expected to increase 4-5% each year. Mortgage paid, if you hold on the property, is money you'll get back in the form of equity when you sell at the right time. And a 30 year fixed loan during inflation times? No brainer.
But did you know that homeowners have on average at least 50,000 in wealth equity in Los Angeles, while renters have about $600.00?
And here's the other kicker. Anyone who has bought a detached house in LA in the past 12 years is sitting on at least 20% equity. This is the average percentage of increased value since COVID. Crazy.
And don't forget, you don't have to be responsible for the entire mortgage. There's also the hybrid argument. You can rent a place, but still buy an investment property to rent out to someone else who will pay for half your mortgage!
REMEMBER, there's never a bad time to buy real estate, only a bad time to sell.
While most dense urban centers took a backseat to the suburbs during COVID, there's been signs of people moving back to city centers, particularly in DTLA. Whenever there's a shake up and prices get depressed, those with long term holding plans always come out of the woodwork and buy.
Investors, city dwellers from NYC, SF, Chicago, Seattle, and other metro areas have been moving into DTLA according to recent sales and leases from other DTLA realtors. There's been a noticeable number of people from out of state moving to DTLA due it's dense city environment and of course the weather. With outdoor dining returning, and indoor dining at minimal capacity, the ability to walk outside in winter to 70-degree sunshine, a slew of activities within 1-2 hours of anywhere (skiing, hiking, lakes, wineries, mountains, beaches), there's a lot going for DTLA.
Sales activity has increased about 8-10% this year from last, and prices have ticked up about 3% from last year. DTLA is still down overall about 7% in prices from pre-COVID times.
Leases are up now too, with more people feeling safer in general and rather than moving out of a walkable area, there are lots of people who are moving within DTLA and trying out new buildings and neighborhoods.
Entering Spring and Summer, the hope is that with more people vaccinated, the worst is behind us and can move forward to heal, resume business activities, and do our part to help keep the smallest businesses afloat.
LA real estate is very complicated. You have so many types of housing, so many different neighborhoods, so many different hubs of commerce, and so much different geography, all within 30-45 minutes of drive time. This is why there's not a blanket answer that represents exacty what went on, and what's going on in LA RE.
We know commercial real estate was killed last year. What do you expect when governments lock down offices, and companies scramble to begin the work from home phase? While most of the mid-to-small commercial buildings were destroyed, some of the high profile buildings in central locations like Culver City, DTLA, and Burbank, were snapped up for pennies by developers who have grand plans, like updated office space for hybrid office/home workers.
One of the industries that killed it in 2020 was residential real estate--mainly for single family homes. We all know the story, everyone fleeing smaller apartments and condos to buy and rent houses with yards and space to work, exercise, etc. I wonder what will happen once gyms and shops are safe to open up, will people get sick of doing everything at home and venture out? For now, we're still riding the single family home wave and prices are slated to go up another 4% from last year.
Condos took a big first hit when the pandemic started, as people left their high rises for sprawl. However, there's also been an influx of people who don't want a huge house to maintain, don't want to live in sprawling neighborhoods in the valley, who want to be closer to the city centers. These folks are buying condos, and that's helped the slower market.
Relocation companies killing it. Another sign of the times. Relocation companies are busy transplanting people to different cities, and this is propping up the rental market as people "try out" areas. So the rental market should be great in 2021, right? Depends on the stock. If you're a single family residence in a great location, the rental should fly off the shelf. If you're a condo in DTLA, you need to up the game because there's lots of competition. Updated appliances, kitchens, bathrooms, interesting amenities--all things that will help in a slower market.
