Buying Now Means Holding for 5 Years

Despite interest rates near 8%, prices have not come down much. If you're going to buy now, expect to hold for at least 5 years.

As they say in real estate, "the best time to buy real estate was 5 years ago."

Buying vs Selling in a Changing Market

ARGUMENTS FOR SELLING:

1. We've reached another height

2. There are talks of plateauing and possibly even microdips in the market

3. You have amazing equity and can upgrade from the starter pad to a forever home

Words of wisdom when selling: Be patient and smart. You will have to have your home in great shape and priced right with a local realtor who knows what's up in the area.

ARGUMENTS FOR BUYING:

1. Rents are through the roof, and still going up due to high demand and low supply

2. Why pay your landlord's mortgage?

3. Population in LA keeps growing

Words of wisdom when buying: Look at the big picture. Inventory is low, and it's still a seller's market. So bid wisely. Do not nitpick about overbidding 5k here, 5k there. Over a 30 year fixed, that's like $3/mo. And try to be less emotional about the things that can be changed, such as ugly carpets.

Some Of Us Are Wishing For a Bubble

This is crazy, but I've heard more homeowners and renters wish for a bubble lately. Yes, even homeowners. (Note: these are the same folks who bought in the crash and will do it again every time--I know I would).

When things crashed, there were many jumping ship, and just as many were clamoring to scoop up one, two or more properties. It sounds like crazy speculation but really, it's logic. These same properties at the crash were selling for crazy low prices such as $200-400k. Previously they sold for double those numbers. When you know that demand for these homes were there at double the price, why wouldn't you buy that property when it's half the price?

That's the past, and with no real bubble in sight for the next 2-3 years, prices are high. Some say it's unsustainably high, but that's all relative. Our friends in NY and London and SF are laughing at LA prices because they are so "low." In fact, folks from these cities are buying a second home in LA.

So what hope is there when inventory is low and prices are high and you want an investment property or a first home because renting sucks?

Two things:

1. You have to take advantage of the still very low interest rates

2. You have to give up the fantasy of buying a 3+2 in Silverlake or a 2000sf loft in DTLA for $600k.

Hot areas that are half dumpy but cleaning up:

1. Frogtown
2. Atwater Village
3. Glassell Park
4. El Sereno
5. West Adams
6. Leimert Park
7. Lincoln Heights
8. Garvanza
9. Hermon

Areas that people say are hot but will probably take 10+ years to see ROI:

1. Boyle Heights
2. East LA
3. Inglewood
4. Compton
5. Cypress Park (Some parts)

Areas that are so hot, it's over:

1. Echo Park
2. Mt. Washington
3. Montecito Heights
4. Highland Park

Homeowner Equity Gains 12.2% between 2016-2017

A lot of homeowners who bought in 2016 are now enjoying about 12.2% in average equity, according to CoreLogic's Home Equity Report. In downtown, 2018 is up about 3-5% (depending on the building) since 2017. So prices are still climbing, but at a slower pace. Inventory is just too low.

Condo Prices Stay Stronger Than SFR Prices

As housing prices continue to climb, condo pricing is among the strongest, and where are the highest concentration of condos? DTLA of course. Condo prices in Downtown LA rose 2.4 percent in the first three months of this year, according to Douglas Elliman.

From January to March, condos in DTLA sold for a median price of $599,000, up from $585,000 in the same time period last year. And, the average DTLA condo spent 67 days on the market—a drop from 82 days in the first quarter of 2016.

There's a huge reason as to why. People are getting priced out of the SFR market, and condos often have a more affordable price point. For instance, a 1 bed condo in WEHO with nice amenities could cost you about $650k, while a 2+1 home will cost about 1.1k. The discrepancy is price is huge and you're not always getting a whole lot more for that upcharge.

In DTLA, you can snag a condo with nice views and parking and amenities like a pool, gym, lounge, concierge, for about $700k. You'd have to plunk down about $850 to get a semi-decent remodeled 2+2 in Highland Park, and you may not even have a garage.

The second reason is the upkeep. Condos are relatively headache free--just maintain your AC unit and keep the plumbing in good shape. While a house needs regular maintenance for the roof, basement, gutters, landscaping, etc, and this isn't for everyone. 

Still a Seller's Market

While "days on the market" are averaging about 30-45 days in DTLA, it's still a seller's market. The problem lately is that sellers are pricing too high. They think that the price of their condo is 25-50k more than the market value. This is causing buyers to disregard those properties or low ball. The worst scenario is when in escrow, the appraised value is lower, so the seller is often "forced" to lower the price or the buyer backs out. Not a good situation.

That said, properties are still selling though they aren't being snapped up within days.

We're at the highest price points in the last 10 years so is it a good time to sell? If you've made a killing, then yes, it might be time.

It's Been a Long Real Estate Wave in DTLA, and Still Going

Crazy to think that prices have been increasing in DTLA (and most of LA for that matter) for about 270 weeks straight. Prices went up exponentially between 2012-2014, then less exponentially from 2015-2017. But still, prices kept going up.

In downtown, even with all the construction of condos and the increase of apartments for rent, the fact remains, there's still not enough inventory to buy, causing demand to remain high. True, properties are sitting on the market longer, average about 60 days, mainly due to the higher prices and lending restrictions, but they do sell in the end.

DTLA has reached a critical mass where now I'm getting contacted by DTLA homeowners who want to buy a second property as an investment. People who already own in the area want to own another, and that's hugely telling. It's a desirable place to live, and the rents are even more desirable.

One key change from about 7 years ago: You'd buy an $900k property and expect to rent it out at $2000/mo. Now, you buy a $900k property and expect to rent it out for about $3500/mo.  The math pencils out much better.

Hence the influx of people from NYC, Chicago, SF buying either a second home or investment property because it's still affordable compared to those areas. And yet it's reminding them of Brooklyn, SF's Mission or Wicker Park in Chicago a few years ago. Heck, even Detroit...nuff said.

Prime Units and Penthouses Available in DTLA

I mentioned in an earlier post, that in a market with low inventory, it's really hard not to settle. But settling is for short term holds. For a longer term hold on the property, it's best to snag a property that will still be desirable in any market.

Below are available condos that are desirable even in down markets, and why.

940 E. 2nd St #38 - $1.759M

Formerly "Barn Lofts"

WHY: Arts District location, historic pedigree, over 2300sf of space on multilevels, 

rare townhouse style home with parking included.

849 S Broadway

WHY: Historic core location bordering South Park and Fashion District, unique 

Mills Act building with unparalleled amenities for a historic building, attached parking.

#M1 - $1.13M

#202 - $799k

#206 - $799k

#512 - $1.358M

#1210 - $3.98M

PH#1 - $2.385M

PH#2 - $2.475M

PH#4 - $1.799M

1111 S. Grand Ave PH#6 - $1.375

WHY: Central within South Park, larger than average size lofts because it was one of the first ground-up developments in SouthPark, LEED certified building, 

nearby just about everything in DTLA, full amenities.

1850 Industrial #710 - $1.875M

Biscuit Company Lofts

WHY: Uber hot Arts District South, Mills Act building with historic pedigree, 

amenities and in-building parking.