We're In the Most Dysfunctional Market

Seriously, so many people are shaking their heads at this market. Sellers are boggled that well-priced homes are not flying off the shelves (they're selling, but surprisingly slower than expected), Buyers are flummoxed that prices aren't crashing, interest rates are still nearly triple the past 5-year low, and even while inventory is rising, prices aren't plummeting. 

That's because when you think about it, nothing has really changed in the past 24 months. Interest rates are still high, most Sellers are NOT unleashing since they are happy in their post-COVID homes and even happier with the 2.8% mortgage rate, and inventory is still historically very low. We've been in a weird market where neither side needs to or wants to budge. 

But one thing is for sure, right now, Buyers have more of an upper hand than Sellers because they can offer less, or just walk away. Sellers are at the mercy of buyers (unless it's a hot property) and are often willing to negotiate. A recent buyer I represented got their escrow fees paid by the Seller--that was about 10K that the Seller just agreed to pay to get the deal done. Not possible 3 years ago.

And right now, Landlords are gaining the upper hand too. Rents are climbing, the cost of living is climbing, and renters either have to downgrade their place to match the rents they want or pay the annual rent increases where they currently are. 

Renters always forget that they don't have a 30-year fixed rent, they have a 12-month fixed rent and that's pretty destabilizing in my opinion. This is another reason why I'm seeing more couples and roommates shacking up to offset costs. Why pay $2500/mo each for a mediocre apartment when you can pay $2000/mo each for a much nicer $4000/mo 2 bedroom in a nicer building and possibly better area?

So what to do? If you're a Seller, price it right and sell so you can use your funds to do what you want to do. Otherwise, hold until the market goes up, because it always does. If you're a Buyer, buy now while things are negotiable. Remember, the mortgage rates can drop and you can always refinance, but the price is the price. Landlords, hold on to those precious rentals, especially in prime buildings and ones in which you have good Renters. Renters, you should consider buying if you're sick of rents increasing each year, and start gaining some equity which equals wealth.

Gas Prices Up, Home Mortgage Rates Down

The 30-Year Fixed is at 3.5%. Crazy. This is like back in 2004 or 2011. Prices have plateaued a bit, and interest rates are low, and that is the best time to buy.

The Market is Softening, But Inventory is Still Low

Several things have happened in the past few months. It's odd because it's a good time to sell, but it's also weirdly a good time to buy. Some of my thoughts and feedback from clients:

1. Interest rates have gone up. This has affected prices a tad. And yes, I mean only a tad. We're talking 1-3% price shavings from the summer. Meaning, prices are still very good if you're in the market to sell.

2. It's still a Seller's market, mainly because prices are still high and inventory is still low. So is it a good time to sell? Heck yes if you have equity or are needing to unleash.

3. While interest rates are hitting up to 5% depending the lender, I dare say it's still relatively cheap to borrow compared to 20 years ago. Interest rates are slated to go up a bit more in 2019, so that means if you are planning to buy in the next 6-12 months, now is probably a good time.

4. Rents are higher than ever. I can't believe the gorgeous 2+2 unit in a duplex I used to rent in Hancock Park 15 years ago for $1200/mo, is now renting for $4200/mo. That's about a 400% increase. What I mean to say, sadly, is that it's really hard to rent these days with prices so high. If your budget is under 3k, and you don't have a decent downpayment (10-20%) saved up, it's ok to keep renting. If your budget is about 4k, then it's probably better to think of buying something small in an up and coming area and holding on for 3-5 years, and then cashing out on the 100k+ equity you'll gain. Seriously, I believe the market will go up in certain areas while other areas will plateau.

5. Will the market keep going up 5-10% each year like it has since 2010? Likely no for the next 2-3 years. However, 5 years from now, some areas will. These are areas that are in transition, like West Adams, Glassell Park, Montecito Heights, Lincoln Heights, and the Fashion District & Art District in DTLA. There's just room to grow in these areas.

6. At the end of the day, real estate is about security, equity, and leverage, so whether you're selling to make a profit and trade up, or buying to build equity and peace of mind, if it's the right time for you, then that's all that matters.

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.

Doom and Gloom News for Buyers in LA

I had to do a post about this because all this doom and gloom about not being able to buy if you're a prequalifed buyer is mostly BS. Of course if your budget is under 500k, then yes, you will have very slim pickings. But you can still buy, you just need to reset your expectations.

My advice? Sit down with a lender and see exactly how much you can borrow. You might be surprised. I had a client who ended up qualifying for 100k more in his purchase price because his lender told him that the he just needed to wait until his car was paid off in a couple of months.

Maybe you need to buy a condo instead of a house? Maybe instead of Silverlake near the reservoir, you need to look into Atwater? Maybe that 1600sf loft you want should in reality be more like a 1000sf loft? You can't expect to have the same stock available to you as 7 or 8 years ago. Prices are up and inventory is low.

And remember, your first home doesn't have to be the end all. My last client who downsized into a smaller house because that was all they could afford, ended up renting out this house and buying a larger forever home. One property became two!

If Prices Are So High, Why Aren't People Selling?

Sure there's a lot of equity out there. Owners can make a killing. Then why are so few owners not selling?

Prices are too high to rent. If they sell, the rents are way higher than their current fixed mortgage.

Prices are too high to buy. If they sell, it's hard to upgrade these days unless you move to a different location. Most people might make a lateral move or even downsize, but it's hard to upgrade.

At the end of the day, it's better to own.

Housing Shortage Causing High Prices to Remain Steady

Things should be slowing down on housing prices. It should be, but it's not. It's not that LA is invincible--we all know that a financial crisis can affect every city. But the fact is, that there is a housing shortage. And where there is a larger demand, prices will be high. A few years ago, I was very bullish about buying, but that's because prices and loan rates were at historic lows. Today, loan rates are still super low, but prices are high, and to add to the mix, there is a massive housing shortage. The laws of supply and demand say this should lead to ongoing high prices. Some are saying to buy now because the shortage will continue. Others are saying that a dip is imminent. It's hard to say who's right at this time.

This according to LA Times writer Steve Lopez:

 "Today, home ownership in California is the best investment any of us will ever make, thanks, in large part, to a scarcity of housing. The pace of construction has not kept up with population grown and demand, so those of us with houses own a staggering amount of equity wealth that grows even as those without homes pay a higher price for survival.”