Los Angeles Housing Market Seems to be Slowing

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Of all the regional markets in the United States, none have seen the flurry of activity that California has since 2013 began. While still carrying the troublesome status as the ground zero of the pre-recession housing crash, both Silicon Valley and greater Los Angeles have seen rapid home sales and price escalation throughout the past few months. As I noted in a prior post, the San Francisco housing market is still pacing a straight upward trajectory. However, the housing market down south might soon witness different patterns.

A Notably Slower Growth

According to a new report form the Los Angeles Times, population growth throughout Southern California slowed notably last year. As the article details, there’s much less motion to form new households and less influx of new residents overall. This has led to a slight decrease in demand for new homes, which for a span of months had been gaining value due to elevated demand. It’s a sign, overall, that the decrease in demand could lead to a slight evening in what have for a long while been escalating home values.

The combination of limited relocation to Los Angeles and its adjacent counties and a general migration away from the area has already started to impact the housing market outlook.  As the Los Angeles Times report notes, more than 11,000 residents moved out of San Bernardino County than moved in by the close of 2013. It seems that the migration away from these high-population, high-demand areas is tied directly to the exorbitant price of real estate. As has been observed throughout the northern part of the state, housing prices have become so high that some buyers have avoided the area altogether.

So What’s the Impact?

This might have the unintentional impact of leveling housing prices, or at least slowing the rise in values. One of the small ironies of LA buyers getting priced out is that it helps maintain prices for a larger range of potential homeowners. It seems as if Los Angeles, as is the case with the rest of the country, has reached a point where home prices are seesawing gently between affordability and minor climbs in price. It’s a somewhat complex position for the market, but it’s also a buffer against a sharp bubbling in real estate values. At this point in time, it’s far preferable to the boom-crash many observers were concerned about once the housing market began turning the corner.

Ultimately, this might forecast a greater interest in more “peripheral” property – homes and condos located away from high-demand neighborhoods and the coastline. More conservative buyers might look for out-of-the-way homes in lower-priced neighborhoods, which leave opportunities for developers to reap the rewards of investing in lower-demand areas.

What are your thoughts on the Southern California market?

Photo Credit: Ron Reiring

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About Author

Harrison Stowe is a writer for NVR Inc., a prime developer of Baltimore new homes. Addressing a range of topics including investing, mortgages, and real estate, Stowe combines finance knowledge with additional experience working with Ryan Homes in the current real estate market.

5 Comments

  1. Good article. It seems the market has mostly topped out and stabilized. One misleading stat that is always cited is that more people moved to other counties than moved in. That may be a useful stat in Middle America, but in a global city like Los Angeles, it is almost meaningless given the high rates of immigration. Many of these immigrants are quite wealthly, especially some from China who have been pushing up prices in the San Gabriel Valley.

  2. There’s an old Will Rogers quote “Buy land, they’re not making it anymore”. Real estate prices are based on supply and demand. The areas of southern California, especially the coastal areas will always have high demand. Add to that the broad based local economies, educational institutions, amusements, recreation, cultural diversity, and year round perfect weather, and they all add up to draw people from around the world, to spend their money. Many of those people buy vacation homes here to get away from their too hot summers or too cold winters.

    The demand in the more popular areas, especially of the largest city, Los Angeles, means developers move into developing more infill lots, paying high prices for tear down properties, etc., which doesn’t equate to lower prices. Areas that are a little further inland become more of the “bedroom communities”, where those that make lower wages can get more house for their dollars, etc.

    Don’t look for a mass exodus from southern California, or a big price crash to happen. I’m of the belief that prices are never going to be lower than they are right now, and there’s always going to be people wanting to live here, and vacation here.

  3. Nice article. I have learned some new points here. There is an unintentional impact of these on real estate market. You described those impacts beautifully.

  4. ” It seems that the migration away from these high-population, high-demand areas is tied directly to the exorbitant price of real estate”

    Understatement of the year. They’re all moving to Texas lol! As a native Californian, the draw to living there has been diminished by the high cost of living, the oppressive regulations (they’re not nicknamed the Nanny State for nothing), and the less than friendly climate which exists for doing business and being a landlord. Oceans, beaches and generally mild weather just aren’t enough of a draw to keep people there anymore.

  5. Great insight Harrison.

    Like any other market, California is cyclical and falls under the laws of supply and demand.

    We will see another buyer’s market but will be targets around the working class areas.

    You can make a strong argument that most of the coastal submarkets will never get cheaper.

    Swat

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