Has the pandemic changed the real estate game in Los Angeles? Is there a demand for specific types of homes? What thoughts to where we can go from here? I would love to hear your thoughts or personal experience/findings.
The market is holding strong for the following reasons:
- High demand and low inventory.
- No new land to build tract homes (other than the Small Lot Ordinance homes but those are more like detached townhouses).
- Labor and materials are so high that you can only build in the luxury market, making affordable housing mathematically impossible.
With that said, we are seeing some cracks in the market:
- Buyer fatigue is real.
- Some buyers are pushing back. The idea of spending $1,000,000 for a small home on a small lot doesn't make sense to them.
-Buyers are expanding their search criteria to more affordable areas. I have been seeing this for the last couple of years. It's no longer "I have to live in Encino." It's now "I can live in Encino, Sherman Oaks, Woodland Hills, Calabasas, maybe southern West Hills."
Really the suburbs such as the San Fernando Valley became more desirable. More for your money and more land. I just got my listing in West Hills in escrow this morning. It is an over 2500 square foot house on an over 11,000 square foot lot. The Buyers are coming from San Pedro where they lived in a less than 1,200 square foot home on a 6,000 square foot house.
I'm seeing a bigger price gap between fixer condos and done condos than before. It could be because so many first time home buyers are already stretching their budgets that they don't have the money to rehab a place. The luxury market is seeing a little more activity, but really anything under $2M for most of LA sells pretty fast.
As far as what is the demand? It's all about affordability. The cheaper the home, the more likely it is to sell fast and with multiple offers. Secondarily, outdoor experiences is a must, high bedroom counts (work from home situations), and quiet areas for kids to play in the street (such as a cul de sac).
@Rick Albert is spot on! We purchased in Encino Park in 2016 and I'm so grateful I pulled the trigger then. Home value basically doubled in 5 years. I get weekly calls / e-mails asking if I'm willing to sell. Sure I can come up with a number..... only problem I see is, there is nowhere to move (certainly not a bigger house or equal size in a more desirable area). Even if you purchase another property for the same price that you are selling, you're locking in a higher property tax payment which is not ideal. My wife and I are both young professionals starting our family and I could not afford the current market I live in.
Rick, do you also monitor small multi-family or only SFR?
Thanks @Matthew K. !
I do mostly SFRs and condos but also 2-4 units as needed for my clients. The big issue there is rent control. Sellers are asking realistic prices in some cases if they were able to achieve market rents. The problem is most of these aren't because they have tenants in there who have been there a long time and rents have not increased enough to keep up, making it not worth it at almost any price. The ones that have value are in vacant units for sale. I'm working on a listing right now where the larger unit (4 bedrooms) will be vacant and the back unit is paying market rents. I think it will sell quick because there is demand for that bedroom count and with the high prices of LA, can use the reliable income in the back unit towards their DTI.
Last November I helped house hackers get into a duplex where one unit was below market rents. I used this information to our advantage and was able to negotiate $55K off the list price and a $4,000 credit based on repairs.
Education is key in this market in order to get deals done. The more knowledge you have, the more leverage you can establish.
@Sebastian Mosquera prices in lA have gone up 20% since the start of the pandemic but prices don't necessarily correlate to affordability. interest rates are at near lows which offset high prices. i talk to a lot of people that think home prices are too high, but much of it is just getting over the phycological hurdle that you're buying at the "top of the market". If rates stay low and we continue to have zoning/permitting regulations that aren't conducive to building more units quickly, demand will be high and supply will remain low which will lead to further appreciation.
i saw a recent study that said sellers prefer offers using conventional financing as opposed to FHA because FHA takes longer to close and has more strict inspection requirements. IF/when we ever run out of conventional 20% DP buyers, sellers wont have the luxury of being able to choose their preferred financing so the low DP FHA buyers will increase in market share.
unless the macro perspective changes or we have a flood of new housing inventory, I don't see things changing any time soon. even then, the FED has taken drastic measures to prop up our economy since the start of the pandemic, who's to say they won't continue doing so. 40 year mortgages could be a thing of the future to help affordability once interest rates go back up - https://www.housingwire.com/ar...
@Dan Portka Great info! Thanks for this valuable insight!
@Rick Albert Thank you, Rick! Definitely great info.
Of course! Happy to provide my 2 cents.