After a very noticeable slump due to the onset of the Covid pandemic, the Los Angeles real estate market has begun a remarkable turnaround in investing and commercial building, earning global attention in 2021 as one of the top three most desirous cities for investment. Building conversions have become a huge trend, converting outmoded and unused large office and warehouse buildings into ultra-modern retail and industrial spaces.
The catch? While Los Angeles may be among those leading the pack in California and much of the world for real estate investment, the increasing interest rates and soaring housing market prices created an altogether different situation for those looking to buy a house for use as their primary residence.
Not helping the matter are the Covid-related employment issues as incomes are still recovering for many of those now re-entering the mainstream workforce. With fewer houses available, quick closings, high prices, and economic shifts, buyers are now facing a more volatile real estate market and looking to alternative housing, which presents its own issues.
A Changing Economy
Since mid-2021, the city of Angels and the surrounding area continues to be a seller’s market. Yet despite rapidly rising house prices, many people have continued their hunt. First-time buyers have been lured by low mortgage interest rates puppet mastered by the federal government, initially to offset inflation during the pandemic.
Considering recent global events and fatigue from the Covid crisis, those desirous of purchasing a home in the L.A. area continue to witness inflated house prices. They are now faced with higher borrowing costs as government assistance dwindles while the country levels out after the pandemic crisis. Interest rates are increasing, and the upward trend is not wavering. Although there appears to be a slight downturn in the number of houses sold compared to the number of homes being put on the market, most houses remain well over the $900,000 purchasing price and continue to rise.
As a result, the housing market may become more of a bust than a boom. However, with an increase in homeowners that are listing, compared with a gradually expanding number of home buyers unable to afford the asking price, the current shortage of listings should start to turn around as more homes become available and remain on the market longer.
Diminishing Federal Assistance
Buyers hoping to purchase a home in the Los Angeles area are being forced out of the real estate game due to the increased costs and diminishing financial assistance in the form of rock-bottom interest rates available due to the pandemic provided to keep the economy flowing.
With federal financial resources drying up, those hoping to utilize federal assistance are now being forced to re-evaluate their options.
Sales and Turnaround
According to the July 2022’s Rocket Homes Los Angeles Housing Market Report, in comparing the months of June and July 2022, L.A. has seen a jump of 3.7% in the number of listed homes, compared to a decrease of 23.4% in the number of homes unsold. That’s quite a drop within one short four-week period.
This trend could be slowly changing, as July 2022 indicates that the sale time decreased by 5.5% from June 2022. Not much of a difference. Most house sales still experience a rapid turnaround. In Los Angeles during July of this year, 1,218 houses sold in under four weeks, while 281 homes sold between thirty and ninety days. Only forty homes were sold in over a ninety-day window.
High Prices Remain for Now
The declining inventory can partially explain the increase in house costs as the average time a house remained on the market was less than one month. Homes are still selling, and bidding wars remain common, with purchasers paying up to 11.2% more for the same house than a year ago.
While a small percentage of houses sell for the original asking price, up to 56.7% of houses were sold just this past year over the asking price, almost double that of homes sold below the listing price. Numbers indicate that the more bedrooms a house has, the higher the volume of those houses on the market. For example, the median asking price for a three-bedroom home in Los Angeles has risen from $876.3k to $963.9k asking price, an increase of almost one hundred thousand dollars within a year, according to Rocket Homes.
There remain a lot of people able to afford the current housing rates and keep the market flourishing. However, some are deciding to stand back and keep costs down.
There are currently close to seven thousand homes for sale in Los Angeles County, and the median asking price for a home is well over $900,000, a price increase of over ten percent compared to last year. Combine these statistics with declining inventory within any given month, and it becomes understandable why more prospective home buyers are turning their sites to rentals.
The Rental Option
Many prospective buyers are now focusing on needs versus wants and turning to rentals to reduce their living costs while keeping a watchful eye on the marketplace. Rentals are becoming increasingly difficult to find, and because of increased demand, rental prices are soaring.
Homeownership remains the preferred option if affordable.
Rising interest rates will keep some buyers at bay, and it is hoped that this reduced demand will slowly unlock more inventory and eventually lead to more stable house market prices.
Currently, there is not much balance within the Los Angeles housing real estate market, although it is better than several other California cities. By increasing the supply of available listings, there is optimism that the market may start to level out.
The options remain limited for many buyers, and house hunters hope that the double-edged sword of increasing interest rates and high house prices will slowly balance the housing market within the L.A. area.
