Real Estate Market Insights after 2Q 2018
I wish I had psychic powers to be able to predict the real estate market. Sadly, I don’t — but what I do have is a great knowledge of past sales trends and a bunch of smart Economists & number-crunchers to help me guide my clients (and myself as an investor) in evaluating the market and making strategic plans for moving forward.
Our firm, Compass recently released the Compass 2Q 2018 Los Angeles Quarterly Market Insights Report. The report highlights the prevailing trends shaping the market. Please email us at Home@LHspaces.com if you’d like a copy of the full report, we’ll send it right over.
National Housing Indicators
Los Angeles historically has been one of the strongest cities comprising the 20-City Composite as indicated in the chart above. The resale market continues to show strength, as the spread of resale premiums in Los Angeles vs. the 20-City Composite continues to widen. New inventory is not able to keep up with the pace of demand, which in turn is benefiting the resale market, and this trend is not anticipated to reverse course anytime soon.
Single Family Homes
Sales Volume (measured by number of transactions) of single family homes decreased YoY as the median sales price continued to climb, possibly signifying increased buyer reluctance in a marketplace that has become very expensive. Inventory increased year-over-year. Sales volume varied greatly by neighborhood. We tend to represent a high number of buyers and sellers in Westwood, West Hollywood, Beverly Center-Miracle Mile, and Downtown Los Angeles. The demand for nice properties continues, and we’re seeing a decrease in the Median Days on Market. We are still working with a lot of very interested buyers, and while they’re seeing slightly higher inventory available, there still isn’t enough inventory of properties they like to satisfy their need. We’ve got a ton of potential home buyers who just aren’t finding a home that fits their needs. Demand still feels pent up to us.
We’ve had a lot of interesting conversations about the market with everyone from home lenders we work with to current home owners and potential home buyers. The lenders are telling us that we could see interest rates continue to creep up which has the ability to affect affordability. They’re also optimistic for different segments of the market though — we’re entering a buying season for Millennial home buyers who have really just begun to purchase their first residences. Many of these millennials have good jobs and want to be homeowners. We could see them continue to buy for the next 6 to 7 years as long as they continue to show good earnings. The high-end market seems to be at a higher risk for an expected ebb in the market (the real estate market is cyclical and we’ve been experiencing a very extended period of growth).
We’re also in a unique situation here in Los Angeles. While LA used to be more of a one industry town with “the industry” being entertainment — we’re not just a one trick pony anymore as so many tech firms have moved into the area and bring with that highly skilled, well-paid labor. As the landscape across the United States changes, Los Angeles and other large coastal towns continue to grow in population — I won’t say insulating — but somewhat buffing the effects of economic downturns on the real estate market. In the past, the downturn hasn’t effected Los Angeles real estate values as greatly as it has in other cities and states. I experienced firsthand the effects of the downturn in 2008 as the property I owned in Arizona fell in value by nearly half.
Recently, I had a conversation with a friend who owns a condominium. She asked me if it was the right time to sell — she’s considering taking a leave of absence from work to travel and work on personal projects. I shared my thoughts that the only reason I’d consider selling if I were in her shoes would be to purchase a duplex or triplex property instead where she could also earn some additional passive income through the rental units. She’s owned the condo for over 10 years. She’s only got 20 years left on the mortgage — this property will be a cash-cow for her once it’s paid off. And since it’s likely she’ll be inheriting real estate from her folks upon their passing, this could become a nice supplementary retirement fund for her if she just holds onto the home. Los Angeles real estate as a long term buy and hold is, in my opinion, one of the smartest investments one can make.
