California home prices have increased 6.1 percent year to date and are projected to show a 6.5 percent gain for all of 2015 according to a recent report by the California Association of Realtors. In Los Angeles County, prices are reported to be up 5.4 percent so far this year.
The reported sales figures include detached and attached single family homes. These numbers show the highest prices in eight years and fall just 5 percent below the all-time high reached at the peak of the housing bubble in June 2007. Some L.A. luxury neighborhoods have already surpassed the 2007 peak.
Nationwide, median prices for existing homes in metropolitan areas continued to climb in the third quarter of 2015, but at a slower, healthier pace that may entice more homebuyers into the market.
Experts anticipate a housing shortage and lack of affordability will persist in many areas of Los Angeles for the next couple of years. For potential buyers, the price gap between the listing price and affordability is growing. Areas outside of the City are starting to look like more of a bargain when compared to pricey Los Angeles neighborhoods.
Some data sources show the median sales prices for single family homes and condos shot up 8.1 percent to $950,000 for the 2015 third quarter (a record high) for the Greater L.A. area (which applies to the Westside, Downtown and coastal cities like Malibu, but omits low-priced areas such as South L.A.)
Some homebuyers and real estate investors are starting to wonder if Southern California is heading towards another housing bubble.
William Yu, Economist for the UCLA Anderson School of Business addressed the “bubble issue” in the current UCLA Anderson Forecast. “L.A.’s housing market, despite becoming more expensive and unaffordable, is not in a bubble,” he wrote.
The economist goes on to explain “The current rise in home prices seems to be driven by rising effective demand and limited supply, not by speculation. Therefore, the housing bubble burst we experienced several years ago is unlikely to haunt us this year or next, and the smart money will continue to invest here.”
The California Association of Realtors projects sales figures of 407,500 single family homes sold in California for 2015 which will be an increase of 6.3 percent over the homes sold in 2014. Projections for 2016 are also for a 6.3 percent increase to a predicted 433,000 units next year.
A good way to understand housing price cycles is to look at building permit numbers. If developers are investing in new properties as has been the case over the past three years in the L.A. area, it is a good sign that demand, and also prices, are rising or keeping steady.
Data shows a growth of 2.4 percent in building projects. Many still say we are not seeing enough home building in Los Angeles. Some believe this is because builders are being cautious.
Others say that builders and investors are looking to the high end luxury market where potential profits far exceed the profit an investor can realize from the average priced home.
This kind of high end residential development has seen a comeback nationwide. Rising prices and tight inventory have driven more investors to the high end market.
Investors have run out of inventory on the low end of flips according to industry data trackers. There is a wider market for these luxury properties including foreign buyers, institutional investors and new investors who previously made their money in other professions and industries.
Although selling a luxury property usually takes longer than a mid-price home and renovation and building costs are steep because of the “wow” factor demanded by high end buyers, these factors have not deterred high end speculators.
In Los Angeles, sought after neighborhoods including the Trousdale Estates area of Beverly Hill and the star studded Hollywood Hills are in high demand. Investors are scooping up tear down properties, taking bigger risks and building mega-mansions betting on eye popping profits.
The biggest hindrance for the real estate market this year has been low inventory. The scarcity of inventory is pushing prices higher causing many buyers to sit on the sidelines.
This lack of inventory is expected to continue to drive prices higher over the next couple of years as there is simply not enough new construction in the pipeline to meet demand.
The California Association of Realtors predicts that home prices will likely “grow steadily” in the end of 2015 and into 2016.
The forecast for 2016 is that the median home price will increase approximately 3.2 percent. The median home price is projected to go up from $476,300 to $491,300, which will be the slowest rate of price appreciation in five years.
Los Angeles remains one of the most desirable cities to live in, so it is no surprise there is a prosperous housing market that should promote a healthy amount of activity for the foreseeable future.
For a free courtesy consultation, or information regarding mortgage brokers, contact Bess Hochman, a top Westside Real Estate Broker for over 20 years. Bess is also distinguished by holding a law degree. This article expresses the opinion of the author. You are advised to consult attorneys & others experts specializing in the issues referenced in this article.
Contact Bess by phone at 310.291.4111 or email Bess.CenturyCityNews@yahoo.com.
“Bess is a master negotiator!” says Michael Donaldson, attorney and author of “Negotiating For Dummies.”
