If you’ve been following real estate at all, you have a decent understanding of how unkind the market has been to both buyers and sellers. While not everyone has had a disappointing experience, high interest rates combined with stubbornly high sale prices have created an uncomfortable environment for many.
Unfortunately, Los Angeles has presented residents with this challenging scenario. California is the most populous state in the country, and is the third largest by area. It’s also one of the most expensive places to live.
Table of contents
- The housing marketing is cooling
- Sale prices aren’t low enough to be considered affordable
- Condo prices see minimal change
- Renting isn’t any easier
- Mortgage rate hikes have slowed
- Final takeaway
Housing has been a long-term issue that the state continues to struggle with. There simply isn’t enough affordable housing, and not enough new homes are being constructed. Some are rightfully worried that the problem will continue until proper legislation is put in place.
Still, there are hopeful buyers who have prepared themselves for current market conditions and are confident that they can find something within their price range.
The market is cooling
One reason more affluent buyers are feeling optimistic is that the market is becoming less competitive. After a two-year housing boom spurred by record-low borrowing costs and a strong desire for more space, the demand from buyers has weakened.
Bidding wars have become less prevalent, meaning buyers may have an easier time securing a home without having to make an offer that greatly exceeds the asking price.
Most home sales occurred in Southern California (46%), followed by Central Valley (23%) and San Francisco Bay Area (19%), but every major region saw a significant decline in home sale growth.
The California Association of Realtors’ resale report for December 2022 shows that at the regional level, sales in all of the major regions of California dropped by more than 35% over the course of the year.
In Southern California, sales declined by 48.3%, and by 47.7% in Los Angeles County. But that doesn’t mean sale prices followed suit.
Sale prices remain high in popular areas
The average home sale price in California was $774,580 as of December 2022. That’s down 2.8% from 2021. But in Fresno, Los Angeles and Orange County, prices actually increased slightly year-over-year, and the wine-country regions of Napa and Sonoma saw more significant increases. About 25% of homes still sold over asking in Los Angeles in December of last year.
How about condos?
The condo market, which can be more attractive to first-time buyers, is also cooling.
Sales of existing condos were down 49.7% year-to-year, and 6.1% month-to-month. The median condo price in Los Angeles grew slightly by 0.8% year-to-year to $564,250. At the end of 2021, the median condo price in Los Angeles was $568,000.
Renting isn’t any easier
Renters don’t have it any easier. In Los Angeles, rent is higher than the state median. A California one-bedroom is about $2,083. In Los Angeles, it’s approximately $2,450. And in Santa Monica, a one-bedroom is priced at $3,250. San Bernardino was the most affordable city to rent in with one-bedrooms priced at $1,490.
The lack of affordable housing is keeping some people in the rental market longer than they had hoped. While others who pay reasonable rent prices don’t want to risk losing them. In some cases, paying rent may make more financial sense than paying a mortgage.
Mortgage rates have dropped slightly, but not enough
At the beginning of 2021, mortgage rates had dropped to a record low of 2.65%. While housing prices were perhaps driven up by the low rates, buyers felt more comfortable going above their budget.
Today, rates are in the low 6% range. They were even higher in 2022, but have dropped a marginal amount. This drastic change has made some buyers more hesitant, and sellers don’t want to lower sale prices because they already had a number in mind. Furthermore, they also have locked-in mortgage rates that may be considered cheap by today’s standards.
All of these factors have created a stubborn and uncomfortable real estate market.
It’s still a tough time to buy
Buyers, and first-time buyers in particular, will have a tough time finding a home in Los Angeles in 2023. The economic woes that came after the pandemic have added another layer of uncertainty, and home prices have not come down enough to make a real difference. Fewer than 56% of Californians live in homes that they own – the second lowest rate of any state – and just slightly higher than New York.
Shopping around for quotes from multiple lenders is the one piece of advice experts want mortgage applicants to follow. Some institutions may have lower closing costs than others. Similarly, an applicant may get a special offer if they apply for a mortgage if they’ve been with their bank for a long time.
When comparing prices, it’s important to look at more than just the interest rate. Pay attention to the other terms of the loan. There’s always some variability between lenders on both rates and terms, so ensure you understand the implications of both.
The final takeaway
Don’t be surprised if Los Angeles home prices continue to rise in 2023. The increase will continue at a slower rate, but it is highly unlikely that homes will become more affordable. Analysts argue that despite the recent rise in supply and decrease in demand, there is still a severe housing shortage and too many people who are hoping to purchase a home.
The Los Angeles housing market has seen a bump in residential construction. However, due to increasing demand, the new supply hasn’t brought prices down. The current supply of existing single-family homes is 1.4, which is insufficient to meet demand.
If there is any silver lining, it’s this: Los Angeles has a track record of being one of the best long-term real estate investments due to high price appreciation. Investors who can afford the steep prices will almost certainly see a profit on any property they purchase. There seems to be no solution to the supply issue, meaning there will be a very high demand for rental properties.