[REAL ESTATE] 2017 Local Market Recap

Summary

 

The past year in the greater East Side Los Angeles market saw steady price appreciation.

Prices today are about 20% higher than the 2007 peak and more than double what they were at the bottom of the Great Recession (2009-2012).

Trends stayed the same: record low inventories (down 72% from the 2007 high); low interest rates and low affordability, especially for first-time buyers.

 

Cooling Markets

 

The over $1 million market continued to cool locally in 2017.

Only the most attractive and compellingly priced luxury properties sold in this more-discretionary market segment. Rather than move up or down, many owners of properties worth more than $1 million are electing to stay put or to remodel.

 

Investors, Affordability and Availability

 

Local real estate investment by “flippers” has been on the wane for more than a year. I suspect fear of a correction—there will be one upcoming to be sure—and the cooling of the high-end market are on the minds of speculators.

Plus, finding distressed properties to flip that do not need major repairs in our older neighborhoods is ever more difficult.

Cash available for investment in real estate continues to feel unlimited. This cash comes not just from overseas—now that Los Angeles, including our neighborhoods, attracts global investors seeking cash havens and green cards—but also from Baby Boomer parents who are bankrolling their Millennial children’s first houses.

Small investors are buying single-family homes and condos for rental income, including for short-term rental purposes, and longtime owners, who might in the past have downsized, are now converting their single family residences into rental units.

Our neighborhoods are scattershot with “Airbnb houses” that undermine community vitality, exacerbate inventory shortages and diminish housing affordability.

A recent study indicated that for each 1% of single-family houses that are investor-owned, a 3% to 4% reduction in the inventory of houses for sale results.

 

Price Trends and Hot Spots

 

Currently, attractive properties priced under $1 million will likely elicit competing, multiple offers.

The number of offers typically translates to the percentage over the asking price that the successful buyer will pay, for example, 20 offers are likely to inflate the sale price by 20%.

This phenomenon stalls, however, as the $1-million mark is exceeded.

An outstanding house priced at $799,000 might sell for $1 million with multiple offers, while a $1-million-asking-price house might sell for the same amount due to a lack of multiple offers.

The chart below, from real estate data vendor Infosparks, shows how over-the-asking-price bidding affected sale prices in November. Note the $1 million threshold.

The neighborhoods with homes selling under $1 million, like Echo Park, Atwater Village and Northeast Los Angeles show the most incidents of overbidding.

Also note how the Hollywood Hills East neighborhood compares to Los Feliz. In the past, these two neighborhoods’ sales statistics were like tweedle dee and tweedle dum. No more. Prices are lower now and there is more inventory in the Hollywood Hills East neighborhood due, presumably, to the nuisance of the Hollywood Sign, and the resulting flood of traffic and tourism. I expect Griffith Observatory-bound tourist traffic will affect Los Feliz similarly, as the site becomes an increasingly popular destination.

 

Median Sale Price Median $/Square Foot % of Last Asking Price Months Supply
Los Feliz $1,550,000 $780 100% 3.5
Hollywood Hills East $1,430,000 $675 98% 15.3
Silver Lake $1,202,000 $740 101% 1.7
Echo Park $958,000 $753 106% 10
Atwater Village $835,000 $617 105% 1.4
Northeast L.A. $768,000 $578 102% 2

 

 

Forecast

 

Will there be a real estate crash in 2018? 2019? Forecasting one is like forecasting an earthquake. Who knows?

A recent industry report, however, lists metropolitan Los Angeles—with an annual price jump from last year of 7%, as the third most “overvalued” U.S. housing market, behind Las Vegas and Denver.

Most analysts are optimistic and foresee continued growth in our local real estate market in 2018—which seems a cautionary sign of a bubble, to me.

The cloud on the horizon is the new Federal tax legislation (being finalized as I write this article) that surely will foment great confusion and anxiety in high-cost/high-tax states such as California.

The National Assoc. of Realtors predicts the new tax bill will cause housing prices to fall in every state (which will make our real estate even more attractive to foreign investment) and will implode the second-home market.

New, higher capital gains taxes will create a two-tier tax system for present and future homeowners that will be a disincentive to sell, thus exacerbating the local area’s already low inventory of houses for sale.

Under the likely new law, disposable income will shrink for many Californians earning $86,000 to $300,000—the backbone of the residential real estate industry.

Many local folks are small-business owners or independent-contractors who will see present tax deductions reduced or eliminated. Among local winners will be large, private-equity landlords, bestowed with new tax benefits, who will enjoy increased competition for rental units from tenants priced out of home ownership, which is already at an all-time low. Like it or not, the New Year appears to be the start of a new order of austerity.

 

Richard Stanley is a local realtor with Coldwell banker with 30 years’ experience.

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