Los Angeles County was hit hard by the 2008 recession, and it has still not fully recovered in terms of home sales volume and construction.
Until 2015, home sales volume in Los Angeles County was driven primarily by investors. With employment and income improvement in 2018, home sales volume has increased, although at a slow rate of growth.
In 2019, the Los Angeles County housing market may experience a significant price correction. This price correction would be driven by new home construction issues, property turnover rates, mortgage interest rates, and possible changes in the tax code.
Los Angeles County home sales volume continued on a gradual upward slope in 2017. Year-to-date home sales volume for Los Angele County in 2018 is currently 8% below 2017 home sales volume.
Home sales volume continues to feel downward pressure in 2018 as home prices are still rising and wages are not keeping pace. While Los Angeles County median income is $69,300, the median house price in Los Angeles County is $613,100. Under these conditions, a mortgage payment with property taxes, insurance, and fees could be over $4000 per month.
LA homeowner turnover is relatively high today with one in 16 homes selling annually. Still, this is below the peak year of 2005 when one in 12 homes sold. With home prices running higher and average turnover dropping, expect homeowner turnover to decrease in 2018.
LA County’s homeownership rate has historically been lower than the state average, which was 55% in Q3 2018. LA County has a smaller share of homeowners since much of the county is urbanized, and renting is a convenience, if not a financial necessity. LA’s homeownership rate today is right around what may be considered a “normal” (pre-Millennium Boom) rate, which was 48% in 2000.
Prices have continued to rise in 2018, with low-tier prices 9% higher than a year earlier in Q3 2018. Mid-tier and high-tier prices are 6% and 5% higher than a year earlier, respectively. However, the continued Freddie Mac interest rate increase has decreased the principal amount homebuyers are able to borrow while making the same sustainable mortgage payment.
Multi-family construction starts have jumped significantly in Los Angeles County, far outpacing the near-flat trend in single family residential (SFR) starts. This is due to the increased demand for rental housing, evidenced by the steep rise in rents, especially in the urban city-center areas of Los Angeles County. Builders know this, the City of Los Angeles is accommodating and lenders are catching on.
Since homeowners and renters require employment to make housing payments (with rare exception), the jobs recovery is key to the housing recovery. Just over 4.5 million people are employed in Los Angeles County as of June 2018. This is about 200,000 more jobs than at the 2007 peak.
Los Angeles’ jobs recovery rate has slightly trailed the statewide employment recovery in recent years and has begun to slow. From September 2017 to September 2018, the number of jobs grew by a meager 1.2%. Contrast this with the also slow statewide job growth of 1.8% over the same period of time.
As long as income remains diminished across most job sectors, increases in home prices and rents are limited. This is because buyers and tenants ultimately determine sales prices and rent amounts — collectively they can pay no more to buy or rent a home or apartment than their savings and income qualify them to.