Los Angeles real estate forecast: wildfires heating up the pre-existing housing crisis

The 2018 real estate market forecast in Los Angeles will undoubtedly be impacted by the LA County wildfires—Sonoma and Napa Valley were hit hardest. Losses are estimated at nearly $10 billion, with a $500 billion hit to the economy. Unfortunately, some homeowners are discovering their home insurance doesn’t provide enough coverage. The effect of the fires will be to reduce availability and raise prices, which means there may not be much relief in store for the LA market, which has already been mired in a housing crisis for many years now. In spite of the fact that Los Angeles residents are suffering financially, and in spite of housing crash rumors and rising prices, California still draws people from around the world who want to make a home there. One needs an income of $120,000 to buy a home in LA, and condo prices in downtown LA are $90,000 higher than last year.

Time to invest or not? Los Angeles real estate forecast for 2018

Houses for sale in Los Angeles County and Orange County are in short supply, and the state of California can’t seem to get a handle on the need for more homes. Some say it would take a market crash to stop the price rise—and even that would only last a few years. For wealthy investors, a few years may be worth the wait, but realistic prices are near impossible to come by. CAR reports the average house price in LA rose about 10% in September compared to August 2017. Sales volume increased 11.5% in the fall of 2017, so homeowners appear to be loosening up a bit. But still, most homeowners don’t want to sell, and buyers can’t afford the prices. Only 30% of Californians own a home, so there are plenty of opportunities for new sales, especially for first-time buyers.

The median home value in Los Angeles County is $595,700. Los Angeles County home values have gone up 8.6% over the past year, and Zillow predicts they will rise 3.3% within the next year. However, the Los Angeles real estate forecast depends heavily on the political climate and interest rates over the next few years. Nearly 40% of homes now sell above asking price in Los Angeles. Around $14,100 above asking price, to be precise—more than 2x the national median. In 2017, across the country, close to one quarter or 24% of homes sold above the price that owners were asking, whereas in the Los Angeles metro area, that figure was 38%—the highest share since 2013 when home values were just starting to recover from the mortgage crisis of 2008.

Home sales volume still low in Los Angeles

The real estate forecast for Los Angeles is showing a near housing recovery post-recession but is not quite there yet. LA finally recovered all jobs lost at the end of 2014, but now needs to finish the job by addressing the 5% population growth over the past ten years with more accommodations. Until 2015, home sales volume recovery was being driven mostly by investors, but the housing market has begun to show more life from owner-occupants as employment and incomes improve, albeit at a slower rate. The largest barriers homebuyers have to contend with in the market now are those extraordinarily high home prices—pushed even higher by the lack of residential construction starts, and interest rates, which are on a long-term rise in spite of a little slippage in 2017. The reality is, wages can’t keep up with prices, and this continues to put negative pressure on sales volume. In spite of all this, strong, sturdy homebuyer demand kept sales volume from declining in 2017, and year-end projections had sales volume about 2% higher than the previous year.

Those working to forecast Los Angeles real estate market conditions in 2018 are predicting complete recovery of around 110,000 annual home sales between 2019-2021, as housing demands in Los Angeles increase even more by a large-scale coming together of baby boomers and first-time buyers lured by new employment opportunities. New jobs are greatly needed to accommodate the roughly 1% population growth annually since the start of the Great Recession. Residential construction starts will see a sharp increase as cities within Los Angeles County loosen up the permit process by reducing zoning restrictions to finally increase inventory. [image]