The South Bay and Westside real estate markets are continuing to see an influx of buyers and investors despite many highly desirable areas being up over 40% in the past 4 years. A lack of inventory combined with low interest rates, foreign investment and a thriving white collar Los Angeles job market (Silicon Beach) will continue to drive market appreciation. Though we have seen a slight slow-down lately with buyers seeming to be a bit pickier and value conscious (especially above the $2M price point), multiple offers are the norm on properties that are listed at market value.
However, we would see a slow down and lose the positive momentum if the tech industry boom in Los Angeles starts to sputter. Some economic analysts are expressing concern that the tech sector could see a wave of lay-offs in the near future with venture capital funding more difficult to come by in 2016 and young companies not showing the profits that were expected. Despite this possibility looming, most economists that study Westside/South Bay real estate feel the market will stay in the seller’s favor in the foreseeable future and here are the reasons why:
Lack of Inventory– Homeowners are not in a hurry to move. According the California Association of Realtors, first-time homebuyers typically moved to another home within 5 years in the 1980’s and 90’s. Now, the average first-time homebuyers is staying in their property for 8-10 years. Many property owners see value in renovating their current home and keeping the lower property tax as opposed to buying a new home and seeing a dramatic property tax jump. The younger generation of homebuyers also witnessed the housing crisis from 2007-2010 and are a bit gun shy when it comes to pushing affordability on the homeownership front.
Interest Rates- Some economists believe the economy, especially the real estate sector, could not handle much of a jump in interest rates with society acclimating to low interest rates for a prolonged stretch. A jump in rates could paralyze the economy. Those that can afford homeownership are taking advantage of the low rates and with rents continuing to increase at break-neck speeds, the incentive to buy continues to stay strong. Though it is tougher to qualify for a loan, when you do qualify, banks are extremely competitive for the mortgage business. Real estate has proven to be a great long-term leveraged investment and being able to borrow at low rates drives those with money to acquire property. Despite a jump in rates over the past two weeks, rates for a 30 year fixed mortgage are still below where they ended in 2015 (3.64% vs. 3.86%).
Strong Los Angeles job market- With the continued growth of Silicon Beach (i.e.- google constructing a 12-acre campus in Playa Vista), high paying jobs are rolling into the area and unless a tech bubble develops, we don’t see this ending anytime soon. The Los Angeles County Economic Development Corp. released a report showing that the area has more high-tech jobs (368,600) than Boston-Cambridge, Santa Clara County and New York City. The direct high-tech workforce generated over $32 billion in wages back in 2013, accounting for 16.8% of all wages paid in L.A. County, the report said. Silicon Beach has continued to grow at a strong pace over the past two years and Google won’t open its campus for at least another year. The latest report from the LA Economic Development Corporation showed that Los Angeles County should continue to add jobs at a 1.7% annual rate this year and personal income is expected to grow by 4.4%.
Foreign Investment- Overseas investors have had a tremendous impact on the Westside/South Bay markets in the past four years feeling it was safer to put money into American real estate than invest in their own countries. Though the pace of that investing has slowed down over the past six months, it is still happening and will continue with programs like the EB-5 Visa. In its simplest form, the EB-5 visa program enables foreign investors to gain permanent residence status if they invest $1 million dollars in business development or $500,000 in a high un-employment area. Once this investment is made, they usually buy personal residences typically in an all-cash transaction. California is by far the most popular destination for EB-5 investors. The amount of EB-5 applications that are accepted every year is capped around 10,000, with 60,000 applicants awaiting processing. From a global perspective, Los Angeles real estate is considered a good buy when compared to other major cities and will continue to draw strong interest from the Pacific Rim and Canada.