Is Los Angeles approaching housing bubble status? Maybe not!
As housing prices go up and up in Los Angeles, many residents and speculators alike wonder where it's going to end. The rate of growth isn't sustainable, as we've seen in other cities that experienced the same type of housing bubble. Or is it a housing bubble at all?
Los Angeles is its own kind of city where the everyday characteristics of real estate might not always apply. While some experts are pointing to a housing bubble that's bound to burst, others say that it's still a desirable city with plenty of demand, and not just from American buyers.
Here are 4 reasons why Los Angeles might not be in bad shape after all:
#1: Many of the Examples are the Most Extreme
Certainly, a house that's priced well over $1 million isn't unusual for the area. When it's a less-than-average 3 bedroom cottage with no special amenities, and in need to major repairs to boot, that nods toward an off-balance market where homes are vastly overpriced.
But when real estate bloggers talk about the market in L.A., more often than not the example properties are the ones that are bound to raise eyebrows, says William Yu for the L.A. Times. The extreme examples aren't really representative of the whole.
Housing cycles of the past point to a few more years of L.A. Growth.
#2: The Market Has a Reasonably Predictable Cycle
Since 1973, Los Angeles has ebbed and flowed in a pattern that correlates with the stock market. When there's a bear market, prices go down. When there's a bull market, they go up.
According to Yu, the price cycle for the area works in approximately 12-year runs 7 years of growth and 5 years of decline. And if the past really is an indicator, there are still about 4 more years until southern California residents can expect the market to drop again.
Buyers show no signs of slowing demand in southern California.
#3: Building Permits are Still on the Rise
When investors buy new properties, there's still plenty of demand. That's another cycle that Yu explains has persisted since the 70s. And conversely, when investors stop buying, demand has fallen off and prices are likely to fall soon, too.
Building permits increased from 11,200 units to 18,200 from 2012 to 2014. And at the current rate, 2015 will see more of an increase than last year.
#4: Los Angeles is a Special Breed of City
Rents are higher now than at any time since 2003. The price-to-rent ratio shows that the average price of homes has excessed their real value when compared to the expected rental income. But Yu doesn't think that's anything to worry about. After all, L.A. isn't exactly middle America.
Like other outrageously priced cities, such as NYC and San Francisco, Los Angeles is where the elite from America and around the world want to invest and live. And there's your demand. There are homes to be had, and there are buyers who want them for no other reason than the location. The same has been true for even the most meager Manhattan apartment for decades.
Los Angeles might be out of reach for anyone but the wealthiest buyers, but that doesn't mean it's a housing bubble that's doomed to burst. The demand exists, and the reasons for that demand aren't about to change. The weather is always sunny, the entertainment is hard to beat, and there's nothing like a southern California beach.
Your home might not compare to a million dollar fixer-upper, but it still might fare well for your location. If you're thinking about selling or just want an idea of what your house is worth, get a free property valuation from eppraisal. It's fast, it's free, and it can help you make important decisions about your future.