What trends will we see in the Los Angeles market?

Question

I've recently seen a fair number of articles predicting the LA market is slowing down and is going to lag behind the national average in term of how fast prices will rise. I'd love to hear the thoughts of fellow LA investors. What do you see and how are you adapting your investing strategies?

I'm currently evaluating three different residential construction deals that look really good on paper, but I'm thinking about what waves to watch for in this ocean of ours, and would love to hear other perspectives.

Michael T. · Answer

@Kate Johnston as both @Sam Shueh and Account Closed mention it depends on what you're getting into. Are the construction deals single family, condo, multi-unit or multi family?Yes, there is more single family and condo inventory on the market compared to last year but the price has held with fairly minimal growth.There definitely will not be the same growth as previous years, however, this is for a majority of the country. There are still good areas to invest in the greater Los Angeles area. My top recommendations are; Inglewood and Hawthorne both from a single family and multi unit perspective.Yes, Inglewood did recently have a moratorium place on rent, however, there will still be upside due to the gentrification process. Also, since Hawthorne still doesn't have rent control that will be the next location to invest.

Sam Shueh · Answer

That really depends on the location and affluency of local residents. Beach front, inland, inner city etc. Expect similar growth and appreciation rate last 10 years in LA is unlikely. While the US economists are debating if the recession will hit US(CA) in 2019, there are indications the rest of the World economy is starting to slow down. We have experienced negative (-12%) price correction here in SFBA last few months with no impact on the local strong economy. No one is panicking that there is price change. The demand is still very strong. Wanting +25%, +30% annual growth will not happen since we do not anticipate another fiasco housing crisis as experienced since the Great Recession. Single digit growth in Southern CA is projected for 2019-2020. There are pockets of towns that will beat that number while others can be below avg.

Eric Carr · Answer

The truth is, no one know when we will have a correction or what it will look like. I believe LA is on the verge of a major change. Whether that momentum picks up five or 15 years from now is anyone's guess. I think we will see the coastal areas become more expensive, and historically not so great areas in the south and in the valley improve greatly. I see the new zoning and re:code LA stuff transforming the city more so than the building we see now - I think it's just a start. I believe we will see a lot more density, condos, small lot homes, in Hollywood, Santa Monica, and parts of Koreatown and Mid City. Self driving cars are coming, tech might bring other forms of transportation - such as pilot-less drones - who know. And more people will work at home and in communal spaces. Density will rise, rush hour will change. We have two pro football teams, Olympics within 10 years, a ton of tech and space companies, entertainment, and I think "Hollywood" will make a big comeback in LA as well. Right now appreciation has slowed to what I'd consider normal 3%-4%. Homes that are priced appropriately are still selling 20 - 45 days, demand is still strong. It looks a lot different than over the past 6 years and when something changes, we over think and often panic. LA overall is a high priced market, we recovered hard and fast and I'd expect the appearance that we wont lead the price rise compared to the rest of the US, who haven't caught up! Now is a good time to build if you have a realistic timeline to recover costs

Account Closed · Answer

@Kate JohnstonIf you don’t mind sharing more infos about these deals you could probably get more relevant responses. Imo it is a tricky time to invest in real estate ventures now as we are at a pretty advanced stage into the cycle. Some developers are now stopping taking new projects and going into lending as the market becomes riskier.I would personally stay away from condos and anything residential selling above 800k. There are way too many of these being built now.Safest bet now is affordable housing but most projects don’t pencil out due to record high construction prices

Mayra Garcia · Answer

Jo-Ann Lapin · Answer

Value add is the name of the game at this point. Ordinances after 70 years are getting a major overhaul for higher density. Affordable housing is my onion where opportunity is for now . All the best .

Kate Johnston · Answer

Greatly appreciate hearing everyone's thoughts! Sounds like, all in all, we're expecting prices to hold and grow slowly but in general growth and returns will be modest and construction costs a big factor in ultimate returns. Still good pockets of opportunity if you know where to look and what to look for. So, pretty much a mildly sunny day. Nothing to be thrilled about but no concerning storm clouds either.

Jacob Villalobos · Answer

Many great minds would agree that now would not be a good time to get into residential construction. We are at the high point of the market.