2/10/2017

Housing Market and Inventory Shortage in Los Angeles County

Buyers still experience a great deal of competition when submitting offers. I know of one recent instance where an offer for a $450,000 house was submitted at $10,000 over asking, but the buyers were still outbid. This is and has been a very frustrating fact of life for quite some time.

 As it happens, Los Angeles County has far more jobs than new housing permits issued compared to any other county in California. Santa Clara and Orange Counties are the next most underbuilt counties. This did not happen overnight, but happened over several years, and estimates are that it will take several more years to "catch up".

 Other reasons for low inventory is that the Baby Boomer generation and/or longtime homeowners are not moving as much as in the past. The recession featured very low interest rates, or they may have lower property taxes, or if they move there may be a capital gains hit due to rise in prices ($250,000 for single, $500,000 for couple), there is the question of where can they move to, or their circumstances may have changed and they cannot qualify for the same mortgage today--so they stay put.

In California in the 1970s, there was about a 9% turnover rate, in 2014 that rate had declined to less than 5%. In 2000, California sellers stayed put for about 6 years (national average was about 7 years); as of 2016, that average length of stay was 10 years. Californians 55+ years of age are now at their lowest rate of moving -- 71% of the 55+ crowd has not moved since 1999. Data from the construction industry reveals $3.9 billion was invested in remodels and additions compared to $1.5 billion in 1988. In San Francisco alone, there are currently between 400,000 and 700,000 rentals that used to be owner-occupied, in other words, those are properties taken out of the purchase market. Another interesting effect is formulation of households -- not as many people getting married and wanting to buy a new home for a new family! Additional effects on the housing market could be future policy changes concerning the mortgage interest deduction and outmigration to more affordable areas (which at least might put some properties on the market).
Political uncertainties and Twitter bursts are essentially wildcards for certain aspects of the housing market.
 For buyers, is it impossible?  No, but it's extremely important to be prepared with local market knowledge, and prior loan approval before shopping.

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