An Introduction to Real Estate in Los Angeles
Everything in Los Angeles is quite a dichotomy, and Los Angeles real estate is no different. We are at the top of the national foreclosure list, our unemployment is about 10%, and we are literally going broke as a city and a state, so it should be easy to pick up a nice inexpensive deal in Los Angeles right? Wrong….for a few reasons that all support one thing…..incredible demand. Lets check out the top few.
o Industry – Los Angles has strong regional industries with entertainment and defense leading the way. We may have a high unemployment rate, but our core industries are not in peril like other areas of the country. The entertainment industry is quite a draw for people following their dream.
o Weather – Los Angeles debatably has the best weather in the US. This is a very attractive point for people and is a significant part of the local demand. Our 300 days of 70 degree sunshine will keep people coming here for a long time.
o Lucrative Jobs – Los Angeles is a financial mega polis, and offers more unique business opportunities, lucrative jobs, and investments than any other place within 2,000 miles. It is to the point where it almost begets itself. A household income of $125,000 is quite average, and these high incomes support the demand and price levels for our housing.
o Culture – Los Angeles culture is, for good or bad, largely based on image. There is a lot of substance behind it often, but at the end of the day you are what you are perceived as. The car, the clothes, the house, the neighborhood, etc. It seems pretty shallow, but its how it is here, and the culture of hipness demands impressive things, which supports high demand for the homes here.
o Cheap money – lets face it, we might be circling the drain financially as a nation, but mortgage money is ridiculously cheap right now. A 30 year loan at 5.75% is like a gift. For those old timers who did business in the 70s or 80s know this all too well. And while the new loan guidelines may ace out 33% of potential borrowers, the low rates still create heavy demand for homes.
With all of these aspects at work, when foreclosures come down the pike, it is very different than say Las Vegas. We have a heavy demand for these homes. Sure, the demand is substantially less than it was 2-3 years ago, but it is still very thriving. Sure, we have a lot of inventory, and sure our sales prices are down, but the real estate is moving. Deals are getting done. Banks do not have to undercut the market to move their foreclosures. They are able to market and sell their properties at or just a bit below market.
To contrast this, look at Las Vegas real estate. Demand is very, very low. Their industry (tourism/gambling) is hurting really bad during these times. If banks want to sell their foreclosures, they have to undercut the market by 5% or 10% or even up to 20% in order to get their properties sold. It’s a massacre out there. Houses are selling for 20% below construction cost assuming you get the land for free!
It is for all of these reasons that Los Angeles real estate demand is still strong. Yes, it is less than it was and yes it is below where we would like it. However demand is still more than enough to sell 1,200-1,500 square foot homes here with 2 bedrooms and 1 bathroom for $700,000-$800,000 and have that be perceived as a good deal. Often real estate brokers forget to explain the macro economics to their clients.