If you’ve been following the real estate market over the past 18 months, you’re most likely familiar with the following: low inventory, increased buyer demand and low interest rates. These conditions combined have contributed to astronomical increases in home values–in L.A. county, 15 neighborhoods joined the million-dollar club during the pandemic! As we prepare to head into the winter season and a new year, here are three trending topics to take note of.
For a deep dive on how our local markets performed in the third quarter and year-over-year growth, check out the Compass 2021 Q3 Real Estate Market Report.
Will the Housing Market Crash?
The question that has most Los Angeles homeowners, investors and renters looking to buy white-knuckled in anticipation is, “Will the market boom, crash or plateau in 2022?” With the U.S. housing stock valued at $36.2 trillion earlier this year (1), there’s a lot of money (and potential risk) on the table. If you’ve been waiting to buy a home or add more homes to your investment portfolio, here’s what experts are predicting will happen in the coming year:
- According to The California Association of Realtors, it’s pretty unlikely that the housing market will crash in the next year: “The California median home price is forecast to rise 5.2 percent in 2022, following a projected 20.3 percent increase in 2021.”(1)
- Recent data suggests that homes in L.A.’s desirable areas, such as the Westside and Coastal Communities, that are priced accurately and show well will continue to receive multiple offers and sell quickly in 2022.
- Inventory shortages and supply chain issues will continue to impact new construction and building costs, making it unlikely for new inventory to outpace buyer demand—which is when a market correction or dip would be something to worry about.(3)
As long as new buyers continue to enter the market and there aren’t enough homes for sale to meet demand, home sales will remain steady and our local market should stay healthy and active.
When Will More Inventory Hit the Market?
Because supply and demand help determine the health of the real estate market, the topic of inventory (and more of it) is definitely being talked about right now. Months of frenetic buying in L.A. has left inventory pinched for most of the year, but how long will this trend last?
- Month’s supply of inventory in L.A. County currently sits at 2 months. Generally, a balanced market will lie somewhere between four and six months of supply, meaning it’s still very much a seller’s market.(7)
- Analysts at the L.A Times predict the inventory shortage won’t improve much even as California politicians, including Gov. Gavin Newsom, have made a recent push to address the Los Angeles housing crunch.
- New construction starts are expected to increase in 2022, however it may be 2023 before these homes are move-in ready. While historically it took around five to six months to build a home, builders are now reporting construction timelines closer to a year or more.(4)
Unless someone discovers some hidden land that tens of thousands of Los Angeles homes can quickly be built on, there is little reason to expect a large increase in inventory soon. What’s more likely is that we’ll see a gradual increase over the next few years as new homes and condos are built.
Will Urban Areas Make a Comeback?
During the early days of the pandemic we saw a big trend of homeowners leaving the city and retreating to the suburbs to work and live. This time last year the San Fernando Valley and surrounding areas saw massive increases in home prices and sales. Fast forward a year and while many are still enjoying more space and larger homes, we’re seeing a new trend emerge: urban areas are regaining popularity.
- Condo sales activity rebounded from last year’s third quarter around Los Angeles. Marina del Rey had a 35 percent increase year-over-year and the Sunset Strip-Hollywood Hills roared back from last year increasing 97 percent.(6)
- San Fernando Valley West saw buyers pull back as third quarter sales activity fell for single-family homes in Sherman Oaks, Studio City, Tarzana, and Woodland Hills. Calabasas, single-family home sales fell 18 percent compared to last year.(6)
- The exodus from urban centers "has now largely ceased" and returned to its historical trend, according to UBS economists.(8)
As more people become vaccinated, COVID-19 cases continue to drop and workers return to their Los Angeles offices, experts predict this "positive trend" for cities will continue to grow in the coming year.
Buy or Sell With Confidence in Any Market
The Los Angeles housing market isn’t known for being simple to predict. That’s why it pays to have a trusted professional in your corner to help you navigate the changes. Connect with our experienced team and get on track to achieve your 2022 housing goals–no matter what the new year brings!
- Yahoo (2021 October 7) C.A.R. releases its 2022 California Housing Market Forecast https://www.yahoo.com/now/c-r-releases-2022-california-140000845.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAESag9RSKFVAJPRNYqWgxryjOETx8fTGpIkA06Drrd6gJO1mrDTul_Qs7Cpi07cJQgtE7nyil0axOIO6JDniugdHgKemtCbwvDy1XJEQHSrRNbSLYIHd26V0Cn6xFhqJQnZ13UDsAzks7U0xgiA5lhrXfslPmyHShhkeE7UJdM5s
- Santorelli, M. (2021 October 5) Housing Market Forecast 2021 & 2022: Crash or Boom Next? Norada Real Estate Investments. https://www.noradarealestate.com/blog/housing-market-predictions/
- Ramsey Solutions (2021 September 24) Housing Market Predictions 2021 & 2022: Will It Crash or Boom. https://www.ramseysolutions.com/real-estate/housing-market-forecast
- KFVS 12 https://www.kfvs12.com/2021/09/22/covid-19-pandemic-affects-delivery-rate-building-materials/
- Olick, D. (13 October, 2021) Weekly mortgage demand stalls, as rates jump to highest level since June. CNBC News. https://www.cnbc.com/2021/10/13/weekly-mortgage-demand-stalls-as-rates-jump-to-highest-level-since-june.html
- (14 October, 2021) Los Angeles Quarterly Market (Micro) Insights Report. Compass https://www.compass.com/app/marketing-center-flipbook/?utm_source=Market+Stats&utm_medium=PDF&utm_campaign=Los+Angeles+Q3+2021+Flipping+Book#/7e954a6a-9cbf-44ce-a965-189d576666ba
- Marco Santarelli (29 September, 2021) Los Angeles Real Estate Market: Prices | Trends | Forecast 2021-2022. Norada https://www.noradarealestate.com/blog/los-angeles-real-estate-market/
- Ben Winck (16 August, 2021) 4 charts show how fast everyone is flocking back to big cities. Business Insider https://www.businessinsider.com/urban-exodus-people-leaving-cities-charts-exurbs-real-estate-moving-2021-8