Bubble Update Q1 2017: What’s going on in Los Angeles?

And here we go again.  We track the market so that you don’t have to.

For starters, prices are rising.  Los Angeles County’s median home price rose 7.4% from the previous year, according to InfoSparks Market, a web service that pulls data from the Multiple Listing Service.

According to Trulia’s Real Estate Market Overview, the market is showing an 8% year-over-year rise in median sales prices and a 7% rise in median rent per month (click here for the source).

So why the increases, there are a few reasons:

1. Look who’s moving in: There is still an influx of wealth coming into Los Angeles.  This not only includes international buyers, but also buyers from cities such as New York and San Francisco.
2. Los Angeles is becoming “hip”: There is a booming “young artist” scene.  With neighborhoods like downtown L.A. creating a new, hip scene, it is gaining attention from out of towners.  According to LA Weekly, “More than 50 galleries opened or will open between late 2013 and 2015, twice as many as in the two previous years. They’re operating at all levels: some well-established in other major cities, others new but showing known artists, and several new and specializing in artists who are barely known” (click here for the source).
3. The increase costs of living are changing the income demographics: According to the U.S. Census from 2005-2015, there was a net loss of 800,000 people immigrating into California near the poverty line.  However, and what makes this even more interesting, is that there was a “net gain of about 20,000 residents earning $100,000 or more” (click here for the source).  This can mean rising prices aren’t just because of general inflation, but because the demographic of buyers are higher income earners, who can ultimately pay more.

So what is someone to do who wants to buy now?  Here are some tips from the experts:

• You don’t have to put 20% down: Put 10% down, 3.5%, or even in some cases there are 1% programs.  The idea is to get into the real estate ownership.  Just read my past article about it by clicking here.
• Live outside of a current desirable area: Love Hancock Park but out of your price range?  Try Brookside or Sycamore Square.  Sherman Oaks and Studio City just too expensive?  Try Toluca Lake or Tarzana.  Over time, buyers will flock to those areas as they too get priced out of current highly coveted neighborhoods.  The only difference is you get in before them.
• Determine your desired lifestyle today versus the future: For many people who went from rags to riches, they weren’t driving the BMWs or eating at the finest restaurants in the beginning.  They started out with one lifestyle to get to where they are today.
• Buy a condo: They are less expensive, easier to manage, and make great rentals.  I wrote about the power of condos in a past article, click here to revisit it.

And what if a bubble does happen?  Does that mean we are in for some major deals in Los Angeles?  Not likely.  Chances are due to the change in demographics and the increase in overall wealth, Los Angeles will most likely not be affected much by any downturn.