Los Angeles Real Estate Surging

Home-Prices-UpThere is very little doubt that the real estate market is on much firmer ground that it was five years ago. Home values are rapidly rising and a confluence of factors will likely continue to drive the market even higher. Pent-up demand, job growth and still-slow mortgage rates continue to put pressure on home prices. The median price of a home in Los Angeles County rose by 5.9 percent in June, compared with the same month a year ago, while the number of homes sold dipped by 7.5 percent, a real estate information service announced today. According to DataQuick, the median price of a Los Angeles County home was $450,000 last month, up from $425,000 in June 2013. A total of 6,792 homes were sold in the county, down from 7,342 during the same month the previous year.  In many markets price appreciation has slipped into the more sustainable single-digit range, compared with gains exceeding 20 percent this time last year. Home values are rrising and a confluence of factors will likely continue to drive the market even higher. Consider the following:

  • Prop 13 – A voter initiative passed in 1978 amid an anti-tax revolt, it caps California property tax rates at 1.25% and freezes assessed property values at the original purchase price. While no one likes higher taxes, the measure artificially constrains inventory and make prices soar because it offers older homeowners a remarkable disincentive to sell.
  • Greater investment property ownership – Investors flooded the middle market after real estate hit bottom during the financial crisis, gobbling up foreclosures and short sales at bargain basement prices and converting them into rentals – further squeezing what little affordable inventory exists within these markets.
  • Lack of available land – In the most desirable neighborhoods within Los Angeles land is scarce. And when there is development in such neighborhoods, it often involves tearing down a $1 million home and replacing it with one that is three times more expensive.
  • Foreign buyers inflating prices – From locating a property to negotiating price to going through each exhaustive step of the mortgage process, buying a home often takes months. But for wealthy foreign buyers seeking the safe haven of US-based hard assets, and making all-cash offers to sweeten their deals, it only takes weeks.  And by frequently going above market prices in their offers, foreign buyers have helped drive up the price for everyone else.