Real Estate Investing Archives

Is it a Good Time to Buy a House or Should I Wait Until 2023-2024

February 2, 2023 by Marco Santarelli

Is it a Good Time to Buy a House or Should I Wait?

Check out the latest housing trends for the previous month if you're unsure whether it is a good time to buy a house or if should you wait until the end of 2023. It’s becoming harder to buy a house as prices are up year over year, and mortgage rates are soaring. At the same time, consumer prices on everything are also on the rise making it even more difficult to save money to buy a house next year.

In an effort to tamp down inflation, the Federal Reserve is raising interest rates. The Federal Reserve raised the target range for the federal funds rate by 75 bps to 3.75%-4% during its November 2022 meeting. It marks a sixth consecutive rate hike and the fourth straight three-quarter point increase, pushing borrowing costs to a new high since 2008. The decision came in line with market forecasts.

Policymakers also said that ongoing increases in the target range will be appropriate and that they will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments when deciding on the size of further increases.

The message could signal a smaller rate hike in December but during the press conference, Chair Powell also noted the ultimate level of interest rates will be higher than previously expected. The Fed aims to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2%, which remains elevated around 40-year highs.

The cumulative effect of these sharp rate increases has cooled the housing market and caused the economy to slow, but has done little to lower inflation. Although Fed doesn't control mortgage rates it has a ripple effect on the mortgage industry. The recent rate hike will correspond with a rise in the prime rate and immediately send financing costs higher for many forms of consumer borrowing. On the flip side, higher interest rates also mean savers will earn more money on their deposits.

However, since December data indicates that inflation is moderating, the Fed has signalled that future rate hikes will be more gradual and may even end once rates reach just above 5%. The Case-Shiller Index reveals that home prices are falling month-over-month, but are still elevated compared to a year ago. Possibly as a result of these alterations, a greater number of prospective homebuyers believe the affordability crunch will ease. However, if their optimism leads to an increase in demand, prices may increase once more.

<<< Will the Housing Market Crash? >>>

Is it a Good Time to Buy a House or Should I Wait?

Will the 2023 year-end be a good time to purchase your first house? According to the Fannie Mae Home Purchase Sentiment Index, which has recovered slightly from its all-time low in October, prospective homebuyers are becoming a little more optimistic that mortgage rates will decline, and a larger proportion of them believe now is a good time to purchase a home.

More than 100 questions were posed to approximately 1,000 homeowners and renters regarding their perspectives on home buying and the economy. At the lowest point of the Home Purchase Sentiment, only 16% of respondents believed it was a good time to purchase a home. In December 2022, however, 21% of respondents indicated that it was a good time to buy real estate. In December, the proportion of respondents who said it was a poor time to buy decreased from 79% to 76%.

“In December, the HPSI inched upward slightly, as consumers reported increased expectations that mortgage rates and home prices may decrease over the next year – perhaps reflecting recently observed declines in mortgage rates and average home prices,” said Doug Duncan, Fannie Mae Senior Vice President, and Chief Economist.

Fannie Mae's Home Purchase Sentiment Index (HPSI) increased in December by 3.7 points to 61.0. The HPSI is down 13.2 points compared to the same time last year. Three of the index's six components improved month over month, including those associated with homebuying conditions, mortgage rate outlook, and job security.

Is it a Good Time to Buy a House?

The percentage of respondents who say it is a good time to buy a home increased from 16% to 21%, while the percentage who say it is a bad time to buy decreased from 79% to 76%. As a result, the net share of those who say it is a good time to buy increased by 8 percentage points month over month.

Is it a Good Time to Sell a House?

The percentage of respondents who say it is a good time to sell a home decreased from 54% to 51%, while the percentage who say it's a bad time to sell increased from 39% to 42%. As a result, the net share of those who say it is a good time to sell decreased by 6 percentage points month over month.

Home Price & Mortgage Rate Expectations

The percentage of respondents who say home prices will go up in the next 12 months remained unchanged at 30%, while the percentage who say home prices will go down increased from 34% to 37%. The share who think home prices will stay the same decreased from 30% to 29%. As a result, the net share of those who say home prices will go up decreased by 3 percentage points month over month.

The percentage of respondents who say mortgage rates will go down in the next 12 months increased from 10% to 14%, while the percentage who expect mortgage rates to go up decreased from 62% to 51%. The share who think mortgage rates will stay the same remained increased from 24% to 31%. As a result, the net share of those who say mortgage rates will go down over the next 12 months increased 15 percentage points month over month. Read the full research report for additional information.

Is It a Good Time to Buy a House or Wait Until 2023? — Source: Fannie Mae

The HPSI is constructed from answers to six of 100 national housing survey questions that solicit consumers’ evaluations of housing market conditions and address topics that are related to their home purchase decisions.

As of January 26, 2023, the average rate for the benchmark 30-year fixed mortgage is 6.43 percent, up 7 basis points from a week ago (source: Bankrate). A month ago, the average rate on a 30-year fixed mortgage was higher, at 6.61 percent. At the current average rate, you'll pay a combined $627.47 per month in principal and interest for every $100k you borrow. That's an increase of $4.58 over what you would have paid last week.

The average 15-year fixed mortgage rate is 5.65 percent, up 2 basis points over the last week. Monthly payments on a 15-year fixed mortgage at that rate will cost around $825 per $100,000 borrowed. The larger monthly payment may be harder to fit into your budget than a 30-year mortgage payment, but it has huge advantages: You'll save several thousand dollars in interest and create equity much faster.

Let's compare the figures between now and twelve months ago when the buyers financed their houses with a mortgage. On a $300,000 loan, a 30-year, fixed-rate mortgage at December 2021's rate of 3.11% would have meant a monthly payment of about $1,282 (Principal & interest).

Loan amount = $300,000
Total interest paid = $161,923
Total cost of loan = $461,923

Today’s rate of 6.43% (30-year) brings the monthly payment to $1,882 (Principal & interest). That’s an extra $600 a month or $7,200 more a year and $216,049 more over the lifetime of the loan.

Loan amount = $300,000
Total interest paid = $377,972
Total cost of loan = $677,972

The Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group revised downward its forecast for total home sales growth through 2023. They now project 2022 total year existing sales by 13.3 percent in 2023. The group expects purchase volumes to fall about 1.5 percent in 2023 to just under $1.7 trillion, a downward revision of $17 billion from last month’s forecast, driven by downward revisions to their forecast for home sales.

The rise in rates is having the Fed’s desired effect on housing, as house price growth began to slow in June. They expect the slowdown in housing to continue through 2023 as affordability constraints mount for potential homebuyers, considering, too, that refinance activity has been significantly curtailed by the rise in mortgage rates.

The group continues to anticipate a strong deceleration in home price growth going forward due to the lagged effects of higher mortgage rates and the slowing economy weighing on purchase demand. If the economy suffers a downturn, mortgage interest rates will very probably fall to about 4% or even lower. If it does, this could be a good time to put off buying a home and save some money, especially for first-time buyers.

The Mortgage Bankers Association was somewhat more optimistic about mortgage rates, projecting that the average rate will increase to 4% by the end of 2022. It is now evident that neither Fannie Mae's nor the Mortgage Bankers Association's predictions were even somewhat accurate. Although the Federal Reserve does not control fixed mortgage rates, its actions have pushed them significantly higher.

The Federal Reserve is likely to continue raising interest rates, which could result in additional mortgage rate increases. On the other hand, if the Fed's actions result in a recession, mortgage interest rates could fall. Therefore, it is nearly impossible to predict the future of mortgage rates in 2023.

As a borrower, it makes little sense to attempt rate timing in this market. Regardless of current interest rates, our best recommendation is to purchase a home when you are financially ready and can afford it. Remember that you are not forever bound to your mortgage rate. If interest rates drop significantly, homeowners can refinance to save money at a later date.

Rising rates make homes more expensive for buyers, and, for prospective borrowers, steeper monthly mortgage payments. It will thereby reduce the demand for home purchases. Mortgage credit availability decreased in December according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) that analyzes data from ICE Mortgage Technology.

The MCAI fell by 0.1 percent to 103.3 in December. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. The Conventional MCAI decreased by 0.1 percent, while the Government MCAI decreased by 0.1 percent. Of the component indices of the Conventional MCAI, the Jumbo MCAI decreased by 0.2 percent, and the Conforming MCAI was unchanged.

Mortgage credit availability — Source: Mortgage Bankers Association

The competition for housing results in fewer options, higher prices, and faster sales. In a seller's housing market, there are more interested buyers than available homes and that makes it difficult time to buy a house, especially for first-time buyers. According to the NAR, the national median price for existing homes sold in October was $366,900, which is slightly lower than November's median price but still up 2.3 percent compared to December 2021. This is the longest streak of year-over-year growth ever recorded, spanning 130 months.

“Home prices nationwide are still positive, though mildly,” Yun added. “Markets in roughly half of the country are likely to offer potential buyers discounted prices compared to last year.”

Is it a Good Time to Buy a House for First-Time Buyers?

According to a recent Fannie Mae survey, many consumers were hesitant to buy a home in December 2022. About 51% of survey respondents expect mortgage rates to increase, and there are rising concerns about job stability and escalating housing prices. Some homebuyers will find the current market conditions easier, while others will find them more difficult to buy a house. The current upward trend in home prices is likely to continue throughout the year, which could price out some prospective buyers.

However, it is anticipated that prices will continue to rise at a slower rate in 2023. The percentage of respondents who say home prices will go up in 2023 (in the next 12 months) remained unchanged at 30% in December. The current lack of entry-level supply and the rapid increase in mortgage rates appear to be negatively impacting potential first-time homebuyers in particular, as evidenced by the larger proportion of younger respondents (aged 18 to 34 years old) who believe it is a bad time to buy a house. The advantage of the historically low mortgage rate environment of 2020 and 2021 appears to have diminished for first-time homebuyers, and affordability is projected to become an even greater constraint for them in the future.

In December 2022, first-time buyers were responsible for 31% of sales, up from 28% in November and 30% in December 2021. According to NAR, the annual share of first-time buyers was 34% in 2021. Individual investors or second-home buyers, who make up many cash sales, purchased 16% of homes in December, up from 14% in November but down from 17% in December 2021.

In 2022, rising mortgage rates were piled onto record-breaking home prices, locking even more potential buyers out of the red-hot housing market. Historically, rising interest rates cause more prospective buyers to delay purchases, and the recent increase in financing terms has already resulted in a decline in mortgage applications.

The prices are not going to crash in 2023. The various forecasts from experts show that 2023 will remain a moderate housing market, and home values are estimated to either remain flat or increase by single-digit percentage points. While affordability concerns continue to grow, low mortgage rates, increased savings, and a strengthening job market all contribute to making homeownership more accessible to a wide number of prospective buyers.

Realtor.com’s November 2022 housing data shows that the housing market continued to cool, with inventory, time on the market, and listing price growth falling below 10% for the first time in a year. This gradually cooling market is advantageous for homebuyers because they may have more options and more time to make a purchase decision.

The slight increase in the year-over-year decline in pending home inventory compared to the previous month may indicate that the market is stabilizing after pending listing declines worsened for 11 consecutive months. In the coming months, the housing market will continue to be influenced by the direction of inflation, mortgage rates, and overall economic growth.

The national median list price declined to $400,000 in December, down from a record high of $449,000 in June (-11.1%). This represents a yearly growth rate of 8.4%, which is lower than last month’s growth rate of 11.0%. This is the first time that listing price growth has fallen below double digits since December 2021.

There were 54.7% more homes for sale in December compared to the same time in 2021. This means that there were 244,000 more homes available to buy this past month compared to one year ago. While the number of homes for sale is increasing, it is still 38.2% lower than it was before the pandemic from 2017 to 2019. This means that there are still fewer homes available to buy on a typical day than there were a few years ago.

Housing Markets that saw the largest year-over-year increase in listing prices in December:

Milwaukee, where the median listing price grew by +46.2%
Memphis, where the median listing price grew by +34.0%
Miami, where the median listing price grew by +20.4%

Housing Markets that saw the greatest increase in their share of price reductions compared to last year:

Phoenix (+17.3 percentage points)
Austin (+15.5 percentage points)
Tampa (+15.3 percentage points)

Conclusion: The Best Time To Buy A Home Depends On You

Higher interest rates pose a challenge to existing homeowners looking to buy a new home at the same time as selling their current home. Existing homeowners may benefit from lower interest rates than those offered right now because they already have mortgages. Their monthly expenses could rise dramatically as a result of the purchase of a new property.

In other words, if you don't have a specific date in mind for when you want to buy a new property, you may be better off waiting till it does. Every potential buyer's best time to buy a property is different, and the greatest time to buy a house is not the same for everyone. It’s essential to consider your financial situation and understand how buying will impact your bottom line each month.

For many first-time homebuyers, it doesn't matter if loan rates are too high, if there aren't enough homes available, or if you don't have enough money in the bank. When the time is right to purchase a home, the time is right. First-time buyers can accomplish the American Dream of homeownership without a 20% down payment. The government offers several mortgage schemes with minimal or no down payment, as well as down payment assistance programs.

Sources:

https://www.fanniemae.com/research-and-insights/surveys-indices/national-housing-survey
https://www.realtor.com/research/december-2022-data/
https://www.bankrate.com/mortgages/todays-rates/
https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales
https://www.bankrate.com/mortgages/rate-trends/
https://www.mba.org/news-and-research/research-and-economics/single-family-research/mortgage-credit-availability-index-x241340

California Housing Market: Prices, Trends, Forecast 2022-2023

February 1, 2023 by Marco Santarelli

Will the California Housing Market Crash?

High-interest rates continued to dampen the sales in the California housing market. A brief reprieve from rising interest rates helped California house sales break a three-month sales slump in December, but they remained below the 250,000 mark for the second consecutive month. Home sales have fallen for 17 straight months year over year, and it was the fourth time in the last five months that sales dropped more than 30 percent from the year-ago level, according to the California Association of Realtors®.

Their report showed that there was an uptick in December’s home sales as buyers took advantage of a slightly more favorable lending environment. California home sales remained suppressed in all price points but sales at higher price points are falling faster. The price segment of $2,000k+ declined the most at 53% YoY. Pending sales improved on a monthly basis, inching up across all price points as mortgage rates cooled.

The median home price in California stayed on a decreasing trend for the fourth consecutive month and has been declining for six of the past seven months. December's median price of $774,580 was down 0.4% from November's median price of $777,500. The December price was also lower year-over-year for the second straight month, falling 2.8% from the $796,570 recorded in December of 2017.

California's typical home price climbed by 4.5 percent in 2022 compared to 2021's number of $786,750 but is projected to fall by 8.8 percent in 2023. As new active listings continued to decline to the lowest level in at least the last five years, the lack of housing inventory was the key factor stopping prices from plummeting.

<<<Also Read: Will the US Housing Market Crash? >>>

California Housing Market — Source: C.A.R.

“It’s encouraging to see an uptick in December’s home sales as buyers took advantage of a slightly more favorable lending environment that provided them with a window of opportunity to enter the California housing market,” said C.A.R. President Jennifer Branchini, a Bay Area REALTOR®. “As buyers and sellers gradually adapt to the new normal, we are seeing a shift toward a more balanced market. With both sides slowly adjusting their expectations, it’s hopeful that we’ll see sales ratcheting higher as market conditions improve further throughout 2023.”

At the regional level, all major regions recorded year-over-year sales drops of more than 35 percent, with Southern California incurring the biggest decline of all regions for the third month in a row at -48.3 percent. The Central Coast was the other region in the state with a drop of over 40 percent (-45.9 percent), followed by the Central Valley (-39.3 percent), the Far North (-38.3 percent), and the San Francisco Bay Area (-37.4 percent).

At the regional level, all major regions experienced a reduction in median home prices from a year earlier, with the San Francisco Bay Area suffering the largest annual price decline of 9.6 percent. All nine counties in the Bay Area witnessed a median price reduction year-over-year, with four of the nine counties experiencing a decline of more than 10 percent. The median price in the Far North decreased at a modest rate of -7.7 percent, followed by the Central Valley (-4.4 percent), Central Coast (-3.3 percent), and Southern California (-3.3 percent) (-0.9 percent).

San Francisco Bay Area had the highest year-over-year price decline of 9.6 percent, with the median price being $743,180.
Southern California had a year-over-year price decline of 0.9 percent, with the median price being $1,084,500.
The Central Coast had a year-over-year price decline of 3.3 percent, with the median price being $869,860.
The Central Valley had a year-over-year price drop of 4.4 percent, with the median price being $430,000.
The Far North had the highest year-over-year drop of 7.7 percent, with the median price being $350,000.

California Housing Market Report — Source: C.A.R.

California Housing Market Forecast for 2022

A supply-demand imbalance will continue to put upward pressure on prices, but higher borrowing rates and partial adjustment of the sales mix will likely limit the median price rise. Looking at the current market shift, C.A.R. has reduced its 2022 housing prediction. The supply constraints and higher home prices will bring California home sales down slightly in 2022, but transactions will still post their second-highest level in the past five years.

The California median home price is forecast to rise 5.2 percent to $834,400 in 2022, following a projected 20.3 percent increase to $793,100 in 2021 from $659,400 in 2020. Existing, single-family home sales are forecast to total 416,800 units in 2022, a decline of 5.2 percent from 2021’s projected pace of 439,800.

Housing affordability is expected to drop to 23 percent next year from a projected 26 percent in 2021. Furthermore, as the trend of remote working continues, a change in housing demand to more affordable places will keep prices in check and prevent the statewide median price from climbing too quickly in 2022, according to the CALIFORNIA ASSOCIATION OF REALTORS®.

Latest California House Prices & Sales Trends [December 2022]

California Real Estate Market Trends — Infographic Courtesy of CAR

Here are some of the key points of the California housing market report for December 2022, according to C.A.R.

Existing-Home Sales Trends

December’s sales pace was up 1.1 percent on a monthly basis from 237,740 in November.
It was also down 44.1 percent from a year ago when 429,860 homes were sold on an annualized basis.
For the year as a whole, statewide home sales were down 23.1 percent from 2021.
At the regional level, all major regions experienced sharp declines of more than 35 percent from last year.

Southern California had the biggest decline of all regions for the third month in a row at -48.3 percent.
The Central Coast was the other region in the state with a drop of over 40 percent (-45.9 percent).
The Central Valley (-39.3 percent), and the Far North (-37.4 percent) also posted sales declines of more than 35 percent from last year.
The San Francisco Bay Area (-37.4 percent) recorded the smallest sales declines among the five major regions in California.
Every C.A.R. county reported a double-digit sales loss from December of last year.
As mortgage rates doubled in 2022, sales in 43 of 51 counties fell by more than 30%.
Del Norte (-65.5 percent) had the largest sales drop in December.

California home sales trends — Source: CAR

California Home Price Trends

Sharp decreases in housing demand continued to push down home prices in all five major regions in California.
San Francisco Bay Area experienced the biggest price decline from last year at -9.6 percent.
All nine counties in the Bay Area witnessed a median price reduction year-over-year, with four of the nine counties experiencing a decline of more than 10 percent.
The median price in the Far North decreased at the rate of -7.7 percent, followed by the Central Valley (-4.4 percent), Central Coast (-3.3 percent), and Southern California (-3.3 percent) (-0.9 percent).

In December, two-thirds of all counties continued to see negative year-over-year price growth, with the median price in ten counties falling by more than 10 percent.
The county with the greatest yearly decline was Lassen (-41.8%), followed by Mono (-21.3%) and Napa (-19.2%).
In 16 counties, the median price was more than it was a year earlier, with three of those counties posting double-digit increases.
The county with the greatest annual price increase was Del Norte, with a 13.8% increase.

California condo price trends — Source: CAR

California Housing Supply

Housing inventory in California continued to rise from the previous year but dipped on a month-to-month basis as the year came to an end.
The statewide Unsold Inventory Index (UII) was more than double the 1.2 months recorded in December 2021
It was down from the 3.3 months registered in November.
The index indicates the number of months it would take to sell the supply of homes on the market at the current rate of sales.
All price categories experienced a 92 percent or greater increase in UII from a year ago.
With the $1 million and above price group experiencing the greatest increase (154.5 percent).

California Housing Supply By County — Source: CAR

In 47 of the 51 counties tracked by C.A.R., the number of active listings increased compared to December of last year, as a result of the dramatic decline in housing demand.
Thirteen counties experienced a year-over-year increase in the triple digits, with Marin leading the pack with a growth rate of 151.3 percent.
Only two counties saw a fall in active listings from the previous year: Del Norte with a 22.7 percent annual decline and Plumas with a 4.8 percent decline from last December.

California Regional Housing Supply Trends — Source: CAR

Median Days & Sales Price to List Price Ratio

The median number of days it took to sell a California single-family home was 28 days in December and 12 days in December 2021.
C.A.R.’s statewide sales-price-to-list-price ratio was 96.2 percent in December 2022 and 101.2 percent in December 2021.
It was below 100 percent for the fifth time since June 2020.
Looking at sale-to-list percentages can help buyers and sellers get a sense of how to negotiate prices.
A higher ratio of 100% or above shows a strong market favoring sellers.
The statewide average price per square foot for an existing single-family home was $377, down from $382 in December a year ago.

California Housing Market is Cooling — Source: CAR

California Housing Market Forecast 2023

Here's the California Housing Forecast for 2023 released by the C.A.R. on October 12, 2022. A modest recession caused by an ongoing battle against inflation will keep interest rates elevated to suppress buyer demand and contribute to a weaker housing market in 2023, according to a housing and economic forecast released today by the CALIFORNIA ASSOCIATION OF REALTORS®. High inflationary pressures will keep mortgage rates high, reducing purchasing power and lowering property affordability for prospective purchasers in the coming year. As a result, housing demand and prices will fall throughout 2023.

Existing, single-family home sales are forecast to total 333,450 units in 2023, a decline of 7.2 percent from 2022’s projected pace of 359,220.
California’s median home price is forecast to decline 8.8 percent to $758,600 in 2023, following a projected 5.7 percent increase to $831,460 in 2022.
Housing affordability is expected to drop to 18 percent next year from a projected 19 percent in 2022.

According to C.A.R.'s “2023 California Housing Market Forecast,” existing single-family home sales will fall 7.2 percent next year to 333,450 units, down from 359,220 units in 2022. The forecast for 2022 is 19.2 percent lower than the 444,520 residences sold in 2021. The median home price in California is expected to drop 8.8 percent to $758,600 in 2023, after rising 5.7 percent to $831,460 in 2022 from $786,700 in 2021. Next year's median price rise will be slowed by a less competitive housing market for homebuyers and a stabilization in the mix of home sales.

According to C.A.R.'s 2022 projection, the U.S. gross domestic product of 0.5 percent in 2023, after a projected uptick of 0.9 percent in 2022. With California’s 2023 nonfarm job growth rate at 1.0 percent, up from a projected increase of 4.9 percent in 2022, the state’s unemployment rate will edge up to 4.7 percent in 2023 from 2022’s projected rate of 4.4 percent.

Stubbornly high inflation and growing economic concerns will keep the average for 30-year, fixed mortgage interest rates elevated at 6.6 percent in 2023, up from 5.2 percent in 2022 and from 3.0 percent in 2021 but will remain relatively low by historical standards.

California Housing Market Forecast 2023 — Courtesy of Car.org

Let us look at the price trends recorded by Zillow over the past few years. Since the last twelve months, California home values have appreciated by nearly 4.4% — Zillow Home Value Index. ZHVI is not the median price of homes that are sold in a month within a geographic region. It is calculated by taking all estimated home values for a given region and month (Also called Zestimates), taking a median of those values, and applying some adjustments to account for seasonality or errors in individual home estimates.

It, therefore, represents the whole housing stock and not just the homes that list or sell in a given month. By this calculation, the current typical home value of homes in California is $760,644. It indicates that 50 percent of all housing stock in the area is worth more than $760,644 and 50 percent is worth less (adjusting for seasonal fluctuations and only includes the middle price tier of homes).

Typical Home Value in California: $760,644 as of December 31, 2022
1-year Value Change: +4.4%
0.996 is the Median sale to list ratio as of November 30, 2022
34.1% Percent of sales over list price as of November 30, 2022
50.9% Percent of sales under list price as of November 30, 2022

California Housing Market Continues to Slow Down in January – Weekly Trends

According to C.A.R., with prices declining, consumers' assessments of their current status and expectations for the future improved, but remain historically low. And while the real estate market remains sluggish and fewer REALTORS® than in previous years are optimistic about future listings, sales, and prices, the most recent decline in mortgage rates has continued to stimulate mortgage application activity and offer optimism that the market may have already reached its bottom.

REALTORS® start the year less confident: REALTORS® expect the market to pick up in the new year, according to C.A.R.'s monthly member poll. As the home market continues to struggle, fewer of them are confident this year. The latest survey revealed the fewest share of respondents who expect listings would be up compared to the same month of the prior two years.

Despite quadrupling from December to January, the share of people expecting more sales was the lowest in three years. However, the 2.45% of REALTORS® who thought prices will rise behind the same month a year earlier by 43.85% while being the greatest share in the recent 6 months.

Rates fall, mortgage applications rise: As rates fell, mortgage applications rose 1.2% from the week before to January 6. Mortgage applications continue to fluctuate week-to-week due to interest rate adjustments. Despite a small interest rate relief, seasonally adjusted purchase applications fell 1% from the week before to the lowest level since 2014. Due to a large weekly rate drop, refinancing applications jumped 5%. As of January 12, the 30-year fixed-rate mortgage (FRM) averaged 6.33%, down from 6.48% the week before.

Is It a Good Time to Buy a Home in California?

The percentage of REALTORS® who believe sales will increase in the foreseeable future increased to 23.5%. Members indicate reduced demand, but a lack of listings keeps inventory reasonably tight. According to C.A.R.'s, 3.4% of REALTORS® polled believe that prices will increase and 23.5% think that sales will increase in the California housing market. The proportion of responders who think that listings will increase was 39.9%, an increase of 15.8% from the previous week.

California Housing Market weekly trends — Source: CAR

Weekly Real Estate Trends and Forecast in California [January 2023]

The California housing market sizzled last year to break all records. It was a hot seller’s real estate market. According to Zillow, at the state level, California’s housing market remains the most valuable in the country, with a total value of $9.24 trillion as of last December, accounting for more than a fifth – 21.3 percent – of the national total. However, California’s overall value growth of $1.38 trillion in 2021 represents only “20.1 percent” of the overall national growth of $6.9 trillion – somewhat “underperforming” by about -5.5 percent relative to its total weight, particularly given the extreme growth seen in other states.

Here's a rundown of the California housing market demand for the week ending January 14, 2022.

California Active & Closed Median Home Prices Trends

Existing SFR Active Listings = 32,000
Year-to-Year Existing SFR Active Listings Growth = 45.8%
Median New Listing Price = $710,000
Year-to-Year New Existing SFR Median List Price Growth = 1.6%
Month-to-Month New Existing SFR Median List Price Growth = 3.6%
Median New Listing Prices Per Sq. Ft. = $400
Existing SFR Median Closed Prices = $695,000
Year-Over-Year Existing SFR Median Closed Price Growth = 0%
Month-to-Month New Existing SFR Median Closed Price Growth = -0.4%
Existing SFR Median Closed Prices Per Sq. Ft = $397

California Housing Market Competitiveness

% of Active Listings w/Reduced Price = 41.5%
Median Reduction on Reduced-Price Listings % = -5.5%
% of Sales Closed Below List Price = 69.8%
Median Reduction on Reduced-Price Sales % = -6.3%
% of Homes Closed Above List Price = 19%
Median Overage on Homes Closing Above List = 2.6%
Median Days on Market for Closed Sales = 38
Median Days on Market for Active/Unsold Homes = 70

California Housing Price Trends — Source: CAR.org

Housing Affordability Trends in California – 3rd Quarter

Housing costs have been on the rise in California, which has impacted affordability. The CALIFORNIA ASSOCIATION OF REALTORS® reported that housing affordability in California rebounded in the third quarter, with the statewide index for existing single-family home sales inching up to 18 percent from a 15-year low of 16 percent in the second quarter of 2022.

According to C.A.R.'s Traditional Housing Affordability Index, the proportion of California homebuyers who could afford to purchase a median-priced, existing single-family home in the third quarter of 2022 increased to 18 percent from 16 percent in the second quarter of 2022 but decreased from 24 percent in the third quarter of 2021. In the first quarter of 2012, California had a peak affordability index of 56 percent.

California Housing Affordability Index — Source: Housing Affordability Index By C.A.R.

C.A.R.’s HAI measures the percentage of all households that can afford to purchase a median-priced, single-family home in California. C.A.R. also reports affordability indices for regions and select counties within the state. The index is considered the most fundamental measure of housing well-being for homebuyers in the state.

A minimum annual income of $192,800 was needed to make monthly payments of $4,820, including principal, interest, and taxes on a 30-year fixed-rate mortgage at a 5.72 percent interest rate.
Nearly 30 percent (27 percent) of California home buyers were able to purchase the $630,000 median-priced condo or townhome.
A minimum annual income of $146,400 was required to make a monthly payment of $3,660.
A minimum annual income of $192,800 was needed to qualify for the purchase of an $829,760 statewide median-priced, existing single-family home in the third quarter of 2022.
The monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $4,820, assuming a 20 percent down payment and an effective composite interest rate of 5.72 percent.
Despite the sizable quarter-to-quarter drop in median price, the share of households in California that could afford to buy a median-priced condominium or townhome continued to slide from last year as the cost of borrowing remained high.
Twenty-seven percent of California households earned the minimum income to qualify for the purchase of a $630,000 median-priced condo/townhome in the third quarter of 2022.
It required an annual income of $146,400 to make monthly payments of $3,660.
The third quarter 2022 figure was down from 37 percent a year ago.

References/Data Sources

https://www.car.org/
https://www.car.org/aboutus/mediacenter/newsreleases
https://www.car.org/marketdata/data/countysalesactivity
https://www.car.org/marketdata/marketforecast
https://www.car.org/marketdata/marketminute
https://www.car.org/marketdata/interactive/housingmarketoverview
https://www.zillow.com/ca/home-values
https://lao.ca.gov/LAOEconTax/Article/Detail/265
https://sf.curbed.com/2020/3/23/21188781/sf-housing-market-coronavirus-covid-19
https://www.ppic.org/publication/new-patterns-of-immigrant-settlement-in-california
https://fox40.com/news/business/local-real-estate-market-slows-amid-covid-19-pandemic
https://www.point2homes.com/news/us-real-estate-news/experts-california-real-estate-2020.html
https://www.washingtonpost.com/business/2020/02/27/mortgage-rates-head-back-down-coronavirus-fears
https://www.cnbc.com/2020/03/18/weekly-mortgage-applications-drop-over-8percent-as-interest-rates-jump.html
https://www.usnews.com/news/business/articles/2020-03-25/business-fallout-companies-in-china-see-delays-in-reopening
https://www.dallasnews.com/business/real-estate/2020/03/25/homeowners-who-cant-pay-their-mortgages-are-getting-help
https://www.wfsb.com/news/businesses-considered-essential-under-stay-safe-stay-home-policy/article_53f8e0d0-6d17-11ea-a04d-57ecbb72c518.html

Los Angeles Housing Market: Prices, Trends, Forecast 2023

February 1, 2023 by Marco Santarelli

Are Housing Prices Going Down in Los Angeles?

We'll discuss the recent trends in the Los Angeles housing market. The market dynamics are changing now. After a two-year housing boom spurred in large part by record-low borrowing costs, the Los Angeles real estate market is now cooling down. There has been a decrease in house purchases and an increase in the number of homes for sale. Bidding wars have become less prevalent as a result of fewer buyers and more inventory, so buyers may have an easier time bidding around the asking price.

The median price in Los Angeles County peaked in September 2021 and has been on an up-and-down roller coaster since. It fell in July 2022, which was disappointing because it typically climbs from June to July; it even rose from June to July in 2009, when all hell had broken loose, putting this drop in a unique perspective. In December 2022, the median home price dropped 3.2% from the previous year and 4.4% from the previous month.

Los Angeles County's median home price in December 2022 was $799,670.
The median home price in November 2022 was $836,630.
Last year, in December, the median home price was $826,500.

C.A.R.’s resale report for December shows that at the regional level, sales in all the major regions of California dipped by more than 35 percent from a year ago. In Southern California sales declined the most at -48.3 percent. In Los Angeles County, the number of closed sales dropped by 47.7%. It shows that things are continuously becoming less hot as compared to the previous year due to higher mortgage rates.

The Los Angeles Metro Area posted a decline of -49.4% year-over-year in sales of existing single-family homes. The median home price in the Los Angeles metropolitan region was $716,500, 0.5% lower compared to December 2021. It was a decline of 0.5% from the previous month's price of $720,000.

Generally, a balanced market will lie somewhere between four and six months of supply. Inventory is calculated monthly by taking a count of the number of active listings and pending sales on the last day of the month. If an inventory is rising, there is less pressure for home prices to increase. With 4.1 months of supply left, it is still short of what economists say is needed for a balanced market. Hence, the Los Angeles County housing market will continue to see upward pressure on home prices.

Months Supply of Inventory (SFH) for Los Angeles County is now 3.1 months.
Months Supply of Inventory (SFH) for the Los Angeles Metro Area is 3.1 months.

Los Angeles Real Estate Market Trends

Los Angeles County home prices are still slightly higher than last year. The following Los Angeles housing market trends are based on single-family, condo, and townhome properties listed for sale on realtor.com. Land, multi-unit, and other property types are excluded. This data is provided as an informational resource only.

Based on last month's data, Los Angeles County was a seller's real estate market, which means that there are more people looking to buy than there are homes available for sale. A balanced market typically has a total sales-to-total listings ratio between 0.12 and 0.2. Markets with a ratio above 0.2 tend to favor sellers, while markets with a ratio below 0.12 tend to favor buyers.

There are around 217 cities in Los Angeles County where Realtor.com has active listings right now. They take into account two aspects of the housing market. The market demand is measured by unique viewers per property on their website, and the pace of the market is measured by the number of days a listing remains active on their website.

In December 2022, the median list price of homes in Los Angeles County was $824.9K, trending up 3.2% year-over-year.
The median listing price per square foot was $559.
The median price of sold homes was $770K.
The sale-to-List Price Ratio was 99.04%, which means that homes in Los Angeles sold for approximately the asking price on average.
A seller would prefer this ratio to be 100% or more.
On average, homes in Los Angeles sell after 64 days on the market.

If a region’s housing market is balanced it means that there is enough demand from buyers to equal the supply from sellers. Based on the supply-demand dynamics, the real estate appreciation rate in Los Angeles is predicted to remain slightly skewed on the sellers' side. The moderate demand but tight inventory should put upward pressure on the prices. Hence, the home values in the Los Angeles housing market could continue to appreciate over the next 12 months albeit at a very smaller pace as compared to the past two years.

Some economists forecast that house prices would tumble in 2023, but few, if any, foresee declines comparable to the Great Recession. In large part, this is due to the fact that foreclosures were mostly responsible for the previous significant decreases. Now, financing criteria are much stricter, and experts say that unless they are forced to, many homeowners prefer not to sell for less than their neighbor did a few months ago.

C.A.R.’s Dec 2022 resale housing report shows that in Los Angeles County, homes are still moving fast. The median days on market is 25.5 days. But the sales of existing single-family homes are massively down 47.7 percent from the previous year. If you’re looking to buy a house in LA’s real estate market, you may still end up paying slightly more than the asking price. The average sale price to list price ratio in LA was 97.0% in December. In December 2021, it was 102.1% and in Nov 2022, it was 97.3%. High mortgage rates are leading to less number of buyers bidding up the prices of homes.

The single-family median price went down by 3.2% YoY to $799,670.
Last month the median home price was $836,630.
Last year at this time the median home price was $826,500.
Single-family sales were down 47.7% YTY but were up 3.0% MTM.
The condo market also showed less buyer turnout.
Sales of existing condos were down 49.7% YTY and 6.1% MTM.
The median condo price in Los Angele grew slightly by 0.8% YTY to $564,250.
It was down by 2.7% from November's price of $580,000.
Last year at this time the median condo price in Los Angeles was $568,000.

Los Angeles Housing Market Report — Infographic Courtesy of CALIFORNIA ASSOCIATION OF REALTORS®

Are Home Rents Going Up or Down in Los Angeles?

The Zumper Los Angeles Metro Area Report analyzed active listings across the metro cities to show the most and least expensive cities and cities with the fastest growing rents. Rents in Los Angeles are higher than the state median rent. The California one bedroom median rent was $2,083 last month. Santa Monica was the most expensive city with one-bedrooms priced at $3,250 while San Bernardino was the most affordable city with one bedrooms priced at $1,490.

The Fastest Growing Cities in the Los Angeles Metro Area For Rents (Y/Y%)

San Bernardino had the fastest growing rent, up 29.6% since this time last year.
Burbank saw rent climb 24.7%, making it the second fastest growing.
Pasadena ranked as third with rent jumping 19%.

The Fastest Growing Cities in Los Angeles Metro Area For Rents (M/M%)

San Bernardino had the largest monthly rental growth rate, up 10.4%.
Santa Ana & Santa Monica rents both increased 5.9% last month, making them tied for second.
Torrance was third with rent climbing 3.4% last month.

Los Angeles Rental Market Trends — Credits: Zumper

Los Angeles Housing Market Forecast 2023

Los Angeles home prices could rise but at a slower rate. Los Angeles has a track record of being one of the best long-term real estate investments due to high price appreciation. According to some analysts, home prices in Los Angeles are unlikely to drop, but the rate of increase will moderate.

In other words, prices will continue to rise, albeit at a slower rate than in the preceding two years. The analysts argue that despite the recent rise in supply and decrease in demand, there is still a severe housing shortage and a big number of individuals who can and want to purchase a home.

Let us look at the price growth recorded by Zillow, a leading real estate marketplace. Zillow Home Value Index is an adjusted measure of the typical home value and market changes across a given region and housing type. It reflects the typical value for homes in the 35th to 65th percentile range. ZHVI also represents the whole housing stock and not just the homes that list or sell in a given month.

The typical home value of homes in Los Angeles County is currently $845,596. It indicates that 50 percent of all housing stock in the area is worth more than $845,596 and 50 percent is worth less than it (adjusting for seasonal fluctuations). Using this methodology, Los Angeles County home values have appreciated by nearly 3.0% in the last twelve months.

Los Angeles County Housing Market Insights

Typical Home Value: $845,596 as on December 31, 2022.
1-year Value Change: +3.0%
27 Median days to pending
1.000 Median sale-to-list ratio
40% Percent of sales over list price
47.5% Percent of sales under list price

NeighborhoodScout.com's data also shows that in the past ten years, Los Angeles real estate appreciated 146.06%. This amounts to an annual real estate appreciation of 9.42%, putting Los Angeles in the top 10% nationally for real estate appreciation. During the latest twelve months tracked by them (2021 Q2 – 2022 Q2), Los Angeles' property appreciation rate has been hovering around 14.34% and in the latest quarter between 2022 Q1 – 2022 Q2, it has been 3.63%, which annualizes to a rate of 15.33%.

Tight supply and steady demand from home buyers have boosted home values across the Los Angeles metro area over the last two years. Prices rose steadily over the past year, despite the economic slowdown brought on by the pandemic. A large number of millennials entered their 30s in 2020, a trend that will continue for several years.

Home prices are trending higher and are more attractive for sellers in the current phase. Higher mortgage rates will decrease home sales and the pace of home price appreciation. Zillow's forecast updated predicts that LA Metro home values will decline by 4.7% from Dec 2022 to Dec 2023.

Los Angeles-Long Beach-Anaheim Metro home values have gone up 3.9% to $897,894.
The Los Angeles metro housing market forecast ending December 2033 is a bit negative.
Zillow predicts that LA metro home values may decline by 4.7% between December 2022 to December 2023.
If this forecast is correct, Los Angeles home prices will be lower in the 4th Quarter of 2023 than they were in the 4th Quarter of 2022.

Los Angeles Housing Market Forecast — Credits: Zillow.com

Is Los Angeles Housing Market Going to Crash?

Soem of housing analysts say that home prices in Los Angeles and Orange counties will fall by the middle single digits in 2023, while home prices in the Inland Empire would fall by the high single digits over the same time period. They anticipate that prices will continue to fall on a regional and national scale in 2024, but at a considerably slower rate, followed by a little increase in 2025. Compared to last year, home sales in December 2022 were down in all six counties of Southern California, with San Bernardino county recording the highest sales decline of 54.4% YTY.

Do buyers have any advantage? Is it the right time to buy a house in Los Angles? This is a never-ending question with no definitive answer. Buyers believe it is not a very good time to buy a home in Los Angeles due to rising mortgage rates and home prices. On the other hand, it is a good time to sell so you can expect more inventory due to increasing seller optimism.

More houses are expected to be listed in the coming months which may bring down the pace of appreciation to some extent. Affordability is a big issue in Los Angeles County as nearly three in four residents can’t afford to buy a median-priced home in the area. According to HousingWire, an index that combined median income and median home prices made Los Angeles the least affordable city in the country, and several younger residents said they were concerned they will never be able to afford a house. Home shoppers are leaving Los Angeles for cheaper metros, the most popular being Las Vegas.

Is Real Estate a Good Investment in Los Angeles?

Should you consider Los Angeles real estate investment? Many real estate investors have asked themselves if buying a property in Los Angeles is a good investment. You need to drill deeper into local trends if you want to know what the market holds for real estate investors and buyers in 2023.

Los Angeles is a moderately walkable city in Los Angeles County. It is home to around four million people. It is the largest city in California and the second-largest in the United States. Los Angeles Metropolitan Area is a 5- region that includes Los Angeles, Orange, Riverside, San Bernardino, and Ventura. The L.A. metropolitan area with over 13 million people rivals New York in population as the largest in the country. However, being a huge real estate market is not reason enough to invest here.

The Los Angeles real estate market is considered one of the premier markets for both investors and homeowners. It is also touted as the nation’s least affordable housing market. If you look in the long-term, it’s always a good investment to buy in Los Angeles. It is said that you will always get your money back or you would make a profit, as Los Angeles has a track record of being a great long-term investment.

According to Neighborhoodscout.com, a real estate data provider, one and two-bedroom large apartment complexes are the most common housing units in Los Angeles. Other types of housing that are prevalent in Los Angeles include single-family detached homes, duplexes, rowhouses, and homes converted to apartments.

Single-family homes account for about 40% of Los Angeles' housing units. In April 2020, the single-family homes posted their biggest percentage gains of the year so far in the Los Angeles metro area. House prices increased by 4.9% in Los Angeles County, 3.7% in Orange County, and 5% in the Inland Empire.

The Los Angeles housing market has been hot for years. In 2018, home prices in Los Angeles reached record heights, climbing to levels far above those recorded in the years leading up to the Great Recession. If we check historical data, in Los Angeles and Orange counties, year-over-year price increases peaked at 8.2% in April 2018 and have declined every month since. In October 2018, home prices in Los Angeles and Orange counties rose 5.5% over the previous year, according to the latest available data from the closely watched S&P CoreLogic Case-Shiller index.

A big factor, according to experts, is that many would-be buyers are increasingly priced out. But real estate agents also say a growing number of people who could buy, like Saavedra, have decided they don’t want to pull the trigger at the top. Home values in Los Angeles are up less than 3 percent since last year. After years of steady escalation, home prices in Los Angeles County are tapering off, according to a new report from CoreLogic.

They find that Los Angeles county’s median home price was $579,500 in January, down slightly from December’s median price of $581,500. That’s a 2.6 percent increase over the same time last year. By this comparison, prices shot up nearly 8 percent between January 2017 and January 2018. Prices continued to rise through much of 2018 but began to drop heading into Q4 2018. In Q4 2019, home prices were still slightly higher than a year earlier, but the spread has narrowed.

2018’s FRM interest rate increase decreased the principal amount homebuyers can borrow while making the same sustainable mortgage payment. The National Association of Home Builders and Wells Fargo Housing Opportunity Index have given the title of least affordable housing market to Los Angeles. In Los Angeles-Long Beach-Glendale region, only 11.3% of homes sold during the fourth quarter of 2019 were affordable to families earning the area’s median income of $73,100.

The 2020 pandemic had its impact on the market bringing down the rent prices while houisng prices reached record highs. Los Angeles real estate market isn’t the most affordable in the country, but it’s a market with ample investment opportunities for those who can afford the median price of over 700K.

However, this number doesn't apply to every part of the Los Angeles real estate market. There are some neighborhoods where prices are much cheaper and completion between buyers is much lesser. The high rate of appreciation has not prevented real estate investors from realizing a great return on investment. Instead of flipping rehabs, you should consider investing in rental properties.

Let’s find some factors that make LA a good place to invest for wealthy investors. We’ll address the biggest factor pulling people to the Los Angeles housing market next. In this section, we're not taking into account the short-term impact of the pandemic on the economy and housing market.

Los Angeles Hidden Real Estate Deals

Distressed sellers exist in every real estate market. If you do find an ideal property in the Los Angeles housing market, the increased selection of properties means you’re far less likely to end up in a bidding war. If you’re looking for other great deals, check out Vermont Vista, Hyde Park, Wilmington, and Cypress Park, where the asking prices are below the Los Angeles median price. In December 2020, the median list price of homes in Vermont Vista was $580K while the median sale price was $566K.

Foreclosures can be a great way to snap up Los Angeles real estate at a bargain price. Foreclosure rates, though, vary wildly. Note that for every home in foreclosure with the bank, there is probably another that is approaching that point and would be sold at a discount by a distressed seller who wants to avoid foreclosure. In distressed neighborhoods, fix and flip may be an option. So is buying Los Angeles real estate cheap and renting it out in a market starving for affordable rental units?

Single-Family Rental vs Multi-Family Investment

Years of appreciation have led Los Angeles real estate investors to favor rentals over flipping. This market favors rental property owners. In the city of Los Angeles alone, renters live in more than 600,000 apartments spread across 118,000 properties, according to the city’s Housing and Community Investment Department. In late 2019, California became the second state (after Oregon) to pass a statewide rent control law. It covers all multi-family rental units built more than 15 years ago. The state law applies on top of any stricter local ordinances.

Therefore, rent control applies to Los Angeles rental properties if they are multi-family units. Single-family detached homes rarely fall under rent control ordinances. They are generally not subject to LA Rent Control. The only exception is when two or more dwelling units are located on the same lot; then rent control rules are likely to apply. The simplest solution to this is to only buy single-family Los Angeles rental properties. Never buy a property with a separately rented granny flat or upstairs apartment you could rent out, as well.

On the other hand, homeownership rates in California have been declining for years. The sea change has been the growth of renting among the middle and upper classes. For example, a third of Los Angeles residents with incomes over $100,000 rent instead of own. Baby Boomers downsizing their homes choose to rent condos and homes that others maintain. Millennials who have a good income often say their parents lose their homes in the Great Recession and choose to rent instead.

This is driving demand for the luxury Los Angeles real estate market, whether condos, apartments with concierges, or luxury homes rented instead of purchased so that the resident can easily move if they lose their jobs. Only San Jose and San Francisco have more high-income residents that rent than the Los Angeles real estate market. Although apartment prices are high and rising, they’re lower in Los Angeles than in California.

That’s one bright spot in an otherwise tough rental market for Los Angeles renters. The Military also adds renters to the Los Angeles housing market. Any military base will pump renters into a real estate market. The Los Angeles real estate market is simply notable for having a large military population but a job market so diverse that the closing of a base won’t hurt the area’s home prices overall.

The Los Angeles AirPort Base, Edwards Air Force Base, and smaller facilities dump many renters into the Los Angeles housing market. Those with families often choose to rent Los Angeles rental properties instead of life on base. On top of that are defense contractors like Raytheon in Long Beach and El Segundo who pay people a premium to live here.

Current Rent Prices in Los Angels: Before the pandemic, the average rent for an apartment in Los Angeles was $2,524, growing by 2% YTY, according to RENTCafé. The average size for a Los Angeles, CA apartment is 792 square feet. 40% of the households in LA are renter-occupied while 60% are owner-occupied. Studio apartments are the smallest and most affordable, 1-bedroom apartments are closer to the average, while 2-bedroom apartments and 3-bedroom apartments offer more generous square footage.

As of Jan 15, 2023, the average rent for a 1-bedroom apartment in Los Angeles, CA is currently $2,395. This is an 8% increase compared to the previous year. Over the past month, the average rent for a studio apartment in Los Angeles decreased by -7% to $1,698. The average rent for a 1-bedroom apartment decreased by -3% to $2,395, and the average rent for a 2-bedroom apartment remained flat.

The average rent for a 2-bedroom apartment in Los Angeles, CA is currently $3,190. This is a 7% increase compared to the previous year.
The average rent for a 3-bedroom apartment in Los Angeles, CA is currently $4,378. This is a 4% increase compared to the previous year.
The average rent for a 4-bedroom apartment in Los Angeles, CA is currently $5,925. This is a 4% increase compared to the previous year.

Some of the most affordable neighborhoods in LA are:

Jefferson Park, where the average rent goes for $1,355/month.
El Sereno, where renters pay $1,396/mo on average.
Vermont Knolls, where the average rent goes for $1,445/mo.
Glassell Park & Cypress Park, where the average rent goes for $1,485/month.
Cypress Park, where renters pay $1,396/mo on average.
North Hills, where renters pay $1,530/mo on average.

Construction Isn’t Meeting Housing Demand in LA

The Los Angeles housing market has seen a bump in residential construction. This has helped to satisfy some demand from renters. However, due to increasing demand, the new supply hasn’t brought prices down. The current supply of existing single-family homes is 1.4 which is insufficient to meet the demand. This also suggests that any new wave of construction will at most result in rental rates remaining steady instead of causing them to fall.

The geography of this region also limits the supply. The Los Angeles metropolitan area is perched between the ocean and the mountains. You obviously can’t build on water. There’s only so far you can build into the hills when mudslides and earthquakes limit how much you can build there. The Los Angeles real estate market is further constrained by the vast national parks around L.A. like the Angeles National Forest. These areas simply cannot be turned into residential areas.

Two of the most fundamental economic indicators are employment and income. Home sales usually are directly tied to an economy's health and rise and fall with economic activity. As economies slow, the supply of money tends to become more restrictive. What makes Los Angeles unique is the employment market. Want to work in Hollywood? Move to L.A. Want to work for a production company or in fashion? Come to L.A. If rent is too high, share an apartment or single-family home with friends. In terms of home prices, income, and employment indicate whether people can afford current and future increases.

The Golden State added 310,300 jobs in 2019, a 1.8% increase, to a total of 17.61 million, according to data released by the California Employment Development Department. The previous year’s increase was 1.6%. In Los Angeles County, nonfarm jobs grew by 67,800 to a total of 4.65 million. That was a 1.5% rise, led by healthcare and social assistance (up 28,000) and construction (up 8,500). The unemployment rate was 4.4% in December, down from 4.7% a year earlier.

Note that due to the ongoing pandemic, Los Angeles County’s unemployment rate has increased. It fell to 11% in November from a revised 12% in October amid seasonal hiring gains in retail and logistics, according to the State Employment Development Department. It was 19.6 percent in April 2020. Every major sector of the county’s economy suffered significant job losses during the past 12 months, led by accommodation/food services, which shed 120,000 payroll jobs.

How to Invest in Real Estate in Los Angeles?

In any property investment, cash flow is gold. California has the 6th largest economy in the entire world. This is largely driven by its innovative production, the heavy tech sectors in the state, and more. The Los Angeles real estate market has many points in its favor beyond its sheer size. The strong market fundamentals make the Los Angeles housing market a good place to invest if you’re looking at buying real estate in California.

How good is it to buy a Los Angeles investment property? Not every real estate investor wants to enter the most expensive and competitive Los Angeles real estate market. For buyers, the affordability is dropping and only 30% of LA county residents own a home. Home Prices are so high and out of reach for many buyers – many consider LA homes grossly over-priced.

While Los Angeles home prices may be increasing slightly over the next year, the fact remains that there are many homes available at fair prices. Growing household formations, ongoing job creation, and rising wage growth are fueling housing demand,” said NAHB Chief Economist Robert Dietz. “But a record-low resale inventory, coupled with underbuilding as builders deal with supply-side constraints, continue to put upward pressure on home prices even as interest rates remain at low levels.”

There’s still a strong opportunity for rental property investment in Los Angeles. There is a strong and continuous demand for apartments for rent in LA. This is fueled by always tight inventory, severe competition from tenants, rising wages, and a good economy. Therefore, for a great opportunity for rental income for investors. Good cash flow from Los Angeles investment properties means the investment is, needless to say, profitable.

A bad cash flow, on the other hand, means you won’t have money on hand to repay your debt. Therefore, finding a good Los Angeles real estate investment opportunity would be key to your success. If you invest wisely in Los Angeles real estate, you could secure your future. The best investment is now looking for a rental property that will generate good cash flow. Your best tenants would be the retirees who intend to relocate to Los Angeles and want to purchase property to rent out.

The running costs for owning and managing a Los Angeles rental property should not be high. While hiring a property management company you should expect to give up roughly ten percent of the rent for each property they manage. Remember to factor this loss into your calculations when budgeting for a new rental property. The three most important factors when buying real estate anywhere are location, location, and location. The location creates desirability. Desirability brings demand.

There should be a natural and upcoming high demand for rental properties. Demand would raise the price of your Los Angeles investment property and you should be able to get a good return on your investment over the long term. The neighborhoods in Los Angeles must be safe to live in and should have a low crime rate. The neighborhoods should be close to basic amenities, public services, schools, and shopping malls.

A cheaper neighborhood in Los Angeles might not be the best place to live in. A cheaper neighborhood should be determined by these factors – Overall Cost Of Living, Rent To Income Ratio, and Median Home Value To Income Ratio. Los Angeles real estate prices are well above average cost compared to national prices. It depends on how much you are looking to spend and if you are wanting smaller investment properties or larger deals such as duplexes and triplexes in Class A neighborhoods. The inventory is low, but opportunities are there.

Even as Los Angeles home prices have reached new heights, the market remains attractive to residential real estate investors. As they continue to compete for potential investment properties at the lower end of the market, the challenges for first-time homebuyers will remain. The homebuyers won’t be able to outbid real estate investors and would end up renting.

Home prices in Los Angeles are well below the national average for all cities and towns in the United States. According to Realtor.com, there are around 107 neighborhoods in Los Angeles. Bel Air has a median listing price of $4.5M, making it the most expensive neighborhood. Downtown Los Angeles is the most affordable neighborhood, with a median listing price of $695K.

Investing in more affordable neighborhoods (at least some of them) can give you a bigger return on investment in a shorter period of time. Here are some of the best neighborhoods in Los Angeles for buying investment properties.

El Sereno is a densely urban neighborhood (based on population density) located in Los Angeles, California. It is a predominantly Latino neighborhood northeast of Downtown Los Angeles. It is bordered on the north by Highland Park and South Pasadena, on the east by Alhambra, on the south by East Los Angeles, and on the west by Lincoln Heights and Montecito Heights. The average rental price in El Sereno is currently $1,921, based on NeighborhoodScout's exclusive analysis. Rents here are currently lower in price than in 75.6% of California neighborhoods.

El Sereno real estate is primarily made up of small (studio to two bedrooms) to medium-sized (three or four bedrooms) single-family homes and small apartment buildings. Most of the residential real estate is occupied by a mixture of owners and renters. Demand for real estate in El Sereno is above average for the U.S. and may signal some demand for either price increases or new construction of residential products for this neighborhood.

What You’ll Pay in El Sereno: According to Realtor.com, in November 2022, the median list price of homes in El Sereno was $799.9K while the median sale price was $850K. Homes in El Sereno sold for 1.71% above the asking price on average. El Sereno is currently a buyer's market in November 2022, which means that the supply of homes is greater than the demand for homes. On average, homes in El Sereno sell after 52 days on the market. The trend for median days on market in El Sereno has gone down since last month, and slightly up since last year.

Wilmington is a neighborhood in the Harbor region of Los Angeles, California. Wilmington shares borders with Carson to the north, Long Beach to the east, San Pedro to the south and west, and Harbor City to the northwest. The community of Wilmington is one of the oldest in Los Angeles. It is a modern and progressive community with a long and proud history of being the gateway to Los Angeles and the rest of Southern and Central California. There are historical museums, military installations, parks, and waterfront attractions to visit. Click on the image below to see some postcard images from the past.

What You’ll Pay in Wilmington: According to Realtor.com, in November 2022, the median list price of homes in Wilmington, CA was $607.5K, trending up 1.7% year-over-year. The median listing price per square foot was $515. The median sale price was $645K. Homes in Wilmington, CA sold for approximately the asking price on average. Wilmington is currently a seller's real estate market.

Highland Park is a neighborhood in Los Angeles. It is bordered on the south and east by the 110 freeway and stretches west almost all the way to Eagle Rock Boulevard. The neighborhood is in the midst of a renaissance, which has made it an affordable alternative for young professionals who find themselves priced out of central Los Angeles. It has been undergoing gentrification over the last 10 years and has seen an influx of trendy shops and restaurants, new parks, nightlife, and vibrancy.

What You’ll Pay in Highland Park: According to Realtor.com, in November 2022, the median list price of homes in Highland Park was $999K, trending up 5.3% year-over-year. The median listing price per square foot was $762. The median sale price was $970K. Homes in Highland Park sold for 6.45% above the asking price on average in November. Highland Park is a balanced market, which means that the supply and demand of homes are about the same.

West Hills is a residential and commercial neighborhood in the western San Fernando Valley region of the City of Los Angeles, California. The percentage of residents aged 35 and older is among the highest in Los Angeles County. Historic landmarks and many city parks are to be found within the community, as are commercial districts, business districts, and religious establishments. Niche.com ranks it #42 in Best Neighborhoods to Live in Los Angeles.

What You’ll Pay in West Hills: In November 2022, the median listing home price in West Hills was $999K, trending up 11.1% year-over-year. The median listing home price per square foot was $540. The median home sold price was $940K. Homes in West Hills sold for approximately the asking price on average in November 2022. West Hills is a seller's market in November 2022, which means that there are more people looking to buy than there are homes available.

Mid City West is quite an appreciating neighborhood. For a prime city location, it's very safe, and in the residential areas, it's pretty quiet. This area is the true LA experience. It's diverse and much of it reaches into what people consider part of West Hollywood. Since 2012, property prices have appreciated every year in this neighborhood. The current typical home value in Mid City West is $2,114,656 and home values have gone up 4.7% over the past year.

What You’ll Pay in Mid City West: Rental properties in Mid City West are in high demand right. The average rent for a 1-bedroom apartment in Mid City, Los Angeles, CA is currently $2,195. This is a 22% increase compared to the previous year. Over the past month, the average rent for a studio apartment in Mid City increased by 7% to $1,595. The average rent for a 1-bedroom apartment increased by 10% to $2,195, and the average rent for a 2-bedroom apartment increased by 8% to $2,575.

Central City East is an affordable neighborhood in LA for buying an investment property. Since 2012, property prices have appreciated every year in this neighborhood. The typical home value in Central City is $758,445. Central City home values have gone up 2.1% over the past year. The competition is less (as of now) so you can negotiate the deal down to the standard.

If you think of investing in LA, you have decided on a long-term investment property. Here are the ten neighborhoods in LA having the highest real estate appreciation rates since 2000—List by Neigborhoodscout.com.

W 21st St / S Orange Dr
Irvington Pl / N Ave 51
Montecito Heights Northeast
N Ave 57 / Monte Vista St
Happy Valley
N Ave 52 / Granada St
Highland Park
Harvard Heights Southwest
Highland Park North
Apple St / S Dunsmuir Ave

As with any real estate purchase, act wisely. Evaluate the specifics of the Los Angeles housing market at the time you intend to purchase. Hiring a local property management company can help in finding tenants for your investment property in Los Angeles.

This article shouldn't be used to make real estate or financial decisions. Some of this article's information came from referenced websites. Norada Real Estate Investments provides no express or implied claims, warranties, or guarantees that the material is accurate, reliable, or current. All information should be validated using the below references. Norada Real Estate Investments does not predict the future US housing market. This article educated investors about LA real estate. Buying a rental property needs research, planning, and budgeting. Not all investments are good. Always do research and consult a real estate investment counselor.

REFERENCES

Market Data, Reports & Forecasts
https://www.car.org/marketdata/data/countysalesactivity
https://www.car.org/en/marketdata/interactive/housingmarketoverview
https://www.zillow.com/losangeles-ca/home-values
https://www.redfin.com/city/11203/CA/Los-Angeles/housing-market
https://www.realtor.com/realestateandhomes-search/Los-Angeles_CA/overview
https://www.zumper.com/rent-research/los-angeles-ca
https://www.zumper.com/blog/los-angeles-metro-report/
https://www.littlebighomes.com/real-estate-los-angeles.html

Covid-19 Impact/News
https://la.curbed.com/2020/2/28/21157988/home-prices-los-angeles-report
https://www.latimes.com/homeless-housing/story/2020-07-23/southern-california-home-prices

Best Neighborhoods and Statistics
https://www.zillow.com/
https://en.wikipedia.org/
https://www.neighborhoodscout.com/ca/los-angeles/real-estate/
https://www.mashvisor.com/blog/invest-los-angeles-real-estate-market-2019/

LA demographics
http://worldpopulationreview.com/us-cities/los-angeles-population

Rent control
https://www.latimes.com/archives/la-xpm-2007-dec-30-re-aptlife30-story.html

Foreclosures
https://www.realtytrac.com/statsandtrends/foreclosuretrends/ca/los-angeles-county

Rental market/Apartments
https://la.curbed.com/2019/2/4/18210857/los-angeles-rental-prices-2019-average
https://www.rentcafe.com/average-rent-market-trends/us/ca/los-angeles
https://la.curbed.com/2019/2/26/18241819/rent-vs-buy-los-angeles-high-income

Job & Unemployment Stats
https://fred.stlouisfed.org/series/CALOSA7URN
https://www.labormarketinfo.edd.ca.gov/file/month/la$pds.pdf

Military market
http://www.laalmanac.com/military/mi05.php
https://militarybases.com/california

Good time to buy/price predictions
https://la.curbed.com/2018/12/7/18128000/los-angeles-real-estate-market-prediction-2019
https://www.forbes.com/sites/ellenparis/2019/02/23/buyers-should-revisit-los-angeles-and-san-francisco-housing-markets-for-new-opportunities/#47bd1029428c

Austin Housing Market: Prices, Trends, Forecast 2023

January 31, 2023 by Marco Santarelli

Data by ABoR. Forecast by other sources.

The Austin Housing Market is Cooling Off

Austin's housing market is shifting. The market reflects what is happening in other major cities across the country. After reaching an all-time high of approximately $550,000 between April and May of last year, the median home price in Austin decreased to $537,000 in June. This trend indicates a slowdown in one of the nation's most overheated housing markets at the time. Zillow data indicates that Austin's median home price has continued to drop for six consecutive months.

The buyers have greater negotiating power than at any time since the pandemic. Properties take longer to sell and are being acquired for less than the initial list price on average. The market has just now gotten up to three months of housing inventory (2.7 months as of December), which is still short of the 6 to 6.5 months of inventory needed to be considered a healthy market. Austin home values are predicted to decline through 2023 amid continued skyrocketing interest rates and declining housing prices.

According to Goldman Sachs, Austin, Texas is one of the four cities in the United States that will likely see declines of over 25 percent in its housing market. These declines would be similar to those witnessed during the Great Recession in 2008. The decline is being attributed to the city's overheated housing market, which became detached from fundamentals during the COVID-19 pandemic housing boom. Austin has been previously named the second-most overpriced housing market in the nation and is considered the largest housing bubble in America. It shows that the localized risk of higher delinquencies for mortgages originating in 2022 or late 2021 still exists.

What's happening: According to the latest Central Texas Housing Market Report provided by the Austin Board of REALTORS®, in 2022, the median home price in the Austin-Round Rock MSA hit a new yearly record of $503,000. Despite this record, the housing market continued to tilt in favor of buyers as home sales decreased 18.3% to 33,547 homes sold last year and inventory climbed, with properties remaining on the market for 31 days, 11 days longer than in 2021.

In 2022, the median price in the MSA rose 11.4% to $503,000.
Sales dollar volume dipped 9.8% to yield a $21,018,159,929 impact on the Austin-area economy.
New listings stayed flat, and the year ended with 45,949 homes listed as pending sales dropped 24.2% to 31,633 homes.
In the month of December, closed listings across the MSA declined 31.5% to 2,435 year-over-year as sales dollar volume decreased 36.1% to $1,357,155,494.
The median sales price dropped 3.7% to $457,426.
New listings declined 15.1% to 1,828 listings, active listings skyrocketed 275.4% to 7,493 listings, and pending sales dropped 22.8% in December to 1,949 sales.
Last month, homes spent an average of 73 days on the market, 47 more compared to December 2021.

Real Estate Trends in Travis County – December 2022

Austin is the capital city of the U.S. state of Texas, as well as the seat and largest city of Travis County, with portions extending into Hays and Williamson counties. Data by ABoR revealed that in Travis County, residential home sales fell 23.8% to 15,705 in 2022, while dollar volume fell 16.1% to $11,556,937,031. The median price of residential properties rose 10.6% annually to $575,000.

In the previous year, new listings declined by 3.6% to 22,105, while active listings increased by 121.9% to 2,718 and pending sales decreased by 27.6% to 14,919. In December 2022, residential property sales in Travis County declined 44.9% to 984 purchases, while dollar volume decreased 47.8% to $649,319,748.

In addition, the median price declined 2.8% annually to $520,000. During the same time period, new listings decreased by 16.5% to 825, while active listings increased by 250.6% to 3,166 and pending sales decreased by 27.6% to 873. Monthly housing inventory increased by 1.9 months annually to 2.4 months.

Here are the housing market trends based on single-family, condo, and townhome properties listed for sale on Realtor.com. Land, multi-unit, and other property types are excluded. In Dec 2022, the median listing home price in Travis County, TX was $575K, trending up 8.5% year-over-year. Travis County, TX was a buyer's market in Dec 2022, which means that the supply of homes is greater than the demand for homes.

There are 29 cities in Travis County.
Barton Creek has a median listing home price of $3.5M, making it the most expensive city.
Hornsby Bend is the most affordable city, with a median listing home price of $349K.
The median listing home price in Austin, TX was $599K, trending up 8.9% year-over-year.
There are 92 neighborhoods in Austin.
Zilker has a median listing home price of $1M, making it the most expensive neighborhood.
Tech Ridge is the most affordable neighborhood, with a median listing home price of $425K.

According to a new study, Austin homes are among the most overvalued in the United States. According to the study conducted by researchers from Florida Atlantic University and Florida International University, homebuyers in Austin are paying nearly 51% more than expected for houses. The only metro area where homebuyers pay a higher premium is Boise, Idaho, where homebuyers pay an astronomical 81 percent more.

When Zillow released its latest list of the top ten hottest housing markets in the United States, Austin was no longer ranked number one. Zillow previously ranked Austin as the hottest housing market but that ranking has slipped several spots for 2022. It ranks Austin at #10 now. According to Zillow's 2022 forecast, Tampa is the year's hottest housing market, with the city expected to top the list due to its relative affordability and high job growth.

Austin Housing Market Forecast 2023

What are the Austin real estate market predictions for 2023? Despite cooling off from its peak. Austin will remain a seller's market despite nationwide inflation and rising interest rates. The prices continue to rise across Austin MSA. The main reason is strong in-migration and a rapidly recovering local economy. According to the Census Bureau’s 2021 population estimates, Austin's population is increasing by 146 people every day. This type of expansion places immediate and substantial demands on infrastructure, especially housing.

Austin's rapidly expanding economic industry is driving more people into the city which is increasing the housing demand. A number of reasons have affected the present situation of the Austin housing market, one of which is the high migration of firms and persons relocating to the city from Texas and out-of-state, which has led to a robust and varied economy that attracts people seeking opportunity.

A surge of people moving in, combined with rapid population growth and low mortgage interest rates, has turned Austin and its surrounding area into a sellers' market. Austin’s engine of job and population growth is not projected to slow down anytime soon—the biggest drivers of residential real estate demand. Its economy has diversified and strengthened over the past two decades.

Companies like Google and Tesla are moving operations to Austin. The software giant Oracle has also relocated its headquarters here. As more companies move here, that means more people looking for homes, and the city is also attractive to outside investors. With a steady influx of job creation in the pipeline, the housing market will continue to post strong numbers well into 2022. Big companies moving here will also play into what happens to the housing market.

With an all-time high in corporate relocations, the housing demand is way up and the supply side cannot match up. All these factors indicate that this region has a higher probability of withstanding economic downturns due to the current pandemic. To determine the best local real-estate markets in the U.S., WalletHub compared 300 cities of varying sizes across 24 key indicators of housing-market attractiveness and economic strength. They looked at factors like median home-price appreciation to home sales turnover rate to job growth.

The city of Austin's real estate market came in at number 7 overall and 3rd among large cities. Boise was found to be the best market in the nation, followed by Seattle, Frisco, Nashville, and Gilbert in the top five. Let us look at the price trends recorded by Zillow (a real estate database company) over the past few years. The typical value of homes in Austin is $619,096. Since the last twelve months, Austin's home values have appreciated by 0.1%.

NeighborhoodScout's data also shows that Austin real estate has appreciated 196.13% over the last ten years, which is an average annual home appreciation rate of 11.47%. This figure puts Austin in the top 10% nationally for real estate appreciation. During the latest twelve months (between 2021 Q3 – 2022 Q3), Austin's appreciation rate was 19.10%.

In the latest quarter (between 2022 Q2 – 2022 Q3), Austin's appreciation rate has been 6.82%, which annualizes to a rate of 30.20%. However, higher mortgage rates mean it's more difficult to afford a home now, but the reduced demand also means less competition. Therefore, the appreciation will remain very modest in 2023 depending on how the mortgage rates trend. For long-term investment, you cannot underestimate Austin. Investing in a rental property for the long term would build your equity and also generate cash flow through rental income.

Here's Zillow’s housing market forecast for Austin-Round Rock Metro. The Zillow Home Value Forecast (ZHVF) is the one-year forecast of the Zillow Home Values Index (ZHVI). ZHVF is created using all homes, mid-tier cut of ZHVI and is available both raw and smoothed and seasonally adjusted. Austin-Round Rock Metro's home values are expected to drop by 1.8% between December 2022 and December 2023. According to their forecast, the supply and demand dynamics will likely push down prices over the next 12 months.

These numbers can be positive or negative depending on which side of the fence you are — Buyer or Seller? In a balanced real estate market, it would take about five to six months for the supply to dwindle to zero. In terms of months of supply, Austin can become a buyer’s real estate market if the supply increases to more than five months of inventory. And that’s unlikely to happen in the near future. The inventory in Austin MSA is still short but with inventory steadily increasing, right now is a great time to be a homebuyer in Central Texas.

Austin Housing Market Forecast — Source: Zillow

Is Austin Texas Good for Real Estate Investment?

Should you consider Austin real estate investment? Many real estate investors have asked themselves if buying an investment property in Austin is a good investment. You need to drill deeper into local trends if you want to know what the market holds for real estate investors and buyers in 2023. Let’s discuss a bit about the Austin metro area and then do a quick recap of how its housing market performed during the pandemic.

Austin is a minimally walkable city in Travis County with a population of approximately 790,195 people. It is the capital of Texas and it is growing at a fast clip. It is the fourth largest city in the state of Texas. The Austin real estate market isn’t the largest in the state of Texas, but there are several reasons to consider buying real estate in this city. The Austin housing market has gained a lot of steam, with home values almost doubling since 2010. It isn’t as big as Dallas, San Antonio, or Houston.

However, the Austin housing market is sizable – it is the eleventh largest city in the U.S. as of this writing, and it is the center of a large metro area. Austin has come up as another tech hub in the last 5 to 6 years. There are tons of high-paying tech jobs that moved to Austin in the last couple of years. The Austin-Round Rock metro area is home to about two million people. Recently Austin was ranked eighth for the best real estate markets, topping all other big Texas cities.

As per Neigborhoodscout.com, a real estate data provider, one and two-bedroom single-family detached homes are the most common housing units in Austin. Other types of housing that are prevalent in Austin include duplexes, rowhouses, and homes converted to apartments. Single-family homes account for about 46% of Austin's housing units.

According to ABoR, Austin's competitive housing market is changing the landscape of traditional homeownership. More homebuyers purchase condos and townhomes to live closer to the urban core or stay within their budget. Austin has been one of the hottest real estate markets in the country for many years. It has a record of being one of the best long-term real estate investments in the U.S. over the past 10 years.

It is currently a moderate seller’s real estate market. Austin's immense population growth during the past decade has heavily impacted its real estate market. Although this article alone is not a comprehensive source to make a final investment decision for Austin, we have collected ten evidence-based positive things for investors who are keen to buy an investment property in Austin. Texas is unique for having a biannual legislature. They don’t have the state legislature in town year-round. Instead, they are only in session for several months every two years.

This leads to an influx of legislators, reporters, and lobbyists every other year. This creates a unique but predictable boom and bust for the Austin housing market in the vicinity of the capitol building. Let’s look at the state of the Austin real estate market and the factors driving the market in the short and long term.

Is Austin Housing Market In A Bubble?

Austin is one of only eight U.S. metro areas to have fully recovered in the last 10 years to pre-recession values. Would Austin remain as one of the top real estate markets in the country or would the bubble burst? Well, Austin isn’t considered to be in a real estate bubble because the demand is consistently high and inventory is very tight. This is good news for investors because you can expect steady activity and the flow of people looking for housing.

In 2019, Austin continued to rank high on “Best of U.S.” lists. There was a record number of home sales in 2019. The December and Year-End 2019 Central Texas Housing Market Report reflects a record-breaking 33,084 home sales and $13B in sales volume. According to the Austin Board of REALTORS® (ABoR), between 2010 and 2019 home sales increased by 84%. The median home price in Austin has increased from $193,520 in 2010 to $318,000 in 2019, and the market did not show any signs of slowing down from 2020 to 2021.

The price of Austin properties declined following the 2007 peak while prices remained relatively flat following the 1995 and 2000 peaks. According to a report published on Williamskw.com, Austin will remain a seller's market in 2022 despite higher mortgage rates. The National Association of Realtors (NAR) suggests a “balanced” market is between 4-6 months of inventory. The entire Austin market is around 0.5 months. Austin inventory levels did increase in March 2022, yet not nearly enough for Austin to be a “buyers” market. That is not expected to change.

As Austin is a young city by many standards, Millennials will be the largest buying force in Austin in the upcoming years. This is going to be more attractive for the areas being close to neighborhood amenities and close by shopping & hang-out spots. Real estate industry experts think that there is no bubble. Austin's economy is strong and varied. Overall there is a huge scarcity of homes for sale in Austin. It just hasn't kept up with the pace of people moving here.

Austin's Affordable Real Estate & Certain Future Appreciation

Homes in Austin are 23% cheaper than the national average. It may be the second most expensive housing market in the state with a median home price of around $461,000, but it is still far cheaper than California or New York. Buy up condos or townhomes, and you’ll be able to see a sizable return on the investment.

An author in Forbes wrote in 2016 that Austin real estate is appreciating at one of the highest rates in the state because of NIMBY-ism, a reluctance to develop the riverfront or Texas hill country to build new homes. This has pushed development out along the highway and forced dense development in areas already zoned for housing.

This pushes up the price of existing homes, driving many in the Austin housing market to rent when they want to buy, while it guarantees capital gains for those who buy and hold property. Here are the ten neighborhoods in Austin having the highest real estate appreciation rates since 2000—List by Neigborhoodscout.com.

East Cesar Chavez / Holly
Chestnut
Central East Austin
Govalle
Holly West
Central East Austin South
Rosewood
Johnston Terrace
Springdale / MLK-183
MLK

Cost of living In Austin

The Austin-Round Rock metro area is home to about two million people. The city is known as a haven for live music, free thinking, and free spirits. It has a distinct culture and flavor compared to the rest of Texas, which is a mostly conservative and traditional state. According to WalletHub, among large U.S. cities, Austin ranked eighth, topping all other big Texas cities as well as San Jose, Atlanta, and Portland. Among all 300 cities, Austin still ranked a respectable No. 36 for best real estate markets.

One of the factors driving the Austin real estate market is the intangible but well-documented quality of life the city provides. In 2017, US News and World Report ranked the city first for quality of life. In 2016, Austin was ranked first on the Forbes list of Cities of the Future list. In 2017, that same magazine ranked the South River City neighborhood as one of the best for Millennials. WalletHub ranked the city sixth in their list of best places to live in 2017. In 2012, the FBI ranked Austin as one of the safest cities in the country.

Aside from high housing prices, the cost of living in Austin is relatively affordable. Overall, the cost of living for Austin is very reasonable. At three percent below the national average cost of living, moving to Austin may be an economical choice for you. One of the most interesting factors in the cost of living for Austin is that the cost of housing is 15 percent below the national average.

According to Sperling’s Best Places, grocery costs in Austin are slightly below the national average, with a rating of 89.1 against the U.S. average of 100, meaning it is about 11 percent lower than the national average on groceries.

The sales tax rate in Austin is 8.25 percent. There are no income taxes in Texas. Schools are largely funded through property taxes, which rise along with home prices. As home prices continue to skyrocket and people are increasingly forced to move to the distant suburbs to find affordable housing, a massive reworking of Austin’s building codes, known as CodeNext, promised to deliver some relief.

The median salary in Austin, TX is $51,596 and it is the 108th most expensive city in a database of 232 cities by NerdWallet.com. For a 2-bedroom apartment, the median rent per is $1,184. The median price for a 3/2 bedroom house is $276,634. Food and entertainment costs in Austin are reasonable. Redwood Austin is the area with the lowest cost of living.

Areas With The Lowest Cost of Living in Austin – (List by Niche.com & prices by Livability.com)

Redwood, Texas – Located in Guadalupe County. The median income in Redwood, TX is $47,778 and the median home value is $54,700.
Lockhart, Texas – Located in Caldwell County. The median income in Lockhart, TX is $48,884 and the median home value is $115,400.
Martindale, Texas – Located in Caldwell County. The median income in Martindale, TX is $43,929 and the median home value is $151,200.
Uhland, Texas – Located in Hays County. The median income in Uhland, TX is $40,662 and the median home value is $78,100.
Taylor, Texas – Located in Williamson County. The median income in Taylor, TX is $42,793 and the median home value is $116,600.
Lago Vista, Texas – Located in Travis County. The median income in Lago Vista, TX is $75,126 and the median home value is $189,400.
Elgin, Texas – Located in Bastrop County. The median income in Elgin, TX is $50,369 and the median home value is $104,000.
Hornsby Bend, Texas – Located in Travis County. The median income in Hornsby Bend, TX is $49,077 and the median home value is $123,000.
Round Rock, Texas – Located in Williamson County. The median income in Round Rock, TX is $72,412 and the median home value is $179,900.
Wimberley, Texas – Located in Hays County. The median income in Wimberley, TX is $59,167 and the median home value is $214,600.

Austin's Massive Student Population Propels The Rental Investment

Many people want to invest in the Austin real estate market because there is a massive student population that will rent properties for a premium if they’re within easy commuting distance of the University of Texas Austin campus. That school alone has more than 40,000 students. The Austin community college hosts about as many students as UT Austin. Huston Tillotson University, Saint Edward’s University, and National American University are also located in this city.

Positive Demographic Momentum of Austin: About half of Austin’s population is between 18 and 44, though that figure is skewed by the large student population. However, the reality is that many college graduates choose to stay here because of the abundant, well-paying jobs. After all, Austin has the highest per capita of high-paying jobs of any Texas city. This helps explain why the Austin housing market is growing at the fastest rate of any major city in Texas. Many of these young adults are starting their families here, creating certain future demand for housing in the Austin real estate market.

Rental Market Statistics: Before the pandemic, the average rent for an apartment in Austin was growing at 5% annually (Source: RENTCafe). 48% of the households in Austin are renter-occupied which is a significant population. More than 65% of the apartments can be rented for $1,500 or less. Around 20% of the rental apartments fall in the price range of $1,500 to $2,000 while only 10% of the apartments fall in the rent price range of $2,000 or more.

The average size for an Austin, TX apartment is 864 square feet with studio apartments being the most affordable. 1-bedroom apartments are closer to the average, while 2-bedroom apartments and 3-bedroom apartments offer more generous square footage.

As of January 15, 2023, the average rent for a 1-bedroom apartment in Austin, TX is currently $1,650. This is a 4% increase compared to the previous year. Over the past month, the average rent for a studio apartment in Austin decreased by -6% to $1,125. The average rent for a 1-bedroom apartment decreased by -1% to $1,650, and the average rent for a 2-bedroom apartment decreased by -3% to $2,031.

The Zumper Austin Metro Area Report analyzed active listings across the metro cities to show the most and least expensive cities and cities with the fastest growing rents. The Texas one bedroom median rent was $1,159 last month. Austin was the most expensive city with one bedrooms priced at $1,680 whereas San Marcos ranked as the most affordable city with one bedrooms priced at $1,280.

The best place to buy rental property is about finding growing markets. Cities like Round Rock, Cedar Park, and Pflugerville are good for investors looking to get started with rental property ownership at an affordable price. These cities look good for rental property investment this year as rents are growing over there. These trends provide a macro look at the growing rental demand. Each real estate market has its own unique supply-demand dynamics with unique neighborhoods that present their own opportunities for investors.

Here are the best areas to invest in a rental property in the Austin Metro Area. Most of these places have the same things in common, including rising rents and increasing property values. The Most Affordable Neighborhoods in Austin are University Hills where the average rent can go for $795/month, Heritage Hills, where the average rent can go for $795/month, and Windsor Hills, where the average rent can go for $833/month.

Where are rents growing fastest in Austin Metro Area (Y/Y%)

San Marcos had the fastest growing rent, up 19.6% since this time last year.
Kyle was second with rent climbing 14.2%.
Austin ranked as third with rent increasing 13.5%.

The Fastest Growing Cities For Rents in Austin Metro Area (M/M%)

Cedar Park had the largest monthly rental growth rate, up 2%.
Pflugerville was second with rent climbing 1.4%.
Austin was third with rent increasing 1.2%.

Austin Is The Silicon Prairie

Austin Texas has been nicknamed Silicon Hills and Silicon Prairie because they’ve attracted so many high-tech employers. This has resulted in an active upscale Austin real estate market. Austin’s GDP, which grew 117% over the last 20 years, helped the real estate market recover from the recession.

The closest metro to see this type of growth was Silicon Valley, which grew its GDP by 99% during the same period. Major local employers in Austin include IBM, Amazon, Apple, Cisco Systems, and many semiconductor manufacturers. There are more than 3300 tech companies in the region and more than 100,000 tech workers all competing for homes in the Austin real estate market.

One of the long-term strengths of Austin is its diverse economy. The Austin real estate market dipped after the layoffs of the Dot-Com boom. They decided to solve the problem by encouraging medical and biotech employers to relocate to the area, too. As of this writing, there are 85 biotech and pharmaceutical companies in Austin.

Austin is a Relatively Friendly City for Landlords

Texas, in general, is very landlord-friendly, though cities can have their own, stricter ordinances. Texas doesn’t specifically let tenants withhold rent for failure to provide essential services. You can evict someone for nonpayment of rent after three days. Texas doesn’t set a limit on security deposits.

Texas doesn’t require a minimum time frame before you increase the rent. For major lease violations, you can terminate the lease then and there and give them three days to vacate. Knowing you won’t spend months trying to evict a non-paying tenant is a good reason to consider the Austin real estate market or another Texas housing market over more liberal cities.

The Excellent Tax Environment

Texas’ property taxes may be high, but this is offset by the lack of a state income tax. There is, overall, a low state and local tax burden for investors. That makes this a great place to buy a home and rent it out.

Texas Real Estate Investment Opportunities: Where To Invest?

With Austin becoming a more diverse city every year, there are plenty of opportunities to take advantage of – from buying new homes to different investment options in the Austin real estate market. Austin is a leader across the country with jobs and when you combine that with home prices not as drastically increasing, you'll get a real estate market that many others envy.

Good cash flow from Austin investment properties means the investment is, needless to say, profitable. A bad cash flow, on the other hand, means you won’t have money on hand to repay your debt. Therefore, finding the best investment property in Austin in a growing neighborhood would be key to your success.

As with any real estate purchase, act wisely. Evaluate the specifics of the Austin housing market at the time you intend to purchase. When looking for the best real estate investments in Austin, you should focus on neighborhoods with relatively high population density and employment growth. Both of them translate into high demand for housing.

Some of the popular neighborhoods in and around Austin are Northwest Hills, Downtown Austin, West Lake Hills, Brushy Creek, Barton Creek, Spicewood Summit, Mueller, South Austin, Hyde Park, Windsor Park, Crestview, North Austin, Allandale, Shady Hollow, Rollingwood and Steiner Ranch.

There are around 75 neighborhoods in Austin. Tarrytown has a median listing price of $1.5M, making it the most expensive neighborhood. West University is the most affordable neighborhood, with a median listing price of $325K. (on Realtor.com).

Downtown is where the city's high-rise buildings are located, as well as being the center of government and business for the region. Downtown Austin is expanding and the residential options are increasing.

The cost of real estate might be the highest in Austin, but residents live within walking distance of everything they need. If housing supply meets housing demand, real estate investors should not miss the opportunity since entry prices of homes remain affordable.

Apart from the Austin real estate market, you can also invest in the housing market of Houston, TX. If you are a home buyer or real estate investor, Houston has a track record of being one of the best long-term real estate investments in the nation through the last ten years.

The Houston Real Estate Market forecast is good, and current housing prices are relatively low, so if you want to get on board the Houston real estate investing then now would be a great time to do so.

The Houston metro area offers great opportunities for investors who are looking for a stable market that offers both cash flow and equity growth at a price that is STILL well below their replacement value.

The El Paso real estate market is another hot market to invest in. El Paso real estate market was ranked 4th in Trulia’s hottest real estate markets to watch in 2018. El Paso’s strong job growth, affordability, low vacancy rates, and high population of young households were pivotal in the ranking process.

The cost of living in El Paso is lower than the national average, while the cost of housing is well below that of other major metropolitan areas, including Houston and Austin.

The Central, Cielo Vista, and Mesa Hills areas offer more affordable rental properties for sale, while neighborhoods in the northwestern and eastern parts of the metro area have some of the more expensive housing inventory. The amount residents spend on everyday expenses, such as food and transportation, is slightly less than what the average American pays.

The next one is the San Antonio real estate market. The median home value in San Antonio is $184,322. San Antonio home values have gone up 4.8% over the past year and Zillow predicts they will rise 1.9% by Dec 2020. For those who want to invest in rental real estate, the San Antonio real estate market is an ideal location because of its outsized military presence.

Fort Sam Houston is located inside the city limits. Lackland Air Force Base, Randolph Air Force Base, Camp Bullis, and Camp Stanley are located in the immediate vicinity. This means that there is a large population that will almost always rent because they don’t know where they’ll be sent on their next assignment.

San Antonio has a dearth of affordable housing because demand is so much greater than the supply. This has created a large number of renters who need to pay quite a bit to rent apartments or single-family homes. We know there is a lack of housing relative to demand when a balanced market has a 6 month home inventory and San Antonio has only a two-month inventory.

How can we not mention Dallas on this list? The Dallas housing market 2020 is shaping up to continue the trend of the last few years as one of the strongest markets in the United States. Despite some fluctuations in the market, demand and sales have continued to climb at a feverish pace for more than two years and show no signs of stopping.

Dallas’s local economy is a mix of aerospace, computer chips, telecommunications, transport, energy, and healthcare sectors and the Finance and Business Services. These sectors are all providers of good wages which allows for a strong market for Dallas investment properties.

Dallas’s population has grown at twice the national rate for years now and this pushes the prices of Dallas investment properties higher due to builders not being able to keep up.

Dallas’s housing prices have increased 29% over the last three years, even with these increases in home prices, they are still competitive for investment properties and you can expect further increases over the years. If you want to buy an investment property in Dallas, don’t wait around, go ahead and do it.

NORADA REAL ESTATE INVESTMENTS has extensive experience investing in turnkey real estate and cash-flow properties. We strive to set the standard for our industry and inspire others by raising the bar on providing exceptional real estate investment opportunities in many other growth markets in the United States. We can help you succeed by minimizing risk and maximizing the profitability of your investment property in Austin.

Consult with one of the investment counselors who can help build you a custom portfolio of Austin turnkey properties. These are “Cash-Flow Rental Properties” located in some of the best neighborhoods of Austin.

Not just limited to Austin or Texas but you can also invest in some of the best real estate markets in the United States. All you have to do is fill up this form and schedule a consultation at your convenience. We’re standing by to help you take the guesswork out of real estate investing. By researching and structuring complete Austin turnkey real estate investments, we help you succeed by minimizing risk and maximizing profitability.

Buying or selling real estate, for a majority of investors, is one of the most important decisions they will make. Choosing a real estate professional/counselor continues to be a vital part of this process. They are well-informed about critical factors that affect your specific market areas, such as changes in market conditions, market forecasts, consumer attitudes, best locations, timing, and interest rates.

Let us know which real estate markets in the United States you consider best for real estate investing!

This article shouldn't be used to make real estate or financial decisions. Some of this article's information came from referenced websites. Norada Real Estate Investments provides no express or implied claims, warranties, or guarantees that the material is accurate, reliable, or current. All information should be validated using the below references. Norada Real Estate Investments does not predict the future US housing market. This article educated investors on Austin real estate. Buying a rental property needs research, planning, and budgeting. Not all investments are good. Always do research and consult a real estate investment counselor.

References

Market Data, Reports & Forecasts
https://www.abor.com/new-center/market-stats
https://www.zillow.com/austin-tx/home-values
https://www.realtor.com/realestateandhomes-search/Austin_TX/overview
http://austin.culturemap.com/news/real-estate/08-30-18-austin-home-foreclosures-rise-report

Foreclosures
https://www.realtytrac.com/statsandtrends/tx/travis-county/austin

Apartment Prices & Trends
https://www.rentcafe.com/average-rent-market-trends/us/tx/austin/
https://www.rentjungle.com/average-rent-in-austin-rent-trends/

Reasons to consider investing in Austin
https://www.austintexas.gov/invest-here
https://www.usnews.com/best-colleges/university-of-texas-3658
https://www.collegesimply.com/colleges/texas/austin/four-year-colleges/
http://capstonecapitalusa.com/the-most-friendly-8-landlord-states
https://www.rentcafe.com/blog/renting/states-best-worst-laws-renter
http://austin.culturemap.com/news/real-estate/09-11-18-best-real-estate-markets-in-us-austin-wallethub

Is Austin In A Bubble
https://www.quora.com/Is-the-Austin-real-estate-market-a-bubble-If-so-when-will-it-burst
https://www.williamskw.com/blog/5-Predictions-for-the-Austin-Real-Estate-Market-in-2018/53486

Cost of Living
https://livability.com/tx
https://www.tripsavvy.com/austins-cost-of-living-255111
https://www.bestplaces.net/cost_of_living/city/texas/austin
https://www.nerdwallet.com/cost-of-living-calculator/city-life/austin
https://www.niche.com/places-to-live/search/suburbs-with-the-lowest-cost-of-living/m/austin-metro-area
https://www.forbes.com/sites/scottbeyer/2016/08/31/why-is-austins-housing-more-expensive-than-other-texas-cities/#10556d3d6121

Bay Area Housing Market: Prices, Trends, Forecast 2023

January 30, 2023 by Marco Santarelli

Will the Bay Area Housing Prices Drop?

This page has been updated to reflect the most recent trends in the Bay Area housing market. The Bay Area housing market, known for its high home prices, is now experiencing a slowdown. Despite record-breaking home sales in recent years, the market is starting to level out. According to data from the California Association of Realtors (C.A.R.), home sales in the state dropped by 47.7% in December 2022 compared to the same month in the previous year.

The Bay Area saw a 37.4% decrease in home sales, with three of the nine counties experiencing a decline of more than 40%. One of the reasons for the slowdown is the increase in mortgage rates, which is discouraging potential buyers. The decline in sales is also a sign that the Bay Area housing market is slowing down from the intense competition and rapid pace of the past two years.

This shift presents opportunities for buyers who may have missed out or were priced out of the market in the past. The Bay Area housing market, which was once known for its high prices and frenzied activity, is now leveling out with a decline in home sales. This shift presents new opportunities for potential buyers, who may have missed out on the competitive market of the past two years.

The rise in interest rates is affecting buyers who are looking to enter the market and purchase a property. The good news is that there is slightly more inventory available, making the market less competitive for buyers. However, the median sales price in Bay Area has remained consistently high, topping $1 million for 22 months in a row. This indicates that the cost of purchasing a property has not decreased significantly.

The median sale price for a Bay Area home last month was $1,084,500, which is 11.5% less than November's price of $1,225,000. The price also dropped by 9.6% year-over-year, when the price was $1,200,000. It is the price in the very middle of a data set, with exactly half of the houses priced for less and half-priced for more in the Bay Area real estate market. It shows that the Bay Area housing market is distinguished by high demand and a scarcity of available inventory. Due to persistent demand from the state's high-income residents, home prices have skyrocketed in this market over the past few years.

Bay Area Real Estate Market Trends

The housing prices in Bay Area dropped in December 2022. According to current trends, housing prices in the majority of Bay Area communities will decline over the next twelve months. Zillow projects a decline of 6.8% in Bay Area home prices between December 2022 to December 2023. The median sales price of this region, which includes all nine counties of Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma, is $1,084,500.

According to C.A.R., this is a 9.6 percent drop year-over-year. Sales of existing homes were down in all the major regions of the California housing market. Southern California had the sharpest decline of all regions, with sales dropping -48.3 percent from a year ago. The San Francisco Bay Area (-37.4 percent) had the third-largest drop of all regions after the Central Coast (-45.9 percent).

The housing inventory in the Bay Area is low but increasing. As of December 2022, the months of supply for existing single-family houses in the Bay Area is 1.6 months, an increase from last year when it was 0.8 months. Homes are selling below the asking price (on average). Sales Price to List Price Ratio = 96.4%, a significant drop from the last December when it was 105.4%.

Only those who do not have enough money for a down payment are delaying their purchases. Looking at the low supply of homes, high-interest rates, interested buyers may have a difficult time finding available properties in the Bay Area. Hence, sales and prices are expected to decline in 2023.

Bay Area Housing Market — Data by CAR. Forecast by Zillow (Dec 2023)

Below is the latest tabulated housing market report for the entire Bay Area released by the California Association of Realtors. The tabulated report shows the sales and prices of the Bay Area counties for December 2022. Much of the Bay Area real estate market remains in “seller's market” territory with months of supply of available single-family homes being about 1.6 months at the current pace of sales. So, if you're considering buying in the Bay Area, it's important to be informed and ready to act quickly!

Bay Area Housing Market Trends — Source: CAR.org

Bay Area Housing Market Forecast 2023

Bay Area consistently ranks among the world's most expensive real estate markets, and it is one of the most densely populated cities in the U.S. The Bay Area housing market consists of all nine counties (Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma) and 101 municipalities. The region is home to three major cities: San Francisco, Oakland, and, the largest, San Jose. Here are Bay real estate market predictions for 2023.

San Francisco-Oakland-Hayward Metro (Bay Area) Forecast up to December 2023

The typical value of homes in the San Francisco-Oakland-Hayward Metro (Bay Area) is $1,359,655, up 0.3% over the past year. Here are Zillow's latest home price projections for the Bay Area and its counties. Higher mortgage rates are playing an important role in the moderation of price growth. Bay Area (San Francisco-Oakland-Hayward Metro) home values have gone up over the past year but they are expected to decline by 6.5% from Dec 2022 to Dec 2023 (ZHVF).

Typical Home Values: $1,359,655 (Dec 31, 2022)
1-year Value Change: +0.3%
1-year Value Forecast: -6.5%
29 Median days to pending
0.999 Median sale-to-list ratio
43% Percent of sales over list price
46.9% Percent of sales under list price

Here is the graphical representation of historical home prices since the last decade.

Bay Area Housing Market Forecast — Source: Zillow

SF Bay Area Real Estate Investment Overview

Should you consider San Francisco real estate investment? Many real estate investors have asked themselves if buying a property in San Francisco is a good investment as the median price for a two-bedroom sits at $1.35 million. The high cost of real estate in San Francisco is impossible for most families to manage. Exodus is yet another problem and a new report confirms that the numbers are staggering. Online real estate company Zillow released new statistics shining a stark light on the issue this week.

Their “2020 Urban-Suburban Market Report” reveals that inventory has risen a whopping 96% year on year, as empty homes in the city flood the market like nowhere else in the country. Although this article alone is not a comprehensive source to make a final investment decision for San Francisco, we have collected some evidence-based positive things for those who are keen to invest in the San Francisco real estate market. If you can afford it, then it’s an investment that will continue to increase in value over time.

Due to low-interest rates in 2021, there was an influx of high-end luxury buyers, with certain instances where homes have been sold for $1 million over asking. Let’s talk a bit about San Francisco and the surrounding bay area before we discuss what lies ahead for investors and homebuyers. San Francisco is home to nearly 900,000 people. It is the hub of the San Jose-San Francisco-Oakland area; this larger metro area is home to nearly nine million people.

The city alternately makes the news for people paying incredibly high rents to live in boxes, the homeless problem, and the tech industry. This makes many think about why or how anyone could live there. Others would think why you’d want to buy a property now in such an overvalued real estate market. Yet we can give you ten positive signs about the San Francisco housing market. Keep on reading to find out more.

Why is housing so expensive in San Francisco? The sky-high housing prices in San Francisco are not a new phenomenon. California, as a state, is facing a consistent housing shortage, and San Francisco is no exception. The limited availability of land and strict zoning regulations, combined with community resistance to new construction, resulted in a shortage of new housing units being built. Despite a strong economy and increasing job opportunities, San Francisco's housing prices have risen much faster than residents' incomes.

The minimum annual income required for owning a home in San Francisco was a staggering $197,970 in 2019, which is an increase of 119.1% from 2012 when affordability was at its peak. With the trend of rising housing costs and limited options for first-time buyers, the rate of homeownership in San Francisco is not expected to rebound anytime soon. It is estimated that by 2025, over 60% of the population will be renters.

However, the good news is that Zillow predicts that home prices in San Francisco may drop by 6.5% in the next year. This could provide some relief to new homebuyers and investors, as many have struggled to afford the median-priced home in San Francisco. It is worth considering the long-term potential of investing in San Francisco real estate, despite the current high housing costs. With the right strategy, investing in San Francisco properties can prove to be a profitable decision in the long run.

Bay Area's Strong Economy Propels Real Estate

Why doesn’t everyone just move out of the San Francisco housing market? Some do move, but they have a one-and-a-half to two-hour commute each way to work because they still want to work there. They just can’t afford to live there. Moreover, it is the high-tech job market that draws so many people to San Francisco and leaves many others struggling to pay the bills. San Francisco is turning into a major international city. It is a white-collar city, with fully 90.74% of the workforce employed in white-collar jobs, well above the national average.

In a report published by Google in June 2019, it announced one billion dollars of investment in housing across the Bay Area. A 10-year plan to add thousands of homes to the Bay Area. The company would be making this major investment in what it believes is the most important social issue in the bay area real estate market.

This proposition by Google will add thousands of new homes to the Bay Area real estate market over the next ten years. About $750 million would be used for repurposing Google's own commercial real estate for residential purposes. This will allow for 15,000 new homes at all income levels in the Bay area. Another $250 million investment fund would be utilized to provide incentives to enable developers to build at least 5,000 affordable housing units across the Bay area housing market.

As a move to support affordable housing initiatives, these investments will help Google plans to give $50 million in grants through Google.org to nonprofits focused on the issues of homelessness and displacement of citizens. The company also plans to fund community spaces that provide free access to co-working areas for nonprofits, improve transit options for the community, and support programs for career development, education, and local businesses.

As it is the epicenter of the technology industry, there are a lot of people with an immense amount of wealth. Wealth isn’t just limited to the uber-wealthy founders of major tech companies or successful VCs but also the general workforce, whose salaries and incomes are among the highest in the world. Overall, San Francisco is a city of professionals, managers, and sales and office workers. Also of interest is that San Francisco has more people living here who work in computers and math than 95% of the places in the US.

The predicted 2020 job market slowdown won’t result in layoffs, just a drop in job growth to 1.5 to 2 percent a year. Note that the area already has an unemployment rate of 1.2 percent below the national average. The unemployment rate in the San Francisco-Redwood City-South San Francisco MD was 1.8 percent in December 2019, down from a revised 1.9 percent in November 2019, and below the year-ago estimate of 2.1 percent.

This compares with an unadjusted unemployment rate of 3.7 percent for California and 3.4 percent for the nation during the same period. An upcoming recession is likely to have a limited effect on the SF Bay Area’s housing market. It will only temper housing price appreciation but not reduce it. These solid economic fundamentals are integral to maintaining high rental property demand and ensuring a good return on investment.

San Francisco Rental Market

You may read about the growth of Portland and other Pacific Northwest cities as talent and businesses flee the expensive San Francisco real estate market. That’s hardly impacted the San Francisco housing market, though. However, San Francisco has several advantages over its Oregon rivals, and that’s the fact that you aren’t in Oregon. Oregon passed a state-wide rent control law in 2019. This is in addition to many city regulations regarding affordable housing. In Oregon, your ability to raise rents is limited by the state.

Making matters worse, there are many more renters than property owners, so they’ll tighten the allowable rental increases and continue to hamper owners until they’re losing money. And then there is California. You can find a variety of rent control laws in the San Francisco housing market because every city takes its approach to the problem. This means that you can find suburban San Francisco rental properties where you could raise rental rates to match the market. Furthermore, rent control laws typically don’t apply to newer single-family homes.

California, on the whole, is unfriendly to landlords. It is challenging to evict people. It can take a long time to evict someone who occasionally pays the rent. Taxes are high. What does this do to the San Francisco housing market? It leaves open the possibility that you could snap up San Francisco rental properties at a relative bargain price by people who just want to quit, whether they want to sell the properties or leave the state. For example, the laws governing the San Francisco real estate market allow you to buy San Francisco rental properties and evict the tenants to turn the units into condos for sale.

SF Rental Statistics

San Francisco holds the position of the priciest rental market. It is still #1 among the top 5 rental markets in the nation. The average rental income for traditional San Francisco investment properties is well above the national average. Like most of the Bay Area, the percentage of people renting in San Francisco is more than the owners. San Francisco has around 56 percent of its residents living in rental homes.

If condo prices are going to drop or remain flat in 2023, people will see a good investment opportunity. They’ll be able to get in at a good price and there will be an increase in demand. If you’re in the market for a condo in San Francisco, that means you could get a great deal. According to several rent reports (discussed above), rental price declines have hit the bottom and are almost flat as compared to the previous month.

San Francisco's Geography & Zoning Restrictions Limits inventory

San Francisco real estate market is perpetually constrained in terms of inventory. Several factors contribute to this, but principally the strict zoning laws prevent new development and high-rise construction throughout the city. The strict zoning laws, coupled with the fact that the SF is only seven by seven miles, make it a very constrained market and keep supply perpetually low. San Francisco sits on a peninsula, surrounded on three sides by water.

They cannot build to meet housing demand. The surrounding cities are densely built up, as well. The only way the San Francisco real estate market could meet demand is by ripping out large swaths of two and three-story buildings to build condo towers, but that’s almost impossible given local regulations. The ability to build up is limited in the surrounding suburbs because of the mountains.

The San Francisco real estate market is, for better or for worse, beholden to several competing interest groups. For those with money that own their homes and have the most influence, “not in my backyard” or NIMBY means that voters fight any proposal to replace a 2 or 3-story warehouse with a 20-story apartment or condo building. They want to protect the look and feel of the community, and through high-rise construction could start to relieve the overcrowding in the San Francisco real estate market.

The horrific stories of developers going through four years of red tape to build multi-family San Francisco rental properties deter others from even trying. Ironically, this creates significant returns for those who buy up San Francisco rental properties and can convert them to multi-family housing.

San Francisco's Environmental Movement

The environmentalist movement and California are intertwined in the public’s mind and for good reason. This is the best demonstration of its impact in Marin County. An estimated 85 percent of the county is off-limits to development. This doesn’t mean there are no homes here. It means that there are large estates that cannot be turned into tract homes. Neighbors fight any such project. This is why George Lucas had to threaten to build hundreds of homes on Skywalker Ranch when they wouldn’t let him expand his studios there. This also explains why the San Francisco real estate market cannot solve its affordable housing crisis by building in relatively open lands in Marin County.

Warehouses and factories have been converted to lofts in large, established cities around the world. They offer open spaces, high ceilings, and proximity to public transit and downtown amenities. San Francisco is no exception to this trend. The difference is the growth in high-density San Francisco rental properties which can only be found in co-living spaces. These can be considered high-end dorms.

People may rent a bunk bed and storage space for their possessions, gaining access to laundry, kitchens, and workout facilities. Several people may share a bedroom that rivals a cramped college dorm room. These facilities are booming because they cater to the new college graduates already used to living this way and willing to continue to do so to work for Big Tech firms in San Francisco.

San Francisco's Luxury Real Estate Market is Booming Despite Pandemic

Dealing in the luxury real estate market has its benefits. More affluent buyers are the demographic least affected by any economic crisis such as brought up by the Covid-19 pandemic as they have the greatest financial resources. Although home prices soaring there is an influx of wealthy buyers. A relatively high percentage of the buyers in the city are all cash (Around 40 to 60 percent of them). Those that aren’t paying all cash are putting at least 20 percent down with the ability to close fast, even with a loan.

In June, house values in California city reached a record monthly high of $1.8 million. Deep-pocketed home buyers across San Francisco bolstered the market’s rebound and pushed up transactions and house prices, according to a report Monday from Compass. The number of luxury single-family homes—defined by the report as those priced at $3 million and above—that accepted an offer in June surpassed 30, the highest level the metric has reached in two years, data from the brokerage showed.

The increase helped push San Francisco house values to a record monthly high of $1.8 million in June, 3% higher than the previous peak of $1.75 million in June 2019. You will find first-time homebuyers who are buying over $2.5 million or baby boomers looking for second homes in the $2 million range. New units are being built in the San Francisco housing market. However, the reality is that the pool of people who can afford to buy is smaller and smaller and the supply of housing is not growing with demand. They mostly consist of luxury condos and mega-mansions built for the elite of the Big Tech workforce.

Another unintended side effect of regulations on San Francisco rental properties is that it incentivizes the construction of high-end units. Investors could invest in these projects or buy properties in the hopes that they are torn down and redeveloped. This is why burned-out husks can sell for hundreds of thousands of dollars and ones with demolition permits can sell for a million or more.

San Francisco's Real Estate Appreciation Rate is High

Thanks to all the factors discussed above, the entire bay area has one of the highest appreciation rates. A major reason San Francisco’s housing prices have climbed so high over the past decade is the city’s vibrant tech industry, which started booming in 2012 (thanks, in part, to a tax incentive aimed at attracting tech companies to the city over Silicon Valley). It now attracts a skilled workforce to the city while also driving up the demand for housing and the cost of living.

The data from NeighborhoodScout reveals that San Francisco real estate appreciated 111.65% over the last ten years, which is an average annual home appreciation rate of 7.79%. This figure puts San Francisco in the top 20% nationally for real estate appreciation. And within San Francisco, some individual neighborhoods’ home values have jumped by more than 100%. Here are the five San Francisco neighborhoods that have had the biggest jump.

Bayview: Bayview had a $424,900 median home value in April 2009, which went to $1.07 million in Jan 2020. The current value is $1,030,643 (Zillow Home Value Index as of October 2022).
The Forest Knolls: In April 2009, this neighborhood’s median home value was $811,800, and it topped $1.8 million in Aug 2018. The current value is $1,874,448, up 0.3% YTY.
Bernal Heights: This neighborhood went from a median home value of $715,000 in April 2009 to $1.66 million in Aug 2018. The current value is $1,565,485, a drop of 6.4% YTY.
Mission: This East of The Castro neighborhood is in central San Francisco. The median home value was $699,900 in April 2009 and $1.53 million in Dec 2019. The current value is $1,332,707, down 5.3% YTY.
Potrero Hill: This neighborhood lies in the East of the Mission District. It has a median home value of $734,200 in April 2009 and it topped $1.59 million in Sep 2020. The current value is $1,376,919, down 8.2% YTY.

The good news is that if you are a home buyer or real estate investor, San Francisco has a track record of being one of the best long-term real estate investments in the nation over the last ten years. So if you bought a home in San Francisco 10 years ago, it’s very likely you’d have profited on the deal by now — in fact, in several neighborhoods, you would have a good chance at doubling your money. All the variables that contribute to real estate appreciation continue to trend upward which makes investing in SF real estate a sound decision.

Consult with one of the investment counselors who can help build you a custom portfolio of San Francisco turnkey investment properties in some of the best neighborhoods. All you have to do is fill up this form and schedule a consultation at your convenience. We’re standing by to help you take the guesswork out of real estate investing. By researching and structuring complete San Francisco turnkey real estate investments, we help you succeed by minimizing risk and maximizing profitability.

Please do not make any real estate or financial decisions based solely on the information found within this article. This page includes third-party content from references. Norada Real Estate Investments does not represent, warrant, or guarantee that the information such as market data and forecast is accurate, reliable, or current, even though it is thought to be reliable. All information presented should be independently verified through the references given below. As a general policy, Norada Real Estate Investments makes no claims or assertions about the future housing market conditions across the US.

References

Market Data, Reports & Forecasts
https://www.car.org/en/marketdata/data
https://www.zillow.com/home-values/403105/bay-area-ca/
https://www.realtor.com/realestateandhomes-search/SanFrancisco_CA/overview
https://www.bayareamarketreports.com/trend/san-francisco-home-prices-market-trends-news

San Franciso (City) Cooling-off
https://www.cnbc.com/2020/09/27/san-francisco-housing-suburbs-red-hot-but-city-still-in-demand.html

City details
http://worldpopulationreview.com/us-cities/san-francisco-population

Rental Market Statistics
https://www.rentcafe.com/average-rent-market-trends/us/ca/san-francisco/
https://www.rentjungle.com/average-rent-in-san-francisco-rent-trends/
https://www.zumper.com/blog/rental-price-data/
https://www.nolo.com/legal-encyclopedia/california-rent-control-law.html
https://homeguides.sfgate.com/tenants-rights-landlord-sells-house-53734.html
https://www.npr.org/2019/02/27/698509957/oregon-set-to-pass-the-first-statewide-rent-control-bill

Should You Invest in SF
https://realestate.usnews.com/places/california/san-francisco/jobs
https://sf.curbed.com/2020/3/11/21155283/buying-a-house-san-francisco-2020
https://reason.com/2018/02/21/san-francisco-man-has-spent-4-years-1-mi
https://www.nytimes.com/2017/01/21/us/san-francisco-children.html
https://www.latimes.com/politics/la-pol-ca-marin-county-affordable-housing-20170107-story.html
https://www.citylab.com/equity/2016/04/blame-geography-for-high-housing-prices/478680
https://www.theguardian.com/business/2016/aug/05/high-house-prices-san-francisco-tech-boom-inequality
https://www.mercurynews.com/2019/03/14/bay-area-job-market-slowdown-experts-predict-google-apple-amazon-facebook
https://www.washingtonpost.com/news/morning-mix/wp/2015/04/17/george-lucas-wants-to-build-affordable-housing-on-his-land-because-weve-got-enough-millionaires

Luxury market
https://www.mercurynews.com/2014/03/05/in-the-bay-area-million-dollar-homes-are-torn-down-to-start-fresh
https://www.sfgate.com/realestate/article/863-carolina-street-potrero-hill-tear-down-listing-13844146.php
https://www.housingwire.com/articles/36691-la-demolishing-affordable-housing-building-luxury-housing-instead

Is it a Good Time to Buy a House or Should I Wait?

Is it a Good Time to Buy a House or Should I Wait?

Is it a Good Time to Buy a House?

Is it a Good Time to Sell a House?

Home Price & Mortgage Rate Expectations

Is it a Good Time to Buy a House for First-Time Buyers?

Conclusion: The Best Time To Buy A Home Depends On You

Will the California Housing Market Crash?

California Housing Market Forecast for 2022

Latest California House Prices & Sales Trends [December 2022]

Existing-Home Sales Trends

California Home Price Trends

California Housing Supply

Median Days & Sales Price to List Price Ratio

California Housing Market Forecast 2023

California Housing Market Continues to Slow Down in January – Weekly Trends

Is It a Good Time to Buy a Home in California?

Weekly Real Estate Trends and Forecast in California [January 2023]

Housing Affordability Trends in California – 3rd Quarter

Are Housing Prices Going Down in Los Angeles?

Los Angeles Real Estate Market Trends

Are Home Rents Going Up or Down in Los Angeles?

Los Angeles Housing Market Forecast 2023

Is Los Angeles Housing Market Going to Crash?

Is Real Estate a Good Investment in Los Angeles?

How do I Invest in Real Estate in Los Angeles?

Los Angeles Hidden Real Estate Deals

Single-Family Rental vs Multi-Family Investment

Los Angeles Rental Market Trends 2023

Construction Isn’t Meeting Housing Demand in LA

How to Invest in Real Estate in Los Angeles?

The Austin Housing Market is Cooling Off

Real Estate Trends in Travis County – December 2022

Is Austin Housing Market Overpriced?

Austin Housing Market Forecast 2023

Is Austin Texas Good for Real Estate Investment?

Is Austin Housing Market In A Bubble?

Austin's Affordable Real Estate & Certain Future Appreciation

Cost of living In Austin

Austin's Massive Student Population Propels The Rental Investment

Austin Is The Silicon Prairie

Austin is a Relatively Friendly City for Landlords

The Excellent Tax Environment

Texas Real Estate Investment Opportunities: Where To Invest?

Will the Bay Area Housing Prices Drop?

Bay Area Real Estate Market Trends

Bay Area Housing Market Forecast 2023

San Francisco-Oakland-Hayward Metro (Bay Area) Forecast up to December 2023

SF Bay Area Real Estate Investment Overview

Bay Area's Strong Economy Propels Real Estate

San Francisco Rental Market

San Francisco's Geography & Zoning Restrictions Limits inventory

San Francisco's Environmental Movement

San Francisco's Luxury Real Estate Market is Booming Despite Pandemic

San Francisco's Real Estate Appreciation Rate is High

Real Estate

Quick Links

Blog Posts

Contact

(949) 218-6668

(800) 611-3060