The Los Angeles real estate market is known for being dynamic and diverse. From the luxury estates in Beverly Hills, Bel Air, and the Hollywood Hills to the more affordable residences in East Los Angeles and South Los Angeles, LA housing is in high demand.
And investing in Los Angeles real estate has proven extremely lucrative, with home values rising every year since the Great Recession more than a decade ago. In 2011, the median home price in Los Angeles County was $306,950. By the end of 2021, the median home price in the county was $826,500, representing an impressive 169.26% increase (an average of 16.9% per year, although this growth has been far from linear, with the biggest gains coming since the COVID pandemic).
Let’s take a look at the trends that are shaping the Los Angeles real estate market, the future of the market, and ways investors can capitalize on LA’s ever-evolving market conditions.
Los Angeles Real Estate Market Trends
As is the case in local housing markets around the world, the Los Angeles real estate market of the past decade can be divided into pre-COVID-outbreak and post-outbreak trends. Before the pandemic began in the spring of 2020, Los Angeles real estate was already seeing steady gains. But the pandemic kicked everything into high gear.
Here are the top trends of the past decade.
Los Angeles has always been in high demand by buyers and renters alike for a number of reasons:
- Employment opportunities
- Year-round sunshine and pleasant temperatures
- Exciting activities like concerts, film premieres, gallery openings, and sporting events
- World-class dining and shopping
- The natural beauty of the mountains and the coastline
- Global exposure due to the popularity of the entertainment industry worldwide
Over the last few years, buyers have had additional incentives to purchase property in Los Angeles because of low mortgage interest rates and reliable property value growth.
At the same time, there has been a growing incentive to rent as purchasing a home has become cost-prohibitive.
The entire region has been feeling the effects of the Southern California housing shortage for years. There are several reasons why homes are in short supply in California:
- Single-family lots. Unlike many other cities with comparable populations, Los Angeles has historically been a city of single-family lots rather than multi-family developments. This is changing, particularly as Governor Newsom signed state legislation allowing the building of ADUs (accessory dwelling units) on single-family lots, and allowing some urban single-family lots to be divided into two lots, each with up to two units.
- Low levels of construction. Construction in LA has been largely limited by geographic constraints. In the years following the Great Recession, there was substantial under-development of new construction projects. Then, as the COVID pandemic created a run on building materials and disrupted supply chains worldwide, new construction became less feasible for individual homebuyers.
- Residents choosing to age in place. Many of today’s homeowners are opting to remain in their family homes through their golden years, rather than downsizing to retirement communities or moving in with family, as prior generations had done. This means there are fewer homes on the market for today’s first-time buyers.
Rising Home Values and Rental Rates
The natural result of high demand and low supply is rising property values and rental rates. Median home prices rose by an incredible 26.7% from June 2020 to June 2021. And with bidding wars commonly pushing sales prices well above the asking price, buyers (and their real estate agents), have struggled to get their contracts accepted on new homes, even when they have the means to afford the homes.
And rental rates have been growing substantially for years. In 2019, the median rate for a two-bedroom rental property in Los Angeles was $1,791. But by the end of 2021, this had grown to $2,058. In Downtown LA, as well as Westside neighborhoods like Brentwood, Century City, Marina del Rey, Venice, and West Hollywood, two-bedroom apartments are now renting for more than $3,000 per month.
What the Los Angeles Real Estate Market Looks Like Today
How is the Los Angeles real estate market doing today? Here’s an at-a-glance view of the market in the first quarter of 2022:
- Median sales price: $945,000 (up 11.2% from one year earlier)
- Median days on market: 36
- Homes for sale: 3,978
- Sale-to-list price: 103.7%
- Percentage of homes sold above the listing price: 58.8%
- Average rent rate: $2,563
- Average mortgage payment: $2,659
Los Angeles Real Estate Market Forecast
While the double-digit growth has been beneficial for property owners in Los Angeles, it’s been hard on buyers. And it’s simply not sustainable at the levels we’ve seen since 2020. While we should look for the market to correct itself to a more balanced status, we should also expect more growth and more gains for owners and investors.
Based on recent trends and today’s market indicators, here are three things we can expect from the Los Angeles real estate market in the next few years:
1. Lower Demand from Homebuyers
There are a few reasons why demand from homebuyers will be lower in the coming years:
- As the Fed works to combat inflation, interest rates will rise, reducing buying power.
- Many prospective buyers will simply be priced out of the market.
- The number of prospective homebuyers is dipping slightly as work-from-home opportunities have caused some Angelinos to leave the city in search of areas with a lower cost of living, perhaps where they can still afford to buy a home.
2. Slower Value Growth
With lower homebuyer demand, we’ll see home values stabilize. The bidding wars will be less frequent, and homes will sit on the market longer. In all likelihood, they will continue to grow, but at more sustainable levels, not at the double-digit increases we’ve been seeing in this unprecedented market of the last few years.
3. More Rent Increases
Buyers being priced out of the market means those residents are forced to either continue renting or leave the area for a more affordable, potentially less-desirable, area. While there is multi-family-friendly legislation in the works and new multi-family developments being planned, it will take some time for the inventory of rental properties to catch up to the demand. This presents an excellent opportunity for investors who want to use long-term rentals to create passive income from real estate.
Navigating the Los Angeles Real Estate Market with Gatsby Investment
If you’re just learning how to invest in real estate, LA might look like a difficult market to invest in, despite the obvious benefits of increasing property values and rental rates. High upfront costs, unique neighborhoods that require locals-only knowledge to properly analyze, and limited availability of architects, designers, and builders all act as barriers of entry to the LA housing market.
But, whether you’re a new real estate investor or a seasoned investor, you can overcome each of these obstacles with Gatsby Investment.
Gatsby Investment is an LA-based real estate syndication company, that makes the exclusive Los Angeles real estate market accessible to accredited investors all over the world. Here’s how we make the dream of property ownership in LA a reality for investors every day:
- Low minimum investment amounts. We combine capital from multiple investors to fund our real estate projects, which keeps the investment amount low for each investor. For example, if you want to invest in a multi-family development in Los Angeles, you can invest with Gatsby for as little as $25,000.
- Properties with value-add potential. Rather than purchasing turn-key properties at premium prices, we choose properties that we can renovate or even develop from the ground up to instantly make the property more valuable.
- Experienced local real estate analysts. From our headquarters on Wilshire Boulevard in Beverly Hills[RJ1] , we are able to monitor the Los Angeles housing market and provide unique locals-only insights to our investors. We review hundreds of potential deals before choosing the one deal that is most likely to return the highest yields.
- Award-winning architects, designers, and builders, ready to work on your project. Securing top-quality talent to design, build, and manage your property isn’t easy. Gatsby has been building a trusted team of industry professionals for years. And our investors get to take advantage of their expertise.
The Los Angeles real estate market is full of opportunities for real estate investors who understand the nuances of each neighborhood and the trajectory of the local housing market. By investing with Gatsby Investment, you get the benefit of our experience, skill, and professional network. Join Gatsby today.