What Do Home Price Increases Mean for Los Angeles Home Owners & Renters?

Home prices in many areas in the country and locally have been surging in this hot market. There are implications for homeowners that give them many options even if they do not want to sell. Renters all have seen rents on both sides of the scale. Understanding why prices are surging is helpful to see benefits and challenges as a result.

Low inventory is one major reason driving prices higher, similar to 2005. Financially, homeowners are not in the same high debt situation as the last real estate peak. We may have 1-2 years before any correction occurs. The epidemic is driving homebuyers to want more space for enjoyment and home offices. This year, we are also seeing first-time buyers increasing. As the virus recedes, homebuyers have increased while the home sellers are reluctant to sell.

The shortage is resulting in multiple offers in many cases, this is especially true with suburban homes under $1,000,000. My investment business that buys restores and resells homes has seen multiple offers on the resale. To get their offers accepted, buyers have to make all-cash offers with no contingency for either financing or appraisal. Also, if a home is appraised for less than the purchase price, the buyer has to increase their downpayment by the same cost difference. The loan being lower is the only consolation prize.

The homeowner benefits can be from older people downsizing to free up retirement cash. Some relocate to popular towns in Idaho, Arizona, and Nevada. The extra cash can then be used to generate income for retirement expenses.

Homeowners see that work can be conducted from home in many cases, allowing them to move into cost affective areas, resulting in a departure from high-density areas. Prices of condos are dropping in big cities like New York and downtown LA. People want more space. Many home buyers want a separate detached garage that they can convert into an office or studio.

Property owners are also able to benefit from higher prices by refinancing to lower interest rates. Rates are and will start to creep upward as the economy gets stronger. Some owners are pulling cash out of their homes as values in the San Fernando Valley during 2020 surged up 16%. They are building an ADU (additional dwelling unit) from the cash or remodeling.

Renters will see approximately a 15% reduction in rents downtown Los Angeles because many people have opted to live in more spacious properties during COVID. This presents an opportunity for those looking for a deal. Renting single-family homes has become more of a challenge now that they are in high demand. Very expensive homes are a little slower to rent out. Present renters are seeing rents not increasing this past year. Surging prices for homes impacts both renters and homeowners and could last for the next couple of years.