The Los Angeles housing market is at an interesting place at the moment. As a Los Angeles native myself, a lot of people keep asking me for my opinions on the situation. The most frequent question that people ask is: when will the bubble burst?
The global financial markets watched in astonishment as Bitcoin prices surged in 2018, and then plummeted. While this may not directly relate to real estate, I think that many homeowners are expecting something similar to happen with the real estate market in Los Angeles. I can’t blame them for being concerned--the LA housing market is hot right now due to many years of being undervalued.
The Truth About the “Bubble"
For those worried about the bubble, all I can say is this. The truth of the matter is, a bubble bursts when the economy shifts and so far we haven’t witnessed any signs of a shifting economy.
The economy is in good shape right now and even with that, there will always be softening. That’s just how cycles work, it’s natural and should be expected. These cycles of downtime are usually short, which is also important to remember in the grand scheme of things.
Don’t Wait for the Market to Crash
People always ask me when the market is going to peak and when the market is going to tank, as if one person has all the answers. The truth is that no one really knows. You don’t know what’s going to happen until it’s already happened and if you don’t realize it’s happening, then you will find out soon enough. The important thing is to be prepared. While I don’t have all the answers, I have some opinions based on things I’ve observed within the market over the past few years.
Here is something else that is really important to think about. Every year people are waiting for there to be a drastic market crash or correction. People don’t even realize this has happened already. Summer of 2015, or some might argue 2016, was really the peak of the market, in terms of developers. This is when the last set of developers started making big purchases. My personal opinion is that when the developers stopped buying it was a sign that the market would start to shift. Keep in mind, I am not talking about mega-million dollar sales either. I’m talking about some of the smaller sales. People still think that today, during the summer of 2018, we are at the height of the market. Unless you really analyze everything, people do not even realize we have already had a correction. And that’s because it has been so subtle.
If you read above, I mentioned that I don’t see a sign of a correction coming up. That means that I do not see a sign of prices dropping dramatically. I think we’ve already seen it happen. I believe we have slowly had a correction over the last three years and by no means, has this impacted anyone. And keep in mind a correction is not always a bad thing. Things can’t continue to escalate the way they were forever. Things need time to catch up or you run into a disastrous situation.
Generally speaking, the only people who really have a feel for the pulse of the market are real estate brokers. Because people hear about all of these crazy sales for $40m, $50m and $100 million or more, people think that we are still at the height of the market. But if you look at sales in 2015 and compare them with 2018, you will notice that they were a tad higher then and there was more of a bidding war for each one of those properties.
Another pertinent example is Malibu. Everyone thinks that the prices are so crazy there right now because they hear about these hundred million dollar plus sales occurring on the beach. However what people don’t realize is that if you look at Malibu, for instance Carbon Beach or La Costa Beach, for the 8-10 million dollar homes, they are now trading at $7 million dollars.
But in any event, we are in an interesting time and the reason is that there are more opportunities to make fantastic deals right now, that most likely won’t be available in the near future.
Why now?
FEAR!
Fear and uncertainty in the market is what gives buyers the opportunity right now for deals to be made. Let me elaborate...
Fear Is A Great Market Predictor
Take the most recent Presidential election in the US as a market indicator. If you do some digging and run the numbers of the deals going on in Beverly Hills in the late fall of 2016, you’ll see that there were a lot of buyers scoring some amazing deals. Sadly, I wasn’t one of them, because I feared we were at the top. I learned however that during those times of uncertainty that’s when you pick up the best deals. I do not see a sign of the market softening. I see a sign that sellers are a bit worried right now and a little bit more motivated.
FEAR is What Causes Deals to Be Made
At the time, I thought this was the end of the surging market, but had I not let fear get in my way I would have scored some great purchases that I regret not making that year. There was uncertainty in our country, and when you live in one of the highest priced zip codes in the nation, it tends to attract people looking to capitalize on seller’s uncertainty.
Similarly, in 2020 right now, there is a fear that the market is going to crash, which is causing sellers to be more anxious to sell. This is the time for buyers to score! In my opinion, there is zero indication (if you look at the equity markets right now) that we are due for a crash. While I sympathize with those who believe it is coming, one must keep in mind what caused the last crash and that there is zero correlation between the two.
Uncertainty Leads to Better Deals
Anxiety on the seller’s end, gives people who are willing to take less in order to secure a sale, the opportunity to sell to buyers looking to pick up properties for less money. Similar to 2016, as time goes by and people start to see that the market is not rising, but instead staying steady, it will be harder for buyers to pick up deals. Once sellers become comfortable that the market is not in a downward swing, they will be less inclined to sell for lower prices.
Now, I know some of you reading this think that this may sound silly because markets go up and down, and we’ve currently had a long run. Contrary to the last crash, however, at best, we should eventually see a small correction. Bear in mind, a correction can sometimes even be a good thing. Things cannot literally go up exponentially forever and at some point things just need to “chill out” a bit until they go way up again.
On a final note, as people start to realize that the markets are still strong and they realize there’s no indication of a huge decrease in prices, these deals will start to disappear. Now is the time to strike! There are a lot of opportunities especially for properties that have been on the market for a while.
Price Your Property Appropriately for Best Results
The kiss of death for a seller is when they overprice their property, that’s when the buyers come in and pick up deals, and the sellers end up selling their home for less than they could have, had they priced it appropriately to begin with.
I always tell my sellers to price the home right from the beginning and they will clear more money. Getting them to listen is always the hard part, because that’s just human nature to want more.
Remember, there is a smart way to list a property, and there’s a smart way to buy a property. Knowing the difference can save or make you a small fortune in the Los Angeles housing market.
Hopefully, this gives you some new perspectives and insights to consider as you are trying to more accurately predict and gauge the mark.
