Wednesday, May 8, 2013

Is L.A. in a Housing Bubble or Boom? It Depends on Who You Ask.

L.A’s in the midst of a housing trend.  What kind of trend?  Well, like the title says…it depends.  Prices are on the rise and many industry pros are dividing into two camps – bubble or boom.  In this post, we’ll talk about the “why” behind the trend and how this story is playing out in the City of Monrovia.  We’ll leave the conclusion about whether we’re in the middle of a bubble or boom up to you since we know better than to get into the prediction business (at least while our crystal ball is in the shop getting repaired).  

Housing Supply
According to several articles published last month in the L.A. Times (1, 2, 3), there’s a shortage of housing supply in the L.A. area, driving up the demand for homes on the market.   Bidding wars have begun to return, reminiscent of the bubble period preceding the last housing crash.  Housing bulls and bears differ as to whether these patterns are symbolic of a solid recovery or indicative of an impending collapse.  Bulls are predicting a hard charge forward, supported by low interest rates and low risk of another foreclosure.  Bears growl in reply stating that the market is in speculative territory since median prices have risen twice as fast as incomes since 2000.  Which camp should you believe?  We have no idea.

The Times articles support what we've been hearing at the Community Development counter.  Our folks in the housing trade have shared that the demand for housing in Monrovia is currently outstripping supply.  In some cases, buyers have purchased properties prior to completion of construction out of fear that competing offers would soon swoop in and nab the home.  Multiple offers on a property are also becoming much more common.

Price of Housing
Home prices are not exempt from the basic rules of supply and demand.  When short supply meets high demand, prices begin to climb.  According to Dataquick, median home prices in L.A. County rose 19% over the previous year in February and 24% in March.  How did Monrovia fare during that period? The results are mixed.  Median home prices increased 100% in year-over-year comparison for the month of February 2013.  In contrast, prices fell by 3% in March 2013.

Mortgage Interest Rates
Historically low mortgage interest rates are adding fuel to the housing price hike.  Thirty year fixed loans with rates around 3.5% are terms not seen in decades; causing a “once in a lifetime” buying mentality. 

In Closing
Whether we’re in a boom or bubble, a trend clearly has emerged in the L.A. housing market.  We’ll keep you posted on what we’re seeing and hearing here at the Community Development counter, as we wait for either the bulls or bears to declare “I told you so.”  Until then, place your bets, grab some popcorn, and find a good seat to watch the latest go-round on the housing market roller coaster.