Several things make Los Angeles a residential hotspot, from world-class landmarks, entertainment districts, warm weather all year round to the natural beauty of the Santa Monica Mountains. However, Los Angeles real estate is among the most competitive markets in the country.
If you are thinking about buying a house in Los Angeles soon, you need to keep a close eye on the 2022 housing market trends. Is there any chance of a drop in Los Angeles homes for sale? What can we expect of mortgage rates? Will it be a fruitful year for individuals dipping their toes in real estate investments? If such questions are currently crossing your mind, join the Los Angeles real estate experts at Park Regency as they dive into key predictions for the LA housing market so you plan and make smart financial decisions.
Inventory Will Remain Tight
The supply of new housing in LA has not kept up with the population growth and demand. We expect the trend to hold in 2022, fueled by the Covid-19 supply woes and labor shortage.
In Nov 2021, the US Commerce Department doubled the tariff on Canadian softwood timber from 8.99% to 17.99%. That will effectively increase the cost of raw materials, meaning it will cost more and take longer to build.
The nation’s construction industry is also experiencing a dire shortage of skilled labor, with the open positions surging to 410,000. On top of that, a National Association of Home Builder (NAHB) report concluded that the home building industry would need to add 740,000 workers yearly for the next three years to meet the demand for housing.
But what does the current LA real estate inventory hold for home buyers and investors? According to NeighborhoodScout, complex apartments are the most prevalent, accounting for about 47% of LA's housing units. Single-family units and small apartments follow at 37.85% and 8.86%, respectively.
A discussion about housing inventory is incomplete without mentioning Months Supply of Inventory (MSI). It denotes how long it would take to deplete the existing inventory at a particular monthly sales volume.
MSI = current number of homes for sale/ average number of homes sold per month
The MSI of a balanced market ranges between 4 and 6 months. With an MSI of 1.8 months, the Los Angeles real estate market no doubt falls short of the requirements of a balanced market.
Mortgage Rates Will Rise, But Remain Favorable
The drop in mortgage interests in 2020 came down to the pandemic due to weaker consumer spending power. In 2019, the rate averaged 3.66% compared to around 3% in 2021.
Thanks to inflation, most Federal Reserve members anticipate at least three rate hikes in 2022. As such, interest rates on mortgages and home equity loans are expected to rise in the coming months but remain historically low.
The Mortgage Bankers Association (MBA) predicts a peak of 4% for the average fixed mortgage rate by the end of 2022. Both are still favorable rates for anyone buying a house in Los Angeles. A rise in interest rates will likely cause affordability challenges, especially for low-income earners. But that could mean fewer speculative buyers and less competition in the Los Angeles real estate market.
During the 2021 Annual Convention & Expo, MBA economists announced they expect refinance originations to reach $860 billion in 2022, down by 62% from the 2021 estimate of $2.26 trillion. Purchase originations are projected to hit a record value of $1.73 trillion, trending up by 9% y-o-y. The total purchase and refinance originations are expected to drop by 33% from $2.59 trillion last year.
Home Prices Will Continue to Climb
According to NeighborhoodScout, Los Angeles real estate appreciated by a whopping 127.07% over the past ten years. That equals an annual appreciation rate of 8.55%, pushing LA among the top 10% communities with the highest real estate appreciation nationwide. The website predicts a growth rate of 25.79% in the next 12 months, based on a 5.09% appreciation in the latest quarter.
The median home listing price in Los Angeles was $949k as of Jan 2022, up by 18.77% from Jan 2021. You will find a selection of single-family homes listed below $300k, but also available are premium options selling above the 100 million dollar mark. Individuals looking to buy a condo in Los Angeles can expect to cough up roughly between $199k and $24m.
The LA real estate market is projected to remain a seller’s market in 2022, thanks to a tight inventory, growing housing demand, and relatively low mortgage rates. Homebuyers and investors can anticipate bidding wars on many properties, especially during the spring and summer frenzy.
Below is a rundown of the current median list prices in different Los Angeles cities:
- North Hollywood: $785K
- Westwood: $1.4M
- Venice: $2.2M
- Echo Park: $1.2M
- Hollywood: $1.2M
- Northwest San Pedro: $699.5K
Please note that even similarly sized homes substantially vary in prices based on factors like:
- Location: As you can infer from the above list, home prices in Los Angeles differ from one city to another.
- Condition: A property that requires extensive rehabilitation will typically sell for a lower price than a similar home in a better condition
- Structural issues: Potential home buyers will request concessions or walk away from a deal should they discover structural and safety issues in a house. That could include pest and mold infestations.
Rental Market Will Expand
Home prices rising faster than wages and down payments remaining quite inaccessible are some of the reasons many potential homebuyers in LA are priced out. As expected, rental properties in Los Angeles will see increased demand, making the region an excellent choice for real estate investments in 2022.
In fact, the 2020 International Investor Survey by the AFIRE placed Los Angeles top among the best global cities for long-term real estate investment, moving up from 7th place in 2019. AFIRE is an acronym for Association of Foreign Investors in Real Estate, an international real estate investors association focusing on the US commercial market.
The average apartment rent in LA is $2,563. The average size of an LA apartment is 790 square feet. Studio apartments offer the least amount of space. One-bedroom apartments are the closest to the average size, and 2- and 3-bedroom apartments are substantially larger.
Over the past 12 months, the average rent for studio apartments in LA increased by 5% to $1,545. Currently, a 1-bedroom apartment will set you back an average of $2,235, 16% higher than last year. A two-bedroom apartment will cost you an average of $2,983. While the average rent for 3-bedroom units rose by 5% to $4,200, the 4-bedroom counterparts average $5,900 per month, a drop of 6% from last year.
Based on RENTCafe data, LA communities with the most expensive rentals include North of Montana ($4,426), University Park ($4,263), Historic South-Central ($4,212), and Downtown Santa Monica ($4,086). Individuals looking for more affordable rental properties in Los Angeles may consider the neighborhoods below:
- Harvard Heights: with an average of $1,656/mo
- Leimert Park: $1,637
- El Sereno: $1,590
- Winnetka: $1,571
- Jefferson Park: $1,465
- Vermont Knolls: $1,436
A Growing Shift Towards the Suburbs
COVID-19 has seen several LA companies move from traditional corporate locations to more flexible and affordable remote working. The benefits of this move go beyond the obvious cost savings of not having to maintain office spaces. Businesses can attest to increased employee satisfaction, reduced recruitment costs, and an increased focus on productivity.
More importantly, telecommuting allows workers to explore areas with more affordable housing, which usually means farther away from expensive cities and urban centers. The trend has seen real estate prices rising in the outskirts of the Los Angeles metropolitan and nearby cities, including Riverside, Anaheim, Ventura, and Culver City.
With outdoor socializing and events canceled, individuals may prefer larger homes with enough space for home-based hobbies, along with a dedicated work area.
Bottom Line
The Los Angeles housing market is expected to change in many ways in 2022, thanks to increasing home prices, favorably low interest rates, scarcity of homes that meet once-average buyer budgets, and growing demand for rental properties. We hope the above discussion on LA’s 2022 housing market will streamline your real estate investment decisions.
Need help finding your dream home or building your investment portfolio in LA? Park Regency, a family-owned company with a tradition of integrity and professionalism, can help. We are among the top 15 independent real estate companies in Los Angeles County, with nearly 200 agents servicing the San Fernando, Simi, San Gabriel Valley, Conejo, Santa Clarita, and the Antelope Valley. Whether you're looking to buy a house in Los Angeles, whether it's your first time, or if you are a seasoned investor, we would love to assist you. We invite you to browse our catalog of Los Angeles homes for sale or call us at 818-363-6116 for professional assistance with your real estate transaction.