Los Angeles Homebuyers Paying Well Above Sticker Price
For decades, Los Angeles has been one of the hottest housing markets in the United States. Within the greater Los Angeles region, the median price of homes has reached $620,000 representing an all-time high. In Los Angeles County alone, the most populated county in the United States, median prices are currently north of $700,000. This represents a remarkable 14% increase compared to last year.
Some of the most likely reasons the Los Angeles home prices have been surging is the combination of limited housing stock, low-interest rates, and increased time being spent at home. These factors and a few others have caused prices to spike, both in Los Angeles and elsewhere across the country. “The LA market has been hotter than ever with renters becoming new homeowners due to the low interest rates. Others are moving out of the city because they desire to upsize and have more space, especially since many people are working from home now. Prior to the pandemic shutdowns, some of our local markets felt as if they were cooling, but the has pandemic created the perfect storm for a hot market.” expressed Consuela Kielbowicz, President of DRU Estates Division.
However, even keeping these general trends in mind, it appears that the Los Angeles market has become exceptionally competitive. Kielbowicz adds, “Nowadays, it is common to see 30 plus offers on homes. Appraisal contingencies are being waived to account for paying over market value, which is further driving up the prices.”
Watching median housing prices rise only partially illustrates how volatile this market has been. To get a fuller understanding of how the housing market has changed, it’s important to see how many homes are being sold above the asking price.
Asking Price is Just a Starting Point
Within the City of Los Angeles (population just under 4 million), there were 565 properties sold in the month of March (2021). Of these 565 properties, an incredible 287 properties sold above the asking price.
In other words, if you list your home in the competitive Los Angeles market, there is a greater than 50% chance that you will get more than you are asking for.
Now let’s compare these figures to recent years.
In March 2020, which was precisely when the COVID-19 pandemic was beginning to take hold, 44.2% of homes ended up selling above their asking price. In 2019, a relatively normal (non-volatile) year for the market, only 36.1% of homes sold above asking.
Clearly, the Los Angeles housing market has become even more competitive than it already was. As long as housing supply remains restricted—something that will likely be the case for at least the next few years—sellers can expect to remain in the driver’s seat.
A Closer Look Inside the Competitive Market
The increased competitiveness of the Los Angeles housing market is remarkable. But what appears to be even remarkable is how competitive homes priced at and below the county median have become.
Homes that are priced below $1 million have been selling above asking price roughly two-thirds (66.4%) of the time, notably higher than the already high rate for the city as a whole. These homes have typically been selling for about 1% above the initial asking price.
Relatively affordable neighborhoods have seen increased competition, including Lancaster (71%) and Palmdale (61%). In Lancaster, a relatively modest neighborhood with a few high-priced areas, one home was able to command $3.6 million, which was a whopping $300,000 above the asking price. – I don’t believe this stat. Please send the subject property. Lancaster is a lower-priced area.
Brentwood, Beverly Hills, and Bel-Air—three of Los Angeles’ more expensive places to live—have been selling closer to their asking price, but even still, around 30% of these homes are selling way above their initial listing price.
What is Keeping the Market so Competitive?
There are several reasons Los Angeles homes are consistently selling for higher prices. The most obvious reason is restricted housing stock. Throughout early 2021, Los Angeles has had fewer homes listed per capita than it has had since the Housing Crisis.
Additionally, Los Angeles realtors have seen increased interest from new groups of buyers. Low interest rates and the increased desire to work from home have inspired many renters to consider entering the real estate market for the very first time. This has put additional pressure on so-called “starter homes,” which are few and far between within Los Angeles County.
Elsewhere, individuals from other states and other countries have also expressed interest. The rise of popular rental property platforms, such as Airbnb, has caused properties that were once primary residences to be converted into vacation rentals. Inevitably, properties being purchased by investors (rather than families) strains the broader housing supply even further.
In many cases, investors from out of state or out of the country are buying Los Angeles properties sight unseen. These broad industry trends have impacted the most widely used real estate metrics, including average days on the market and an average number of bids per property.
While it is likely that the Los Angeles housing market will eventually cool off, especially as some Los Angeles businesses continue moving to more affordable locations, it is also clear that the current “bubble” is much different than what we witnessed a decade ago. While the last bubble was largely fueled by reckless speculation, the current competitive wave is fueled by genuine supply and demand forces.
Moving forward, it remains important for both buyers and sellers to be vigilant and to keep a close eye on the rapidly changing markets. Being able to compare many properties, conduct a fair valuation, and make quick decisions will all be very advantageous.