State of The Market: Real Estate Trends in California



California has been put through the ringer this year with rising interest rates, natural disasters, and now the Carr fire. All of these events factor into the economy and real estate market. There are many ways to come off ahead in real estate, and many investors are watching the rise and fall in prices wondering if it’s their time to buy or sell. In the past 20+ years that I have been in real estate, specifically in the California market, I have seen it all—from the heights of each of the housing bubbles (yes, there have been more than a few) to the lows that shook the market to its core.

The California housing market is different than every real estate market out there because it’s not only population dense and the hub for the latest tech, but it’s also great for vacation and investment properties. The vast amount of diversity in the market is best represented by San Diego, Los Angeles, and The Bay Area. In this article, I’ll take a look at these three major areas to see what the market is doing and give my predictions for the rest of the year.

San Diego

Most come to San Diego for its sunny disposition and proximity to the beach. Others come for the comparatively great home prices. Costing only $449 per square foot on average (up from $416 per square foot from last year), buying a home in San Diego is still more budget-friendly than other areas of California.

Types of Homes that are Selling

Single-family homes seem to be selling the best in San Diego, with 4-bedroom dwellings being the hottest commodity. The average sale price for these homes is $595,000, which could land you a lovely 3-bedroom/3-bathroom house out in Linda Vista.

Why (or Why Not) Buy in San Diego?

The beaches and weather aren’t the only reason to buy in San Diego. Despite the notoriously high tax rate of California, San Diego’s tax rate is not horrible, coming in at 8%. If you’re planning on renting rather than purchasing a home, the average rent is $2,060 for a two-bedroom house. If you need less space, the rent for a one-bedroom place is $1,547.

Beyond the cost of living, there are perks when considering a move to San Diego. Fantastically priced padre tickets, for one, and the weather that doesn’t often dip below 70. Out of the three cities, we are considering in this article; San Diego is where you’ll get the biggest bang for your buck, real estate-wise.

Market Climate and Forecast

The San Diego real estate numbers remain steady as we begin the third quarter, but other indicators are pointing a different direction. There is a surplus of inventory, which means more are listing their homes for sale. Many who have sold are content to rent while the market evens out, which prices are trending toward. I predict a slow decline in home value in the San Diego area with a continued rise in rent. Is this the end of the housing bubble for the area? I don’t think we are quite there yet, and it’s more of the natural decline we see at the end of the summer. If you are thinking about buying, though, I would hold out a bit more as the housing prices begin to match the demand.

Los Angeles

L.A. is a city full of diversity. You can park your Rolls Royce right up next to your neighbor’s 1993 Volkswagen Bug and live in a tent next door to a mansion. Los Angeles has a whopping 4 million people, and 87 cities, among them, are Beverly Hills and Santa Monica. Surely there is no place more eccentric in all of California.

Types of Homes that are Selling

The L.A. market has been on fire, with single-family homes taking the lead. Over 4,440 single family homes have sold recently, while condos and townhomes are taking the backseat at 1,805 sold. The price per square foot is $666 (a number with malevolent undertones), and your typical fix and flip home is currently in the low $200k, high $300k range.

Why (or Why Not) to Buy in Los Angeles

Trying to figure out if buying in Los Angeles is the right move for you? Although the weather might be tempting with an average temperature of 75 degrees for the last thirty years, there’s more to L.A. than that. There’s the notorious California traffic that makes traveling anywhere in the city a pain in the neck unless you opt for public transit. The great part about driving your car in L.A. is that there is parking everywhere, however. Most homes have a carport or garage to park your vehicle in.

If you are looking to buy a home in Los Angeles to hold and sell later, you may up for a bit of a gamble. The housing market is at a 10.5% year-over-year rate, but homes are currently valued high, and there’s no telling when that will turn around.

Market Climate and Forecast

It looks as though the L.A. market is taking its seasonal slow dive as the summer draws to a close. Fewer people are buying, which drives house prices down a bit. Don’t expect them to get too low, yet, however. I predict we’ll see a slight decline in prices followed by another incline as we get ever closer to the top of the housing bubble.

As with the San Diego area, many are opting to rent rather than buy homes, leaving more room for house prices to drop to accommodate. Buyers are holding out for many reasons, the top of their list being the asking price of many of the houses available. Rent is on the rise as well, though, currently averaging $3,350 per month for a 2-bedroom apartment. Those numbers are taxing on an area where the median household income is only $40,577 per year.

The Bay Area

The Bay Area boasts many incredible outdoor adventures and, as with Los Angeles, is never lacking in diversity. The housing market is similar in this area as far as the trending factors go, but vastly different in pricing.

Types of Homes that are Selling

In stark contrast to San Diego and Los Angeles, condos are selling better in the Bay Area, with 1,828 sold recently compared to 1,324 homes. In fact, after a steep climb, the number of single-family houses sold has remained in the 1,300’s for the last two months. The rise in condo sales is most likely due to the rising home prices and rent, as condos are typically a great compromise between the two.

Why (or Why Not) to Buy in The Bay Area

Although famous for its proximity to the ocean, if you are looking for a pleasurable place to live, the Bay Area may get a hard pass. The area is highly population dense with little consistency on home styles and values between neighborhoods. The home prices are quite high, with the average sale price sticking at $1,350,000 for the last three months. Although there are many great homes in the area, the fog and variable microclimates make it difficult to predict what your day will look like.

If you can overlook that, however, the area is excellent for walking to the grocery store and shopping centers and provides trendy cafes for its younger generation. Also, as previously mentioned, there is no lack of things to occupy yourself with outdoors, either. Whether it’s hiking, biking, or surfing, there is something for everyone.

Market Climate and Forecast

As with the other two markets we’ve analyzed, rentals are on the rise in the Bay Area as well. Many homeowners are wary of high housing prices and prefer to rent as they wait it out. Homeowners seem to have no aversion to selling their homes, however, which accounts for the rise in single-family home inventory. As with the previously discussed markets, I believe we will see a slight decline in home sales, but merely a flattening of house prices as the inventory catches up with the demand. If the rental rates continue to jump as they have, I suspect we will see more and more condo sales as the year progresses.

In Summary
Overall, the market in California is ambiguous. Inventory is rising as many in San Diego, Los Angeles, and The Bay Area opting to sell their homes and rent rather than purchase at these prices. If you’re holding onto a single-family home in San Diego or Los Angeles—now’s the time to sell. If you’re in the Bay Area and are wondering whether to sell your condo, it looks like now’s the time for that as well.

For those wondering if the housing bubble will finally pop, don’t hold your breath. If there’s one thing I’ve learned from living in the California real estate market, it’s that the real estate market isn’t a sure thing—but it is a sure slow thing. You can track the peaks and valleys and get out early, if you know what to look for. Trust the numbers, and when necessary, do what many Californians are doing now –wait it out.

Nick Vertucci is an expert real estate investor and founder & CEO of the Nick Vertucci Real Estate Academy (NVREA). With extensive knowledge and expertise in property investment, Nick travels around the country equipping aspiring entrepreneurs with the tools and education necessary to be lucrative real estate investors. Follow Nick on Twitter (@NickNvco) or connect with him on LinkedIn to hear more market insights and tips.

Comments

  1. “The great part about driving your car in L.A. is that there is parking everywhere,”

    I damn near choked on my avocado toast after that deceitful comment.

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