State of the Playa Vista Market

There’s only one word to describe the recent run up in housing prices in Playa Vista – unbelievable! Homes such as an Asher plan 3 which sold new a year ago in the $1.6’s, recently closed for $2,250,000.  Tapestry homes are selling for $250-$300K more than the same models traded for last year. Entry level 2 bedroom pricing is now in the $700,000’s.

What are the reasons for this?

#1 – Low Inventory – Supply and demand dictate all, so this is clearly the reason prices are zooming up. I will speak to demand later, but why is inventory so low?  Because people are afraid to move because they may not be able to find a place and hesitate to list their home. They are afraid to take a leap of faith and do this because a.) the concept of being able get under contract amid the competition, let alone find a place worth moving to is daunting and b.) selling now while waiting to find a place and possibly renting in the meantime may cause them to miss out on appreciation.  This “pent up supply” will correct itself once a little bit more inventory starts to trickle out, which will lead to significantly more inventory. At that point, the bull market for housing will be over and sellers will be competing with one another at the nadir of buyer affordability.

#2 – Over-motivated buyers.  There always seems to be one person willing to pay 5% more than comp value to lock down a property.  Maybe they need to move immediately, maybe they are being told this is the only way to get a property in this market by their real estate agent or other advisor, or perhaps they have lost out on many properties already and are willing to “overpay” to not let it happen again and out of FOMO (Fear of Missing Out).

#3 – New amenities (e.g. elementary school, Whole Foods, Movie theater, restaurants) making Playa Vista a more desirable place to live and increasing demand, cannibalizing buyers from other areas.

#4 – New businesses increasing long term demand expectations – The “Google Effect” had a very powerful impact on home values beginning in late 2014 with the expectation of roughly 5,000 highly paid employees, mostly young condo dwellers and renters, moving to Silicon Beach in addition to the other tech companies a Google in the area may draw.

#5 – Unmotivated buyers and the ease of making an offer.  These buyers may think they are motivated, but they are not in the league with #2 above and may be indifferent to making offers if it were more work.  I mentioned how Docusign changed everything a few years ago. Before, it was an effort to make an offer, now it is easy and paperless which there is no doubt has increased the number of bidding wars and thus prices for these #2 buyers.

#6 – Interest rates going up soon? We’ve heard this for a while, but they probably will eventually and people are wanting to lock in a low rate now.

What will happen next?  Only will time will tell, but history has shown us that price increases such as this are unsustainable.  Six currently active listings out of approximately 2,000 homes is unsustainable and the greed of homeowners who have seen their investments swell by several hundred thousand dollars over the past three years is inevitable.  While this may cause a correction, it is unlikely to be anywhere near the one of 2007-2010 since there is real skin in the game now and distressed sales will be replaced by being a landlord in many cases when the buyer’s market returns.