Is it a Good Time to Buy in Playa Vista? The Objective Case that it is.
If you’ve been reading my blog, you might have noticed that I sometimes take contrarian positions, which in a hot real estate market, might appear negative. Being negative is not the point. The point is to challenge group think that often occurs in real estate markets and to introduce new ideas that much of the public may not be considering. As Warren Buffett said, “Be fearful when others are greedy and greedy when others are fearful,” indicating that the legendary investor has found opportunity by taking a contrarian perspective.
One of my negative predictions was that there would be a market correction around the time of Google’s immediate arrival, which is turning out to be correct. The four years of baked-in appreciation as a result of Google’s announcement they would be coming to Playa Vista (and the market in general), led to the increase in values. Google’s arrival would be met by an increase in sellers who have targeted this event to time their exit strategy, but not in an immediate spike in purchase demand. As of this writing, there are 41 active listings, not including most of the in-progress new construction inventory for Seabluff, The Collection, and Jewel, which is approximately triple the MLS actives from the spring.
Anyone who keeps close tabs on the Playa Vista real estate market has also noticed a recent shift to more of a buyer’s market. The results are coming in. The two listings that closed this week sold for an average of 96.85% of list price, averaging concessions of over $30,000. Of the 41 active listings, 12 have experienced price reductions and are still unsold. Price reductions generally represent motivated sellers who are coming to terms with their previously unrealistic expectations. Focusing on these sellers who have tipped their hand at being motivated and flexible on price could present a good opportunity for buyers.
Another factor in the demand slow down is that interest rates have gone up, which combined with higher prices make affordability more challenging. With a strong local and national economy, low unemployment, and inflation becoming a risk, the consensus belief (which may or may not be true) is that interest rates will probably go up more. If that becomes the case, locking in a lower interest rate now, even if prices decline slightly more, could be beneficial for long term purchases. For example, the increase in payment on an $800,000 loan based on a half point increase in rate (from 4.75% to 5.25%) is $244/month. The same payment only decreases by $209/month if interest rates stay the same and prices decrease by 5% (from $1,000,000 to $950,000). Therefore the importance of a low interest rate can not be understated.
Google and other businesses who employ thousands of professionals in the area should contribute to long-term demand in the area. Many are renting now and, if they choose to stay in Playa Vista, should make purchases in 2019 and 2020. Speaking of renting, the grotesque amounts being charged ($4,000 and up for modest 2 bedrooms or lofts), make purchasing a much better alternative for those who have access to the down payment.
While the recent market shift may give pause to buyers and the number of available options (justifiably) decreases urgency and increases search time, now should be seen as a relatively good time to buy; at least a better time than 6-12 months ago. With abundant supply, buyer negotiating power, lack of better alternatives (i.e. renting), and a probable increase in demand and interest rates in coming years, a volatile stock market, not to mention the 4th quarter of years tends to have the least competition from buyers, considering a purchase during this dip may not be such a bad idea.