Key Points from Housing Seminar at Loyola Marymount University
For the third year in a row, I was fortunate to be invited to speak as the residential real estate expert at the LMU faculty housing seminar, which was conducted this week on campus. The turnout generally consists of tenure or tenure track faculty who are looking to put down roots in LA and hope to benefit from a housing incentive program offered by the University to select faculty members. With the travels of employment in academia, many of these professors are coping with sticker shock of the LA market, particularly Silicon Beach and are looking for information and a path to homeownership in the daunting local real estate market. I was joined by Graham Wong, a lender with Mortgage Capital Partners who has many years of experience structuring loans that include LMU’s housing incentives. I was happy to share my takeaways from working in the trenches with local buyers and sellers.
The median home price in Playa Vista was up 2% from 2017 to 2018, however the market was up approximately 8% in a year over year basis in the spring and declined in the second half. This is most attributable to increase in supply (nearly tripling in summer and fall) and resulting decline in buyer urgency caused by this and the increase in interest rates in 2018. Rates have declined and sales have picked up in early 2019, but the level of inventory has remained consistent.
New construction across the Westside has increased the number of larger, newer, more expensive homes and decreased the number of more affordable homes available. Smaller “starter homes” have become scarce and, with a high level of demand (much of it in the past from developers), their prices should relatively safe if there is a market correction. At the same time, many of the new construction homes are at a price point that most buyers cannot afford. Additionally, the cookie cutter nature of many of them has left many uninspired and unwilling to pay a premium price. We are seeing a strong segmentation in the market between more unique and more nicely designed new homes versus cookie cutter new homes with very few unique features as well as compression in prices between the basic new homes and the older starter homes that they are replacing. This, along with many other fees and the slowing rate of appreciation, is pushing a lot of developers out of the market.
Affordability has become a challenge on the Westside, but demand is still strong. This is pushing demand into different areas where it is possible for buyers to get more for their money. Based on median price increase from December 2017 to December 2018, the following areas exhibited very large price increases:
Rancho Palos Verdes – up 28.1% from December 2017-2018 (30 sales)
Studio City – up 43.3% from December 2017-2018 (30 sales)
Calabasas – up 19.2% from December 2017-2018 (29 sales)
As prices on the Westside have flattened, this trend in the above areas shows that people who can afford to buy are not choosing to rent or purchase a smaller house closer to work. They want nice, larger houses in upscale areas with good schools and are willing to extend their commutes to get this. If and when Westside markets return to being a relative value, expect this trend to reverse.
Finally, a large subject of conversation for the past year or so has been income tax reform. This has served to reduce the mortgage interest deduction as well as reduce state, local, and property tax deductions. The full effects of this remain to be seen, but it is one of many factors that go into affordability. People still need a place to live, so most of the time they will grin and bear it for their primary residence. However, we have seen the cap on property tax deductions already starting to impact the second home market, especially at the higher end. This is something that should be paid attention to as tax filing for 2018 nears and filers see the loss of deductions they once had or smaller refunds.
Overall, the seminar was a success. I met some interesting faculty and saw some I already know. I hope to be invited back to speak next year.