How Will the Playa Vista Market Perform in 2022?
Wow! It’s 2022 already?! While last year flew by, the real estate market has continued to soar. Low supply combined with low interest rates have kept it a seller’s market. Playa Vista dusted off its poor showing in 2021 with median prices up close to 15% year over year (December data not released yet). With many converging factors impacting the market, how will 2022 look?
Interest Rates: This is likely the single biggest headwind for the housing market as rates are almost certain to increase. Inflation is the highest it has been in 40 years and the Fed has signaled three rate increases to the Fed Funds rate this year. Bond yields have already increased close to 10% in the first few trading days of the new year. Economists suggest rates could be 50-75 basis points higher at the end of the year. 50 basis points is a $220/month increase in payments on an $800,000 loan. It remains to be seen how much rates can go up before demand is meaningfully impacted, although interest rate increases smaller than this can lead to buyer price sensitivity. The expectation of rising interest rates could motivate buyers, especially early in the year.
Supply and Demand: Active inventory in Playa Vista currently sits at approximately 10 homes (condo and single family) with new construction complete. While some of this is seasonal with the lowest number of homes being available around the holidays, don’t expect this to increase much unless there is a meaningful drop in demand due to interest rate increases. At the same time, don’t expect demand to wane significantly due to more affordable alternatives. Single family home prices have increased in many other parts of LA as much or more than Playa Vista in the past year (and significantly more in 2020). Rents are also up making few alternatives a better value than staying put.
Pandemic Factors: There’s no doubt the pandemic (combined with reaching a certain technological threshold) has caused lifestyle shifts that have had a monumental impact on real estate. From remote work to distance learning to just wanting more or different space, the trend has seen increased demand for single family homes over condos and more rural or suburban over urban markets. Some of these trends will remain long after the pandemic is behind us, but my feeling is that most pandemic-induced movement has already happened and that the demand gap already been filled my houshold creations. This can be shown by the huge bounce-back in Playa Vista real estate values from 2020-2021. Despite many workers not having to be at the office, they are still choosing to live in an urban area with a sense of community and are resuming pre-pandemic activities to some extent.
Conclusion: With continued low supply and steady demand, expect prices to increase modestly through the spring. By summer, interest rates could impact demand and lead to more price sensitivity leading to a flattening of values. The pandemic should end this year, or the virus at least be reclassified as an endemic. As it goes and life returns more to normal, real estate could fade into the background somewhat.