The Los Angeles Real Estate Market: Everything You Need to Know

Overall, the Los Angeles real estate market is closely monitored by potential buyers because it's one of the most competitive and active markets in the US. We'll take a close look at the Los Angeles housing market, which includes trends, forecasts, prices, and more.

Likewise, you'll learn the latest data for sales volume, median home prices, and inventory levels to give insight into what sellers and buyers could expect in the year and months ahead.

In March of 2023, the median home price dropped by about 8 percent from the previous year and roughly 1.2 percent from last month.

The median home price was $718,370 in March 2023, but it was $775,500 in February 2023. Last year, the median home price in March was $781,050.

There's a decline in house prices, which is because of higher mortgage rates that lead to a decrease in closed sales for the region. However, inventory supply is still low, with about 2.2 months left. Therefore, the housing market will likely continue seeing upward pressure for home prices in the next few months. Despite the price drop, Los Angeles County has real potential for real estate investors.

Southern California saw sales decline by about 33.8 percent. However, Los Angeles County saw closed sales dropping by 30.2 percent. Things aren't as hot as they were in the same period as last year.

Likewise, the Los Angeles metro area saw a decline of 34.2 percent in sales for current single-family homes. Plus, the median home price here was $735,000, which is 4.5 percent less compared to the same time period as last year. However, it did see a rise of 3.5 percent from February.

Those contrasting trends suggest that the housing market is experiencing volatility because of buyer preferences, interest rates fluctuating, and other economic factors.

Overall, a balanced market is anywhere from four to six months of supply. In Southern California, it's sitting at 2.2 months, and Los Angeles County is at the same amount.

Los Angeles Housing Market Trends

Many homeowners are either trying to rent their properties or sell them to landlords. However, it's still difficult to find options in Los Angeles. Here are a few market trends to consider:

Current Rent Prices in Los Angeles

Before the pandemic, an apartment in Los Angeles was about $2,524 on average. This grew by 2 percent year-to-year. The average size of a Los Angeles apartment was 792 square feet. Likewise, 40 percent of LA households are renter-occupied, but 60 percent are owner-occupied.

Overall, studio apartments are smaller and more affordable, while one-bedroom apartments are about average. Two-bedroom and three-bedroom apartments have more square footage, so they're more expensive.

April 2023 shows that the average rent paid for a one-bedroom apartment in Los Angeles is about $2,395. That's a zero percent increase compared to last year. In the last month, average rents for studio apartments in Los Angeles were flat, as well as one-bedroom and two-bedroom apartments.

• Two-bedroom Apartment - $3,295 (six percent increase compared to last year)
• Three-bedroom Apartment - $4,750 (11 percent increase compared to last year)
• Four-bedroom Apartment - $6,495 (14 percent increase compared to a year earlier)

Most Affordable Neighborhoods in Los Angeles

Right now, the market seems to favor sellers, making it hard for people to buy a house or apartment building to rent out. If you're hoping to become a landlord, you may want to avoid the most affordable neighborhoods in Los Angeles, which include:

• North Hills (renters pay about $1,530)
• Cypress Park (renters pay about $1,396)
• Glassell Park/Cypress Park (renters pay about $1,485)
• Vermont Knolls (renters pay about $1,445)
• El Sereno (renters pay about $1,396)
• Jefferson Park (renters pay about $1,355)

Factors Affecting the Los Angeles Housing Market

Many buyers are now finding it hard to get into the Los Angeles housing market, whether they want to live there or rent the property out to someone else. Here are the factors that affect this:

1. Construction Doesn't Meet the Housing Demand in LA

The housing market in Los Angeles has seen a bump in construction for residential properties. This has helped satisfy the demand from renters. Still, the increased demand leading to new supply has yet to bring prices down. Existing single-family homes are at about 1.4, which isn't enough. Likewise, new construction waves will result in the rental rates staying steady or falling.

The geography of Los Angeles also limits its supply. Overall, the Los Angeles metropolitan area sits between the mountains and the ocean. You can't build on water, and you can only go so far into the hills before worrying about earthquakes and mudslides.

Likewise, the real estate market is constrained even more by the many national parks around LA, such as the Angeles National Forest. You can't build in those areas.

The most basic economic indicators here are income and employment. Home sales are often tied to the economy's health and will rise or fall with activity. When the economy slows down, the money supply is restricted.

However, Los Angeles is unique because of its employment market. If you want to be in Hollywood, you come to LA. If you're into fashion or want to start up a production company, Los Angeles is the place to be. Likewise, rent might be too high, but you can share a single-family home or apartment with your friends.

Overall, employment and income dictate home prices and whether or not people can afford future increases.

California added about 310,000 jobs in 2019, which is a 1.8 percent increase, according to the California Employment Development Department. However, the increase was only 1.6 percent the previous year. Likewise, Los Angeles County saw nonfarm jobs growing by about 67,800, totaling 4.65 million. That's a 1.5 percent rise, which was led by social assistance, healthcare, and construction.

Still, the pandemic led to the unemployment rate increasing in Los Angeles. It fell about 11 percent back in November because of seasonal hirings for logistics and retail. However, it was up again in April of 2020, and it hasn't caught back up.

Overall, buyers are looking for newly built homes and pushing for higher-density housing, such as apartments that are attached or detached.

2. A Switch from Single-family Homes to Multi-family Investments

Appreciation throughout the years has led real estate investors to prefer rentals over flipping in Los Angeles. It favors rental property owners now. In Los Angeles alone, renters are spread out over 118,000 properties and live in over 600,000 apartments. This led California to pass a statewide law for rent control in 2019, covering multi-family units built over 15 years ago.

Rent control applies to multi-family units. However, single-family homes (detached) rarely fall under the same ordinances and aren't subjected to rent control rules. The only exception would be if two or more dwelling units are found on the same lot.

Investors have a simple solution: only purchase single-family rental properties in Los Angeles. Don't buy properties with upstairs apartments or granny flats.

However, homeownership rates have been declining in California. More and more of the upper and middle classes are renting. Roughly one-third of Los Angeles residents have incomes of over $100,000 and rent. This could be because baby boomers downsize to make it easier to maintain. Millennials claim that parents with good incomes lost their homes and now rent.

The demand for luxury real estate (high-end apartments and condos) and luxury homes that get rented out is high. Therefore, house prices remain at all-time highs because sellers know what their properties are worth.

California's push for affordable housing seems to have done the opposite.

3. Foreclosure Potential

Foreclosures could be a good way to get affordable housing for rentals. However, the rates vary significantly. Each home in foreclosure is attached to a bank, so the median sale price might be higher or lower.

4. It's a Seller's Market

Los Angeles home prices are slightly higher than the previous year. This is based on condos, single-family homes, and townhouse properties listed on realtor.com. Multi-unit, land, and other property options are excluded.

Based on the data from last month, Los Angeles was primarily a seller's market. Therefore, more people want to buy, and there aren't enough homes for sale. A balanced market often sees a ratio of total sales to listings of between 0.12 and 0.2.

There are about 217 cities in Los Angeles County with multiple active listings. This takes into account two aspects: the market demand gets measured by unique viewers for each property on the website, and the pace of the market in the number of days the listing stays active on the site.

• The median sale price for homes in Los Angeles was $850,000, which is 1.6 percent up year-over-year.
• The median price of a sold home was $799,000.
• The median listing price by square foot was about $575.
• Homes in Los Angeles sell about 57 days after being on the market.
• The ratio for sale-to-list price was 100 percent. This indicates that Los Angeles homes sold for approximately the asking price.

When the housing market is balanced, there's enough demand from the buyers to equal the supply of sellers. Based on the information above, real estate appreciation should be slightly skewed in favor of the seller. The moderate demand and tight inventory should push prices higher, which is why home values could appreciate over the next year, but at a smaller pace.

Will the Housing Market Crash in Los Angeles?

Most housing analysts claim that home prices in Orange County and Los Angeles will fall to the single digits during 2023. However, home prices for the Inland Empire area will not fall as much. They say that prices will likely continue falling on a national and regional scale through 2024 but at a slower rate and then increase again in 2025.

People wonder if buyers have the advantage or if it's the right time to purchase a house. This never-ending question isn't easy to answer. Buyers don't think it's the right time because of higher mortgage rates and house prices. However, it might be time to sell because you can get more inventory.

More houses should be listed with real estate agents in the next few months, which could lower appreciation somewhat. Affordability is the crucial concern because about three in four residents can't buy a median-priced house in the area. In fact, shoppers are now leaving Los Angeles and moving to Las Vegas, Phoenix, and San Diego, according to Redfin.

Los Angeles County Housing Market Statistics

• Median sale price - $980,000
• Number of homes sold - 1,693
• Days on the market - 44
• Homes experiencing price drops - 17.5 percent
• Homes selling above the listing price - 38.2 percent

Housing Market Predictions

Though the housing market seems to be doing well nationwide, there appears to be many problems in California and Los Angeles specifically.

Lower Los Angeles Home Prices

Overall, the housing shortage isn't helping to lower home prices in Los Angeles. Plus, the median income for renters isn't rising at all.

Los Angeles Housing Market Predictions

Despite recent declines in population, house prices continue to stay high. This could be from the housing shortage, meaning more people want to live in Los Angeles than there are homes available.

Though it's not a housing crisis right now, it very well could be by the end of 2023. Therefore, those who want to invest in the best neighborhoods should probably focus on foreclosures and other methods of getting houses cheaply. It seems that would-be buyers are priced out quickly and can't find great deals.

Final Verdict

There are opportunities for investment as landlords in Los Angeles. People still need apartments to rent, which will be fueled by a tight inventory, rising wages, competition from tenants, and a better economy. However, you'll need good cash flow to make it profitable and possible.

FAQs

Are Rent Prices Going Down or Up in Los Angeles?

Rent in Los Angeles is higher than the median rent for the state. Costa Mesa, Glendale, and Torrance are the fastest-growing cities for rent in Los Angeles.

Is Real Estate the Best Investment Choice in Los Angeles?

With California's affordable housing market rule, it can seem like real estate might not be the best in Los Angeles. However, it's wise to focus on the local trends to determine if that market will help you.