Los Angeles housing indicators

Los Angeles County, hit hard by the 2008 recession, has yet to return to Millennium Boom levels in terms of home sales volume and construction. LA recovered the number of jobs lost during the 2008 recession at the end of 2014, reaching a full recovery when counting population gain in 2019, just in time for the next recession to hit in February 2020.

The long home sales volume recovery in Los Angeles County was driven primarily by investors. But the housing market began to show more life from owner-occupants as employment and incomes improved beginning in 2017. Then, as buyer-occupants fought against rising mortgage rates, they became more cautious, causing sales volume to fall in 2018-2019.

But in 2020, interest rates everywhere plunged to historic lows, providing rocket fuel for home sales until the abrupt rate jump in 2022. But low interest rates weren’t enough to induce sellers who were unable or unwilling to list in light of pandemic-era job losses – and out of fear of being unable to find replacement property.

This resulted in a strangled MLS inventory, which, along with yesterday’s low interest rates, accelerated prices to unsustainable heights. In 2023, inventory remains low despite reduced buyer demand. Unlike in 2020-2021, today’s low inventory is the result of fewer listings, a symptom of reluctant sellers.

As we dive deeper into the 2023 housing recession, expect to see home sales volume continue its downward path, not to begin a consistent recovery until after prices reach their next bottom around 2025. Los Angeles’s high home prices will continue to plummet after 2023’s brief spring seasonal reprieve, to be weighed down by accelerating negative equity and extreme buyer caution.

As interest rates continue to gradually rise in the years ahead, home sales volume and prices will feel downward pressure. Thus, the long-term price outlook for Los Angeles reflects much of the rest of the state, with the rapid price inflation of 2020-2021 a thing of the past.

View the Los Angeles regional charts below for details on current activity and forecasts for its housing market.

Updated August 3, 2023. Original copy posted March 2013.

Home sales volume remains low

Chart update 08/03/23

firsttuesday projections are based on home sales volume as experienced so far this year.

Los Angeles County home sales volume decreased each year from 2018 through 2020. In 2020, home sales volume declined 3% below 2019, translating to roughly 2,100 fewer sales over the course of the year. Still, given the pandemic and recession-induced slowdown mid-year, 2020’s sales totals may have been much worse.

Record-low mortgage interest rates propped up buyer interest, as well as home prices. Buyer fear of missing out (FOMO) also propelled home sales volume during 2021. In total, 2021 home sales volume leaped 26% above a year earlier.

However, 2021’s rising trend quickly revered course in 2022, ending the year 25% below 2021. Dragged down by rapidly rising interest rates and waning enthusiasm from homebuyers, sales volume will continue at a slower pace in 2023-2024. Compared to the last “normal” year for home sales volume, 2022 was 12% below 2019.

Worse, home sales volume year-to-date (YTD) is a further 33% below 2022 as of May 2023, and 40% below 2019.

Looking back, after home sales volume plummeted during the Great Recession of 2008, volume rose briefly in 2009 into early 2010, due primarily to the housing tax credit stimulus and a naturally recurring “dead-cat bounce” at the end of every recession. Sales volume fell back in 2011 for lack of end user homebuyers and a retreat in speculator acquisitions.

Home sales volume picked up in 2012-2013 due to the return of heavy speculator activity. During this period, speculators burned through LA housing inventory, particularly in low-tier home sales.

At the same time, demand in the form of end users (homebuyer occupants and long-term income property investors) for low-tier homes subsided, driven down by very rapidly rising prices and increased mortgage rates mid-2013. The nail in the coffin for sales volume was 2018’s rising mortgage interest rates, which reduced buyer purchasing power and enthusiasm heading into the volatile pandemic years of 2020-2021.

A complete recovery of around 110,000 annual home sales will likely occur in the years following 2025, when end user demand in Los Angeles County will be buttressed by a Great Confluence of Baby Boomers and first-time homebuyers who are lured by an employment recovery. Residential construction starts will increase dramatically to fill buyer demand as cities within the county open up the permit process by a reduction in zoning restrictions in urban centers that will enlarge inventory counts.

Inventory climbs

Chart update 08/03/23

Multiple listing service (MLS) inventory has risen from the historic low reached at the end of 2021. After two years of steep decline, for-sale inventory in the Los Angeles metro area averaged an anemic 20% below a year earlier as of May 2023. However, today’s reduced inventory is not due to an overabundance of buyers. Rather than buyer competition, it’s seller reluctance to list that’s holding back inventory growth in 2023. The winter months typically see the lowest inventory of homes for sale, peaking around mid-year.

Looking forward, expect inventory to climb in 2023-2024. The significant interest rate increases of 2022 slashed buyer purchasing power, forcing sellers to reduce pricing to enable mortgage-funded homebuyers to compete. As the Fed inflation fight is progressing slowly, indicators point to a continuing of the downturn in the housing market until mid- to late-2025 — of which homebuyers and sellers are well aware. The seller’s market since mid 2022 has fully tipped, as homebuyers increasingly take a wait-and-see approach to buying.

Turnover is down

Chart update 11/07/22

Home sales volume depends in large part on homeowner and renter turnover. The number of people moving from their residence each year is indicative of both the willingness and ability of homeowners and renters to relocate. Turnover rates are highest when jobs are abundant, wages are rising, housing starts increase and employee confidence in the economy is high.

The most recent trough in Los Angeles’ homeowner turnover rate was during 2008, when California was at the depths of the Great Recession. The number of homeowners relocating increased in the immediately following years, mostly due to turnover on foreclosures and short sales.

The latest reports show LA homeowner turnover was relatively high in 2021 with one in 18 homes selling annually. Still, this is below the peak year of 2005 when one in 12 homes sold.

With the foreclosure and eviction moratoriums that were in place from April 2020 through July 2021, turnover reports remained artificially low in 2020-2021. Further, despite bounces in both sales volume and prices in 2021, much of this activity was fueled by absentee homeowners – investors – rather than owner-occupants. Thus, homeowner turnover remained flat in 2021.

Expect a consistent increase in turnover to arrive around 2025-2026, when the additional and necessary factor of greatly increased residential construction will be experienced and a more stable economic recovery from the 2023 recession will begin.

This upturn will be fueled by a Great Convergence of first-time homebuyers (members of Generations Y and Z forming households), retiring Boomers buying replacement homes and increased inventory generated primarily by construction starts, but short sales and REO resales will be in the mix. Domestic and international emigrants will play a significant role in the county’s periphery housing — the suburbs.

Homeownership bottoms

Chart update 08/03/23

The homeownership rate in Los Angeles County trended downward from the time the Millennium Boom ended in 2007 to its lowest point in Q3 2016 at under 45%. As of Q1 2023, Los Angeles County’s low homeownership rate continues, only slightly above 2016’s historic low-point at 46.1%. This is well below the 55% figure set at the height of the Boom.

The rate will likely remain low, while varying slightly from quarter-to-quarter, until the years following 2025. In the meantime, rising FRM rates and faltering prices will drive many owners to consider forced sales, instilling a wait-and-see attitude among buyers.

LA County’s homeownership rate has historically been lower than the state average, which was 55.3% in Q2 2023. LA County has a smaller share of homeowners since much of the county is urbanized, and renting is a convenience, if not a financial necessity. LA’s homeownership rate today is below what may be considered a “normal” (pre-Millennium Boom) rate, which was 48% in 2000.

The rise and fall of home pricing

Chart update 08/03/23

Home prices increased rapidly in Los Angeles in 2020-2021. However, while prices rose quickly, they fell even faster after peaking in May 2022. However, this steeps drop was interrupted by a brief seasonal bounce in Spring 2023. Now, low-tier prices remain 2% below a year earlier, mid-tier prices are 4% lower and high-tier prices 3% lower than a year earlier as of May 2023.

In 2020-2021, historically low interest rates provided a boost for buyer purchasing power. These low interest rates, along with competition for a dwindling inventory of homes for sale, inflated home prices and sales volume in 2020-2021. But interest rates jumped in 2022, causing a debilitating cut to buyer purchasing power and downward pressure on home prices.

Watch for prices to fall back in the months ahead following spring’s seasonal bounce. Home prices will slump below 2019 pre-recession levels by 2024, not expected to find a bottom until 2025.

Construction starts feed on rental demand

Chart update 02/13/23

Both single family residential (SFR) and multi-family construction starts increased during 2022 in Los Angeles. SFR starts increased 5% over the prior year and multi-family starts rose 12%.

Looking back, multi-family construction starts jumped significantly in Los Angeles County at the outset of the recovery from the 2008 recession, far outpacing the near-flat trend in single family residential (SFR) starts. This is due to the increased demand for rental housing, evidenced by the steep rise in rents, especially in the urban city-center areas of Los Angeles County. Builders know this, the City of Los Angeles is accommodating and lenders are catching on.

However, the multi-family recovery ended in 2020, falling dramatically heading into 2021. This steep decline was partly the result of shelter-in-place orders in response to the COVID-19 pandemic, and also due to cautious lenders and builders. The fall-back in new residential construction continued in 2021, held back by labor and supply shortages, beginning to bounce back in 2022.

The next peak in SFR construction starts will likely occur in the post-2025 period due to a boost from state legislation. Even then, SFR starts will not return to the mortgage-driven peak experienced during the Millennium Boom. However, multi-family housing starts in the next upturn will experience higher levels as last seen in the mid-1980s, which accommodated the arrival of Baby Boomers to the housing market.

This time, the need for multi-family housing will be fueled by their Gen Y children — Millennials — before they turn away from renting and become homeowners as they age, no differently than did the Baby Boomers in the early 1990s.

More jobs needed

Chart update 08/03/23

Since homeowners and renters require employment to make housing payments (with rare exception), the jobs recovery is key to the housing recovery. Over 4.6 million people are employed in Los Angeles County in 2023. While this is 3.1% higher than a year earlier, Los Angeles still needs to regain 10,300 jobs to return to its December 2019 pre-recession peak, with recovery progress continuing to wane with each passing month.

From the December 2019 peak to the trough in April 2020, Los Angeles lost 738,000 jobs. Since then, many jobs have been recovered, though not all. Now, Los Angeles is the only major metro in California yet to achieve a full jobs recovery. Expect the jobs recovery to continue its faltering progress, rising and falling, not to enter a true recovery until after the economic recession expected to officially arrive in late-2023.

Related article:

The Fed bumps up rates again — the undeclared recession is here

Jobs by top employing industry

Chart update 08/03/23

In the housing industry, construction jobs have gradually regained numbers over the past decade of recovery from the 2008 recession, reaching a full recovery just before the job losses of the 2020 recession. Likewise, the number of employed real estate professionals was recovered gradually, cresting pre-200 recession levels in 2016 and rising.

In 2020, both industries experienced a hit to job numbers, resulting in thousands of lost jobs. While construction continues to bounce back fairly quickly due to the unmet demand for housing, real estate professionals will see a slower rebound as they contend with reduced transactions and, in the coming months, lower home prices.

The real estate profession will not likely experience a sustained increase until the next confluence of buyers and renters (members of the Generation Y and Z and Baby Boomer generations) converge on the market in the years following 2025.

Everyone needs income to buy or rent

Chart update 05/09/22

The average income earner in Los Angeles County earned roughly $68,300 in 2020 (the most recently reported Census year). For perspective, this figure is slightly below the statewide per capita income.

While 2020’s 8.3% increase to per capita income is significant, home price increases still consistently exceed income increases. As long as prices rose faster than incomes across most job sectors, increases in home prices and rents were unsustainable. This is because buyers and tenants ultimately determine sales prices and rent amounts — collectively they can pay no more to buy or rent a home or apartment than their savings and income qualify them to.

According to the U.S. Census, the average Los Angeles resident with a mortgage paid 51% of their income on housing expenses, as of 2015. Renters pay 52% of their income on housing costs. This high price for housing can’t be sustained at today’s incomes without a long-term drop in their standard of living and a rise in poverty and related homeless or relocation symptoms.