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.

In 2020, interest rates plunged to historic lows, which continued throughout most of 2021. But low interest rates weren’t enough to induce sellers who were unable or unwilling to list in light of the job losses stemming from the pandemic and recession – and out of fear of being unable to find replacement property in today’s competitive environment defined by historically-low inventory. This has resulted in a strangled MLS inventory, which, along with low interest rates, have accelerated prices to unsustainable heights.

As we continue through the recession hangover, expect to see home sales volume follow its volatile path, not to begin a consistent recovery until after prices reach their next bottom in 2025. Today’s high home prices will feel downward pressure from the rapid mortgage interest rate increase experienced in Q1 2022, which has slashed buyer purchasing power. As interest rates continue to rise in 2022, home sales volume and prices will quickly fall back as the broader economy heads for its next recession, likely to arrive in the second half of 2023.

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

Updated May 9, 2022. Original copy posted March 2013.

Home sales volume remains low

Chart update 05/09/22

2021 2020 2019 2003: Peak Year
Los Angeles County home sales volume 90,100 71,300 73,500 125,900

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 interest rates continued to prop 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 increased a significant 26% above a year earlier.

However, 2021’s rising trend is reversing course in 2020. As of the first quarter (Q1) of 2022, Los Angeles County home sales volume is 6% below a year earlier. Dragged down by rapidly rising interest rates and waning enthusiasm from homebuyers, sales volume will continue at a slower pace throughout 2022.

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. Since then, sales volume has trended down, and is likely to continue down in 2021-2022 as we continue to slog through the ongoing recession.

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.

Turnover is down

Chart update 09/07/20

2018 2017 2016
Los Angeles County homeowner turnover rate 5.4% 5.7% 6.7%

Los Angeles County renter turnover rate

12.9% 12.9%

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 2018 with one in 16 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, expect turnover reports to show a slip in 2020. The homeowner and renter turnover rates bounced back in 2021, fueled by buyer fear of missing out (FOMO) and renter relocations as households search for less expensive housing options alongside a rise in remote work trends.

But this volatile jump in housing relocations is already falling back heading into 2022. Expect a consistent increase in turnover to arrive around 2024-2025, when the additional and necessary factor of greatly increased residential construction will be experienced and a more stable economic recovery from the 2020 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 05/09/22

Q1 2022
Q4 2021 Q1 2021
Los Angeles County homeownership 45.2% 47.8% 48.3%

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 2022, Los Angeles County’s low homeownership rate continues, only slightly above 2016’s historic low-point at 45.2%. 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 around 2025 as rising FRM rates and faltering prices in the interim 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 54.2% in Q1 2022. 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 05/09/22

Low-tier annual change Mid-tier annual change High-tier annual change
Los Angeles County home pricing index: Feb 2022 +18% +22% +23%

Home prices continue their rapid increase in Los Angeles, with low-tier prices now 18% above a year earlier and high-tier prices a whopping 23% above Q1 2021. However, these price increases are losing steam.

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 have jumped in the first part of 2022, causing a massive cut to buyer purchasing power. Thus, expect prices to level and decline in the months ahead. As during the 2008 recession, the drop in sales volume and prices will first be most volatile on the coast, before rippling outward to inland areas.

Looking back, the significant price boosts of 2020-2021 mirror the rapid price experienced during the Millennium Boom. Along with the rest of the state, Los Angeles home prices skyrocketed during the Millennium Boom, then plunged to below mean price levels during the financial crisis and have been climbing out of the wreckage ever since. Like in other regions, there was a small bump in prices in 2009 driven by various state and federal economic stimulus programs. The increases proved unsustainable and, without the support of fundamentals, home prices dropped back fully in 2011 to the price level of early 2009.

Watch for home prices to falter later in 2022, the result of interest rates’ negative impact on buyer purchasing power. With less mortgaged money available to spend, homebuyers will demand lower prices.

Construction starts feed on rental demand

Chart update 01/14/22

2020 2019 2018
Los Angeles County single family residential (SFR) starts 8,000 5,700 6,100

Los Angeles County multi-family starts

18,400 15,900

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 has ended in 2020, falling dramatically in the third quarter. This steep decline is partly the result of shelter-in-place orders in response to the COVID-19 pandemic, and also due to cautious lenders and builders. However, significant gains experienced earlier in the year resulted in an overall annual increase in construction over the previous year.

The next peak in SFR construction starts will likely occur in the 2024-2025 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 05/09/22

Mar 2022 Mar 2021 Annual change
Los Angeles County employment 4,479,800 4,107,800 +9.1%

Since homeowners and renters require employment to make housing payments (with rare exception), the jobs recovery is key to the housing recovery. Just under 4.5 million people are employed in Los Angeles County as of March 2022. While this is 9.1% higher than a year earlier, Los Angeles still needs to regain 174,200 jobs to return to its December 2019 pre-recession peak.

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. Still, Los Angeles County’s level of recovery is slightly above the statewide recovery of jobs, which is 7.6% above a year earlier as of Q1 2022. Expect the jobs recovery to continue its faltering progress, rising and falling, not to enter a true recovery until after 2023’s double-dip recession.

Related article:

Can the Fed cool inflation without implementing another recession?

Jobs by top employing industry

Chart update 05/09/22

Mar 2022 Mar 2021 Annual change
Construction 155,300 146,300

Real Estate

84,200 79,000

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

2020 2019 Annual change
Los Angeles County per capita income $68,300 $63,000 +8.3%
California per capita income $70,700 $65,300 +8.3%

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.