From single-family to apartments, high demand and a low inventory continue to push sale prices and rents up, local real estate experts say, but increasing interest rates should calm the market.
“Interest rates have gone up significantly,” Phil Mazzocco, operating principle of First Team Realty in Long Beach said, noting that for-sale properties across the city are still receiving multiple offers, though not as many as in previous months.
Instead of receiving 30 offers for an appropriately priced property, Mazzocco said he is seeing about 10.
“They’re still flying off the shelf, but there is a little stall with days on market,” Mazzocco added. Rather than seven to 10 days on the market, correctly priced properties are selling in about 15 on average, he said.
Overpriced houses, however, tend to languish on the market, Mazzocco said.
“It could be the kiss of death,” Mazzocco said. “Overpricing is a big mistake.”
The average interest rate for a 30-year fixed mortgage last year was less than 3%, data from Freddie Mac shows. Rates this year, however, have ballooned to around 5.5% as of April 26, according to Forbes.
Even with the sharp increase, interest rates remain historically low, Mazzocco said. From 1973 through the early 2000s, average rates ranged from 6.5% to as high as 16.63%, according to Freddie Mac.
Interest rates cooling off the market at this point is healthy, Mazzocco said, adding that the recent trajectory is not sustainable.
“Buyers are having to do really irresponsible things to get into houses—removing contingencies and sometimes inspection,” Mazzocco said. “Historically, you would never advise your client to do that.”
As the market normalizes, buyers’ agents will have more leverage and be able to negotiate more responsible deals, Mazzocco said.
Nationwide, median housing prices have spiked since the onset of the pandemic, according to data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. In early 2020, the median sales price of a house in the U.S. was $329,000. By the end of 2021, that figure had soared to over $408,000.
According to a report by Inspection Support Network, more than 27.5% of home sales in the Los Angeles Metro area were for more than $1 million—the third most of major metros nationwide.
In March of this year, the median price of a home in Los Angeles County was $875,000, up nearly 13% compared to the same time last year, according to Redfin.
“Personal experience, I’m checking my home value on Zillow and it hasn’t stopped going up,” Edward Coulson, director of the Center for Real Estate at UC Irvine, said. “The house price surge is still with us but it’s flattening out a bit.”
The continued velocity in sales and other indicators do not show any signs that the market is a bubble about to pop, Coulson said.
If priced properly, Mazzocco said all house types are selling well—from fixer-uppers to luxury homes. Homes under the $1 million mark, however, are the most sought after, he said.
The buyers are a mix of first-timers and people upgrading into larger homes, Mazzocco said. Despite reports across the nation, he said Long Beach is not seeing properties bought up by corporations as investments.
“We’re so insulated from everything,” Mazzocco said, noting that Long Beach continues to be a haven for more affordable housing compared to many other LA and Orange county cities.
“Corporations certainly are a bigger force in the market than they used to be,” Coulson said. “But there’s still not an overwhelming presence.”
The multifamily housing market is faring about the same—high demand and limited supply—Stepp Commercial Principal Robert Stepp said. Similar to the single-family market, sale velocity for multifamily properties has slowed somewhat in 2022 due to increased interest rates.
Prices, however, remain strong—both for sales and rental rates, Stepp said. Over the past 12 months, asking rents have increased 6.5%, he said, “strongly rebounding from just 1.5% rent growth in the previous 12-month period.”
The January 2020 passage of Assembly Bill 1482, Stepp said, allows for rents to increase 5% plus the consumer price index. Recent inflation has contributed to the higher increase, he said.
The supply of rental units in Long Beach continues to lag far behind demand and will continue to drive up prices, Stepp said. Many people seeking to purchase have been forced to remain in the rental market due to soaring home prices, he added. As a result, Stepp said the vacancy rate in Long Beach has reached a low of 3%, a decrease of 1.5% over the past 12 months.
And the city’s rental landscape is unlikely to change any time soon.
“While Long Beach has maintained a strong construction pipeline since 2016, most new rental inventory is in higher-end, four- and five-star product, where there is less demand,” Stepp said.
The vacancy rate for higher-end luxury units hovers around 8.3%, according to Stepp Commercial Senior Investment Associate Travis Traweek. Vacancy in low-income to moderate units, meanwhile, is at around 2.4%, which demonstrates a lack of affordable units, Traweek said.
Despite the reported population decline across the region, multifamily development remains at a deficit compared to demand due to “high construction costs, NIMBY sentiment and onerous permitting regulations, none of which seem to be going away soon,” Traweek added.
“Unless legislators commit to addressing the housing shortage in a meaningful way, California will continue to experience a housing shortage.”