Both local residential submarkets – single-family homes and multi-family properties – are experiencing a dynamic of high demand and low supply, driving up sales prices and creating a sellers’ market.
“The market is pretty robust,” Geoff McIntosh, owner of Main Street Realtors and president-elect of the California Association of Realtors, said of the Long Beach single-family market. “There is tremendous upward pressure on prices because of the [low] inventory . . . That’s particularly good for sellers. Maybe not so good if you’re a buyer.”
Phil Jones, owner of Coldwell Banker Coastal Alliance, told the Business Journal that new listings in Long Beach increased from June of last year to the same month this year by about 15.5 percent. This did little to alleviate low inventory, however, because the number of pending sales increased at a much higher rate: 48 percent year over year. The inventory of single-family homes for sale dipped from 3.1 months to 2.1 months’ worth of inventory from June 2014 to June 2015, according to Jones.
The result of these market dynamics was a boost in sales price. “We saw a 14.5 percent increase in the median sales price in the month of June over the previous June,” Jones said.
McIntosh pointed out that the increase in sales price is partly a reflection of the type of homes that are selling. “We’re seeing more higher-end sales,” he said. “Part of the reason we’re seeing more higher-end sales is, frankly, there’s no low-end inventory.”
Activity in the Long Beach single-family market reflects a national and countywide dynamic of increased demand and more pending sales, according to Robert Kleinhenz, chief economist for the Los Angeles County Economic Development Corporation. “For the month of June, the national median price for existing homes hit an all-time high,” he said. “And there continues to be strong sales at the national level.”
The trend of growing demand to buy single-family homes should continue, Jones, Kleinhenz and McIntosh all agreed. Kleinhenz attributed the spike in sales activity to buyers hoping to take advantage of historically low interest rates before the Federal Reserve raises them. That’s likely to happen later this year, he noted.
Also putting pressure on the market is that potential repeat home buyers are not selling their homes as quickly as they normally would in order to gain back more equity in their homes following the recession, he pointed out. The same behavior is occurring among older homeowners who want to gain back more equity in their homes to use as a nest egg for retirement, he added.
Millennials, who are now seeing significant reductions in balances in student debt and stronger employment rates, are fueling demand for residential real estate, Jones said. Kleinhenz pointed out that, as many young people leave home for the first time and create new households, demand will first impact the rental market. “With an improved economy, you have increases in the number of households. They are initially going to be looking to rent,” Kleinhenz said.
“Your 20- to 30-year-old group are strong renters,” Johanna Cunningham, executive director of the Apartment Association, Southern California Cities, told the Business Journal. “And the last statistic I heard was somewhere around 60 percent of our city are renters.”
“We have had really constrained rental markets for quite some time,” Kleinhenz said, explaining that construction of new multi-family units in L.A. County has increased, but not quick enough to keep up with demand. “Even with the increase in the number of rentals coming to market, I think it falls short of the demand for rental units,” he said. Consequently, Kleinhenz said, rental rate increases “have been fairly hefty and steady for quite some time.”
Eric Christopher, senior associate with INCO Commercial specializing in the multi-family market, said local landlords have told him they are planning to raise rents by 7 to 10 percent this year.
With such high demand from renters leading to low vacancy rates and rent increases, there has in turn been high demand from investors looking to purchase multi-family properties in Long Beach. It’s a trend that has been persistent for the past two years, and Christopher expected it will continue. “The demand for these properties is not going to stop,” he said.
According to Christopher, prices for multi-family properties in Long Beach have continued to increase over the past few months. Even though there have been more sales listings of these properties, which increased inventory, demand is high enough to support increasing sales prices. “You can kind of incrementally raise prices and probably still expect to sell,” he said.
Several projects underway throughout the city may alleviate some inventory issues in both residential submarkets, although the pace of construction is still behind the level of demand. Multiple apartment projects are planned or underway throughout Downtown Long Beach, creating at least 2,000 new units.
Two new single-family projects are also set to add new inventory to the local real estate market. The Riverwalk Residential Development Project by Integral Communities, a Newport Beach developer, will add 131 detached single-family homes directly north of Virginia Country Club at 4747 Daisy Ave. And City Ventures, an Irvine developer, is planning to build a 40-unit townhome project in downtown’s East Village Arts District.