Supply & Demand
AT the beginning of 2020, Los Angeles had 8,025 homes listed, the lowest active listings since 2012. Orange County has fewer homes listed. At the beginning of 202 OC had only 3,692 homes on the market, then peaked in May with 5,044 listings. At the end of the year, inventory fell to just 2,675 homes.
The expected market time, the period from when a home is listed for sale to escrow is currently 37 days in Orange County, it began the year at 82 days. In Los Angeles County, the expected market time is at 49 days, at the beginning of the year, it was at 80 days.
New home construction in California also fell short of the states goal of building 180,000 new homes each year, applying more pressure on supply. In Southern California, building permits fell 10.2%. This also causes significant upward pressure on housing prices.
According to C.A.R. the median home price sold in Orange County was $930,000 in November of 2020, an increase of 13% from $822,000 in November of 2019. In Los Angeles, the median home sold jumped 11% year to year from $594,000 in 2019 to $664,000 in November of 2020.
Redfin reports that “there will be very few homes from 2020 left on the market in 2021”. Those seeking to buy a home in 2021 may have to wait for sellers to list their homes. There may be bidding wars for new listings which will likely be snatched up quickly.
Work from home fuels housing market
Non-essential businesses were required to have their employees work from home. Some of those employees have fled the dense city life and began seeking out more affordable suburban communities. Many of those workers fled to Orange County, Riverside & San Diego. A 2,500 rent in downtown LA can get you a very nice house in Riverside. Buyers can afford a house and have extra income left over. This can be life changing for some buyers.
Employers have invested a lot of resources on infrastructure and software to allow their people to work from home. The cost of moving hundreds of employees back into expensive office space after investing in work from home tools doesn’t seem likely in the near future.
Low Mortgage Rates
In May of 2020, the 30 day mortgage rates fell to 3.23, the lowest since 1971 when Freddie Mac began tracking rates. By comparison, only one year previous, mortgage interest rates were at 4.14%.
As of December 24, 2020, the 30 year fixed-rate mortgage was at 2.66%. To put that into perspective, at the end of 2018, just two years earlier, mortgage rates reached 5%. A $700,000 mortgage at 5% has a monthly payments of $3,758. At todays rate of 2.66%, the same $700,000 has a monthly payment of $2,824 per month, almost $1,000 per month difference.
The FED’s drive to keep long term rates low has helped hold down mortgage rates which fueled homes sales and price increases. But, are home values beginning to become overheated? If the economy improves, which most “experts” say it will, that would indicate higher mortgage rates. Remember in late 2018 and early 2019 mortgage rates were at 5% and slowed home buying. Home values will be pressured as borrowing power is reduced and monthly payments increase. Should rates increase just 1% from 2.65% to 3.65% buying power is reduced by 12%, up another 1% to 4.65% buying power is reduced by 22%. This would definitely mean lower home prices, and in the private money lending business, reduced protective equity.
With that in mind, stay in the best and most desirable locations and keep the loan to values at 65% or lower.
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Contact:
ALLIANCE PORTFOLIO
120 Vantis Drive #515
Aliso Viejo Ca, 92656
Info@allianceportfolio.com
(949) 349-1322
http://www.allianceportfolio.com/
Real Estate Broker
California DRE
License #: 02066939
ABOUT US:
Alliance Portfolio is a Leading Full-Service, Private Hard Money Lender in California.
We serve borrowers who have unique situations that do not meet strict institutional guidelines while providing investment opportunities that are well secured and well underwritten with desirable returns on investment capital. Our services include private equity finance, hard money loans, bridge loans, fix and flip loans, cash-out financing, quick close loans and second mortgages on single family real estate, multifamily real estate, commercial real estate, light industrial, cannabis and land properties in California with an emphasis in hard money loans and private hard money lending in Orange County, Los Angeles, San Diego, San Jose, San Francisco, and the surrounding bay area.
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