Los Angeles World Class City – Ranked #1 for Investment - #1 for Tourism - #1 Period

 

Why Has Los Angeles Finally Emerged as the World's Most Important City

It isn’t clear why it has taken so long for Los Angeles to be seen as the crown jewel of the world’s cities. LA isn’t exactly shy. Most of the elites of the world come here to play, if not to live. Why have cities like London, Paris, NY, Hong Kong or Bejing grabbed all the attention. 

Could it be that Los Angeles is “newish,” on the world stage? Might it be that with the LA image dominated by the movie and leisure industries, it was hard to take the region seriously? Possibly the urban sprawl kept LA from having a skyline or a true downtown.

What might easier to figure out is why LA has emerged in the last decade to grab the crown. What has happened to this massive urban complex that reaches from Westlake and Simi to San Juan Capistrano and from Santa Monica to Riverside over the past 10 years is revolutionary. We aren’t alone. Dallas/Ft Worth, Houston, Nashville, Charlotte, Atlanta, and Miami are undergoing similar transformations, but LA had a huge head start and the story is just plain bigger in every dimension.

They Come to Play

Southern California has always had the rest of planet earth lapped when it comes to ways to play, and there can be no doubt that this magnate is still affecting the massive influx of business and people into the area. While the population may not be growing as fast as some cities or urban megaplexes, the issue is about space to build, cost of living, and regulations inhibiting residential construction.

What is happening is that the population influx consists of middle class and upper middle class workers in media and hi tech. The outmigration is in workers with lower paid skills fleeing to less expensive Texas and Phoenix.

It might seem obvious and boring to list them, but truly no other city has the combination of natural playgrounds like outstanding ocean beaches, mountains, forests, and deserts, combined with man-made lakes, parks, and trails for walking, running, biking, and offroading. When combined with 300 days of sunshine and temperatures averaging 70 pretty much year-round with low humidity, the play factor is unparalleled.

What has changed in the last decade about play? The facilities just keep getting better. The ocean is cleaner. Smog is basically a non-issue.

They Come to Visit

Statistics are a funny thing. Los Angeles doesn’t make the top of any lists on total tourists visiting the area. But something seems wrong with that. Anyone who has lived in SoCal for more than a few years will have noticed that the freeways are no longer empty in summer. Twenty years ago commuters looked forward to a steady thinning of the traffic starting around April and not picking back up until school started. Not anymore!

Now the freeways are packed in Summer, and not just during rush hours. It took a little digging to figure out how LA could have fewer tourists than London or Paris, but as it turns out, the race isn’t even close. Southern California sees far more tourists than any other area in the world.

The statistical issue was primarily due to Anaheim. If you look at nights stayed in Los Angeles (the city), LA is not #1 for tourists. But if you look at the region, the LA area wins, hands down. If you use other measures than nights stayed, even the city of LA will take the prize. Most who come to the region and stay in accommodations outside the city in Santa Monica, Long Beach, Anaheim, or Pasadena, visit many of the attractions in the City of Los Angeles.

They Come to Learn

A recent Schroders Global City Index 30 ranks LA as the best city in the world for investment. LA has ranked high in the past, but Schroders decided to make a minor change in the way they evaluated cities. They added educational facilities. It has become obvious that world class cities need world class universities to feed the hi tech work force in modern urban centers.

No city in the world can claim to providing a better University system than Los Angeles. With over 70 colleges and universities, and a similar number of smaller schools and local junior colleges, the availability for business to tap into these resources is immense.

They Come to Earn

A huge shift of the last decade has been the recognition by the tech companies of their need for entertainment content. The combination of this need and the need for college educated workers has turned the LA basin into a destination for major internet companies. In particular the Silicon Beach area between Santa Monica and Manhattan Beach, and 10 fwy and Wilshire Blvd corridors between Silicon Beach and Downtown LA (DTLA) have seen huge influxes of major headquarters and facilities including Google, Microsoft, YouTube, Facebook, Snapchat, and many others.

With these have come thousands of startups to service these larger companies and their employees. The entire region has enjoyed (or not) a gentrification of old neighborhoods like Santa Monica, DTLA, Venice, and Mar Vista, into resplendent hip neighborhoods. DTLA is unrecognizable. Twenty years ago it was shabby and unwalkable. Now most of the neighborhoods in the central city are revitalized and safe to walk, even at night.

They Come to Mature

While LA has been recognized for decades as the place where new culture starts, many would also say that it was the headquarters of the vast cultural wasteland. Unsurprisingly for a city of this size, LA has had excellent museums, theater venues, and other evidences of culture. But no one would have compared Los Angeles to NY or Paris on the culture scale.

What a difference a decade or so makes. Starting with the museums, just the massive Getty undertaking alone moved LA into the running for cultural capital of the world. More recently the arts district in DTLA has added one amazing museum after another, topped by the Broad and MOCA’s Geffen, the story gets way interesting. Now add in the massive upgrades and additions to LACMA and the complete renovation of the Huntington Library. Finally, there are 100’s of smaller museums including the Getty Villa, The Pasadena Museum of California Art, and the Fowler. Almost every small city has a museum dealing with the local culture.

Then there is music. There should be no surprise that the city would venerate music, but because the city is so huge, there has never been a concentration of music venues. Even today it can be hard to search the web and find the offerings of chamber music, symphony, opera, light opera, and classical jazz that are being played all over the city. Their marketing could use some help. But the reality is that there is music everywhere if you can find it. And nowhere else can you find the number of venues offering the up and coming singers and bands. If many new talents head to Nashville or New Orleans, many more are already here or come here.

Whatever your taste in music, it is playing in LA if you take the time to track it down.

They Come to Watch

LA has always been a great sports town with UCLA basketball, USC football, and Dodgers baseball all iconic symbols of their sports. But with a new football stadium and possibly a new hockey stadium coming to Inglewood, SoCal may be able to lay claim to being the sports capital of the world.

The stadiums alone will speak to that positioning. The Rose Bowl, The Coliseum, Dodger Stadium in Chaves Ravine, The Forum, The Staples Center, and the new Ram’s stadium, not to mention Stub Hub Stadium, the Honda Center, and Angels Stadium would clearly make the Southland the metro area with the most major stadiums in the world.

With two Major League teams in baseball, basketball, football, and hockey, LA ties NYC for the most franchises, but when you add USC and UCLA as there is no doubt that Los Angeles gets the overall crown. Soccer? LA will have two teams as of 2018.

They Come to Complain

So what would keep LA from the top slot of cities anywhere on earth? The traffic? Have you tried to drive in NYC or London? The prices? LA is still cheaper than any of the other world class cities. The Crime? It is a little known fact, but current crime levels in Los Angeles are similar to the 1950’s.

The biggest issue – there are just too many people. This reminds one of the Yogi Berra quip – “No one goes there nowadays, it’s too crowded.”

Investment Opportunities

As noted above, LA is ranked as the number one city in the world for investment. If you are considering buying a home, condo, duplex, small apartment building, or any other type of residential real estate in theLos Angeles area, you will need an experienced and knowledgeable realtor to help you find the perfect property, then help you with negotiations and all the paper work.

Belle Tsai is the perfect choice. She has been actively dealing with West Los Angeles real estate issues for her entire adult life. Call Belle today at 310.738,7118

Belle Tsai - Sotheby's International Realty
15308 Sunset Blvd.
Pacific Palisades CA. 90272
310.738.7118
CalBRE# 01841341
SIR CalBRE# 899496

Los Angeles Real Estate Prices Are Nowhere Near Topped Out – Proof!

 

Los Angeles 1986 - 2016

 Home Prices in LA County Likely to Rise Another 40% Over Next Four Years

I apologize in advance. We are going to go into the tall weeds for this post. Evaluating the direction of any market is difficult, whether Tesla stock, Apple bonds, coffee beans, or Bitcoins. It is easy to get burned even if you’ve done your homework.

Housing is at least as complex as any market you might think to invest in. Most homes are purchased for the purpose of setting up a household for years into the future. In fact, the length of time that homeowners remain in a home is one huge factor in reducing current market supply, thereby driving up prices. We will speak primarily to the the owner-occupier in this post, but the information will apply equally to investment purchases.

Where to start? Let’s begin with history. The Los Angeles residential real estate market is famous for wild swings. Everyone whose has lived here for more than a couple of decades will tell stories of the house they should have purchased (e.g. Venice in 2001.)

However, regardless of the swings, the LA market has moved ever upward. Each correction is followed by a new top. Of course, each top is followed by a selloff of 30% or even more.

First observation: We are not at a new top. We are just now reaching parity with 2007 in nominal terms. When adjusted for inflation we are still 12.4% below 2007. No one knows how far above the old top we will go, but 30% would not be unheard of. Thus, we might have more than 40% to go before reaching the top.

How is the Spring 2017 market doing? Generally, other than an economic crisis, there will be some evidence of topping as homes take longer to sell, or sellers start dropping their price. As of this writing, the average days on market in LA County is 40 days. It is common in flat markets for homes to average 90 days or longer to sell. Continued shortages of quality properties for sale or rent in Spring of 2017 suggest a continuation of the strong market.

Moreover, due to permitting difficulties and a lack of places to build, it is unlikely that even bullish builders can flood the market within the next 30 months.

Second observation: The lack of supply is going to continue, and will drive up prices and rents for at least another 3-4 years.

What about affordability? We’ve all read the headlines that LA residents can’t afford these rents and/or purchase prices. Read a bit further and you’ll find out that LA is undergoing a massive demographic shift. Those who can’t afford the prices are moving out. Those who can are moving here from colder and less interesting places.

LA is now a World Class City like London, NYC, or San Francisco. The tech folks are moving in to LA, because the nerds are just like everyone else. They love sun, beaches, snow boarding, and night life. The gentrification of DTLA is absolutely stunning in the transformation and the pace of change. With two incomes in the six-figure range, you can afford a lot of house. So the incomes of the folks who live here don’t need to go up. The incomes of those moving in need to be high enough to afford the housing.

Third observation: Affordability has not been tested yet. The stats don’t tell the entire story.

The wealth effect. We are currently undergoing by far the largest transfer of wealth in human history. Baby boomers are inheriting from their parents, and many are already “helping” their kids and grandkids just like earlier generations. If grandma makes a big enough down payment, the monthly payments are more affordable. Expect this factor to only get bigger and bigger over the next decade.

Another huge wealth effect is the amount of equity currently in homes. After the meltdown of 2008, the equity has shot up with many homeowners owning their properties outright. When it is time to move, these folks have all cash or a very large down payment. Once again, the affordability isn’t in question based on income.

Fourth observation: If you have enough wealth, you don’t need a lot of income to afford a home. If you have wealth and income, you can afford a lot of home.

In addition to an influx of US citizens from Seattle, San Francisco, Silicon Valley, and other tech hot spots, Los Angeles is a draw for those seeking to immigrate into the US. If you pay close attention while walking down the local mall, it doesn’t take a rocket scientist to see that the ethnic makeup of Los Angeles is heavily made up of recent arrivals.

Some of these folks are coming for school. Others because they have employment offers or want to establish a business here. Some are merely attempting to offshore some of their wealth. Foreign buyers have represented a large part of the purchases over the current boom.

Fifth observation: There is no expectation that the lure of LA will be over any time soon. We are a land of immigrants.

A consistently accurate way to measure housing prices is to take a look at the housing price compared to the rental income that home could provide. This makes great sense as residential real estate investors will move out of the market place if this ratio doesn’t make sense. Moreover, the “crowd” seems to sense when it makes more sense to rent or more sense to buy on a purely economic basis.

The LA market tends to fluctuate between 15 and 24 on this formula. If the rent is $5000 a month, that would be $60,000 a year. If you multiply that by 15, that home is worth $900,000. If you multiply by 24, the home is worth $1,440,000. The current price to income ratio in LA is 17.1 according to Zillow. Once again, this suggest that we are far from overpriced.

Obviously, one can make the argument that both rents and prices are too high, and LA is experiencing a bit of a building boom in apartments right now. However, no pundit I’ve read seems to think this boomlet in apartments will solve the shortage.

Sixth observation: Landlords are still able to get higher rents, and that is currently keeping the ratio quite acceptable. If rents stagnate, then it could be evidence of a top.

Less closely tied to the value of residential property, but still a factor, commercial, industrial, and raw land do impact overall real estate values. If homes and apartments are hard to find right now, these three categories are almost non-existent in LA County. This means builders have no place to build. The one exception is retail, but because office and commercial is so tight, retail properties that come on the market are often converted to employee or warehouse space.

No one who knows LA has any doubt that there is little land that hasn’t been built on. The ocean and the mountains have set the limits, and like other similar cities, this land limitation will also drive up prices. OC’s prices are already higher than LA, and the Inland Empire is where folks are heading who can’t afford LA.

Seventh Observation: Alternative ways to increase supply are not viable. If supply doesn’t increase, and demand remains steady or goes up, prices must follow.

Mortgage interest rates continue to sit close to historic lows. Someday they are likely to go up to historic averages around 5.5% - 6%. There is no doubt that this will put downward pressure on prices as the cost of the mortgage will affect affordability. If this increase is slow enough, the impact may not be substantial. A 1% increase on a $1,000,000 home with 20% down adds about $650 per month to the cost. This would suggest that prices might have to drop 10% to offset the interest.

Our earlier assessment was the prices will go up another 40%. If interest rates go up by 1 or 2%, this might result in prices only going up 20% or 30%. Historically, at some point, there will be a 30% correction.

Eighth observation: Interest rates on mortgages will probably go up, and this will affect sales prices.

Buying high seems like such a bad idea, but if you are buying for the long term, even if you might move to another home in the future, your initial purchase price will have little to do with your long term economic benefit.

Huh?! I don’t blame you. It took me a while to get my arms around this one. As long as you stay in a purchased home, you will not “realize” a profit or loss. Say you buy a home for $500,000, and it drops in price to $350,000, but you don’t sell. Later the home goes up to $480,000 and you sell. You lost money, but you now take your stake (down payment), and you are investing in the next home in the same market condition of the one you’re selling. Somewhat depressed. So you sell at a bargain rate and also buy at a bargain rate.

In the opposite situation, you might sell for $700,000, but all the homes you hope to buy have also gone up 40%. You sell at a high price, but you have to buy at a high price. The only time any of this matters is when you sell the last time and leave the market.

Ninth observation: If you plan to own a home or a string of homes over the next 10 – 50 years, don’t worry too much about where the market is today.

What about the economy? We are part of the strangest economy in the last 70 years or longer. We have very slow growth, but it has been protracted over the past 7+ years. While this created long term problems for many workers who were unemployed or underemployed, we seem to have now reached some kind of stable growth, with low inflation, and employment at good numbers.

Since we have not seen wage growth even at “full” employment, one has to suspect that many in the workforce are still substantially underemployed in both their position and hours. If the economy continues this anemic growth rate, those with good jobs and decent income and wealth may continue to love the economy (see the stock market.) However, this would not be good for those who are still underemployed or who have given up.

On the other hand, if the economy starts to grow at 3%, there should be better jobs and hours, creating a demand push on wages. This will help many to afford more rents and higher home prices. Either way, the economy looks to be our friend for the next several years when it comes to demand for housing.

Tenth observation: Crazy things happen (1999, 2008), so the economy could always spin downward. Right now that seems to be the least likely of scenarios.

Summary: If you are thinking of buying a house, whether it is your first or your 10^th, the primary motivation for moving now is the interest rates. Buy before they go up!! As noted in the 9^th observation, it won’t matter in the long term if you overpay. But as noted in the first eight observations, there is little likelihood that home prices are going down any time soon.

As noted above the market for homes is extremely tight with very little supply of better homes in the better neighborhoods. That’s why you should call Belle Tsai to help you find the perfect home for your needs. Belle has been active in the West Los Angeles real estate market for almost 30 years, and more recently has also found good options in Mid-Wilshire and along the 10 Fwy. Call her today at 310,738.7118