The Real Story Behind the Los Angeles County 6.6% Median Price Increase

[lamoneyguy]

The 6.6% median increase in Los Angeles county masks the disturbing reality of which communities are accounting for almost all of the gains. Sorry to post a link, but instead of pasting the whole thing:

The Real Story Behind the Los Angeles County 6.6% Median Price Increase

[PD]

There could be another explaination for why the lower income neighborhoods have been appreciating. It could well be that more homes are being bought there for investment because they are cheaper than everything else or it could be that many people are priced out of their first choice neighborhoods and are making do in less desirable areas.

[socalarm]

i agree. that’s what we did just on the cusp of the vertical climb. most of our neighbors had also bought their properties 20 years ago because they’d been priced out of the ‘gentrified’ areas.
i don’t know about smaller cities in california, but people in LA are still pretty open to living in less desirable areas. places like silverlake, echo park and mt. washington emerged from such emigrations out of the westside. they were and still are pretty edgy but people will not blink before considering an expensive home next to a crackhouse.
i think there are still too many overpriced rentals on the westside, and the P/E ratios are not as crazy as in smaller places like san diego.
not to doubt that there will be a slide here, just that it will probably take longer to reach the metro…

[powayseller]

Didn’t this happen in SD too? The lower priced areas saw higher rates of appreciation than the more expensive areas. I thought this happened everywhere.

This example shows why the median is misleading; in that case, some zip codes were appreciating, while others fell.

[sdrealtor]

The lower priced areas saw higher appreciation rates because housing prices increase in dollars not percentages. Thus when everything went up by 200K, the 400K homes increased by 50% while the 800K homes only increased by 25%. In reality both enjoyed the same $200K bump. Likewise prices will fall the same way.

[lamoneyguy]

sdrealtor, I disagree. Look again at the numbers, it clearly shows two things. 1) prices ROSE in low income communities on mostly strong to stable number of sales, 2) prices FELL in high income communities on severely declining number of sales.

If your theory were true the sales numbers would not differ so dramatically, and they would be moving in the same direction. But they’re not. It is clear that sales activity remains strong in low income areas, while it has fallen off a cliff in high income areas. This could mean money coming in from outside the communities either for investment purposes or from people “moving down” as PD and Socalarm suggested.

I don’t think I fully buy those theories either. I think we are seeing the bottom of a pyramid scheme. The least educated with the least resources unfortunately gets suckered in at the end of the party.

[powayseller]

I think higher appreciation in the cheaper areas is due to them being the last affordable place. More first time buyers hurried over to the under $500K neighborhoods, until finally they were priced out there as well. There was just more demand in National City and Clairemont and El Cajon in the last 2 years, than any time before. It was the last place left for an entry level buyer to get a home. This high demand pushed up prices. Won’t these areas fall first? The reversal – kind of like taking numbers off a stack (in programming).

The dollar/percentage explanation doesn’t make sense. Prices move by demand/supply.

[socalarm]

flogging a dead horse here, but i think rent is really crucial above all other parameters. speaking from my peer – 30 something service professionals working in LA, household income 110k+ – if you can rent a decent 2-3bed place for under $2500, most people would stop considering a purchase. until that happens, there will be enough serious people considering real estate. i know a lot of people who didn’t buy in this market but will take the plunge very soon. it’s still a herd mentality in either direction. the moment they see their friends purchase they will assume the market has bottomed out.
i don’t think it’s the price as much as the idea of the price. “am i buying at a good time?”
the flippers and the starters are obviously going to get burnt. most of the blue collar segment was chased out by the bubble here. the people who bought these homes are likely to have more stable income and reasons to stay. until rents dive in those areas i don’t see a total bloodbath (don’t kill me i’m just assuming from first hand experience and can be wrong)…

[socalarm]

http://losangeles.craigslist.org/wst/apa/193945337.html

i saw this by coincidence in a blog the minute after i posted this

[bob007]

11k per month for rent ?

try some hollywood personality

[VCJIM]

LAmoneyguy,

Those are fascinating statistics! Speaking as someone that has lived in LA for 30ish years, I know nearly all of these areas quite well.

Here are a few of my initial thoughts:

-I agree that some of these homes are being purchased by “less eduated” people that *perhaps* do not qualify for the loans. They may have heard of the housing boom and just want to get in before it’s too late.
-The downtown area has seen quite a resurgence since 2000, with Staples Center, new restaurants, the subway, etc. The entire area has radically improved. It is possible that people working in these areas are chosing to buy and live nearby. If I worked downtown, I would consider purchasing a house nearby.
-I sincerely doubt that people from outside of the less desirable areas are purchasing inside “just to get in”. You really don’t want to live near downtown if you’re working in the valley, no matter how cheap it is.

Great post, thank you!

[Author]

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