History of San Fernando Valley Housing Prices 1959-2015

The San Fernando Valley is a suburb of the northern region of Los Angeles. Geographically the SFV is surrounded by mountains and has a finite quantity of buildable land. The property values have had a history of appreciating substantially for several years, followed by a period of stabilization, or in two cases, eras of value depreciation.

The 1950s through the 1981 had steady appreciation as the San Fernando Valley region had a strong economic base, good school system, and great weather.

1980 through 1985 there were very high mortgage interest rates (over 18% for 30 year fixed in 1981). High inflation rates and the utilization of adjustable rate mortgages helped keep the property values stable.

1985-1990 saw mortgage rates come down to the 10% range, a strong local economy and real estate appreciation was very strong.

1991-1997 saw a major national recession, with the epicenter of the economic problems located in the San Fernando Valley. The aerospace/aviation industry was an economic force in the SFV going back to World War II. Lockheed as a primary and sub contractor to commercial airlines, military, and NASA, was a high wage local employer. Starting in the late 1980’s aerospace companies started relocating to other states. Right when there appeared to be a stabilization of the economic environment and housing market, the 1994 Northridge Earthquake rattled the weak property holders. This pushed many over encumbered, or laid-off property owners into a foreclosed or short sale position.

Starting in 1997 SFV property values were off to the races for the next decade. Loose loan underwriting conditions added fire to the hot real estate market till the mortgage market blew up in 2007.

Getting a mortgage went from too easy, to near impossible in 2008. Property values would drop over 40% the next few years. The Federal Reserve would drop their Fed Fund Rate to 0%, and implement Quantitative Easing. The gov’t agency would buy billions of dollars of mortgage backed securities and gov’t bonds forcing mortgage rates to historic lows. The federal and local governments implemented legislation to slow foreclosures, but it would only lengthen the duration of the housing depression.

San Fernando Valley property values stabilized in 2011-2012. Foreclosed properties were in high demand and bought in bulk by foreign investors and Wall Street hedge funds directly from banks and government agencies, before they would hit the market. Inventory of properties for sale to the general population was tight. 20+ offers to purchase properties were not unusual. Bidding wars would continue to force values upward. Unfortunately in many cases, the general population wasn’t able to realize the opportunity of buying real estate at the depressed prices at low interest rates, as they couldn’t compete with all cash investors.

Even with a dropping affordability level because of higher property values, and stagnant incomes, tight inventory levels keeps the supply and demand equation out of balance. Local construction levels are far from what’s required to house the growing population. Rents are at unaffordable levels for a high percentage of the population. Rent control only maintains rents for a handful at below market levels. Multi-generational housing is common. Purchasing a personal residence has become an insurance policy against rising rents. Multi unit residential properties have low capitalization rates, and have been good investments.

Moving forward into 2016 finds the general housing market in the San Fernando Valley solid. The interest rates are still at historic lows. The Federal Reserve has in place an upward bias on the Fed Funds Rate. Increasing interest rates are a double edged sword. If rates go up, it motivates procrastinating buyers to make a move. The downside is qualifying for a loan is more difficult because of tighter underwriting standards, and stagnant incomes.

Inventory is still low, and foreign investors see the United States and Los Angeles real estate as a viable option to park their cash, while their native counties have economic issues.

The annual rate of appreciation should be around 5-6%, substantially lower than the 20+% a few years ago, but still solid.