The end of 2022 saw the real estate residential home values in the San Fernando Valley (Los Angeles) reflect an aggregate average sales price of $840,000, 4% lower than the end of 2021. That doesn’t give the full story of the year though.
In May 2022 the price hit $950,000. The closing prices in May reflected the sales and escrows being opened in March. The Federal Reserve started its rate increases and finished their Quantitative Easing in March. Thus the drop in values and quantity of sales transactions directly correlates to when the Fed took away the cheap interest rates. Over that 9 month period the values dropped around 11%.
Inventory is still historically low, and homeowners that purchased or refinanced while the rates were 3%ish aren’t motivated to sell and purchase again with a rate twice as high as their previous mortgage. Affordability will be an issue while rates stay high, but the lack of inventory will support prices. The 11% value that was lost was the fluff in the sales prices when the low rate multiple offers over-bidding pushed the prices beyond the basic housing commodity values.
The numeric chart shows the pricing in dollars going back to 1959.
The Linear View chart shows graphically the numeric values with each plot point based on the actual dollar of value.
The Logarithmic View chart is a better illustration of the historic changes in value. Each plot point is derived by the actual “percentage” change of value, relative to the previous year.
Long-duration property value appreciation has been typical for the region. Many prognosticators say the property values are not sustainable. Ultimately it’s all about supply and demand.
Let’s review a little history that correlates with the chart’s value fluctuations…
In the early 1980s there was a Savings and Loans Crisis. That was the first major banking crisis since the 1920’s Depression. 1/3 of the S&Ls failed as the government deregulation tried to financially prop up the Thrifts during the slow growth ’70s, and the S&Ls got into excessive lending in areas they weren’t skilled at (commercial property and construction loans), while they weren’t well-capitalized. Mortgage lending became very tight, and over construction of new properties weighed on property values. San Fernando Valley property values didn’t drop as much as they were stagnant for several years.
Because of local regulatory and tax elements, starting in the late 1980s the regionally strong aerospace manufacturing complex started moving away from the region/state. The San Fernando Valley was essentially the epicenter of the national recession in the early 1990s. Right when the local economy was starting to stabilize, the Northridge earthquake hit in 1994. Because of the recession, property values had dropped, and the property owners that were already upside down on their property values extenuated the foreclosure issues.
Throughout the early 2000’s mortgage underwriting and credit requirements were too easy. It hit a wall in 2007, when over-leveraged borrowers and lenders, and the secondary mortgage market meltdown brought on the “Great Recession”. The pendulum swung the other direction and mortgage money was more difficult to get. Foreclosures and short sales filtered through the system for the next six years.
The US is about 5 million houses underbuilt. The lending regulations and loan underwriting has been tight, and banks are historically high in reserves. The Covid low rate feeding frenzy led to a decade’s worth of appreciation in a couple of years. Millennials are entering the peak homebuying age so demand will remain elevated for decades. Now the gov’t is trying to push for more “affordable” housing development, but anti-development attitudes CEQA, permit costs, time to develop, skilled labor shortage, etc. makes it very tough to build.
If you are in the Los Angeles area, and have any questions or real estate sales or financing needs, feel free in contacting me
Ron Henderson GRI, SRES, SFR, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
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