We’ve created this real estate market overview for anyone thinking about buying their first home in Los Angeles in 2017 or 2018. Here are five things you need to know about the current state of the local real estate market, as it pertains to you as a home buyer.
1. Inventory remains tight in the Los Angeles real estate market.
First-time buyers in Los Angeles should know that housing inventory is limited right now, as of summer and fall 2017. There just aren’t enough homes listed for sale to satisfy the current level of demand from buyers. This is true across the entire country, to some extent. Lack of inventory was one of the big housing stories of the last year.
A healthy, balanced real estate market has about 5 to 6 months worth of supply, according to economists. But in July, Los Angeles had roughly a 2.5-month supply of homes for sale. That was slightly below the national average for that same month, which was also below normal.
What does this mean for those who are buying their first home in Los Angeles? Among other things, it means you should expect competition from other buyers. It also underscores the importance of making a strong offer backed by recent sales data, as well as being pre-approved by a lender.
2. Home prices are higher now than last year, and still rising.
According to a September 2017 report from CoreLogic, the median home price in Los Angeles County rose to $575,000 in July of this year. That was an increase of 8.1% from the same month a year before. Home buyers who are buying their first house in Los Angeles in 2017 or 2018 will encounter higher housing costs than those who purchased in recent years.
With that being said, house price appreciation appears to be slowing down a bit in the Los Angeles metro area – and across the state of California as a whole. This mirrors national trends. Housing markets across the country are expected to appreciate more slowly in 2018 than they did over the last couple of years.
For example, the economists at Zillow predicted that home prices in the city of Los Angeles would rise by 1.8% over the next 12 months (through September 2018). Compare that to the 7% to 8% gain recorded over the previous 12 months, and you can see that the experts expect a cooling trend.
Home prices have been rising faster than household income over the last few years, so it’s only natural that we would see a “market correction” and a slowdown in price growth.
3. Buying your first home in Los Angeles might beat renting.
House values in Los Angeles and across California have risen steadily over the last couple of years. Despite this trend, buying a first home is still better than renting in many situations. In fact, a recent report from the Los Angeles Times suggests that renters could have it worse.
The Times cited data from Harvard University’s Joint Center for Housing Studies, which showed that more than half of renters in California are spending more than 30% of their income on monthly housing costs. A much smaller percentage of homeowners were spending that much.
So a strong case could be made for buying your first home versus renting. Especially when you consider the fact that you can protect yourself from rising housing costs with a fixed-rate mortgage loan. Rents, on the other hand, tend to rise steadily over time.
4. Mortgage rates recently sank to their lowest point of the year.
On the mortgage front, we have some good news for those buying their first home in Los Angeles in 2017. According to the weekly market survey conducted by Freddie Mac, mortgage rates recently dipped to their lowest level of 2017.
On September 7, 2017, Freddie Mac reported that the average rate for a 30-year fixed home loan sank to 3.78%. That’s the lowest it has been all year. In fact, you would have to go all the way back to November 2016 to find lower rates.
So, from a mortgage financing perspective, now could be a great time to buy your first home in Los Angeles.
5. You have more loan options than you realize.
The mortgage industry has opened up a bit over the last couple of years, and this is a boon for first-time home buyers in Los Angeles and statewide.
For example, Fannie Mae (one of the two government-sponsored enterprises that purchase mortgage loans from lenders) recently increased its debt-to-income ratio limit from 45% to 50%. This change could make it easier for some borrowers to qualify for mortgage financing, particularly those who carry debt from student loans or other sources. That’s just one example of how mortgage qualification standards have eased over the last couple of years.
A common misconception is that first-time home buyers in Los Angeles need a down payment of 20% or more to my house. The reality is that a lot of mortgage programs allow for a relatively low down payment, as low as 3% to 3.5% in some cases. Additionally, military members and veterans can qualify for VA mortgage financing that eliminates the need for a down payment altogether.
The point is, a mortgage loan might be more within reach than you realize. And that’s where we come in!