NELA’s Hot Christmas Housing
This article goes beyond the surface diving deeper into what the effects of interest rates are on property values, acquiring real estate to hedge inflation, and lastly expert Los Angeles real estate market insights & predictions in 2022. Contact us to learn more about today’s market.
2022 New Year's Resolution: Stop Renting!
Here’s some news that’s sure to stuff your stocking with a bit of Christmas cheer: Northeast LA’s housing market is booming! Annual appreciation for the median single-family home in NELA This Year
- Highland Park 22.4%
- Eagle Rock 46.2%
- Cypress Park 13.8%
- Montecito Heights 36.5%
- Mt. Washington 9%
- Glassell Park 20.5%
- Atwater Village 19.8%
Data Sources: (Redfin, Zillow, Movoto, Neighborhood Scout, RocketHomes, Realtor, NoradRealEstate, C.A.R)
Southern California home prices soared in November, rising by double digits for the sixteenth straight month as a pandemic-fueled housing boom continues to go strong. The six-county region’s median home price increased 14% from a year earlier to $750,000, according to the data released by the California Association of Realtors. The month’s supply of inventory of single-family homes has decreased to 1.7months. Homes are selling fast. The median days on market is 11, which is 2 days more than a year ago.
This is not just a pandemic story with our star Covid-19 as I consistently share with my past clients and first-time homebuyers. In a 21 year period, Los Angeles single-family homes have appreciated 264.61% at an average annual rate of 6.13%. In Los Angeles County, the median price rose 14.3% to $769,500 in November, while sales increased by 1.8%. (NeighborhoodScout)
What are the Effects of Interest Rates on Property Value?
Interest rates have a profound effect on the value of income-producing real estate. Because their influence on an individual’s ability to purchase residential properties (by increasing or decreasing the cost of mortgage capital) is so profound, many people make the incorrect assumption that the only deciding factor in real estate valuation is the current mortgage. Mortgage rates are only one interest-related factor that influences property values. Because interest rates also affect capital flows, the supply and demand for capital, and investors’ required rates of return on investment, interest rates drive property prices in a variety of ways.
Interest rates can significantly affect the cost of financing and mortgage rates, which affects property-level costs and, therefore, values. However, supply and demand for capital and competing investments have the greatest impact on required rates of return (RRR) and investment values. As the Federal Reserve Board has moved the focus away from monetary policy and more toward managing interest rates as a way to stimulate the economy or stave off inflation, its policy has had a direct effect on the value of all investments.
In the most recent Federal Reserve meeting, a few key points emerged. U.S. central bankers in December will discuss whether to end their bond purchases a few months earlier than had been anticipated, Federal Reserve Chair Jerome Powell said, pointing to a strong economy, stalled workforce growth, and high inflation that is expected to last into mid-2022.
Earlier this month, the Fed began reducing its purchases of Treasuries and mortgage-backed securities from $120 billion per month at a pace that would put it on track to complete the wind-down by mid-2022. The program was introduced in early 2020 to help nurse the economy through the COVID-19 pandemic.
“Since the last meeting, we’ve seen basically elevated inflation pressures, we’ve seen very strong labor market data without any improvement in labor supply, we’ve seen strong spending data too,” the Fed chief told members of the Senate Banking Committee. High inflation, now running at more than twice the Fed’s flexible target of 2% annually but which the central bank has for months characterized as “transitory,” is only expected to ease in the second half of 2022, Powell said.”
Los Angeles Real Estate Market Insights
As a home price rises over time, it lowers the loan-to-value of any mortgage debt, acting as a natural discount. As a result, the equity on the property increases, but your fixed-rate mortgage payments remain the same. Inflation also benefits real estate investors who are earning income from their rental properties, specifically property sectors with short-term lease structures like multi-family properties, because higher home prices often equal higher rent. If you’re able to adjust your rent higher while keeping your mortgage the same, this can create the opportunity for increased money in your pocket.
Finally, real estate can be a good hedge against inflation because property values over time tend to stay on a steady upward curve. Most of the homes that hit rock bottom when the real estate bubble burst in 2008 were back to their pre-crash prices in less than a decade. Real estate investments can also provide potential recurring income for investors and can keep pace or exceed inflation in terms of appreciation.
One way to use real estate to hedge against inflation is to invest in a multi-family property. Unlike some commercial properties like retail shops or restaurants, which usually have multi-year business leases, individual rental units usually renew leases every year. The more units a building has, the more frequently you’re presented with opportunities to adjust the rent.
Expert Real Estate Market Predictions for 2022
Zillow predicts an 11% growth rate for the 2022 housing price forecast! Not everyone agrees with Zillow. Among the leading industry forecasts below you can see that Zillow’s is higher by several points.
- Fannie Mae (which predicts a 7.9% jump)
- Freddie Mac (7%)
- Redfin (3%)
- Realtor.com (2.9%)
- CoreLogic (2.5%)
What if you could build a team that can help you navigate the course of one of the most important financial transactions of your life. From lending to an advisor who can get you through the escrow finish line whether you are selling, buying, or both! Reach out to me anytime to discuss your real estate future, speak with our preferred lender or use me as a soundboard for any questions that you may have. Resolutions are meant to be resolved.