Home prices in Greater Los Angeles continued to reach into the stratosphere this spring, even as Angelenos' earning power has actually decreased over the last several years.
The juxtaposition of impossible housing costs and modest income has contributed to the explosion of homelessness on Southern California streets. The latest Zillow “Real Estate Market Report” from the real estate listings site indicates that we've reached the top of the mountain. “Home values in L.A. are currently at peak,” Zillow spokeswoman Jordyn Lee said via email.
That summit is a median price in Los Angeles and Orange counties of $604,400. Remember when that metric hit a half-million dollars and it seemed that home prices could get no higher? Prices have increased 6 percent in the Greater L.A. market over the last year, according to the site. The national median is $198,000.
Los Angeles' last major peak, in 2006, happened earlier than in other markets, and we bounced back later, according to Zillow chief economist Svenja Gudell.
“Like the U.S. market as a whole, L.A. home values traveled a long road to get back to peak levels,” Gudell said via email. “It actually took longer for L.A. median home values to regain peak value. The U.S. market peaked previously in April 2007, and exceeded those peaks in March, a span of 119 months. L.A. home values previously peaked in July 2006, earlier than the U.S., and exceeded those peaks in April — 130 months later. The housing recession in L.A. was deeper than in the U.S. as a whole, but the recovery was much stronger.”
The Great Recession officially spanned 2007 to 2009 but, as we all know, its effects reverberated for far longer. Zillow estimates that the U.S. housing market went from peak to recovery from 2007 to 2011. During that time housing values declined 22.9 percent in the United States. For L.A., that figure was a whopping 36 percent, according to the site. “But from the bottom of the market to now, L.A. home values have risen 56.4 percent, compared to 30.6 percent for the U.S. overall,” Gudell said.
The increase has meant that Angelenos are more unlikely to be able to afford a home here today than residents of other U.S. cities, according to the analyst. From 1985 to 2000 the average L.A. home buyer could secure the keys to a new place with a little more than one-third (35 percent) of his income, Gudell says. Today it would take 43 percent. In the nation as a whole, it takes only about 16 percent. “As home values and mortgage interest rates keep rising, this affordability problem in the L.A. area will only get worse,” she said.
Perhaps the only good news here is that, in reaching the top of the mountain, home prices appear to finally be cooling off.
“Annual home value growth in L.A. has already begun to cool off, even as national home value growth has accelerated,” Gudell said. “The pace of home value appreciation in L.A. is down considerably from highs north of 15 percent annually in 2013 and 2014, and is expected to keep slowing through April 2018.”