Multifamily

L.A.’s Single-Family and Multifamily Markets are Unstoppable

The single-family rental market remains king in L.A.

The California housing market was hit hard by the pandemic, which halted the market for a while, but it didn’t take long for a housing rebound to get underway.

Home prices and sales in the Southern California housing market began to accelerate in June 2020, and Los Angeles matches the trend.

In the middle of a national housing shortage, the Los Angeles metropolitan real estate housing market is behaving differently than many markets, thanks to a high amount of new multifamily units coming onto the market. While many other markets have seen a sharp pivot from multifamily to single-family rentals, L.A.’s multifamily starts are holding strong.

In other areas, L.A.’s 2020 real estate market stats mirrored those of large metro areas like Atlanta, Chicago, and  Philadelphia. In 2020, L.A. experienced:

• A median list price of homes of $950K, up 11.9% year-over-year.
• A year-over-year increase of 31.6% in single-family home sales in the Los Angeles metro housing market. The increase specifically in L.A. county was 30.5% year over year.
• Extremely tight housing inventory, with a supply of just 1.4 months in the LA metro area.

Even though the multifamily market is booming, the best investment opportunities for most investors in the L.A. metro area are single-family rentals due to declining homeownership rates, apartment occupancy rates, and multi-family apartment rental prices.

Multifamily investors saw tighter cash flow for properties in 2020, as median rent for one-bedroom apartments in L.A. declined 15.6% to $1,900, while the median rent for two-bedroom apartments has dropped 11.3% to $2,600 in the same timeframe, according to the latest report from Zumper.

Yet L.A. County’s homeownership rate has also decreased. Currently, the homeownership rate in L.A. County is 45.3%, lower than the national average of 63.9%.

It’s not uncommon for L.A. County’s homeownership rate is so low. Historically, it has been lower than the state average, which was 55.6% in Q4 2020. Renting is a convenience in L.A. County because most of the area is urbanized, and it has created a smaller share of homeowners in the area.

As a result, nearly 1/3 of Los Angeles residents with incomes over $100,000 rent instead of own. By 2017, LA had more than 450,000 high-income renters – a number that jumped 30 percent in just 10 years – according to a report from Apartment List.

As lockdowns and quarantine began in 2020, the nation saw a mass exodus of people leaving more urban areas and flocking toward suburban areas, creating a boom of single-family rental properties.

The single-family rental market was bolstered by a nationwide housing shortage and historically low interest rates, which drove up single-home property values and created a significant seller’s market. Lima One’s analysis shows that the SFR industry remained recession-proof through the pandemic, just as it did during the Great Recession of 2008.

While the L.A. SFR market was hot, multi-family construction actually passed single-family residential construction starts in 2020. L.A. County finished 2020 with 18,400 multi-family starts and 8,000 single-family starts. This is a trend to watch, however, because multifamily starts began declining in late 2020, matching national trends.

Real estate experts expect investors to find opportunities in L.A. and the surrounding counties. California continues to be a core investment market. Nationally, builders are poised to begin more housing starts, depending on what happens with the home building materials shortage.

Experts predict that the Los Angeles multi-family rental market should hit its recovery by the end of 20201 and into 2022, with apartment rents and occupancy levels returning to pre-pandemic levels by the end of the year.

While inventory might be harder to find, real estate investors with strong strategies can still profit. So it’s more important than ever to have a real estate team that helps you close properties quickly and certainly, and run your construction or rehab projects smoothly. That’s what Lima One Capital provides investors in Los Angeles, Southern California, and around the country. Get started today and let Lima One supercharge your investment success.