The Heat Wave Is on: SF and LA Heating Up California Property Values
The heat wave continues. Last week, using ZipRealty’s data, we looked at major metro areas showing signs of positive growth. In the Northwest, specifically,Portland and Seattle. the number of homes sold for below asking price has dropped dramatically. And it's down all over the country. Today, we look at this phenomenon and its effect on California.
California stands among the nation's hardest hit states during the recent economic downturn. And despite good news like shrinking unemployment, more building permits issued, and fewer foreclosures filed, the Golden State still struggles. In March of this year, California was 3rd in the nation for foreclosures, with 1 in every 303 mortgages in defaut. In April, though California rose to 2nd highest, the number dropped slightly, to 1 in every 351; and in May, though CA dropped to 4th in the nation, the ration of defaults drifted back up again to 1 in every 324.
Despite the state's troubles, one city, San Francisco, has actually made major recovery, and Sarah Green covered exactly what this means to buyers and sellers there in her recent blog. But we want to pick up the thread on SF again, and weave in this time another major California city, LA. These are two of California's most famous, iconic cities, bustling centers of commerce and innovation on the southern and northern edges of the state. In both, a confluence of low inventory, lower unemployment, increased consumer confidence and smarter selling tactics has worked its magic for home sellers: more and more are getting what they ask for their homes-- and many are getting above asking.
© ZipReatly, Inc
What explains such a tremendous dip in below asking transactions? We have a few ideas. The San Francisco metro’s unemployment, according to the Bureau of Labor Statistics, fell to 8.4% this May, down a full 1.2% from May of 2012. And indeed, the Bay Area has made news many times over for the success of its tech industry (such as Facebook, Twitter, Yelp, AirBnB, and Zynga), a phenomenon credited with bringing high paying jobs and high real estate values to the metro area-- particularly San Francisco proper, as detailed in Sarah Green’s recent article. So, though the data on unemployment include Oakland and Fremont as well, we can be fairly certain that San Francisco enjoys relatively robust employment, right along with its (very!) healthy home prices.
Inventory too plays a part in this scenario. In the city of San Francisco, available homes for sale dropped more than 40% year-over-year this May. That’s particularly significant in a small city like San Francisco, where supply almost never meets demand.
Down the coast in LA, things looking better for home sellers as well. We look here at both the San Fernando and San Gabriel valleys and note that Los Angeles as a whole is selling more homes at or above asking.
- San Fernando Valley/Los Angeles, CA
© ZipReatly, Inc
- San Gabriel Valley
© ZipReatly, Inc
Both areas chart like a mountain range, but the important part for this blog is the steep, and continuous descent in both cases. Let's explore: During our most recent economic malaise, LA has suffered from high unemployment figures, reaching into the double-digits. But according to the Los Angeles Times, the situation improved this year, with job growth leading to a decline in the metro’s unemployment rate, down in May 2012 to 10.9%. While still high, the fact that this figure is shrinking (and has been for several months running) contributes to both consumer confidence and consumer buying power.
Meanwhile, LA’s inventory for home buyers—much like San Francisco’s-- was down over 40% this May, year-over-year. Again, with less homes and more buyers, sellers can hope they’ll get closer to, if not more than, they ask when they list their homes. We assume asking prices too could be getting more realistic, a final factor in reversing the trend of below-asking transactions.
All over the country, this trend is making news. That doesn’t mean there aren’t still cities where buyers can find great deals; and we’ll detail a few of those cities in future blogs. But it does indicate healthy progress in the nation’s real estate market. Considering real estate contributes anywhere from 5% to 8.9% of America’s GDP, that’s good news for everyone.
- San Francisco’s Real Estate Market is on Fire
- National Low Inventory: A Mixed Blessing
- Can Silicon Beach Boost LA Property Values?
- The Northwest is Heating Up
Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert.