The median price of a single-family home in Southern California hit an all-time high in March. It is now $519,000, according to the real estate data firm CoreLogic.
Anyone who's attempted to buy a house in recent years will tell you: competition is steep because the number of available homes is decreasing. According to Richard Green, professor with USC's Price School of Public Policy and the Marshall School of Business:
What's driving the LA real estate market
It's hard to build anything new, particularly on the owner side. For single-family homes, there are basically very few places left you can build them. We have Newhall Ranch and down in OC there's the El Toro area, but other than that, there's not a lot of places to build new single-family homes.
On the condo side, lenders are reluctant to lend to condo developers. Condos relative to apartments, if you build an apartment, if it opens while the market is soft, you can still rent it out and get enough to cover the mortgage payment.
On the other side of it, we've had tremendous job growth. Unemployment is at about its lowest level ever. There are a lot of high-paying jobs particularly in the tech sector. And those people have a decent amount of money and are using that to go into the housing market, and that's pushing up prices.
What income levels can support a median price house
If you look at the prices, the typical Angeleno with a median income of $65,000 can't afford that half a million dollar house, but a very striking thing I learned recently is one of the fastest-growing income groups is people who make $200,000 a year or more. At that income, you can afford a $500,000 house and that's an area where we're seeing job growth.
Many homeowners are stuck in their current homes
Time on the market for houses is pretty short right now and the inventory is pretty low, but moving onto the next place is particularly problematic for people who bought 10-12 years ago because the housing market has recovered to those levels, but they haven't built equity as a result of appreciation. In the old days, you'd buy a house that increase 40 percent over seven or eight years and use that equity as a down payment. If you bought a house between 2004 and 2006, you're back to where you were when you bought the house but you haven't built any equity. So you don't have the down payment to move up to the next house, and that's keeping a lot of people stuck in their houses. It's pretty tough out there.
How long can housing prices increase
House prices can go up for a long period of time. We saw that in London, where I remember thinking in the '90s house prices would have to start leveling off and it took until Brexit to hurt the economy and the housing market. This is different from 2005 because it's not easy lending that's leading to this. We still have a lot of cash buyers. Prices are rising faster than rent. In principle, housing prices can keep going up for a long time. I worry about here and the Bay Area. A lot of the housing market is being driven by the tech economy. The tech economy is probably the most robust in the world right now. Companies in the Bay Area and here in L.A. are doing really well, and as long as they do, house prices will go up.
Is the L.A. housing market in a bubble
That's what I worry about. If you look at stock prices of tech companies over the past couple months, it's come down. A lot of people, their compensation is tied to stock values. If tech companies start to falter, that doesn't mean they'll go out of business, but if stock values fall 30 to 40 percent, that could lead to a deflation in house values here.