We’re looping towards the end of 2015. The year has been an eventful one for California’s real estate industry.
These are the highlights as reported by the National Association of Realtors in the beginning of last month (November 2015):
Commercial vacancy rates declined for office, industrial and retail properties. Same trend is predicted to continue in 2016.
Demand for and supply of apartments have been constant. They are expected to rise in the coming year.
Commercial and residential rents rose across the board from 2.5 percent to 3.7 percent. Rents are going to rise still further particularly with the recent hike in interest rate.
Alternative lenders gained more profit as banks became more choosy. Government and consumer regulations are tightening their control over this industry, but technology and economic conditions are helping the industry thrive.
2015 may have been the beginning to the end of the recession. Economic activity had advanced 2.4 percent by the end of 2014 inflating some air into the real estate market. Construction – largely commercial and higher-priced – was constantly in motion. Housing inventory was largely small. People sought housing. But unless you could afford it or grab a loan that you could repay, you were reluctant to move homes or invest.
Work prospects had picked up in 2014. By the beginning of 2015, business investment and spending rose 1.6 percent. The rest of the year saw the familiar bust and boom of spending that increased to an excess of 8.0 percent before it deflated and rose again. The last quarter of this year was the softest at 2.6 percent. Commercial investors were largely small business owners and wealthy expatriates. Residential investors were mostly from middle to upper-middle class families – largely baby boomers – who tended to look towards renting. Wealthy foreigners acquired homes in certain areas of California, too. For a time, the Chinese seemed to be most interested in property especially in Los Angeles and surrounding suburbs. Wealthy businessmen from New York plunked their spots.
Blips included rising property tax revenues, rocketing property prices (that are in the triple and 4 digit numbers in areas such as San Francisco, Los Angeles and suburbs), falling inventory that fails to meet demand, and, more recently, a 0.25% hike in interest rates.
Some experts speak of a ‘housing bubble’ crisis where space and housing prices become so rarefied that only the very rich would be able to buy homes. These experts call for government intervention and predict a housing scarcity that would supercede that of 2006. Statistics show that some are unable to pay rent. The Joint Center for Housing Studies (JCHS) of Harvard University stated that in prime areas such as San Francisco and Los Angeles almost 60 percent of renters consumed too much of their income for a roof over their heads. About 58.5 percent of the renters from Los Angeles/Orange County (LA/OC) metro areas are “burdened” which means that they are using more than 30 percent of their income for rent and losing out on other necessities such as food and healthcare. As much as 32.8 percent of renters are said to be “severely burdened” consuming over 50 percent of their income for rent’s payment. Los Angeles, they reported, had become the 22nd least affordable metro in the country and too many renters have been evicted due to their failing to pay their rent.
On the flip side, inflation in California reached 0.5% through the 12 months up-to-date as published by the US government on December 15, 2015. Critics of the ‘housing bubble’ scenario brush concerns aside and point to California’s fluctuations as representing the economic law of supply and demand. Prices are high because supply fails to meet demand. Expanded housing market, they argue, would lower price.