Real Estate Sees Dramatic Activity In Housing And Remains Steady Across Other Market Sectors
By Samantha Mehlinger - Staff Writer
May 07, 2013 - Increasing demand for single-family homes continues to be exacerbated by an ever-shrinking inventory as the real estate market is midway through its second quarter. Long Beach agents are seeing bidding wars cause the median price of homes to appreciate at an accelerated rate.
“We definitely saw this light switch go on and all of a sudden buyers are out in droves,” says Russ Caldarella, an agent with First Team Real Estate. He notes that any typical open house in Long Beach right now gets a ton of traffic. “Gosh, anywhere from 25 to 75,” he says of the number of people going through a given open house.
Multi-million homes line the canals of Naples in Southeast Long Beach,
one of Southern California’s most sought-after communities in which
to buy a home. But, residential real estate professionals say the
number of homes for sale citywide are few, driving up costs and
resulting in a large numbers of buyers attending open houses. First
Team Real Estate Agent Russ Calderella likes to say, “Qualified to
buy, but nowhere to go.”
(Photograph by the Business Journal’s Thomas McConville)
From a realtor’s perspective, he says, “What it looks like is, you’ve got many buyers that you’re working with putting offers in on properties. It can be very frustrating for buyers right now because only one person is getting a house, where you might have anywhere from 10 to 25 offers on a piece of property.” He adds, “As I like to say, qualified to buy, but nowhere to go.”
Gary Painter, director of research at the USC Lusk Center for Real Estate, told the Business Journal that the dynamic of high demand and low supply does not necessarily indicate growth. He explains that due to shrinking inventory, the market is moving “very quickly, which is good for those who are trying to sell.”
Painter elaborates, “But at the same time, you might not call that growth in the housing market.” When considering the increase in median price for a home, he says, one might get the impression of growth. “But overall, it’s still not a normal market in respect to inventory that’s transacting and so forth.”
Multi-family continues to experience lower inventory as well, although not to the extent of the single-family market. Painter predicts rent will increase as demand continues to be strong. “I think for the very short run you’ll still see price pressures on rents because of the number of people who have actually been reducing their housing demand by living with their parents longer or doubling up,” he explains.
The most recent apartment research report by Marcus & Millichap shows vacancy rates at a tight 3.7 percent in the Greater Los Angeles area. The South Bay sports an even slimmer rate at about 3 percent even.
California’s Employment Development Department (EDD) calculates state unemployment decreased to 9.4 percent in March from 9.6 percent in February. The EDD’s Los Angeles-Long Beach-Glendale report for that time period shows L.A. County’s unemployment dropped from 10.3 to 10.2 percent in the same time period.
Robert Kleinhenz, chief economist at the Los Angeles County Economic Development Corporation’s Kyser Center, observes that despite the one-tenth percent monthly rate of decreasing unemployment in L.A. county recently, the amount of jobs added within nonfarm sectors is better than it seems. “The L.A. county economy was really stuck in neutral, say at the beginning of last year, but by middle of last year the pace of job growth has accelerated to where L.A. is now adding wage and salary jobs at a faster rate than the nation as a whole.” According to the EDD, these numbers translate to a nonfarm employment increase of 23,700 jobs from February to March.
While trade, transportation utilities, and manufacturing saw job losses from February to March, demand for industrial space is still high. Perhaps this is because, according to Kleinhenz, “I have a hunch that’s just a seasonal low and that we’re going to see things come back as we go further into the year.”
Demand for Class-A space led to a negative absorption in the industrial market, as construction of 1.3 million square feet of space was introduced to the South Bay market to meet that demand. According to CB Richard Ellis (CBRE), most of this construction is concentrated in Long Beach.
Kleinhenz quotes a vacancy rate in L.A.’s industrial market at around 4.4 percent. “They have been, and continue to be, among the lowest in the country,” he says of the county’s vacancy rates. Long Beach, on the other hand, has a current vacancy rate of about 7 percent, he notes. A report by Lee & Associates attributes the uptick to the introduction of significant square footage to the Long Beach submarket.
While the majority of the L.A County’s job growth from February to March occurred in the professional and business services sector, the office market is not yet seeing a corresponding increase in demand. Some agents, like Becky Blair, president and principal of Coldwell Banker Commercial BLAIR WESTMAC, believe slow demand in the office market persists partially due to the continuing trend of businesses consolidating space rather than expanding.
A first quarter survey of the office market by Cushman & Wakefield indicates both the downtown and suburban markets in Long Beach experienced negative absorption. The South Bay accounts for 18 percent of vacant space distribution within the greater L.A. area, according to a first quarter office report by CBRE. Vacancy in the South Bay increased by one and a half percent, partially the result of the addition of new space on the market, as in Douglas Park.
As more individuals gain jobs and begin to feel more stable in their finances, they will be more likely to spend on retail. In Long Beach, Kleinhenz says, “The unemployment rate was 10.9 percent for the month of March this year compared to 12.4 percent a year ago in March 2012.” Year over year, unemployment in L.A. County as a whole dropped 1.3 percent, while in Long Beach it was a slightly higher at 1.5 percent. “A much needed improvement has taken place,” Kleinhenz says.
Doug Shea, principal and boardmember at INCO Commercial, says that on the retail market, “There is a giant lack of inventory of properties for sale. For commercial, there is hardly anything going on the market right now.” Demand, he says, is primarily from buyers. “Demand for leasing right now is a little bit flat,” he says, citing “over-priced” leasing rates as the cause.
According to a press release by the UCLA Anderson Forecast, Senior Economist David Schulman’s research indicates, “the housing sector, which led the downturn, is now leading the recovery.” Whether or not inventory will improve in the coming months remains to be seen, as banks continue to hold onto distressed properties as their values appreciate, and homeowners looking for a better return on their property investment do the same.