Los Angeles ‘Stay at Home’ brought the real estate market to an almost freeze. With businesses set to open, how will the housing market absorb the shifts in unemployment?
Did Home Prices Change in Los Angeles?
There isn’t a lot of data to show that prices went down, but market activity plunged. We are basically in a complete pause – there aren’t that many transactions taking place for mainly two reasons:
- Economic Uncertainty – sellers and buyers aren’t interested in real estate when it’s unclear what will the economy will look like in 3 months or a year
- Stay at Home – Even if you want to sell or buy, it’s really hard right now. It’s illegal to have open houses, and if you want to schedule a home tour, be prepared to do it virtually or sign a lot of forms.
Rent Prices Went Down, But Only Slightly
Unlike home sales – we do know that rental prices did take a hit – and a pretty significant one. LA Curbed reported Los Angeles rent prices fell for the first time in a decade, after non stop ascending prices. If one was to speculate, we can expect to see some movement downward in rent prices throughout the city for three reasons:
- Mass unemployment will bring migration out of Los Angeles. Some predeit 20% or more unemployment once the pandemic is over. Business that did not survive the shutdowns will not hire back, and those that did survive will take time to recover. People who lost their jobs will have to find cheaper housing – in other states or in cities around Los Angeles.
- Mass evictions post-COVID. The City Council and the Mayor imposed measures to protect tenants – those that earn less due to the shutdown can stop paying rent (and pay it later), and evictions due to not paying rent are not currently possible. Despite that, don’t believe the hype by the city council. Landlords will evict tenants after the shutdowns in mass numbers. Even if many of them are unsuccessful, a lot of renters won’t have the money to defend themselves in court. This will be especially true for commercial tenants.
- Commercial and Retail properties will plummet. Business closures will be massive – especially in the small/medium range, and especially in high-impact areas of the shutdowns. Commercial spaces are much harder to fill (some take months), and if we are looking at a multi-year recession – we can expect a severe impact on retail rent prices.
Stimulus $$ and the Complete Failure of Leadership
The Federal Government already shelled out massive stimulus dollars to almost all levels of the economy – from individuals ($1200 checks) to small businesses (through the PPP program) and big bailouts (airlines and prime loans). But this is inflationary measures that can only artificially keep things moving for a short period of time. Once the money runs out – businesses will let employees go and consumers will stop spending.
The pandemic exposed failure of leadership at all levels of local government. Just a couple of weeks ago, Santa Monica City Manager resigned unexpectedly as a result of massive shortfall in the budget (and previous frivolous spending on useless programs). The county already has a massive homeless crisis with no end in sight – which is now made worse since the city has to spend millions a week to make sure the unhoused will not die by the thousand and become mass-spreaders of the virus.
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