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Los Angeles Real Estate is Booming Despite COVID-19 Pandemic

Los Angeles Real Estate is Booming Despite COVID-19 Pandemic

Thousands of people move to Los Angeles County for the nice weather and beaches each year. Even though, COVID-19 had things at a halt for a few months the real estate market and rentals seem to be doing pretty good. Los Angeles County is approximately 4,000 square miles, it is also one of the biggest counties in California. My financial planner partner was talking about the difference between two Fortune 500 companies, both dealing with the uncertain economy due to Coronavirus.

“Company A (he mentioned the name, but I won’t) was in trouble when times were good. When lots of people were buying the types of products they sold, they were less and less likely to buy Company A’s products. Now nobody buys from Company A. They don’t have a chance. Their stock is down and it’s not coming back up.”

“Company B made great products and they’ve got lots more on the way. They’re a victim of their own success, only in that they planned for a certain amount of growth and they didn’t get it – so now they’ve got to take some losses and cut some of their workforces. Their stock has been dragged down by general trends. It’s not their fault, and they’ll help lead the way out of this.”

COVID-19 Take Its Toll in Los Angeles County but Sales and Rentals Are Rising

I was reminded of this conversation when I saw a report describing Los Angeles County and Detroit as two of America’s “most vacant cities.” At the time.

Right now one out of every six Los Angeles rentals stands empty. One in 25 nominally owner-occupied homes is vacant. But that’s not because people are moving out of the city. In fact, the population has risen substantially every decade, including this one. The problem is that the city’s housing stock rose faster than its population. Like Company B, Los Angeles planned for more growth than it got. Flippers got caught holding the bag when the COVID-19 pandemic began.

With So Many Rentals and Homes for Sale, Why is it Still A Nightmare to Rent and Buy?

One Los Angeles developer describes the rental market as a “nightmare” and adds, “Right now, things are just picking up. Everybody’s scared.” Scared is an interesting word here. Detroiters aren’t “scared” – not of declining real estate values, anyway. They’re used to it. The city declined in boom years, so the current decline doesn’t feel hugely different. Of course, they are worried about the big automakers cutting employment, but this is nothing new – GM, Ford, and Chrysler have already shed 250,000 jobs since 2000 – mostly in Michigan.

I’d rather be in a scared market than a resigned one. A scared market hopes for a turnaround. A resigned market has given up hope. And there are two big reasons to be hopeful for the future of Los Angeles County.

Los Angeles Ranks Top Cities to Live

First, Los Angeles is still a great place to work and live. Remember the reasons people came to California in the first place? It’s sunny the majority of the year and comfortable – at least until the temperatures hit the 90s, but many people prefer that to snow. The beaches, shops, and shows are a lot of fun.

Not only that, California remains a great place to start a new business or relocate. California ranks at the top of the index, which is excellent (and improving from previous years). Finally, its proximity to economically oppressed Nevada makes it a natural home for businesses fleeing the strip.

While new construction is slowly picking up again, many see an opportunity in investing in rentals. That means the city will begin to chip away at all that empty inventory. As the number of vacancies declines – and it will – the prices will start to go up. Again.

Tourists vs Residents

I’d be reluctant to make my move right now because we’re still seeing a terrific amount of government intervention in the economy. Right now we just don’t know if the moves we’ve seen so far and the ones that are still coming will help or hurt. And of course, buying into Los Angeles or any other collapsed market is not for the faint of heart. At the very least, you’ll have a hard time attracting tenants for a while, and prices may decline further.

Los Angeles isn’t for everyone, some folks don’t like being around tourist traps like Hollywood, Venice, or Santa Monica, which is completely understandable. Los Angeles attracts a lot of tourists every year but that’s all it’s been attracting for the past decade, “tourists”. Most of those people will never come back and if they do it wouldn’t be permanent.

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