MARKET SPOTLIGHT: WESTERN HOT SPOTS
A long-time investor who as flipped homes in both Los Angeles and Orange counties, Scott Mednick believes the market started to cool substantially in August 2018. Espe- cially in the 55-and-over-market, where he found typical buyers look- ing to pay half in cash and finance the remainder. “It was right after the summer when everything started to cool,” said Mednick, broker/owner of the Marblehead Real Estate Group and president of the OCRE Forum in- vestor club. “In the back of my mind I’m looking at future acquisitions. Buyers won’t overpay no matter what location you have. Buyers want a fair deal. Construction costs have gone up tremendously for both labor and materials.” For Los Angeles County, ATTOM re- ported a rent increase of 7.5 percent from 2018 to 2019 to $2,593 a month for a three-bedroom, single-family home, while in Orange County rents rose 9.5 percent to $3,103 for the same period. In San Diego County rents for a three-bedroom rose 6.3 percent to $2,776 a month. Rent affordability was 50.8 percent of average wages in Los Angeles County and 61.9 percent in Orange County, while in San Diego County it was 56.3 percent of the average wage to rent. Buying a median-priced home with a 3 percent down payment at the end of 2018 required 86.3 percent of wages in Los Angeles County, 108.1 percent in Orange County and 87.7 percent in San Diego County. For Orange County-based investor Lin He, president of Rellion, the mar- ket had slowed down enough that he decided to stop flipping and went into construction and development to “lower the risk.” “I do see a slowdown. I’m seeing property stay on the market longer but the price, generally speaking, is not dropping. I think we’re close to a tipping point but there’s no signifi-
SEATTLE-TACOMA-BELLEVUE, WA HISTORIC HOME SALES
I do see a slowdown. I’m seeing property stay on the market longer but the price, generally speaking, is not dropping. I think we’re close to a tipping point but there’s no significant reduction yet.”
MEDIAN SALES PRICE
YEAR-OVER-YEAR HOME PRICE APPRECIATION
$500,000
20%
$450,000
15%
$400,000
LIN HE
10%
$350,000
$300,000
5%
cant reduction yet,” He said. Although he is not seeing prices dropping across the board, He does not think there is much apprecia- tion left either. “I think at least at the low end of the market there is still room for growth. Personally, as an investor, I pretty much have stayed on the sideline the last couple of years but now I’m tiptoeing back into the market a little bit. As long as I buy it right and as long as I can make money then I’m okay.” In San Diego, investor and broker Jesse Zagorsky, broker associate with Live. Love. San Diego Homes, sees list prices starting to come down from the over-inflated prices that were being asked. “In certain markets around here it’s definitely slowing down,” Zag- orsky said. “Inventory is increasing and so is days-on-market. Those are the indicators we look to. I don’t know any investors who are thinking the market is still going up.”
$250,000
MORE THAN SNOWTO THIS AREA’S COOLDOWN Forbes named it the second-fastest growing city in America for 2018, and Seattle is doing well in many catego- ries. As of November 2018, the metro area’s unemployment rate was down to 3.9 percent. However when it comes to the real estate market, some things have taken a noticeable downturn. “It is definitely cooling off,” said Nova Shank, managing broker with Champions Real Estate Services.
0%
$200,000
$150,000
-5%
$100,000
-10%
$50,000
-15%
$-
"We’ve gone up a lot. Prices have to come down.” Since the market bottomed out and started back up in May 2012, the Seattle metro area has seen a healthy dose of double-digit and single-digit year-over-year appre- ciation in median home prices. As of November 2018, ATTOM report- ed a 6.0 percent yearly increase, nearly half of the 11.4 percent appreciation in November 2017, according to ATTOM. The average rent for a three-bedroom, single-family home in the Seattle metro area is $2,921 a month, a 22.9 percent increase from 2018 to 2019. Average rents require 42 percent of average wag- es in the region. Buying a medi- an-priced home in the metro area with a 3 percent down payment required 66.5 percent of wages as of the end of 2018. “I flipped five properties in 2018. I’ve been selling my investment properties before they hit the
market because I get so many buyer leads,” Shank said. “I set my buying numbers at my rate caps. I know what the potential rate return will be for a property. And it cash flows a little bit.” Shank is finding it hard to find his next project in Seattle — evidence the market is still humming along. “We’re not going to have a re- cession. It’s cooling off but it’s not crazy,” Shank said.
It is definitely cooling off. We’ve gone up a lot. Prices have to come down.”
NOVA SHANK
Joel Cone is a freelance business writer based in Southern California. His articles have
In certain markets around here it’s definitely slowing down. Inventory is increasing and so is days-on- market. Those are the indicators we look to. I don’t know any investors who are thinking the market is still going up.”
appeared in California Real Estate magazine, Real Estate Southern California, OC Metro, GlobeSt.com, Foreclosure News Report, the Los Angeles Daily Journal and the Smarter Investor blog for U.S. News & World Report, as well as many other print and online publications. Contact him at snocone1030@gmail.com.
JESSE ZAGORSKY
30 think realty housing news report
march 2019 31
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