Why home prices are expected to rise in the near future

It’s a seller’s market in Los Angeles and most parts of the United States. If you’re thinking of selling your home, you can expect to make a good profit – especially with the right marketing strategy.

If you’re planning to buy a home, it’s time to brace yourself for the tight competition ahead.

Whether you’re buying or selling, work with an experienced real estate agent to get the guidance you need in this challenging market.

Simple economics

Home prices in Los Angeles and other parts of the United States have been rising in the last few years – a trend that’s seen to continue in the near future.

For March, 2017, Zillow reports that the median home value in the city of Los Angeles is $616,900, up 8.6% from March, 2016. The February median home value in Los Angeles County is $525,000, up 8% from February, 2016.

Nationwide, home prices are expected to increase at an average of 3.9% this year, after rising around 5.5% in 2016.

The reason behind this trend is simple economics: high demand, low supply. While the market remains very dynamic, these factors are seen to continue influencing home prices for an indefinite period.

High demand for housing

If early spring home buying activities are any indication, real estate will continue to be a sellers’ market. Bidding wars in Los Angeles are commonplace, with bidders numbering more than three times the average in many instances.

Homebuyers resort to various strategies to outbid their competitors, such as foregoing home inspections and offering more earnest money.

There are several reasons for this upsurge in home buying:

  • Strong economy
  • Higher employment rate
  • Low interest rates

The latest national family median income showed an increase of 3.83% in 2015 over 2014, and an increase of 5.17% over 2012. President Donald Trump’s economic policies are generally seen to have a positive impact, improving consumers’ confidence and purchasing abilities.

The job market has also been strong, with national unemployment rate falling to 4.7%, just slightly higher than its lowest level in 10 years. In Los Angeles County, unemployment has gone down to 4.9% this year from 5.6% the previous year.

Mortgage rates increased this year to 4.3% from 3.73% last year, but this remains historically low. More increases are due this year, but experts believe these will not be significant. While the rise in interest rates will slow down home appreciation, it will most likely not have a major effect on home buying activity.

Low housing inventory

Low supply has been causing home prices to soar. The National Association of Realtors reports that, at the end of 2016, the number of existing homes for sale was 6.3% lower than the previous year – the lowest level since 1999. The shortage is felt even more in California where only 30% of residents own their homes.

On the bright side, home builders’ activity is expected to rise. In 2016, the number of new home constructions was up 5% from the previous year. Experts believe builders will be motivated to increase their activity this year, given the high demand for housing.

Builders have been focusing on luxury homes and multi-family properties, so if you’re looking for a luxury condo, check out the latest developments in the downtown area and neighboring communities.

Buyers looking for more affordable options are increasingly turning their attention to the suburbs. And this trend is fuelling the transformation of these outlying communities, with more housing options set to rise in these areas, along with more urban amenities.