As we wrap up 2022, we are reflecting on the changes we’ve all experienced since the beginning of the year.  We have gone from 3% conventional mortgage rates to well over 7% and now settling in around 6.5% as we close the year.  Tons of uncertainty hit the residential mortgage market for single family homes as financing rates marched North with the Federal Reserve steadily raising rates at every recent meeting.  Currently there is a inventory supply issue for the SFRs all the way from the low-end to the high-end of the market.  Existing homeowners have no desire to trade in there 3% (often even lower rate) that’s locked in for 15 or 30 years!  New inventory entering the market is being driven by life events such as job relocation, marital status changes, etc.  Many prospective home buyers are paralyzed; wondering if rates and home values will drop in the coming months and they want to avoid overpaying for a property or for financing.

California still has has a three-month supply of SFRs on the market.  While sales volumes are down 40% year-over-year with the number of completed transactions plummeting, home values for most California markets are relatively flat, except for the Bay-area which is down roughly 5%.  Reality setting in for home sellers that normalcy has returned to the market with homes taking weeks (not days) to enter escrow and it’s a more balanced market with buyers having some negotiation power on price and/or concessions.  The multi-family & industrial markets are a completely different story!

Rents keep powering upward across almost all categories: SFR, Multi-Family & Industrial properties.  For the residential markets in California the home affordability index is at historic lows.  CNBC is reporting that Los Angeles is the 2nd least affordable housing market coming in just below Miami and above New York City!  This index compares housing prices to median incomes.  As more first-time home buyers sit on the sidelines renting, they put even more pressure upward on rents.

Latest data released this week from Rentometer shows all major metropolitan markets moving upward by at least 3% in just the last quarter alone. Los Angeles leads the charge with a 19% increase in rents during the past just 3 months!

No wonder our application desk is filled with requests for financing from residential income property landlords. They are renovating existing properties and scooping up any multi-family unit property that comes on the market in days (if not hours.). Industrial properties are not seeing as large of an increase but are still increasing quarter after quarter.