Ron Costa | January 3, 2022
Real Estate News
Disruption and instability have been the two major factors in the real estate market the past two years. It has not been all bad news though. Fueled by low interest rates and high demand, Southern California, and the country as a whole, has seen a big jump in home prices. Heading into 2022, one of two things is certain to happen. Either the pandemic will finally wind down as vaccinations increase, or we will continue to get better at adapting to this new normal. In this always changing landscape, we discuss the trends that will influence the Southern California real estate market over the next twelve months.
Millennials purchasing homes for the first time, as well as the continuing work from home (WFH) trend, are the biggest factors affecting the Southern California real estate market today, and will continue through 2022.
In a recent survey from The California Association of Realtors (CAR), the biggest reason buyers said they purchased a home was that they were tired of renting. Homeowners have seen their home equity skyrocket through the pandemic, and most new buyers still seem unphased and do not think it is too late to get in the game. While home prices have dramatically increased, buyers are still willing to pay up for homes, especially in Southern California, often helped by low interest rates.
In addition, the second biggest reason for purchasing a home according to the survey was the desire for more space. We also attribute this to the WFH trend as people are in their homes throughout the day and want more space and perhaps have a need for a designated home office as well.
Another big factor is that since many employers have stated that WFH will not go away, even if some time in the office is mandatory, commute times are less important for these new buyers. Over 15% of recent buyers attributed wanting a better location. Today’s buyers are looking for homes over a vastly larger geographic area and are often settling down in less densely populated areas away from city centers. We are especially noticing this in the Inland Empire region, which has seen a massive influx of new residents and increased home prices.
Renters in small apartments near their workplaces are going to be a thing of the past as the largest demographic of homebuyers, the millennials, take advantage of the WFH trend and are looking for larger homes in less crowded neighborhoods.
Many of the millennial buyers in 2021 were also first-generation buyers whose parents are renters and have never owned a home before. Record low interest rates and the flexibility to work from home not only created an opportunity for them to buy their first home, but also made it easier for them to become a homeowner and establish a financial foundation for their own family and future generations.
The second trend we are seeing and will continue through 2022 is the higher demand for vacation or second homes. While the pandemic was hard on many people’s finances, it was also a boon for people in certain industries or situations. Many people saw a massive rise in their home equity and certain sectors of the stock market skyrocketed. Many are using their new wealth to purchase vacation homes throughout California.
In addition to finances and work flexibility, new technology is helping vacation home sales as well. Virtual showings have gone from the clunky experiences that were quickly hodgepodged together in spring of 2021 to being interactive and highly personalized today. In addition, regardless of the better apps and technology, today’s buyer is much more comfortable with virtual showings than they were two years ago. While we don’t have data to back this up, anecdotally, we are noticing this decrease in buying friction is especially helping the vacation home market.
Homes in Palm Springs, Joshua Tree and elsewhere in the desert have been particularly in demand. Many homes have been selling well above listing price with offers being accepted in less than three weeks.
Our prediction is that vacation homes will be in high demand throughout the next year. According to Zillow, home prices have risen an astonishing 44% in Joshua Tree just in the past twelve months, and anyone who has seen the weekday traffic in Palm Springs recently is sure to agree that this trend is not going away anytime soon. At OpenAiRE, we specialize in making luxury homes and simplifying vacation rental acquisitions.
The third trend we see for 2022 is that international buyers will be coming back in droves, especially to Southern California. As travel restrictions ease, international buyers from Europe, China, India and Mexico will be filling up a two year pent up demand.
Without question, WFH technology has been widely adopted by international business and will continue to be used to facilitate international transactions in the decades to come. There is, however, always a need for face to face, in person meetings in any type of business to business relationship. Recognizing this, international firms, especially from Asia, are sending their sales representatives here to live permanently. Chinese buyers made up 32% of the foreign buyer market so far in 2021, with India right behind at 17%. As business continues to thrive post-pandemic, we see this trend continuing if not accelerating.
In addition to pent up demand, international business coming back on line and easing of travel restrictions, we also attribute this increase to buyers being more comfortable with virtual showings and buying without first actually visiting the property. For these reasons, international buyers will continue to come off the sidelines and purchase homes in Southern California throughout 2022.
Historically low rates these past few years have helped many buyers afford the home of their dreams. Going forward, interest rates are almost certain to rise, at least somewhat, in 2022. If home prices do level off, or even decrease, average monthly mortgage payments will still go up for almost all buyers. For a potential buyer or seller, we do not suggest waiting. The time is now. Take advantage of these rates while you can.
These trends will help define the 2022 Los Angeles real estate market. As a Long Beach real estate agent, Ron Costa constantly has his eyes on the new and emerging trends and how they are going to influence the Southern California real estate market.
Ron Costa is the premier real estate broker in Long Beach and has helped hundreds of buyers find their dream home throughout Southern California, resulting in over 200 closed transactions since he began his career.