A Mid-Year Market Check-In

BY SONYA LOERA

The restrictions of the pandemic appear to be behind us. Even Disneyland has re-opened and everyone is hopeful that there will be a full economic recovery.

But is that really possible? What about real estate and the housing market?

We all know that home prices skyrocketed. However, now we are seeing a slight pullback.

Certainly, the same cannot be said for other real estate sectors. Rental property values have definitely been challenged. But the overall picture is one of neither a balloon burst nor a crash. Sellers have not flooded the market and buyers have not fled.

For the last ten months, using MLS (Multiple Listing Service) data, I have been taking periodic snapshots of fourunit property sales in Orange County.

Between July and August of last year, active listings decreased by 16% from 67 to 56. This downward trend continued through the end of the year and into January. By the first of February, the number dropped to 39 active fourplex listings and has continued to hold steady with 35 properties listed for sale as of June 22nd.

As might be expected, sales reflected a similar pattern. What is interesting is that the numbers for expired and cancelled listings also dropped significantly. In mid-August of last year, 37 properties were listed as expired and another 23 contracts as cancelled. Ten months later, those numbers are 27 and 10, respectively. That’s a 37% decrease for expired listings and 130% for cancellations.

All of the above statistics demonstrate that there is a demand. But, when you look at prices, nearly 90% of the active listings are being offered at less than originally priced. Researching a little deeper into those properties that sold within one to two months versus others on the market for longer periods of time, the reality is that although there is demand, buyers are cautious about what they are willing to pay. Unlike what happened in the singlefamily market, there has been no “feeding frenzy.”

So what are four-plex buyers seeking? Low mortgage rates have made buying real estate attractive. Investors are also looking for opportunities that offer cash flow, plus an upside potential. However, with the realities of statewide rent control and the uncertainties of how long the eviction moratorium will last, buyers want to see that the numbers make sense or, at least, the potential is there.

Prices are definitely up from where they were as the realities of the pandemic gripped Southern California, delinquency rates soared and apartment owners had to figure out how to operate under new protocols and in a much more virtual world.

Despite the downward pressures on the rental market, investing in residential income property has remained popular. A look at recent sales shows that a well-priced four-plex will close within one-to-two months. Properties on the market for five or six months or longer have sold as well, but usually only after one or more price adjustments.

The question remains — what is ahead? During the mid-June meeting of the Federal Reserve, there was an acknowledgement by Chairman Jerome Powell that some of the dynamics of the reopening are “raising the possibility that inflation could turn out to be higher and more persistent than we anticipate,” but the anticipation is that there will not be rate hikes until 2023.

A combination of low mortgage rates and a stronger economy is good news, but what apartment owners need to watch is what happens in terms of income and expenses. That topic has been touched upon in previous articles but may bear some further consideration.

At the moment there are probably more questions than answers, but as an apartment owner and investor, the very fact that you are continuing to read, learn and stay aware is one of the best protections that you can ever find.

About the Author: Sonya Loera joined WR Gorman & Associate in 2013. With a background in accounting her expertise encompasses that of officer manager, property manager, transaction coordinator and real estate agent.

Founded in 1972 by William (Bill) R. Gorman, this Brea(CA)-based firm focuses on personalized wealth building through real estate. With a client-first philosophy, the firm serves as an expert resource for informed decision-making and transitioning that creates sustainable legacies for investors and their heirs.