What may feel like a real estate bubble in Los Angeles — with all-cash offers and frenzied bidding wars — is actually the midpoint of a steady housing market recovery, analysts say.
The UCLA Anderson Forecast released Monday said L.A. is only three years into a rebound that started in 2012. Home prices have since climbed 27 percent. History suggests there will be four more years of price increases and home values will go up another 35 percent before there is any sort of correction.
The reason comes down to a fundamental imbalance: there’s lots of job growth, but because of strict building and environmental regulations, there will be very little increase in the housing supply.
“That means you will not expect to see housing more affordable during the next few years," said Jerry Nickelsburg, a Senior Economist at UCLA's Anderson Forecast. "In fact, just the opposite.”
While entering the market is tough, buying a home right now in Los Angeles isn't as risky as the high prices make it feel, the report said.
"L.A.’s housing market, despite becoming more expensive and unaffordable, is not in a bubble." UCLA economist William Yu wrote. "The current rise in home prices seems to be driven by rising effective demand and limited supply, not by speculation. Therefore, the housing bubble burst we experienced several years ago is unlikely to haunt us this year or next, and the smart money will continue to invest here."
That includes Chinese buyers, who have been bidding up Los Angeles houses in recent years.
Though the Chinese economy has recently slowed, Yu doesn't expect the downturn there to impact prices here. Yu said China's economic problems could actually raise home prices in Southern California as investors seek stability outside their country.
"With the dismal outlook and uncertainties in China, contrasted with the promising and stable outlook in the U.S., it is wise to reallocate money from China to the U.S.," he wrote in the report. "Even with the negative wealth effect generated from China’s deflating real estate, tumbling stock markets, and 3 percent currency devaluation, wealthy Chinese individuals still have sufficient equity to make a move."
Other industries, he said, like tourism and trade, could suffer.