A Market Perspective

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A Market Perspective

A Market Perspective

by Sonya Loera
Apartment News, May 2022

We have all watched or at least heard about the explosive housing market. Demand has far outstripped supply and prices have skyrocketed.
Can the same be said for apartments? In Orange County, although the vacancy rate remains very low, rent control and other restrictions have limited how quickly rents have been able to increase. What has been the impact of AB1482 and other ordinances on multi-family sales and prices?

Last year, I wrote a “Mid-Year Market Check-In” article that ran in the July 2021 issue of Apartment News Magazine. Using Multiple Listing Service (MLS) data, I took periodic snapshots of four-unit property sales in Orange County. This information provided some interesting insights as we started to return to a degree of normalcy.

At that time, there was a sharp increase in listings as well as in cancelled and expired contracts. While demand remained steady, buyers were cautious about what they were willing to pay as evidenced by the fact that nearly 90% of the listings were being offered and sold for less than originally priced. That said, between the first and second quarters of 2021, prices were trending upwards.
So what has happened over the last nine months?

As of March 31, 2022, there were only 24 active listings as compared to 35 on June 30 of the previous year. However, the six-month rolling average for the number of properties sold remains the same, demonstrating that there is still a strong demand.

Prices have also continued rising, but the pace has begun to lessen. Between the fourth quarter of 2021 and the first quarter of 2022, the average sales price increased by 6%, which is actually slightly slower than the 7% increase noted for the first two quarters of 2021.

The reality is that buyers are still cautious and now there is the double whammy of not only rent control restrictions, but also rising interest rates.
Concern over inflation, which as of February 2022 was at an annualized rate of 7.9%, the highest since January of 1982, led the Federal Reserve Board to initiate a quarter of a percentage point rate hike in mid-March. With the unemployment rate near a record low and the surge in global commodity prices expected to persist, all of the signals are set for continued hikes in May and June.

Traditionally, real estate has been one of the best hedges against inflation and the demand for rental housing is not apt to disappear any time soon. But more and more buyers are no longer counting on just appreciation. They are looking at cash flow and want to know that the property they purchase can actually produce an income.

Equally, if not more importantly, is the issue of deferred maintenance and/or upcoming major expenses. These are important considerations that have an impact on prices and sales.

First and foremost are the costs involved. Lumber prices have tripled and nearly every construction-related item has seen a more than substantial increase. Not only do buyers have to factor in the actual costs; with rising interest rates, taking on added debt means even higher dollar expenditures.

Adding to the challenges are limited supplies and delivery delays. Who would have ever imagined that they could not walk into a paint store and immediately get the exact color of paint desired? Further causing scheduling havoc are three- to six-month delays in obtaining appliances, certain appliance parts, cabinetry and, even, some types of doors and windows.

Finding reliable and qualified contractors creates another obstacle. The remodeling craze that began with the pandemic has yet to slow down and the demand for experienced workers far exceeds the available labor pool.

No prospective income property purchaser wants to deal with added costs or with delays that mean extra days of apartments sitting vacant and not producing any income.

As an owner, you need to think about all of these considerations. Even if you are not planning to sell in the near future, ignoring those deferred maintenance items is only apt to make the situation worse when it finally has to be tackled. 

Sonya Loera
Agent, Manager DRE#01947308