Given the mind-boggling financial crisis that happened in 2008, most people now tread very lightly when it comes to real estate investments. After all, the housing market bubble is one of the main reasons for the economic downturn that happened a decade ago. Thus, it should come as no surprise that investors are now very aware of the prices and keep a constant watch on median home values. In Los Angeles, however, this might be exaggerated to a point where myths are slowly clouding people’s judgments.
Undoubtedly, the housing market in Los Angeles is experiencing some growth. The prices have been slowly rising to a point where many investors believe that there is another bubble. Although their fears may turn out to be true, it is important to understand what one should know when analyzing a potential crisis.
First, it is essential to look at the current state of the real estate ventures. Given the popularity of Los Angeles, one of the main reasons for the increasing prices is the huge demand. Connecting that to the basic laws of supply and demand will explain why the prices are rising. After all, if a lot of people want to buy the same thing, the seller will have to narrow down the buyers by raising prices. Hence where the growing median home values in Los Angeles are coming from.
In 2007, the market crashed right after reaching some of the highest median home values ever. Since the numbers are slowly starting to remind people of that period, investors believe that another bubble is inevitable. The problem, however, is that their opinion is based on short-term data. Yes, if one only looks at the previous ten years, they may believe that these home prices in LA indicate a market bubble.
What they are failing to see, however, is the long-term perspective. Throughout the history, the home values around the United States have been on an upward-curving slope. Meaning, they sometimes go up and then come down. They always, however, grow in the long-run. For instance, the home value a century ago was nowhere near what it was fifty years ago or today. This is because there is a repetitive pattern of growth. For the Los Angeles market, that means that the current prices actually may indicate another historical increase.
Even though everything mentioned indicates that a potential housing bubble in LA is a myth, remaining mindful is necessary. At this moment, the median home price goes north of $916,000. Just looking at the price, it indeed does raise some eyebrows because it beats most other markets in the nation. To that end, it is necessary that real estate investors pay close attention to how things play out in the upcoming months. If the price continues rising above everyone’s belief, another close analysis will be needed.
Ultimately, if the price ends up falling in the short-run, such result could indicate that a housing bubble indeed existed. Until that happens, however, investors should focus on locating lucrative opportunities and not worrying about potential crashes that are mostly based on myths.