Housing market analysts have been watching property values skyrocket across California for years, and they have been waiting for the other shoe to drop. Fears of a statewide housing bubble prompted some analysts to believe that a bursting was imminent in 2020; however, the coronavirus pandemic took care of cooling things down. In the absence of a crash, we can safely say that market participants have been acting responsibly, and this was recently underscored by a Fitch Ratings report of metropolitan housing valuations.
Trends in Housing Market during the Past Year
Prior to the COVID-19 pandemic, the San Francisco housing market was very close to implosion because Fitch Ratings considered median home prices to be more than 35% overvalued. Nowadays, that assessment has dropped to less than 9%, thus making it a sustainable market. Los Angeles and Orange County also improved to a range of 5% in overvaluation, but some problems remain in San Diego with more than 10%.
With housing market conditions more grounded in reality, the pace of new residential construction has rebounded rather nicely in the Golden State, and this has a lot to do with housing demand. If you have been thinking about building a new home as an investment in 2021, now is the time to act, particularly if you want to become a landlord who provides reasonable housing opportunities.
Types of Housing Construction Projects
Reasonable housing is not the same as affordable housing. Local governments and developers complete affordable housing projects as a means to prevent a housing crisis. Reasonable housing is a normalization of the housing market that can still be profitable to landlords. The idea of paying $3,000 a month for a dilapidated one-bedroom apartment in San Francisco is thankfully going away; reasonable housing is being able to pay $1,600 for a nice three-bedroom home in the High Desert.
Construction of multifamily projects has been picking up in California because of the need for more housing. Smart real estate investors can easily make around $4,000 per month if they convert a single-family residence in Apple Valley, for example, into a multifamily property. You do not have to gouge tenants in order to make money in this market. Charging a little over the median regional rent can be justified if the property is new or has been renovated; moreover, you will not have to wait long for new tenants to sign contracts.
As for high-end properties in California, demand has gotten stronger in 2021, and this is expected to continue over the next few months. Contact our office if you are thinking about starting a new residential project this year.