Why Downtown LA The Smart Money Buy for 2023
BY MICHAEL ROBLETO JANUARY 16TH, 2023 3:56 PM PST
Realtor with Compass Pasadena. Specializing in the buying and selling of Pre-War, Historic and Architecturally significant homes and lofts in Altadena, Pasadena, Eagle Rock, Highland Park, Silverlake, Los Feliz and DTLA.
While thousands of would-be homeowners are sitting in the wings waiting for the media to tell them what could potentially happen, smart money buyers are eyeballing ample options and potential windfalls in the Downtown LA loft/condo market.
As a long time, Downtown LA resident (I first moved to DTLA way back in 2009) I have seen 14 years of peaks and valleys of development and promise. We see these cycles in the history of local condo sale volume, and every time sales rebounds after a dip and most of it is seasonality. The current dip in condo sales, caused by interest rates and the cyclical seasonality of the market, is the lowest since I have been here, and that creates a unique opportunity.
The Pulse of The City
Being here so long, it is easy to see the pulse of the area on a daily basis. Are people out at night, are new restaurants opening, are the restaurants full, what do the commercial developers say, what are business owners saying?
So, what is that pulse? Well its hints that we are on the verge of another spike. Commercial realtors (the ones who lease retail space to new restaurants, gyms and businesses) are busier than they have been in years signing leases for new restaurants, art exhibits and gyms that will open later in 2023. The long stalled Oceanwide Plaza project is starting to show glimmers of completion while two new apartment towers are preparing to open.
On the street, people are out, the weekend crowds are coming back, bars are busier again, and events draw big crowds. Luxury apartment towers are leased up to 95% or more, many with high end penthouses that are getting snatched up all of a sudden. The vibe is that people are returning.
The Future of DTLA
On the near horizon are a multitude of initiatives and developments that will further reinforce the long-building evolution of the core of Los Angeles. Other than a plethora of new construction, the two big ones are the 2028 Olympics and the DTLA 2040 plan.
The Olympics will bring increases to the police force, major expansions by Metro for public transportation, but most importantly, I believe there will finally be meaningful solutions for the unhoused population that has always clustered in Downtown LA. There is no way city officials will want the current mess to be shown to the world coming to see the games.
The DTLA 2040 plan is an initiative to further develop Downtown Los Angeles by setting attainable standards that will encourage inclusivity, sustainability, and prosperity. Think of Manhattan New York in the 1980s and early ’90s, it too way once a bygone, decaying metropolis. The change came from development, drops in crime, opportunity, and infrastructure. All things poised for DTLA.
Smart Money Strategies are on The East Side
As a residential realtor that specializes in prewar and mid-century properties, my areas of coverage are generally the Los Angeles Eastside (MidCity, Silverlake, Highland. Park, Downtown La, Pasadena etc). While many areas are experiencing a slowdown in new listings and buyers, there are two exceptions I am seeing.
First, single-family homes that are of classic architecture (Craftsmans, MidCentury Moderns, Spanish Revivals, and the like) will always be in high demand and still receive multiple offers in just a few days of being on the market. For would-be buyers, it is still a challenging market fraught with limited choices and a lot of competition. Sellers still have a major advantage.
The second anomaly is Downtown LA. The number of units for sale is up ten percent since this time last year and up almost 70% since 2017 and the number of condos that have sold is down almost 60% when compared to December 2021 and half the number sold five years ago. There are plenty of choices and that equates to serious buyer leverage.
Despite the soft sales numbers, the price per square foot has remained steady as has the average sale price (down 6.8% since 4 years ago but less since. This steadiness shows the resilience of Downtown Los Angeles real estate values.
DTLA Sales and Inventory Trends
December and January are always slow times for sales in Downtown, we see historically a spike in sales in March. We attribute this to the “USC effect” where parents buy condos for new USC students. The take possession in April, get settled and have the summer to acclimate before school starts in August.
As a buyer, you want as little competition as possible which means now is the time to pull the trigger on buying a loft in Downtown LA. Comparing December to January, we can already see an uptick.
Current Number of Properties for Sale in DTLA: 163
Number of Properties Sold in Q4 2022: 56 condos (Down 50% from Previous quarter)
Number of properties in Escrow Currently (pull from MLS): 26
Number of properties in escrow Dec 2022: 15
Number of properties in escrow Dec 2021: 18
Defeating the Mortgage Monster
One of the greatest challenges facing would-be homeowners is mortgage rates. As of this article the average rate for a 30-year fixed mortgage was 6.33% (down from a high of 7.08% in early November 2022).
Rates fluctuate daily and people apply for mortgages daily but keep in mind the banks that issue these loans are in the business of issuing loans. Mortgage application numbers have plummeted so banks know there is a threshold for rates. That being said, some creative lenders have started offering programs that help combat the current rate levels:
7 Year and 10 Year ARMs
Adjustable Rate Mortgages (ARM), where the rate changes based on the market, got a bad rap after the financial crisis and we grew accustomed to avoiding these like the plague. That mindset has changed. Where ARM’s represented a mere 3% of all mortgages in November 2021, they now represent over 12%.
Most homeowners will refinance their mortgage at some time and gone are the days that we stay in a home for 30 years (ten years is the average now). Rates will eventually mellow out within the next five years and you could refinance then.
3-2-1 Get Me a Mortgage
Another very creative product is the 3-2-1 Mortgage, which varies a reduction in interest rates over the first years of the loan. 3% off in the first year, 2% off in the second etc. This again is a way to buy time until rates level off.
Buyer Credit by Census Tract
Some lenders are offering credits to buyers if they are buying in minority dominated census tracts. The mixed population of Downtown LA, makes almost every building qualify for what could be up to $25,000 to be applied to rate buy downs, closing costs, or down payment assistance. Not every lender offers it, but it is encouraged to speak to the ones that do.
Future of Rates
The future of rates is pure speculation. We know they haven’t been this high in almost 15 years and there are rumblings of a couple of smaller increases to happen in early 2023 (dependent on the rate of inflation) Every economist in the country is being tasked with answering the question of the future and they all are guessing different things. Regardless, common sense would tell us that with rates being anomaly high, they won’t stay there for long.
Goldman Sachs expects inflation to slow from 5% to 3% by late 2023, accompanied by just a 0.5% rise in unemployment. It also predicts the Fed interest rate will max out at 5.25% with no rate cuts slated for 2023. Goldman Sachs is betting against the general consensus that there’s some kind of recession approaching.
Buyer Strategy for 2023
Downtown LA is the center of the second largest city in America, the core has been inching towards an evolution for twenty years, and just like Manhattan overcame its plight, so will DTLA. The future is bright and the opportunity for investment has never been more in favor of buyers.
A great realtor that knows every building and every block will be able to give you a true sense of the pros and cons. Have talks with many lenders and see what they can do for you, and you will be surprised.
If you have any questions about lenders, buildings, or the general market, I am always at my client’s disposal.
Amazing Listing Examples:
loft Listing spotlight downtown la
Michael Robleto is a Los Angeles-based REALTOR® that specializes in Historic, Pre-War and Mid-Century homes in Pasadena, Altadena, and east side cities like Los Feliz, Silverlake, Eagle Rock, and Mount Washington. Michael uses his vast knowledge of older homes, residential construction, and modern-day marketing to predict and solve the many problems that arise in real estate transactions. His client accolades of insight, prompt communication, integrity, and hard work support the fact that he is not your average agent.
Michael leverages his personal passion for historic architecture to provide his clients with unknown insight into the pros and cons of older homes. Michael, the son of a contractor, and a California native, grew up in an older Bungalow home and has spent 23 years in Southern California admiring the unique architecture of the region. Michael brings 20+ years of negotiation and sales experience to his seven-year career in residential real estate. He often writes on homeownership strategy, historic residential architecture, and related topics that can be found on Facebook, YouTube, Twitter, and Instagram under the common profile name of his blog; BungalowAgent.
Michael sits on the Board of Directors of Pasadena Heritage and is a frequent volunteer for the preservation efforts of numerous historic neighborhood associations and the LA Conservancy. When not working you can find Michael on hiking trails statewide with his faithful German Shepherd Axel.
Michael Robleto
Realtor - Compass Pasadena
213-595-4720
michael.robleto@compass.com
