Los Angeles: A Tale of Two Cities

Where you own property in Los Angeles really determines how the last 12 months went from an equity-building standpoint.

Own a home in Boyle Heights or Leimert Park and you had a solid year.

Own a home in WeHo or Silver Lake and 2023 was “meh.”

Even though all four of these neighborhoods are located within LA, they experienced wildly different years—the question is why?

Why did a single-family home in Leimert Park see such strong appreciation in the face of higher interest rates, while a comparable home in WeHo saw slower growth?

The answer is actually pretty simple.

Millennials are finally starting families in earnest

For years, media outlets ran stories about Millennial lethargy in crossing the traditional milestones of adulthood:

• Getting married
• Starting a family
• Buying a home

For a variety of reasons ranging from increased postgraduate attendance to lackluster job prospects in the wake of the Great Recession, Millennials dragged their feet in crossing the aforementioned milestones in comparison with Gen Xers and Baby Boomers.

That is finally changing.

The majority of Millennials are now married, settled in their careers, and ready to start (or expand) their family. The apartments, condos, and small starter homes they’ve occupied for years are no longer sufficient—they want and need space. That means listings in certain areas (e.g., areas that can accommodate larger yards, more bedrooms, etc.) are in greater demand.

Intensifying this demand is the high interest-rate environment which cultivates a more scrupulous and selective buyer.

An era of TikTok and Instagram

This is going to sound tired but that doesn’t make it any less true: we are living in an era of Instagram-chic. People want to live in the type of spaces that they see on social media.

If it helps put it into context, Instagram is today what Architectural Digest or Country Living were in the 1990s—except IG is free, includes video, and features a collective audience that would be the envy of every magazine in the history of publishing. Therefore, today’s first-time home buyer has far loftier expectations of what their purchase should include versus they buyers of yesteryear.

People want the big primary bedroom with a walk-in closet and a dual-sink bathroom. They want a kitchen that opens into the dining room, a breakfast bar, and high-end finishes.

And if they can’t get those amenities included with their home purchase, they want to be buying in an area where zoning makes it easy to remodel.

That last piece is important. Different neighborhoods offer homes with different footprints. Different neighborhoods offer different restrictions when it comes to changing the height or depth or exterior aesthetic of a home. Properties in neighborhoods that offer less in the way of design flexibility will be less desirable than those that can offer more, unless you’ve remodeled in such a way that your listing is truly turnkey for that one ideal buyer.

The condo comedown

As many of you know, some parts of Los Angeles are known less for their free-standing, single-family homes and more for their extensive supply of condominiums (e.g. Santa Monica, Marina Del Rey, etc.).

Unfortunately for these areas, the near-term popularity of condos is waning with Millennials moving into their family years. Condo sales do best when there’s an expansive market of single, first-time buyers seeking a more affordable alternative to traditional homes. But in an era of expensive money (i.e. high interest rates), the most ready-and-willing buyers are Millennials who don’t want to sink capital into a condo when they know life circumstances (i.e. starting a family) will necessitate more space than a condo can provide.

For that reason, we see many buyers who might have considered purchasing a condo in 2016 or 2018 sitting on the sidelines. They would rather continue renting while socking away their money for a house in a year or two, than buy a condo and roll the dice on rapid appreciation. 

Up-and-coming is now down-and-out

In the early to mid 2010s, first-time buyers all wanted the same thing—that primary residence in an up-and-coming neighborhood.

But what is up-and-coming?! I can’t stand the term.

For the life of me, I don’t know what it’s supposed to mean because, in my experience, it means something completely different to every buyer. If beauty is in the eye of the beholder, so too is up-and-coming.

If I must generalize the term, it means people want a neighborhood where they can “buy low”, build equity fast, and “sell high” in a few years. For example, if the average home in LA appreciates 10% year-over-year, then a home in an up-and-coming neighborhood might appreciate by 13% year-over-year.

However, buyers rarely think about up-and-coming in purely mathematical terms. To most buyers, up-and-coming is a feeling more than a measurable quality, so they want the extra appreciation but with all their lifestyle expectations met. This presents a challenge because the reason “buy low” neighborhoods offer more financial upside is due to the fact they usually feature one or more undesirable traits:

• Higher crime
• Underachieving schools
• Fewer greenspaces
• Longer commutes
• Reduced access to retail
• Urban blight (e.g. litter, graffiti, etc.)

Given that family-starting Millennials make up the largest pool of first-time home buyers at the moment…

And given that family-starting Millennials’ primary concerns in purchasing a home for the first time involve safety, perception (i.e. a property’s aesthetics), and daily quality of life…

And given that Millennials will be more discerning in making a purchase due to today’s high-interest rate environment….

Los Angeles’ up-and-coming neighborhoods are going to be less appealing to the bulk of current buyers than those single-family homes in neighborhoods that have already “come up.”

In closing…

As a whole, Los Angeles will always be one of the best places to live in the United States so it’s a safe bet that anywhere you buy within city or county limits comes with solid upside in the long run.

That being said, every neighborhood will appeal to buyers in its own unique way. Given the makeup of today’s average first-time home buyer, certain neighborhoods are going to struggle from a near-term appreciation standpoint because they can’t provide what people want.

However, nothing is permanent.

The appreciation-related lethargy experienced in some of LA’s neighborhoods will only last as long as family-starting Millennials make up the bulk of the buyer’s pool.

In a few years when unmarried Gen Zers make up the bulk of first-time home buyers, we’ll see appreciation in large, finished spaces in family-friendly neighborhoods (e.g., Culver City) slow, and appreciation in more hip, urban-lifestyle-oriented neighborhoods (e.g,  Arts District) skyrocket.

I say all this not to scare you or dissuade you from buying or selling in today’s market, but to remind you of the cyclical nature of real estate—what is “hot” today will be “lukewarm” tomorrow. What’s important to understand isn’t that neighborhood X is hot today while neighborhood Z isn’t—what’s important to understand is that both neighborhoods are on an upward trajectory. If you take the long view, both neighborhoods are appreciating at an incredible rate. 

Ok folks—that wraps up this month’s newsletter.

Please remember that I’m always here to help. The sooner you reach out to me with your comments, questions, and concerns, the sooner I can help you along your real estate journey.

So, with that said, give me a call at 310-853-0335 or shoot me an email at ShannonShue@KW.com.

Talk soon!

-Shannon