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I take a look at the housing crisis in Los Angeles from 2006 to 2013 to understand by how much prices fell, and how they have recovered.
The regions of Los Angeles
Los Angeles is a large sprawling city, difficult to get around in without a car, not unlike Melbourne. Los Angeles is surrounded by the Pacific Ocean and mountains. To the east Los Angeles merges into several other cities as far as a couple of hours drive.
The west and to the south near the water are more up market than the eastern areas. I’ll analyse two areas. West Hollywood which is a hip suburb next to Beverly Hills, and Eastvale, a relatively newly built commuter city on the eastern outskirts of Los Angeles.
The timeline of prices
The housing prices first started to decline around late 2006 and early 2007. Reproduced here are year end prices for West Hollywood and Eastvale.
Rental figures aren’t available, except as a median household figure for a limited number of years, so the Zillow calculated rental yields are reproduced here. The yields look high to me, particularly in Eastvale. Unfortunately yield figures weren’t available from Zillow for the 2006 period just before the collapse.
| Region | Year | Beds | Yield | Purchase |
|---|---|---|---|---|
| (USD or AUD) '000s | ||||
| West Hollywood | 2006 | 4 | 1998 | |
| West Hollywood | 2010 | 4 | 5.20% | 1757 |
| West Hollywood | 2013 | 4 | 4.65% | 2166 |
| West Hollywood | 2006 | 2 | 777 | |
| West Hollywood | 2010 | 2 | 624 | |
| West Hollywood | 2013 | 2 | 746 | |
| Eastvale | 2006 | 4 | 568 | |
| Eastvale | 2010 | 4 | 7.9% | 314 |
| Eastvale | 2013 | 4 | 6.3% | 391 |
| Eastvale | 2006 | 2 | 385 | |
| Eastvale | 2010 | 2 | 164 | |
| Eastvale | 2013 | 2 | 215 | |
| South Yarra | 2014 | house | 2.80% | 1419 |
| South Yarra | 2019 | house | 5.00% | 851.4 |
| South Yarra | 2014 | unit | 4.01% | 611 |
| South Yarra | 2019 | unit | 6.00% | 366.6 |
As before, I wasn’t able to find data on specific to the number of bedrooms for South Yarra, so instead I’ve used “unit” and “house” data and assume that they are representative of two and 4 bedroom places.
On losing value
West Hollywood fared very well. 4 bedroom prices lost 12% before recovering back to now pre-collapse pricing. While the smaller 2 bedrooms lost 20% before again recovering close to the pre-collapse pricing, though not as well as the four bedroom recovery.
In the outer east, prices dropped considerably more. 4 bedroom houses lost 45% and the 2013 year end prices recovered to a 31% loss, while 2 bedroom homes lost 57% before recovering to 44% lost.
Similarly to the analysis in Dublin, if the yields are to be believed, Eastvale now looks like an attractive investment opportunity. Of course, an automated yield calculation doesn’t tell the true story about the rental market in Eastvale. Income from an unrented investment property is zero, so if there is soft demand for rent in Eastvale those lower prices may be justified.
Can we apply this to Melbourne?
As with the Dublin example, I still believe that aspects of the decline may happen here. The real surprise has been how well West Hollywood houses held onto their original value.
Reproduced in the above table are the prices for equivalent hypothetical South Yarra houses and units in 2019. A future price of $1.25 million (compared to $1.4 million today) for a home doesn’t sound like a bargain.
I’m beginning to believe that any downturn in desireable areas like South Yarra will be merely a correction in pricing back to fair values, and will not present much bargin hunting opportunity. Outer areas and commuter cities will be harder hit, and may see over 50% of the value lost, which may present opportunities for investment in higher yield properties.