In a recent interview, we explored the findings of a report from UBS Group regarding the real estate market in Los Angeles, which suggests a serious risk of a housing bubble. According to the report, there could be a significant downturn in home prices. We spoke with various experts in the field, including real estate analyst Li Bingxin, who has nearly 30 years of experience.
Li supports UBS’s view, stating, “Right now, Los Angeles is in an era of high prices and high interest rates, with only 12% of people able to afford homes. If this isn’t a bubble, what is? In the past, the standard was that 38% to 40% of people could afford homes—that’s a normal market.” He added that real estate cycles typically occur every 12 years, with the last significant downturn observed in 2010. According to Li, projections suggested that 2022 would have marked a low point, but the pandemic shifted the cycle. He also noted, “Historically, when real estate cycles start to decline, it begins with the Federal Reserve cutting interest rates by two basis points, signaling an impending economic storm. Is the recent Fed rate cut a sign that a new economic crisis is on the horizon?”
Li raised concerns regarding the impact of layoffs in the tech industry, which could lead employees who own high-value properties to struggle with mortgage payments. “If property owners face job loss and cannot sell their homes, the market could become saturated, leading to price declines,” he explained. While some may see a direct relationship between real estate and interest rates, he emphasized that economic downturns have a more direct impact on the housing market. “Even with lower interest rates, poor economic conditions will still cause property values to drop,” he asserted.
On the other hand, Irvine-based real estate agent Paul Young offered a different perspective. He believes that while a slight dip in prices following an increase is normal, he is skeptical about predictions of a significant crash. Young argues that there are currently no substantial factors that would lead homeowners to panic-sell their properties, which is critical for maintaining market stability. He also pointed out that high costs associated with moving, labor, and materials are helping to sustain home values, making a short-term drastic decline unlikely.
In summarizing the findings, UBS’s report indicates that while there is evidence of a bubble in the Los Angeles housing market, it cautions that the existence of a bubble does not necessarily mean it will burst.
