As we enter what hopefully will be the final phase of the pandemic, owners and investors in residential rental properties are looking forward to an eventual return of “normal” marketplace conditions. Of course, the post-pandemic environment will look very different from the conditions that prevailed in early 2020. This is especially true in Southern California’s always-dynamic market.
An important part of Pan American’s service to real estate investors is keeping our fingers on the pulse of Southern California’s evolving markets. These are some of the key topics we are watching:
- Demographic shifts
Over the last year, numerous media outlets have carried stories expressing concern that California has lost its luster as a destination for domestic migration. Certain data do indicate a trend in that direction. In 2019 California had a net loss of population when considering domestic migration alone, with a net loss of 173,347 people. Although our state had the highest number of departures of any state, as a percentage of the total population those departures are tiny—less than two percent. In other words, don’t make a mountain out of this molehill.
As a comparison, consider that the natural rate of population growth in California was over two million in 2019. With the fifth-youngest population in the country and a robust influx of immigration from abroad, California promises to remain a vibrant place to own rental properties.
Of course, local trends are where the rubber hits the road for investors. Southern California’s medium-term trends have been mixed. For several years, growth in inland counties, like Riverside County, has outstripped the pace of coastal areas like Los Angeles and Orange Counties.
To a certain degree, the pandemic has accelerated that trend, as people who can work from home have moved from higher-cost areas to more affordable regions, in part because the pandemic has eliminated many of the perks of living in those more expensive areas. As restrictions lift, those higher-cost places may get hot again.
- A tight housing market gets tighter
The market for single-family homes has important implications for the rental market. Despite the pandemic, Southern California’s housing market has remained strong, with steadily rising median home prices throughout the region and a regular stream of transactions. Several factors have driven these conditions, including a tight supply and a gangbusters stock market.
If predictions of an economic boom are accurate, we anticipate the marketplace for single-family homes to continue to remain strong. Many families will choose to rent instead of buy, either because they are priced out of the market or because they prefer to wait for a dip before buying in. In light of the state’s long-term population growth, rental markets should only get better for investors.
- Turning the corner on COVID?
The pandemic has had profound impacts on renters throughout Southern California, with corresponding consequences for landlord revenues. Eviction moratoriums like California’s SB 91 law and the CDC’s temporary order have forced many property owners to get creative to weather the financial challenges as their residents confront the hardships imposed by COVID-19.
As the pandemic winds down and the temporary stays on evictions come to an end, a strategic shift will take place. Owners will need to make choices—some of them quite difficult—about how to move forward with tenants who may now owe a substantial sum of back rent. With the number of eviction cases ready to inundate an already overburdened court system, owners will need to be flexible and creative to find alternatives, like negotiated exits, that can fill at least part of the shortfall.
- Back to business.
In February 2020 California was among the most active states in terms of business formations and investment opportunities. With many economists predicting a fresh boom after the pandemic’s restrictions lift, we anticipate Southern California will experience a significant rebound. As existing businesses thrive and new businesses open up, people will be drawn to where the jobs are, and they’ll need a place to live.
The sustainability of work-from-home models will have important implications for how the rental market evolves as the economy reopens. People who are able to continue to work from home may prefer to live further from city centers. In short, the shift inland may be a permanent feature rather than a temporary phenomenon. This creates fresh opportunities for properties located in places like Riverside to capture added value.
There’s no time like the present to prepare for the coming boom with property upgrades. Tasteful renovations can be a powerful way to boost the competitiveness of a property. Renovations need not be hugely expensive to make a difference. Pan American’s full-service renovations team can help you explore the options that make sense within your budget.
Let Pan American be your guide
Pan American Properties is committed to offering our clients objective, data-driven forecasts to inform planning for this year and for decades to come. What are your real estate investment objectives? Call us at (888) 754-9700 or email [email protected] to learn more about the current trends in Southern California’s rental marketplace