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L.A. and other hot housing markets are getting frothy, report says

April 12, 2013|By Alejandro Lazo
  • Workers work on a home under construction in Rancho Santa Fe.
Workers work on a home under construction in Rancho Santa Fe. (Sam Hodgson / Bloomberg )

Home prices are rising faster than incomes in Los Angeles, making it more prone to a new housing bubble than many other major cities, a real estate report indicates. 

Rising home prices and strong demand are making the market feel particularly bubbly in Washington, L.A., San Diego and San Francisco, according to the report by online real estate broker Redfin.com.

All of these markets have seen home prices climb significantly compared with income in an atmosphere of low inventory, bidding wars and rapid-fire sales. In Los Angeles, the inventory squeeze has been the biggest factor in driving up prices.

“So many people in L.A. are in between where they bought at huge bubble prices in 2005 and 2006 and now, and they are not willing to list their homes,” Glenn Kelman, chief executive of Redfin, said. “The result is there is a rush on what inventory is out there.”

The ratio of home prices to incomes in Los Angeles is 26% higher now than it was in 2000, according to the Redfin analysis. Out of all homes sold in March, 10% were flips, Redfin said, and 91% of the company’s deals involved a bidding war.

When the company was the listing agent in Los Angeles, agents representing buyers have called offering to double the company’s commission to ensure their buyer won, Kelman said. And increasingly deals are being financed with smaller down-payments, meaning buyers are able to secure increasingly aggressive loans.

Some investors are beginning to bow out of the market. Redfin ranked 15 U.S. markets from most bubbly to least, using a price-to-income ratio. The company found that Los Angeles was second only to Washington. The least bubbly in the country were Atlanta and Chicago. The national housing market does not appear to be in bubble territory, Redfin concluded. 

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