Long Beach Multifamily Real Estate Market Update: Q3 2021

In this Q3 2021 Long Beach Multifamily Real Estate Market Update, we will cover all these questions and issues concerning apartment owners and landlords:

  • How the multifamily real estate market is in Long Beach, California?
  • Expiration of the California Eviction Moratorium
  • The government’s plan to eliminate the ability to do a 1031 Tax-Deferred Exchange
  • Will real estate property values drop soon?
  • Are mortgage interest rates still going to remain low in 2021?
  • Potential Anti-Landlord Laws in Long Beach
  • Long Beach Fourplex Market Statistics
    • Number of Fourplex Sales
    • Average Sales Price
    • Active Inventory
  • Advice for Real Estate Investors looking to Sell or Buy

Expiration of the California Eviction Moratorium

The California Eviction Moratorium ended on September 30, 2021 leaving many wondering how it will affect the real estate market. Some apartment owners believe that the market will be flooded with evictions and vacancies, which in turn will drive property values down. Here’s why that will never happen:

Based on our team’s conversations with the Apartment Association, Long Beach apartment owners, real estate investors and landlords, only a small fraction of all tenants in the city have had hardships with paying their rent during the pandemic. In fact, 90% to 95% of renters in the city have been consistently paying rent since the beginning of COVID-19 lock downs. The expected amount of potential evictions due to unpaid rent will definitely not affect property values in a significant way.

For those tenants unable to pay rent and landlords unable to collect rent, there are also rental relief programs provided at the federal, state and local levels. Therefore it is highly unlikely that the city of Long Beach will experience a series of evictions, foreclosures, apartment owners selling their property on the market, or even a drop in property values after the expiration of the California eviction moratorium. There won’t be a dramatic effect; so expect the real estate rental market to remain normal.

Section 1031 Exchanges Going Away?

The current administration’s American Families Plan proposes ending the ability for investors to use Section 1031 to defer taxes on gains greater than $500,000. Because tax reformers in the past have constantly targeted Section 1031 exchanges, there’s significant amount of research revolving around how 1031 exchanges affect the economy. Eliminating the ability for investors to do 1031 exchanges could cause real estate prices to decline and would cause rents to increase.

Although the American Families Plan doesn’t propose eliminating Section 1031 exchanges, the changes it potential imposes are likely to cause a similar impact to eliminating 1031 exchanges completely. If an investor must pay taxes on capital gains every time they sell a property, they will have fewer funds to reinvest into another property. With no real tax benefits to reinvesting their proceeds into real estate, investors will be forced to consider investing in other types of investments.

Another effect of taking away Section 1031 Exchanges is an inventory crisis. Fearful of being taxes on their gains, real estate investors would be more likely to hold on to their real estate properties for longer periods.

Whether Section 1031 Exchanges get eliminated or not, here’s what you need to consider now:

  • If you’ve been considering to sell and exchange your property within the next 12 months, you might want to consider speeding up your timeline and sell now.
  • Consider paying taxes on capital gains now to take advantage of current long-term capital gains treatment before any changes may occur.

Buyers Waiting on the Sidelines: Will Real Estate Property Values Go Down Soon?

The number one thing real estate investors and potential buyers tend to say is that they are waiting for the next real estate market crash for values to drop so they can take advantage of discount property prices. In a nutshell, this is not a scenario that is going to happen any time soon or in the near future.

The 2008 housing crisis was the worst economic disaster real estate investors faced since the Great Depression of 1929. Throughout the COVID-19 pandemic, the real estate market experienced surging prices, low inventories, and a deficit between supply and demand which signaled a potential repeat of the 2008 housing crisis. The anticipation of another potential market crash has caused many real estate investors and potential buyers to sit on the sidelines; instead of taking advantage of the low mortgage interest rates and purchasing investment properties.

If you are someone who is waiting for the next real estate market crash, you might be waiting for a long time. Ever since the 2008 market crash, the government has spearheaded reforms which brought in higher lending standards aimed at preventing another scenario like it. During the COVID-19 pandemic, forbearance programs allowed apartment and home owners to postpone their monthly mortgage payments without suffering penalties.

Along with my previous two points, investors today have the cushion of equity from the recent appreciation surge of their property values. When the market crashed in 2008, property values were far below the amount owed on mortgages. Real estate property values will still continue to appreciate, but the rate of this growth will slow down.

When you wait for another market crash to buy an investment property, you’re really just waiting to defer wealth accumulation through real estate investing. We know for a fact that real estate property values double every 10-to-12 years.

Are mortgage interest rates still going to remain low in 2021?

Low mortgage rates remain highlight of the real estate pandemic economy, despite the fact that they have been inching up ever so slightly in recent weeks. Experts we follow have stated that we can expect mortgage interest rates to remain low until late 2022.

Potential Anti-Landlord Laws in Long Beach

It’s getting more and more frustrating being a landlord in California because of new state and local laws (such as AB 1482 and SB 91) that favor tenants over landlords. Just because the current laws do not favor landlords, doesn’t mean that you should not invest in real estate and become a landlord.

In fact, our team at Sage Real Estate created a Facebook group called “Landlords of Long Beach” dedicated to uniting all landlords in Long Beach, CA so we can be aware of issues and new laws that may affect apartment ownership, and fight for adequate representation at the city and state level.

How is the Long Beach fourplex market doing?

Number of Fourplex Sales:

  • Q3 2021: 26 fourplexes sold
  • Q2 2021: 38 fourplexes sold (-46% decrease)

Sage Advice: Although we’ve experience a decrease in fourplex sales, this is not alarming because it’s just a sign that the market is returning to pre-pandemic levels. In Q1 of 2021, we also had 26 fourplex sales which also indicate that we are back to the average of 100 fourplex sales in a year.

Average Days on Market

  • Q3 2021: 31 days
  • Q2 2021: 57 days (54% faster)

Sage Advice: This is great news for sellers, but tough for buyers. This is wonderful for the real estate market overall.

Fourplex Inventory

  • Q3 2021: 25 fourplexes
  • Q2 2021: 24 fourplexes

Sage Advice: No major shift in inventory despite properties selling faster and for more. This is also great news for sellers since there is less competition in the market.

Average Sales Price

  • Q3 2021: $1.5 Million
  • Q2 2021: $1.2 Million (+24% increase)

Sage Advice: This significant increase was caused by one of the largest fourplex sales which was $3.5 million. I don’t see another anomaly in the near future so we can expect the average sales price of a Long Beach fourplex to return back to around $1.2 million.

Advice for Real Estate Investors looking to Sell or Buy

For apartment owners thinking about selling: Your property has never been worth more than ever before. More properties are selling than ever before, and there is less competition. The numbers are telling us that this is the perfect time to put your property on the market. Especially with the possible elimination of Section 1031 Exchanges, now is potentially a good time to sell your property. Call us today for a FREE Property Valuation.

For real estate investors who want to buy a property: The California Housing Crisis will not be simply solved in 10, 20, or even 30 years. So when you invest in real estate, you’re investing in a scarce business that has demand right now and well into the future. This demand is what drives a property’s appreciation and allows real estate investors to build wealth, financial freedom, and eventually retire some day.

If you’re still waiting until prices go down, you’re going to be waiting for a very long time. You need to capitalize on the low mortgage interest rates, which counts as your Cost of Capital. The longer you wait, the longer you’re preventing yourself from getting in the game and building wealth through real estate.

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