FEBRUARY 05, 2007 -- Southern California's multifamily housing market is in the midst of a slowdown—and that, analysts say, is good news. An over-exuberant conversion craze during the past few years weakened the market, but analysts and developers remain bullish on Southern California. In particular, the apartment market is expected to reap the benefits as the condo and single-family markets continue their corrections. Delores Conway, director of the Casden Real Estate Economics Forecast, USC Lusk Center, says a sense of normalcy is being restored to the market, which was skewed, in part, by fast-paced condominium investment speculation similar to that seen in Las Vegas and Miami. "Developers are stopping new construction, delaying projects and aggressively offering concessions to unload existing inventory caused by speculators abandoning the market as interest rates started rising and price appreciation slowed," Conway says. Apartment growth remains strong, Willett says, with occupancy rates (held in check by the abundance of new construction) hovering near 97 percent. The telling tale, he says, is occupancy for units built since 2000, which is closer to 91 percent. Rent growth is at 6.1 percent. "As a result of interest rates going up and the slowing of the housing market, it took away some of the buying fervor. Now, there is a lot of product, especially on the condo side, that isn't selling," says USC's Conway. And Marcus & Millichap research shows that effective rents are rising faster than asking rents as developers offer concessions to shed inventory. "I don't see it as a boom-bust cycle, but more of a boom-pause," explains Conway. The transformation of downtown LA eventually will happen—it's just going to take longer. For the next five years, it's going to look about the same; but 10 to 15 years from now, downtown LA will look quite different," she predicts.
