LOS ANGELES—There are few things that spook John Chang. While caution is always called for, he sees little endemic to the local market that can derail the growth of the multifamily market. And in fact, one of the threats he had mentioned in our interview has since virtually disappeared.  With the resolution of the labor disputes at the Port of Los Angeles, the massive backlog of goods can flow again and discretionary spending will rise.

In this second in a series on the Los Angeles market (click here for an analysis of the office and industrial markets) the Marcus & Millichap first vice president explains that problems on the horizon are not endemic of L.A. real estate and finance but beyond our control, what he describes as “macro headwinds,” such as a possible downturn in the national economy, international tension and the threat that oil prices could actually drop lower. “The steep decline [in prices] has put a lot more money in people's pockets,” he says, “but this is very volatile, and if they drop again under $40 a barrel that could cause big risks to the US economy.”

So Chang encourages caution. “We've seen it before when everything is going along nicely and then the housing bubble bursts,” he warns. But for the immediate road ahead, he sees few bumps.

And, as we're seeing in many cities around the country, he is encouraged not by the anticipated rise in discretionary spending alone, but also by the influx of Millennials and their taste for housing in so-called live-work-play areas. Submarkets such as Playa Vista/Silicon Beach, which he describes as a hotbed of tech activity, are naturally attracting younger residents in what he sees as a still-emerging trend in L.A. “A lot of apartment developers are banking on Downtown L.A. developing this lifestyle,” he says. As a result, “a lot of new units that will cater to young people are going up there.”

In fact, Chang reports about 2,400 units coming online in Downtown L.A., almost a quarter of the metro area's total of 10,000. “There's a pretty big increase in construction, and I'm seeing it accelerate.”

Interestingly, the Millennial push toward these areas isn't having a tremendously negative impact on the outer submarkets. While they “will be softer,” Chang reports that “a lot of folks are going farther from the core because of the cost of living. Depending on people's employment, they may not be able to afford the hot new apartment Downtown.”

Neither is the Millennial push leaving Boomers out in the cold. “Even with the decline in home prices,” says the FVP, “the recent resurgence in prices has created a fair amount of equity for owners. Some are choosing to sell off their homes and move into apartments, and they can afford some of the nicer apartment properties. And they too are moving toward this live-work-play lifestyle.”

So what exactly are rents doing? Chang sees record rates in certain markets. “Averaging all apartment types, the overall pricing in the Los Angeles metro is $180,000 a unit, which is aggressive. To put that into perspective, in 2010 we were looking at $150,000, maybe $155,000.”

Plus he reports that cap rates, which bottomed out in the 2013-'14 period, are “so tight that investors tell us it makes it difficult to make numbers pencil out.” For most apartments, he puts cap rates at around five percent dipping as low as four percent in prime submarkets.

So what of his cautionary advice? The problems of the past recession, largely of our own making, are “to a great degree, and fortunately, still alive in our memory,” says Chang. “So on a day-to-day basis you have to make the best decision you can with the information you have available. Investors still need to be prudent and guarded against potential downside risk. It's wise to be aware and cautious that something could come out of left field. But I see nothing eminent at this time.”