In an UPDATE to a recent story, the rate of appreciation should cool to single digits in 2015.

LOS ANGELES-As previously reported, the leisure and hospitality industry in Los Angeles has emerged as one of the biggest drivers of local employment growth. So says Beacon Economics’ summer edition of the Regional Outlook Los Angeles. And the residential market in the area has staged a dramatic recovery over the last year. That is according to the latest report from Beacon Economics.

According to the locally based firm, the median price for an existing single-family home is over $465,000 as of the first quarter of 2013, a 26% increase over the median price in the first quarter of 2012 ($368,000). Interestingly, sales of existing homes were actually down 2.9% year-over-year in the first quarter of 2013.

One reason for the rising prices is a shortage of homes available for sale in Los Angeles County, according to the firm. As of April 2013, the California Association of Realtors’ Unsold Inventory Index was at 2.5 in the County.

“This indicates that at the current pace of home sales, the number of homes available for sale would be exhausted in two and a half months. With demand outpacing supply, prices that are in line with incomes, historically low mortgage interest rates, and larger numbers of Los Angeles County residents finding work, home prices have jumped in response.”

Another contributor to the housing recovery, according to Beacon Economics, is the decline in the number of distressed properties on the market—a trend that is occurring across the nation. Each quarter there are fewer and fewer mortgages in default, and fewer homes going into foreclosure. According to DataQuick, defaults in Los Angeles County were down 65% in the first quarter of 2013 over one year ago, and foreclosures were down 52% over the same time period.

As distressed properties are funneled through the market, the downward pressure on prices is reduced since distressed sales typically come with a discount over market values, says the firm’s report. “In other words, when the share of equity sales (sales of home with equity) increases and represents a larger portion of total sales, prices are not dragged down by a large number of distressed sales.”

These changes in the fundamentals of the local real estate market are key to Beacon Economics’ outlook over the next five years. In the near term, the firm says to expect home prices to continue to appreciate by double-digit annual growth rates through the end of 2013 and into 2014. The rate of appreciation should cool to single digits in 2015. Also, “expect the median price for an existing home in Los Angeles County to reach $500,000 by the end of 2015.”