10yr Anniversary of Housing Crash – Where are we now?

November 16th, 2017

As anniversaries go, it’s a nerve-racking but inescapable one: It’s been 10 long years since the widespread real estate crash that precipitated the Great Recession.  So it seems a perfect time to take a step back and assess what has happened to the American housing market in the decade since.   So where are we?

 

Ever-steeper home prices: check. Buyers clamoring to get into those precious homes: check. Real estate newbies scooping up homes to renovate quickly and sell for a profit (i.e., flip): check. Ugh…  On first or even second glance, things are looking awfully similar to the real estate boom that preceded the epic bust. But hold on –  If we look beneath the surface, there are key differences between then and now.

As we compare today’s market dynamics to those of a decade ago, it’s important to remember rising prices didn’t cause the housing crash

It was rising prices stoked by subprime and low-documentation mortgages, as well as people looking for short-term gains that created the environment for the crash.

By contrast, today’s housing market is characterized by a significant mismatch between 1 – Significant job and household growth (These factors spur people to buy homes) 2 – Much tighter lending standards and

3 – Historically low for-sale inventory (Both of which make it difficult for people to buy new homes).

The result: extremely high home prices and a lot of frustrated buyers.   But how much higher?

The U.S. median home sales price in 2016 was $236,000, only 2% higher than in 2006. And 31 of the 50 largest U.S. metros are back to pre-recession price levels.

Nationwide data show that listing prices have been up by double digits for the majority of 2017.

The biggest change on the housing scene over the past decade is that lending standards are the tightest they’ve been in almost 20 years. The Dodd-Frank Act, which was passed to tamp down the risky lending that led to the bubble and its collapse, requires loan originators to show proof that a borrower can repay the loan. As a result, the median 2017 FICO score was 734, significantly up from 700 in 2006.

The low end of the range has pulled up as well.  The bottom 10% of borrowers have an average FICO of 649 in 2017, up from 602 in 2006.

Lending standards are critical to the health of the market. Ten years ago an under-regulated lending environment allowed borrowing beyond repayable amounts and atypical mortgage products, and that pushed up home prices without the backing of income and equity.

Sure, Flipping is hot again, but now it’s under control

For about as long as we’ve had a housing market folks believed that prices would never go down and that a home was always a good investment.Unfortunately, the housing crash exposed this fallacy big-time.

In 2006, the share of flipped homes reached 8.6% of all sales, exceeding 20% in some metros such as DC, and Chicago. And some flippers took out multiple loans to afford properties!  With today’s tight lending environment limiting borrowing power flipping accounted for a more reasonable 5% of sales in 2016.

But while stricter lending standards have kept flipping in check, it’s contributing to a housing inventory shortage—and that’s keeping prices elevated.

Today’s market is also well below normal construction levels with only 0.7 single-family household starts per household formation.

What’s also driving today’s housing market is high employment levels.  In 30 of the 50 largest U.S. metros, unemployment is less than half of 2010 levels. Employment is particularly robust among millennials, who are just starting their careers.   But at the same time, there are 600,000 fewer total housing starts and nearly 700,000 fewer single-family housing starts.

Put succinctly  – The healthy economy is creating more jobs and households, but not giving these people enough places to live.  But rapid price increases will not last forever and we can expect a gradual tapering as buyers are priced out of the market—not a market correction, but an easing of demand and price growth as renting or adding roommates becomes a more affordable alternative.

Looking further down the line, the housing market should be healthy for a while. Millennials made up 52% of home shoppers last spring, and with the largest concentration of millennials expected to turn 30 in 2020, their demand for homes is only expected to increase.

Measure S and Measure H

March 2nd, 2017

imagesElection day is Tuesday, March 7 – and there are two initiatives on the ballot you should be aware of.  Measure H and Measure S.  I’ve attempted to distill them down to the basic facts –

The staggering rise in the numbers of homeless people living in the streets coupled with massive inflation in rents, some say driven up by artificially inflated Real Estate values, have lead to two ballot measures this election cycle Measure H and Measure S.

Measure H, if approved, would increase the sales tax one-fourth of a cent and the proceeds would be used to fund a variety of programs for economically challenged city residents, including mental health services, substance abuse treatment, health care, education, job training, and affordable housing.  It would raise about $355 million a year.Unknown

Measure S, the more controversial initiative, would change the way zoning rules are used to allow construction projects to move forward, which some say would contradict or obstruct aspects of Measure H, possibly promoting a “Not In My Back Yard” attitude.

Mayor Eric Garcetti, is an opponent of Measure S, and says the initiative would undermine efforts to house the homeless, such as measure HHH ($1.2 billion bond initiative) voters passed in November.  “We won’t be able to spend the money that voters authorized,” for homeless housing, Garcetti said. “We won’t be able to find the sites.”  The Los Angeles County Board of Supervisors has also voted to oppose Measure S.

Another component to the clash: building also means jobs. Opponents claim Measure S would push construction workers into unemployment although they do cite the need for an up-to-date community plan.

On the YES side of the equation advocates say that Measure S will force the City of Los Angeles to finally update its legally required but largely outdated General Plan.

Unknown-1The General Plan updates would be based on extensive community meetings held on evenings and weekends, not just comments on websites, or a few public workshops, and daytime public hearings.

Once the City Council adopts new General Plan, future General Plan amendments can only apply to significant geographical areas, no longer to single parcels, and these General Plan amendments must be based on a convincing case of public benefits, no longer just private gain.

Lastly Measure S promotes transparency at City Hall, by stopping the City Council from adopting parcel level zoning and planning ordinances to feather the nest of their major campaign contributors. The L.A. Times calls this soft corruption because real estate interests engage in pay-to-play to obtain special treatment from elected officials for their properties. This could be why these City Hall players have lead the charge against Measure S.   Four large real estate firms funding the no on S campaign: Westfield Shopping Centers, Palladium, Crescent Heights, and Eli Broad.

You decide Yes or No on H and on S.  Either way it will have a huge impact on LA housing and the homeless situation –

Remember to vote on Tuesday March 7th  Unknown-2

How Interest Rate Hikes Effect Buying Power

January 25th, 2017

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As Interets rates go up Buyer’s buying power diminishes –  a 1.5% hike in interest rates will cut your buying power by 13%.  In viewing the chart below the $1 million dollar home you could afford at a 4.25% interest rate suddenly becomes out of reach when rates jump to 5.75%.   The same $5,000 monthly payment now only gets you a $870,000 house.   What’s the take away ?

Interest rates are going up, if you’re going to buy, this is not the time to sit on the fence.  relaxed
If you’re looking to sell it’s not as black & white.   It’s possible your buyer pool will shrink as rates go up.  It’s also possible more buyers will drop down to your price point as higher end homes become less affordable.  That’s when you’ll want to talk to a professional about the pricing and marketing of your home

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Interest rates UP Home prices Down ?

September 2nd, 2016

The Federal Reserve appeared to keep an interest rate hike on the table for September amid “fairly accommodative” commercial real estate financing markets.  The participants generally agreed that the prompt recovery of financial markets following the Brexit vote and the pickup in job gains in June had alleviated two key uncertainties about the outlook.  images-5

The Fed decided to keep rates unchanged in July, but the newly released minutes show it is somewhat confident in the U.S. economy, making future rate hikes more likely.   As usual, monetary hawks and doves in the committee appeared to disagree over how soon to raise rates.

The Fed makes monetary policy in part by setting a target range for the federal funds rate – the benchmark interest rate banks charge each other for overnight loans. Higher short-term rates tend to spill over into higher long-term interest rates, which raise the cost of real estate financing and can put downward pressure on property prices…images-1

Attempting to time the housing market is never a good strategy but if your planning on selling sooner might be better than later –  Or if your looking to buy in the near future taking your time might be advised –

Hm Calculate

Either way keep an eye on home prices this fall —

Now, here’s a weird story out of New Jersey with a Hollywood connection  —

A lovely colonial home recently listed for sale in Westfield, N.J., comes with six bedrooms, hardwood floors and a disturbing back story that left its last owners living in fear.

The house was considered a dream home by Derek and Maria Broaddus when they purchased it for themselves and their three small children in 2014. But three days after they closed, a letter arrived signed by someone who went by the name “The Watcher”images

The writer claimed that the house was a family obsession: “My grandfather watched the house in the 1920s and my father watched it in the 1960s. It is now my time.”

More correspondence followed that grew increasingly threatening, and specific.  The writer wanted to know whose bedroom faced the street, and criticized changes that made the home more “fancy.” The letters hinted that the writer had identified the children: “I am pleased to know your names now and the name of the young blood you have brought me.”

UnknownFearing for their safety, the Broadduses never moved in.   Instead, they hired an F.B.I. profiler, who deduced from the handwriting on the envelope that “The Watcher” was likely an older person.   The couple sent the letters to the Westfield police, who found the DNA of a woman on one envelope but never landed on a suspect.

Finally, they brought a lawsuit against the former owners, that said the sellers had also received an anonymous letter but had kept that information secret.   And of course the Sellers have filed their own  lawsuit accusing the new owners of frivolous litigation and defamation.

The danger-in-suburbia story was picked up by local broadcasters and soon grew into a media circus. The identity of “The Watcher” has become the subject of intense man-magnifying-glass-cartoon-design-vector-clipart-created-adobe-illustrator-eps-format-illustration-use-web-41776246curiosity.
Theories abound –

  • Was “The Watcher” a disgruntled potential buyer who balked at the $1.3 million price tag?
  • Was it masterminded by the Broadduses themselves, to get more money out of the previous owners?
  • The Hollywood theory, that it’s all a publicity stunt, has had    perhaps the most subscribers.  Because believe it or not 

    “The Watcher” is now being developed by the executive 

    producer of “Homeland” and was bought preemptively by        

 NBC.

In the end the house, which has been improved and maintained by the Broadness is now being sold again –  At a lower price  $1.2 million and according to the listing agent –images

 

 

“Someone’s going to get a great house.”

Renting stinks!! And it may get worse —

August 26th, 2016

L.A.’s high rents $2,000 for a median priced 1 bedroom, and low vacancy rate 3% , mean that our city is a nightmare for those on the market for a new apartment.

Two years ago, a study by the UCLA Ziman Center for Real Estate famously concluded that Los angeles was the least affordable city in the nation because the gap between wages (the median individual take here 1s $28,555) and lease rates in L.A. was the largest that the researchers could find.

Since then, rents have continued to increase, and incomes have essentially remained flat. Now, a new report from personal finance site WalletHub places Los Angeles among its 10 “worst Cities for Renters ”

No surprises, here.images

Of the 150 American cities analyzed for affordability, quality of life, vacancy rates, safety and other factors, L.A. came in 141st.

On specifics, Los Angeles came in 141st for affordability, 108th for quality of life, and 125th for our vacancy rate.

Los Angeles ranked 129th for cost of living, 127th for job openings, and 77th for the number of households that spend at least half their income on housing.

Our best ranking,  interestingly, was safety, where we ranked 35th!!

The best American city for renters, the site says, is Scottsdale, Arizona, with the worst, Oakland.

The site says July is peak season for moving, and, according to a spokeswoman, “the share of U.S. renter households” increased “in 2015 to more than 36 percent — the highest since the 1960s.”

UnknownThe good news, depending on how you see things, is that L.A. is the midst of a building boom, which could add much-needed apartment units to the market.

Until then, hold on —

Bye Bye Air BnB…maybe ?

July 27th, 2016

As it has in cities that include San Francisco; Portland, and Newark AirBnB has signed an agreement with Los Angeles to collect and remit lodging taxes on behalf of its hosts.

The tax collection, at a rate of 14 %, is set to begin in August. The agreement also allows the city to audit the tax payments and to go after hosts for previous tax liabilities.images

LA Times reported that city officials hope the agreement will generate tax revenues of at least $5 million annually, BUT they do not want the agreement to be misinterpreted as legalization of short-term rentals.

In Los Angeles, many of AirBnB’s current listings would be considered illegal because of the city’s zoning laws regarding short-term rentals. In most areas of the city, it is illegal to rent out a home for less than 30 days. Hosts who are renting out their homes on AirBnB and other platforms are required to pay lodging taxes, but the city has had difficulty collecting the taxes, which is another reason why officials said they agreed to this deal with AirBnB. money bags

These city tax agreements are at the core of AirBnB’s strategy for legalization in various jurisdictions around the world.

The move by Los Angeles city officials to agree to a voluntary collection agreement with AirBnB comes when the city is considering new legislation to regulate the types of short-term rentals offered by platforms such as AirBnB, HomeAway, and FlipKey.

The new law would legalize short-term rentals for residents for up to 90 days per year, but it requires platforms like AirBnB to provide the city with information about the hosts, their addresses, and the number of days they have rented their homes and for how much.

Property landlords also have to register with the city, and rent-controlled or designated affordable housing would be exempt from participating in short-term rentals. Hosts who fail to comply with the law would also be fined, as would websites that display listings that violate the new law. Sites that don’t provide data to the city would likewise be fined.

UnknownThis legislation awaits approval from the Los Angeles City Council, but given how it is structured, it’s debatable whether it would survive legal review by the courts.  AirBnB and other short-term rental platforms can argue that they are not responsible for what is advertised on their sites or what their users do on their sites.

Other cities in Southern California have taken much more restrictive approaches to short-term rentals. Santa Monica has essentially banned short-term rentals, and Anaheim in Orange County, is set to ban them as well.

In an interesting coincidence –  Los Angeles will be the site of AirBnB’s annual convention for its host community, AirBnB Open, in November.

cartoon-skyline-city-atlanta-georgia-usa-29810241Tourists

State of So Cal Real Estate

July 1st, 2016
To sum up — rising values

1 – If you’re planning to buy a home, do it now, because prices are going up for the next few years. 

2 -Investments in single-family rental properties have weak potential because of high home prices. 

3 – Apartment developments have the best potential in LA County.

The LA economy is different than it was. In the last twenty years it’s lost a half million manufacturing jobs, many in the aircraft business. Tourism picked up some of the slack but at lower pay, and many jobs now revolve around services. Healthcare is the fastest growing industry. The demographics are different too; 48 percent of residents in LA County are Latino, 14 percent Asian, a third are immigrants.

The population isn’t growing very fast, but home prices are – that’s partly because LA is running out of room. Growth is mainly in the cheaper, outer communities in Riverside and San Bernardino. Home prices were up 30 percent in the last three years – although it’s difficult to separate real home sales from the boom in foreclosed subprime properties. Whatever the cause, you can expect prices to go higher in the next few years, so don’t wait if you plan to buy.

In LA County, prices are up the most in West Hollywood, the least in Torrance.

Home prices are high compared to rents, which makes single-family rentals a difficult investment except in special circumstances. Overall, high home prices force the majority of people to rent, and rents are high compared to incomes. This makes apartment buildings a good investment – LA County, with the highest percent of renters, has the best investment potential.Hm Calculate

Mortgages are a difficult investment right now. Lenders will likely back away from high loan-to-value mortgages during this period. The same is true for construction loans; new projects will be financed in very careful stages.

The area is growing at an unequal pace – partly because of housing costs – with faster growth in Riverside and San Bernardino Counties, slower growth in Ventura and LA.

The climate for investments in retail businesses is best in Riverside County, worst in LA and Orange – where demand hasn’t budged in the past two years and the market is over-served. doc

All counties will be adding healthcare jobs.

Luxury Home Sales Slowing

July 1st, 2016

A cooling market for the most expensive homes is costing hotel and casino magnate Steve Wynn some money.  Two years ago, Wynn paid $16.25 million for an 11,000-square-foot mansion perched above the Bel-Air Country Club.

Less than a year later, he sought to unload the home for $20 million.  No luck.

Then he tried $17.45 million. No luck again.money bags

In May, Wynn dropped his price to $15.95 million, $300,000 less than what he paid for the property in 2014. The home went into escrow “very close” to that price last month but it’s clear he’s taking a loss –

It’s not just Wynn who isn’t getting as much money as he hoped.

Even before Britain’s vote last week to leave the European Union jolted investors worldwide, there were reports of a slowdown in the ultra-luxury housing market.

In Los Angeles, agents were seeing more price cuts. Condo sales on New York’s Billionaires’ Row were slowing. Luxury developers shelved projects in Miami. And prices at the tip-top end of the London market were on their way down. Blame it on the global economy, which has displayed weakness in the past year, choking off the spigot of international millionaires and billionaires seeking a pied-à-terre, or two, in glamorous locales.

So far, in Los Angeles the effect has been minimal, given the nature of Southern California ultra-luxury development – which largely consists of one dramatic hillside estate at a time, rather than a condo tower with multiple units. But a spate of new construction is on the horizon. By one estimate, there are about 30 new hillside homes priced above $30 million that could hit the market in the next year and a half.Unknown-2

The so-called Brexit vote may not help matters.  It has sown economic uncertainty on a global scale and caused the dollar to strengthen against major currencies – potentially leading international buyers to trim their purchases in the United States.

In Manhattan, the slowdown has taken a sharp toll. The number of previously owned homes that sold in the first quarter for $10 million or more fell 40% from a year earlier.

In Los Angeles County, by comparison, $10-million plus sales ticked up by one to 17 in the first quarter compared with a year earlier, according to the California Assn. of Realtors, whose data largely covers resale transactions.

But over a longer timeline, it appears the market has begun to stall. The number of sales of $10 million or more in L.A. County has dipped in three of the last five quarters for which data is available, even as inventory has steadily grown, according to the Realtors group. And, brokers say, the slowdown is more pronounced the higher the price.

Mansion

As of mid-June, nine homes in the county had sold this year for $20 million or more, compared with 18 during the same period last year, according to Loren Goldman a vice president with First American Title Co.  It’s possible the slowdown will bleed into the rest of the market eventually, but that’s not likely to happen “any time soon.”

Local agents put much of the blame on a pullback by international buyers who had flooded Los Angeles in recent years. Turmoil in their economies, along with a strong dollar, have many from Russia, the Middle East and China second-guessing a purchase here.

One dynamic has yet to play out – whether the strong dollar continues to deter international investors from entering the U.S. real estate market, or as their own home country currencies weaken, they come to increasingly view U.S. as a haven.

It’s not necessarily clear which one of those two mindsets  is going to win out. Unknown

The End of the 1 Year Lease?

February 11th, 2016

Los Angeles rental listings site RadPad has added short-term rentals as an option for tenants and landlords.Keys

Traditionally, the site focused on long-term rentals and was primarily in competition with sites like Craigslist and West Side rentals. Now, it joins sites like Airbnb, VRBO and Home Away, in offering homes and apartments for short periods of time.

But, the short-term listings on the site won’t be as short as one day. Rather they’ll list week-to-week and month-to-month stays.  It’s one of the biggest requests now a days, people want more month-to-month options. They want more flexible leasing options.

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Raphael Bostic of USC said he sees a trend in renters wanting more flexibility in leasing arrangements.

“Why do we have such a very structured lease setup? You don’t see the three month lease. You don’t see the five year lease for that matter. And part of it I think has been conventional wisdom. Part of it’s been technology challenges,” he said. “So I think what’s happening is that we’re learning about the market because of these disruptive technologies, and it’s leading to the emergence of a whole host of new relationships.”

The change at RadPad is partially in response to feedback from landlords. When they weren’t offering the short-term option, landlords were pulling some of their listings and putting them on sites like Airbnb.  More and more over the last year and a half traditional landlords are trying short-term rentals and finding they can make 30 to 40 percent more a month on short-term.moving couch

Landlords do stand to make more money, but the management of short-term units is a more labor intensive.

Another reason why you have the longer lease is because it provides certainty for the landlord that the unit is going to be occupied.  Housing advocates argue that longer leases provide security for renters too. With more and more property being taken off the traditional rental market, it means fewer options for residents who need a long-term place to live. Currently L.A.’s vacancy rate is at 2.7%.. That lack of supply continues to mean high rental prices – some of the highest in the country.

no vacancy

So although units rented out for the short-term are at the mercy of price fluctuations in the marketplace. In a place like L.A., landlords don’t have to worry much about the prices going down.

THE SURGE IN U.S. MANSION PRICES IS OVER FOR NOW

January 27th, 2016

The six-bedroom mansion in the shadow of Southern California’s Sierra Madre Mountains has lime trees and a swimming pool, tennis courts and a sauna — the kind of place that would have sold quickly just a year ago, according to the real estate agent representing the Seller.MansionNot now….

It’s being offered at a discounted $3.68 million, but nobody’s biting.  The owners, a couple from China, are getting anxious. They’re the kind of well-heeled international investors who fueled a four-year luxury real estate boom that helped pull America out of its worst housing slump since the 1930s. Now the couple is reeling from the selloff in the Chinese stock market and looking to raise cash to shore up finances.

Across the U.S., the story is much the same. The world’s economic woes — from China to Russia to South America — are damping sales in the high-end real estate market. Haywire overseas stock markets and dropping currency values caused in part by plummeting oil prices are dulling the demand for mansions, penthouses and winter escapes.

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The volatility in China and Russia and the oil issues in the Middle East are impacting the high end of the American housing market.  And we’re probably not going to see material price increases any time soon.

Prices for the top 5 percent of U.S. real estate transactions remained flat in 2015 while all other houses gained 4.9 percent.

In the Los Angeles suburb of Arcadia, dozens of aging ranch houses were demolished to make way for 38 mansions built with Chinese buyers in mind. They have manicured lawns and wok kitchens and are priced as high as $12 million. Many of them sit empty because the prices are out of the range of most domestic buyers, and there has been a crackdown by the Chinese on large sums of money leaving the country.

The stronger dollar is driving South American buyers away from luxury condos in Miami’s downtown area.  Buyers there signed 25 percent fewer pre-construction contracts in 2015  than in 2014.

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Manhattan resale prices for the top 20 percent of the market peaked in Feb. 2015 and have fallen every month since.

Even in San Francisco, where the market for luxury properties remains strong, the inventory of listings for $2 million or more jumped in October to a record level.  Both buyers and sellers are increasingly worried about the direction of the economy.

With more sellers jumping in and more buyers holding off the law of supply and demand is having an effect and prices are slipping.

The real test for the U.S. market will come after the Super Bowl on Feb. 7, when the prime home-buying season begins. images-2

As the U.S. jobless rate hovers at 5 percent, the lowest in almost eight years, demand for lower-priced homes has increased.  The cheapest U.S. ZIP codes had annual home-price growth in November that was more than twice the 4.3 percent rate for the most expensive ones.

But it’s the high end market fueled by wealth overseas investors that will remain flat.   After a lackluster 2015, the Standard & Poor’s 500 index has tumbled 8 percent. Benchmark oil prices are now around $30 a barrel compared with more than $100 eighteen months ago. The dollar has climbed 8 percent against 10 leading currencies in the past year, making U.S. real estate more expensive for foreign buyers, according to the Bloomberg Dollar Spot Index.

When the foreign buyers do come come back, they’ll be on the hunt for deals, because believe it or not, there’s even a limit to what a wealthy person will spend —Unknown