Timely Real Estate News……………1 September 2015
Get your house ready….El Nino may be on its way
When it’s so hot and we haven’t seen a real rainstorm in months, it’s hard to imagine a deluge so huge that it could cause wide-spread damage across the entire state of California, but perhaps that’s what’s in store for us if El Nino returns with a vengeance.
Californians should be planning for an onslaught of rain that is predicted to hit our homes this fall and winter. With El Nino conditions now present in the Pacific meteorologists predict could foretell a severe winter of heavy rains, the time to prepare is now.
Since it’s hard to pinpoint when the bad weather will start, it’s a good idea to get ahead of the game and begin waterproofing your home and car before it is not too late. Here are nine steps for you to consider as you focus on how to prepare your home & car for severe, wet weather:
1. Check your roof, skylights, gutters, and gutter guards –– the first place you should start because gutters, for example, gutters are the #1 pathway for water to intrude into your home. Clean them out and check your gutter guards, too. You don’t have to get on the roof, but it’s important to look for torn, bare spots or loose tiles (the sun does a number on our roofs!)….call an experienced roofer now for inspection — during a severe storm, you won’t be able to find one. You should also check the seals around your skylights.
2. Check your windows and door seals and sweeps (for all of your doors including the garage door), weather stripping and flashings wear out quickly after years of opening and closings. Water is the perfect predator to find its way into your home.
3. Clear all of your home drains, including those “French drains’ in landscaped areas. Of course, when these critical drains are backed up, disaster spreads quickly. French drains cannot be seen, but they’re critically important in gardens and lawns. You just need to run a hose through your drains, if it is clear, then you are good to go.
4. Prune, trim your trees – with the rain comes the wind, and I hate the sound of the branches of my trees hitting the side of my house.
5. Check out your decks — check for cracks or exposed nail holes and waterproof your decks now -. Decks are expensive to replace and waterproofing now will prevent costly replacement later.
6. Stock up on food, water, and supplies now — having emergency supplies will come in handy if you are stuck at home for a few days….even getting extra batteries for your devices, lights, and other equipment. And always keep your autos/trucks gas tanks full. Have emergency radio on hand, too.
7. If you have a sump pump, make sure it is in good working order — and the advice from emergency operators is: if you have to replace it now — get a bigger one. Having the ability to keep excess water out of critical places, basements, and depressed areas will save you trouble and $$ later;
8. If you own another home or condominium and/or are a member of an HOA, or rental units, make sure the HOA is up to speed on all preparations for El Nino.
9. Check the brakes & tires on your cars.
Home prices continued upward trend….that’s good news.
According to the latest S&P/Case-Shiller Home Price Indices, the S&P Dow Jones Indices recently released showed that for June 2015 home prices over the last 12 months continued their rise across the country. The Case-Shiller Index covers all nine U.S. census divisions and recorded a slightly higher year-over-year gain with a 4.5% annual increase in June 2015 versus a 4.4% increase in May 2015. The 10-City Composite had marginally lower year-over-year gains, with an increase of 4.6% year-over-year. The 20-City Composite year-over-year pace was virtually unchanged from last month, rising 5.0% year-over-year.
“Nationally, home prices continue to rise at a 4-5% annual rate, two to three times the rate of inflation,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “While prices in San Francisco and Denver are rising far faster than those in Washington DC, New York, or Cleveland, the city-to-city price patterns are little changed in the last year. Washington saw the smallest year-over-year gains in five of the last six months; San Francisco and Denver ranked either first or second of all cities in the last five months. The price gains have been consistent as the unemployment rate declined with steady inflation and an unchanged Fed policy”.
“The missing piece in the housing picture has been housing starts and sales. These have changed for the better in the last few months. Sales of existing homes reached 5.6 million at annual rates in July, the strongest figure since 2007. Housing starts topped 1.2 million units at annual rates with almost two-thirds of the total in single family homes. Sales of new homes are also trending higher. This data points to a stronger housing sector to support the economy. Two possible clouds on the horizon are a possible Fed rate increase and volatility in the stock market. A one quarter-point increase in the Fed funds rate won’t derail housing. However, if the Fed were to quickly follow that initial move with one or two more rate increases, housing and home prices might suffer. A stock market correction is now upon us….but the housing uptick is welcomed news across the US”.
Are we in for another housing bubble. Perhaps not!
As home prices rise ever higher in Los Angeles, some are beginning to wonder if the region is in another housing bubble, one that’s ready to burst. As opined recently in an Op-Ed in the Los Angeles Times by William, an economist from the UCLA Anderson School of Management. Dr Wu is saying that real estate blogs add to the hysteria by pointing to the most ridiculous listings, the million-dollar bungalows in need of a complete renovation, the $3-million tear-downs. But the data suggest that the market is not, in fact, on the brink of collapse. And that’s great news!!!
“Using the all-transactions house price index from the Federal Housing Finance Agency, I examined price history in Los Angeles County, adjusted for inflation, from 1975 to the present — 1975 being the first year data were available. Along with some short-term fluctuations, we can see four major housing price cycles in Los Angeles since 1975”:
(1) Bull market (first quarter of 1975 through the third quarter of 1980): real home price increased by 69% over 23 quarters.
Bear market (1980 Q4 to 1984 Q2): real price decreased by 9% for 15 quarters.
Bear market (1990 Q1-1997 Q2): down 37% for 30 quarters.
(3) Bull market (1997 Q3-2006 Q4): up 166% for 38 quarters.
Bear market (2007 Q1-2012 Q2): down 43% for 22 quarters.
(4) Bull market (2012 Q3-2015 Q1): so far the price is up 27% for 11 quarters.
“Can these past cycles help us predict the future? To some degree, yes. Unlike the stock market, real estate dynamics tend to hold over time, in part because transaction costs keep prices from bouncing around wildly in response to external events”.
“If history is any guide, the L.A. housing price cycle seems to last about 12 years on average, of which seven years is spent in the bull market with at least 65% real price appreciation, and five years is spent in the bear market. We are three years into the housing recovery that started in 2012, with 27% appreciation so far. On average, there will be four more years or 38% more price growth before we reach the turning point”.
“The data suggests that the market is not, in fact, on the brink of collapse? How can we be so sure? Often, during a bubble-making period, we see an accelerating rate of home price appreciation, as in 1988-89 and 2004-06. In the last two years, we haven’t seen that kind of rapid appreciation in Los Angeles”.
“Another way to understand housing price cycles is by looking at building permit numbers. Speaking roughly, if developers are investing in new properties, that’s a good sign that demand, and prices, are rising or keeping steady. If developers are holding back, that suggests demand, and prices, will soon fall”.
Over the last three years, we have seen L.A. building permits increase from 11,200 units in 2012 to 18,200 units in 2014. The 2015 number will most likely be higher than 2014. Therefore, we can predict the next home price peak is at least two years away.
“Yet another measure of rational housing value is a simple price-to-rent ratio. The ratio is calculated by taking the median home price over the annual median rent in L.A. If the ratio is high — meaning that home prices are beyond their fundamental value based on expected rental revenues — that points to a bubble. Again, let’s look at history”.
“Two previous peaks were in December 1989, with a ratio of 14.8 to 1, and in February 2006, with a ratio of 24.4. According to Zillow, the current price-to-rent ratio in L.A. was 17.1 in May, which is far below the 2006 bubble level but still higher than any time before 2003”.
“That doesn’t worry me, though. A high ratio doesn’t spell danger for Los Angeles because, similar to New York (ratio: Manhattan 25, Brooklyn 23) and San Francisco (ratio: 21), it’s now a “superstar” city. L.A.’s size, amenities, weather and geography make its houses an investment target for the global elite. Wealthy individuals from all over the world don’t care that it might make more financial sense to rent, because they’re not simply buying Los Angeles houses to live in them, they’re also trying to diversify their financial portfolios”.
“Even though Los Angeles is one of the least affordable cities in the U.S., all factors indicate that it is not in a housing bubble. Of course the bull market will end eventually, but that doesn’t mean we’re heading for a devastating crash, like in 1990 or 2007. Whether you should put up a million bucks for that bungalow is another story”.
Is it a horse…or a zebra? A view from the “Street”
The Chinese proverb seems even more prescient based on the past few weeks where we had some major downturns on Wall Street. A financial advisor I know made these astute observations: “A recent devaluation of the Chinese currency, the Yuan, seems to have started a global stock market correction. Is this also the beginning of a new trend in the opposite direction – a new bear market? There is an old expression that says the four most expensive words on Wall Street are “this time it’s different.” When you hear hoof beats, should we assume it is a horse, or should we assume it is a zebra? Most of the time it is a horse. Most of the time a correction is just a healthy market correction”.
“It also seems odd that many investors lamented that we have not had a full 10% correction in more than four years, and they worried that we were overdue. Now we are having a correction, and they worry that this is the start of a new bear market. We think the odds favor a good old fashioned market correction. And what we have witnessed in the past few days indicate that.”
“We do worry about the potential for a recession because a recession would cause earnings estimates to drop for 2016. The probability of a global slow-down has increased, and so corporate earnings estimates for next year may have to come down somewhat. Since stock prices are down 10% or more around the world, the question is whether earnings estimates have come down by more or less than 10%. If earnings estimates have declined by less than 10%, then stock valuations have actually improved during this correction, and stocks are more attractive than they were two weeks ago.”
“If, however, earnings estimates have fallen more than stock prices, then stocks are even more expensive than they were two weeks ago, and that would suggest that stocks have further to fall. Here are some of our reasons why we do not see a recession pending”:
• “ Short term interest rates remain quite low, and are lower than longer interest rates. A chart of government interest rates is called the yield curve, and we have never had a recession start in the post-war period without short-term interest rates rising above long-term rates (an inverted yield curve)”.
• We have not had a recession start without the U.S. government’s index of leading economic indicators (LEI) turning negative as compared with a year ago.
• We have never had a recession start with commodity prices that were too low, while we have had recessions start when commodity prices were too high.The conclusion from these past few days remains that the probability of a recession remains quite low, and that drives us to conclude we are in the midst of a normal correction, not the start of a new bear market.” This is all good news”…Carole Schiffer.
My take of the past week with the rise and fall of the stock market and ever strengthening prospect of El Nino
First things first…. When I got the list that I am including in this publication (Please see attached) from the landscape contractors at Bel Air Crest, it led me on a quest to have my house checked out. I have always been more than cautious about the care and maintenance of my home, so was very surprised to learn that even though I have a yearly inspection of my roof, skylights, gutters, and gutter guards, I had a few slipped roof tiles, and that some of my gutters needed help and almost all of the gutter guards needed to be replaced. I am waiting to get the quote for the replacement of the sweeps at my front and garage doors and know that most of my weather stripping on every window needs replacing. So at this moment, my home is a “work in progress”.
As for the ‘wild rides” of the stock market, differing reports on the health of the economy, the forecasts of the rise of interest rates, the doom and gloom reports from some, and the advice from others to just sit tight, I decided to do what I tell my clients to do when we are looking at homes or selling one of their properties, and that is/was to just “listen to my gut”. Thus far, it has been the best source of advice I can give you and myself. As for buying/selling.. Buy Real Estate..that in the long run tends to be the most stable investment we can all make, and I know just the person who can help you in that regard.. ME! I tend to be a Pollyanna, and feel that we are basically is good shape and feel we will ride out whatever comes our way. Please let me know how you feel, and how I can assist you. .