Timely Real Estate News……………………………..1 September 2016
Clarity on cash transactions
On August 28th 2016 the second phase of a program launched by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (Fin CEN) went into effect. The program was created to identify anonymous individuals who tried to bypass the law, cover up their identities or assets and buy property through shell companies in an effort to skate on financial sanctions and taxes. .Fin Cen will use Geographic Targeting Orders (GTOs), which mandates that all domestic banks, other financial institutions, trading companies and related businesses, document and report any transaction of $2 million or more (this amount varies in different parts of the country). By following these steps, one can eliminate any problems.
1. Don’t use a shell company. Buyers need to use a legitimate company to avoid the appearance of money laundering.
2. Document cash flow, and keep excellent records. The GTOs require reporting on transactions conducted in part through currency, money orders and cashiers, certified or traveler’s checks. However, Fin CEN does not require real estate transactions conducted entirely through wire transfers to be subject to GTO requirements because they tend to be more transparent than cash transactions.
3. Follow legal requirements. The title insurance company must name each owner, including the person’s passport or driver’s license, and report the identity of these individuals to Fin CEN within a month of closing. The title insurance companies must keep related records for 60 months and provide them to Fin CEN and to any other government agencies.
4. When in doubt, get professional advice. Some exemptions and loopholes in the Fin CEN requirements could allow real estate purchasers to buy property with cash with almost no obstacles. Buyers should not proceed without making sure that everything is done correctly and that the right documentation is in order.
Home prices continue gains
According to S&P’s CoreLogic Case-Shiller Index, it is no surprise that US home prices continued to make strong gains in June 2016. The home price Index rose <5.1% but affordability challenges persist and put a ‘damper’ on demand. The Index covers the 12 months that ended in June, which is identical to the increase reported in May.
Price growth did show some sign of slowing in the country’s largest cities. The 10-city index, which includes some of the country’s largest cities, gained 4.3% from a year earlier, down slightly from 4.4% last month. The 20-city index gained 5.1% year-over-year, down from a 5.3% increase in May.
Economists said the “market remains challenging for buyers, and as Carole Schiffer has noted, “we’re seeing price increases across the Westside, which we know has crimped the market for first-time buyers. After all,” she stated, “we’re in one of the most expensive housing markets in the U.S.”
In their national report, CoreLogic noted that after years of volatility, home prices have grown at a rate of around 5% for two years. That is roughly twice the rate at which incomes have been growing. Price increases, on the other hand, have scared off some buyers, especially in pricier markets like West Los Angeles, and led to a slowdown in the pace of sales.
Please look for the September 15 edition of The SchifferLine for the most up-to-date market news for your area.
Home sales declin nationally….higher prices cool market
While prices are rising (above), home sales (units) are not. The National Association of Realtors also reported home sales are cooling, largely due to affordability concerns on the part of buyers. Nationally, the pace of existing-home sales fell 3.2% last month from June to a seasonally adjusted annual rate of 5.39 million. Some of the country’s most expensive markets, from California to Denver, have seen some of the steepest declines in sales activity.
Economists expect demand to continue cooling heading into the second half of 2016, which eventually is likely to lead to a slowdown in price growth. Demand for homes in July was down 14% from the same month last year, the sixth consecutive month of year-over-year declines in buyer demand according to a national reporting service.
The Federal Reserve indicated that they were holding off on any rate increase until later this fall. Once again, we are in the waiting mode to see where Fed Chairwoman Janet Yellen takes us next. The last rate increase was in December 2015. Meanwhile, mortgage rates remain low and job growth has picked up steam this summer. The 3rd quarter GDP figures will factor in a potential rate hike come October. Time will tell.
Consumer confidence up — an 11-month high
U.S. consumer confidence rose to an 11-month high in August, with households more upbeat about the labor market, in a further sign that the economy was regaining steam after faltering in the first half of the year.
While other data showed a moderation in house prices in June (see above story), the gains most likely remain sufficient to boost household wealth and continue to support consumer spending, as well as make home purchasing affordable for first-time buyers.
Economist point to this increased confidence that the economy may be stronger than the weak signals sent out in the first two quarter where GDP growth was anemic, and revised downward to 1.1% in the last quarter. The Conference Board said its consumer confidence index increased 4.4 points to 101.1 this month, the highest reading since September 2015. Consumers’ assessment of both current business and labor market conditions improved sharply in August.
The survey’s so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, was the most favorable since January 2008.
Let’s take a walk….the non-LA story
Remember in Steve Martin’s movie “LA Story” — where he jumps into his car and drives about 20 yards down the street, stopping and jumping out….proving the point, Los Angelenos do not like to walk. We drive everywhere. But recent research is showing something else: Many people want to walk and will pay more to live in more walkable neighborhoods where they can stroll to work, shops and restaurants from home. It’s a rare luxury in most metropolitan areas and one worth thousands of dollars on average, according to new research.
Home workers are willing to pay $3,260 — or nearly a percent more — for a little extra walkability than they would for the same home in a less pedestrian-friendly neighborhood. When evaluating homes, buyers today are scanning neighborhoods for their potential routes — not driving to/from home, but walking routes. What landscape and environment are we moving into? Is the neighborhood safe? Are there interesting sites and scenes along the pathway? Are there special pathways created by the community or city to encourage walking? What is the “walking culture” for our new home?
More than half of millennials and 46% of baby boomers say they want pedestrian pathways where they live. And whether you own a Fitbit or iPhone or Apple Watch, the focus is on “steps” and keeping track of your walking and exercise. “Heart Healthy” has become a community “thing” — it’s ‘in’ to be counting your steps these days. And on the Westside, it’s the most popular activity for residents…just look at San Vicente Boulevard or Ocean Avenue, or the hikers using the trails in Bel Air Crest and Mountaingate — it’s “Walk City”.
High rise residential is barely making a dent in LA housing
Drive around LA….what do you see? Cranes and construction everywhere, but according to an analysis at the state level it is not nearly enough. California will have to build substantially more housing, build denser and build in the desirable urban coastal areas (including Los Angeles) in order to make a dent in fixing the affordability problem.
In its report last year, the Legislative Analyst’s Office noted the great need for more housing. It said that in L.A. County alone, about a million more new homes should have been built since the 1980s in order to keep pace with demand. This demand is expected to continue for the foreseeable future. According to some housing affordability statistics, Los Angeles is only bringing about a third of the number of units onto the market annually that are necessary to mitigate the housing affordability problem.
One major obstacle to building new residential housing units is the role local residents may play. Their resistance to new development has increased especially in Coastal California and it is slowing down the ability of developers to build more housing to alleviate the stress on limited supply.
Tech companies are fueling new growth….Many of the new tech companies are concentrated in Downtown L.A., and the L.A. Westside area, nicknamed “Silicon Beach,” (the area encompassing the area from Santa Monica to El Segundo.) Millennial tech professionals are creating demand for production of residential units equipped with the latest technology and other high end amenities in hip urban neighborhoods.
Also expected to be desirable are locations close to the new public transit lines. There is an abundance of new projects — but as noted above, it’s not nearly enough to handle LA’s needs for new housing. Local, area residents are working with the city regarding some local development hurdles, land availability, time and money.” I will keep you posted.
Chinese cash making a “bang” in US real estate
The Chinese have been prominent real estate investors in the U.S. for years — this isn’t news. What is news is that Chinese investors are ratcheting up their investments into the multi-billions, making a splash on cityscapes everywhere.
Over the past three years, Chinese investors have placed money into some of the highest-profile developments in the U.S. Besides growing investments in Los Angeles, other cities with projects under way or in the pipeline include New York, Boston, Chicago, and Miami. These projects, all mixed use (retail, residential, office) will only attract high-end buyers. The Chinese have focused their real estate investments in high-profile, high-rise developments.
The flow of cash from China into U.S. commercial property is continuing unabated as companies seek to diversify outside of China at a time when confidence is fading in their local real-estate markets, real-estate executives say.
President Xi Jinxing’s anti-corruption campaign has also compelled Chinese investors to seek projects abroad as a way to hedge against a possible crackdown to their business at home. Officials have blocked property sales and detained companies’ executives during investigations.
According to data tracker Real Capital Analytics Inc., in the first half of 2016 completed U.S. commercial property purchases by China-based investors were up 19% over a year earlier to $5 billion. Including transactions under contract that haven’t been finished, Chinese investors have committed $12.9 billion this year, nearly matching the $14 billion in all of 2015. The rate of increase does appear to be slower this year, given that in 2014 there was just $3.4 billion in sales to Chinese investors. A giant cluster of new high-rise mixed-use office towers in downtown Los Angeles are underway and new projects by Chinese investors are planning more for 2020 and beyond.
My world and welcome to it! A few weeks ago I attended a 3 days conference in Las Vegas with my real estate coach, Tom Ferry (boy was it hot – 111degrees outside). Not only did I learn a lot, which I will be sharing with you, I also attended a fun lunch in the middle of the Sea Reef Aquarium in the Mandalay Beach Hotel complex. It was an amazing experience having lunch with the sharks! One of the most important themes of the event was the mantra “model, mindset and marketing”. This is something that I know I can use in every aspect of my life. For those of you who are Bel Air Crest residents, I remind you to join us at the first Bel Air Crest Movie night on Saturday the 10th of Sept., please call the manager’s office to make your reservation.
As always, I invite you to visit my web site, Caroleschiffer.com, and my Facebook and linked in pages. I look forward to hearing from you as to how I can assist you in any of your real estate needs,