Timely Real Estate News…………………………15 April 2015
Low inventory throttles real estate recovery….
In a recent, thorough review of why our nation’s inventory levels are low, Inman News — a nationally respected real estate analyst and industry leader — points to eight key factors that are plaguing the US’s real estate inventory challenge:
1) Capital gains exclusion on primary residence — this was initially a great way to avoid paying taxes by moving up and taking your profits from your last real estate sale and applying it to your next ‘move up’ property. But this ended in 1997, and as a consequence, the higher-priced homeowners who earned more than what the new Taxpayer Relief Act allowed on their prior sale ($250K for singles and $500K for married couples) found out they couldn’t make the move because their gains on their existing home exceeded the $250K/$500K maximum, thereby creating an unwanted tax burden.
2) Step-up in basis –– For couples, upon the death of one spouse the tax basis of the ownership interest that belonged to one spouse is stepped up, the tax basis of the entire asset might be stepped up to “Fair Market Value” (FMV). This means a surviving spouse can potentially sell their property and owe only federal capital gains tax on the property’s appreciation after the death of the spouse, which might drastically reduce the tax consequence of the sale.
3) Sustained low-rate environment — Given the sustained low interest rate environment, many homeowners and investors have either purchased or have now refinanced and are locked into tremendously low interest rates over the past six years.
4) Value disruption reset in 2008-09 — A number of areas experienced a complete “reset” of values and in some cases to nearly half their peak values. Buyers purchased properties in these marketplaces at significant discounts from the high point, resulting in additional “frozen inventory.”
5) Values still not a peak — Sales prices have reached or even surpassed the peak levels in 2007 in some areas.;.
6) Values will rise — that’s the thought — Some homeowners are going to stay put waiting for values to rise above current prices. Even though they have risen dramatically since the 2008 reset period, they believe there is still more equity to be gained..
7) Where would I go? Move up — Lower inventory begets lower inventory; a downward pressure cycle continues. If one cannot find properties to move up to, they will not list or sell their current homes. This same
dilemma plagues retirees finding limited or no options for retirement communities in their local area. This also limits housing supply on the top end of the market since seniors are not motivated to sell unless they know exactly where they are going. And finally,
8) Stunted new development — Relatively no new housing is caused by increased cost to develop, lengthy approval processes, and tighter credit all impact housing expansion. This lack of new housing has a lingering impact on all of us.
Median sales prices show improvement….market remains conflicted
Spring is gearing up for its traditional, annual ‘bloom’ as buyers look in earnest at their options in what has been a up/down market. The ‘down’ — if you can call it that — is that compared to March 2014 sales volumes are dragging behind last year at this time by as much as 17%. However, median sales prices in the five communities I report on — Beverly Hills, Beverly Hills Post Office, Bel-Air, Westwood/Century City, and Brentwood — remain steady and moving upward strongly in two of these cities. The ‘up’ is being spawned by lower inventories which are driving housing prices up (the old law of “supply and demand”) is truly at work here.
Median sales prices in Beverly Hills has been suffering somewhat because of lack of sales, the city has seen sales activity
improve by 13% to $68 million for March 2015 compared to a year ago, March 2014, when the sales were $60 million.
Median sales prices have also improved to $4.700 million compared to $4.650 million MSP in 2014, up just 1% but up! Beverly Hills Post Office, however, saw a drop in median sales prices by 35% compared to March 2014, falling to $1.400 million compared to $2.624 million a year ago. Sales volume was down by 36% as well. There was one sale at $10,500 million in March of 2014, which somewhat skewed the median sales price figures.
In Bel-Air, median sales prices bounced back to a 37% increase from a year ago to a median of $2.712 million, but ironically, sales volume decreased by 25% — its volume went from $147 million in 2014 to $110 million in 2015. This was a huge month the past two years for Bel-Air as there were many large estate transactions (over $10 million). Again there was a large sale at $46,250 million last month which again skewed the numbers. We have seen this happen in various locations on a regular basis.
Westwood/Century City volume was down 21% but its median sales prices were up 2%, from $1.950 million to $1.997 million. And Brentwood, which has had a very strong previous 12 month’s continues to perform in both categories: Median sales prices were up 23% to $3.403 million and sales volume was up 105% to $36.8 million.
What I am seeing…..sales activity remains high as competition begins to heat up during the hot Spring selling months. It’s already in full swing….in checking the “hot sheet” that I run every day to see what is new on the market, and this is all areas of the Westside, Mar Vista, West Los Angeles, Santa Monica, of the 10 closed escrows that were reported that, over half of them had sold over asking. Obviously there were multiple offers in play in these “over list” homes, and with interest rates just above recent lows, the competition for housing is going to continue to heat up as we move into summer. The downside of the economy in some sectors is being offset by the upswing in the new job growth taking place in Silicon Beach (Santa Monica to Venice Beach) and that doesn’t appear to be ebbing any time soon.
There’s no joy in Mudville….Fed Reserve lacks clarity on future rate hikes
It was “clear as mud” is how one analyst described the last month’s Federal Reserve meeting that revealed that several policymakers predicted a rate hike in June, while others concerned about low inflation didn’t think a rate
hike would be warranted until later this year. Still others said the economy wouldn’t be strong enough for an increase until 2016. The Fed’s benchmark interest rate has been near zero since December 2008.
Several participants assessed that an improving economy would likely warrant the start of rate hikes in June. But other officials expressed concerns that falling energy prices and a stronger dollar would keep pushing inflation below the Fed’s optimal level of 2 percent. They said the central bank should hold off until later in the year. And a couple of Fed officials said they did not believe economic conditions would justify the start of rate increases until 2016. Many private economists now predict the Fed’s first rate hike will not occur until the September meeting, and they expect just two small quarter-point increases this year
In the meantime, fixed mortgage rates moved lower last week on news of weakness in the labor markets, with Freddie Mac saying lenders were offering conventional 30-year loans at an average of 3.66%, down from last week’s 3.7%. The average offering rate for 15-year loans, which are popular with refinancers, dropped to 2.93%, from 2.98%, the home finance giant reported.
In the latest sign that economic growth may be slowing, the Labor Department recently said that claims for first-time unemployment benefits rose last week from a 15-year low set the previous week. Jobs are a key indicator for analysts considering when the Federal Reserve may increase a benchmark short-term lending rate from near zero. The interest rate on an American home mortgage later this year could depend a great deal on how many Euros, yen, pesos and rupees a dollar will bring. Right now, the dollar is very strong and many companies and individuals have been on a shopping spree, unique for us in recent years.
Water is the ‘new gold standard’….water wars heating up?
If you live in San Diego, you are beginning to dislike your northern neighbors as water rationing is now a fact, not fantasy. In a deal made between the San Diego Water Authority and Los Angeles-based Metropolitan Water District, the two entities are battling over costs and access to Colorado River water, which is controlled by the MWD. The two have been in and out of court for years, and there appears to be no happy ending in sight.
But this is just one of the battles that has raged for decades (ask folks in Owens Valley) about who owns and controls the water. Water from the Delta region in the Sacramento basin has mysteriously disappeared according to the LA Times story — and it’s clear that farmers are to blame, or so critics claim. Conserving water….is the theme for us all. .
There is no question that all of us will have to play our part in conserving water. We’ve been through these water cuts before — in 1977, 1991 and the last one in 2009-10. It’s not all doom/gloom, the MWD started a water storage program three years ago for situations like this, and it is expecting full deliveries from the Colorado River this year and will get 20% of its requested amounts from the State Water Project instead of the 5% it received last year.
Vacation homes are the ‘new thing’ for aging baby boomers, and the tech-rich
Bolstered by stock-market gains, affluent Americans bought more than 1.1 million vacation homes last year, up 57% from 2013 and the most since annual sales of the properties were first surveyed by the National Assn. of Realtors (NAR) in 2003. As stated in their first quarter report, the Realtors group vacation home sales represented a record 21% of all home purchases last year.
According to a tally by the California Assn. of Realtors, California witnessed a contrasting trend, with the percentage of vacation home sales falling to 5% last year from 6% in 2013. Though the methodologies of the surveys were similar, said Lotus Lou, a spokeswoman for the state group, “Indeed, vacation home sales fell throughout the more expensive West and Northeast, the survey showed.
The national lobbying group’s survey of about 2,000 home buyers calculated that purchases by investors fell about
7% last year to just over 1 million and purchases by owner-occupants declined 13% to 3.2 million. Aging baby boomers boosted the sales by buying homes for retirement, often with help from stock investment gains in recent years, said Lawrence Yun, chief economist for the real-estate association.
I personally had an extraordinary first quarter which is very exciting. I had an opportunity to sit back for about a week or two and regroup and now I am off to the races again. Currently I am working with clients with various needs and desires, from homes in Marina del Rey with awesome views of the channel and all of the wonderful boats docked there to Santa Monica, and potential lease clients looking all over the city, the Hollywood Hills, Bel Air Crest, and Mountaingate. Coming up in the next week or so will be a wonderful home in Mountaingate of approximately 4000 sq. ft. We are working on the price now, so keep your eyes peeled on my web site, caroleschiffer.com for the latest 911 on this lovely home. Please check out my Linked in site as well as my Facebook page.
Also do not forget that I make a donation in my clients name to a local charity for every closed transaction. I just made one to Heal the Bay for a client… I would love to do the same for you.