Timely Real Estate News………………………….15 October 2018
Managing Expectations and making some adjustments
For the last few years, it has been a sellers’ market and as such sellers have for the most part been able to get away with being somewhat aggressive with setting the prices for their homes. With the adjustment of the market and economy, it is necessary for both buyers and sellers to change their attitudes somewhat. We all, realtors, buyers, sellers need to “listen to the universe”. If we are not getting the prices on our listed properties we would like, then I suggest that those prices need to be adjusted so everyone can move on with their lives.
Fall off to slow start — sales remain behind last year
After relatively active spring and summer quarters, compared to a year ago as we enter the final quarter of the year we find ourselves still behind in sales volume. Sales volume for the five areas I report on each month — Beverly Hills, Beverly Hills Post Office, Bel-Air/Holmby Hills, Westwood/Century City, and Brentwood — is more than 7% behind 2017 levels. Sales volume for the first three quarters was $2.670 billion vs. $2.869 billion in 2017, a 7% drop. Last October, we were 21% ahead of sales over the previous year (2016). And, of course, we know the culprits — low inventory and higher prices. Now, we are seeing a jump in mortgage rates which could have an impact on sales going forward through the end of the year. I say “could” because demand is still very high for our market, and the challenge is not necessarily always financing for our buyers: it’s lack of choice, inventory. There is another issue, it is called, managing our expectations. For a long time, the experts have been saying we are due for a correction not only in the real estate market, but in the economy in total. It appears that we are there or heading there. Recently everything has heated up so much, it honestly it has to level at some point.
In looking over the MLS stats, we are seeing sales volume declines for September in all of my areas — Beverly Hills was down $124 million in volume, BHPO was down $66 million, Bel-Air/Holmby Hills was down $62 million, Westwood/Century City was down $34 million and only Brentwood was up…. $70 million. Please remember there are still private sales that are not included in the stats that I provide in the Schiffer Line each month which would impact the overall sales volume report. Beverly Hills did have two large sales of $26.5 million and $27 million, and Brentwood had two, one for $11.3 and another for $15.45 million. Santa Monica, which is one of the communities in which I work extensively, the sales volume, was down 14% to $498 million.
Median Sales Prices improving
This comes as no surprise as median sales prices in our market continue to rise. Westwood/Century City had the biggest jump for the year showing a 36% jump in median sale prices to $2.772 million. Bel-Air/Holmby Hills has registered a 19% increase, and Beverly Hills, already streaming upward, is up 9% in median sales price. Brentwood remains even with 2017 through nine months at $3.100 million. Only BHPO is down, minus $13% for the year.
Median sales prices for September were mixed compared to September a year ago — Beverly Hills was up 13% over 2017, BHPO was down 42% to $2.650 million, Bel-Air-Holmby Hills was up 117% to $5.282 million, Westwood/Century City was down 25% to $2.431 million, Brentwood was up 5% to $2.720 million and San Monica was down 4% at $2.728 million.
As I have pointed out regularly in The Schiffer Line, the true measurement of our monthly benchmarks is ‘year-to-date’ median sales prices as they are more representative of the composite pricing occurring in our area. And remember that median averages represent the home price in the middle — half of the homes are above the middle, and half below.
Just, where are we? Coldwell Banker’s view
In a comprehensive review of California’s and the nation’s real estate market, Coldwell Banker released its view of what is going on across the board. In reviewing California’s situation, CB noted that after suffering the largest annual drop in GDP (since 1946), in 2007 we have made a strong recovery, with the lowest unemployment in 19 years, mortgage rates are up, unit sales are up slightly, and mid-year Southern California sales were up five months after declines.
Although the unemployment #s, less than 4%, are statistically pleasing, the reality is that for a number of reasons, millions have left the workforce since 2009, and those seeking employment have dwindled. Some of the primary contributing factors are our very large homeless rate, as well as those who simply have exhausted their unemployment benefits. As a counter point, California is looking to rebound in the coming three years as the aerospace industry and tech sectors continue to improve.
Another key point that CB made was while our median sales price in California was; $584,460, it is not quite as high as it was in 2007 ($594,530) and when you factor in inflation, we are really off 15.5% in real dollars
For the first time in three years, mid-year active listings increased, and inventory is highest in the high-end ($5 million plus) but 30% of listings have had price reductions. Single-family residences are expected to increase, but are still behind a year ago at 423,200. The median sales prices increase was up 8.2% year-to-date statewide.
Affordability is the issue
California Association of Realtor’s Affordability Index is at 27%, meaning only that # of individuals can afford to purchase a home in the state at median price range — it was 53% in 2012, which is huge drag on all home sales, new and existing. National pending home sales are also down 1.8% in August.
With the Feds raising interest rates in September, mortgage rates are moving up again. Another Fed hike is expected before the end of the year. As a result, mortgage rates have gone over 5% and are expected to plague first-time buyers. It’s a major affordability issue facing the entire housing industry. We could possibly be looking at more interest rate hikes in 2019… But let’s have a reality check… We have been horribly spoiled with the interest rates we have had for the past few years, but in reality, even 5 or 5.5% for a 30-year fixed rate loan is still low… just not as low as it has been. In 1982 I bought my first condo to live in in Westwood (I had been buying conversions to flip prior to that), and was very happy with the 13% interest rate that I got for my loan. In 1984, we were dealing with 18 & 19 % loans… it was a nightmare. We are not even close to going anywhere near there. I am just trying to help all of us, myself included to keep everything in perspective.
The UCLA Anderson Forecast
UCLA released its 3rd quarter Anderson Forecast late last month. According to Jerry Nichelsburg, Anderson’s senior economist, the U.S. will continue to see a strong economy reaching an increase of the growth of 3% by the end of this year, down to 2% in 2019, and 1% in 2020. However, warning signs continue to be the trade war with China, which could hurt California more critically than other states, and if Proposition 10 passes, Nichelsburg predicts housing starts will be revised lower in California.
Inflation rates are moving from 1% to 2% with oil going from $70 a barrel in 2019 to $76 a barrel in 2020. Already, as you well know, we’re seeing gasoline at $4.00+ a gallon now. That isn’t helping anyone. A primary cause of this increase is the tariffs that have been put in place.
Anderson also predicts that there will four rate hikes in both 2019 and 2020, and if China doesn’t buy any bonds, interest rates will increase further due to bond rates going higher. And all of this means that new home starts will continue to disappoint. The biggest risk Anderson sees down the road — the continued trade policy of the Administration.
Key Stats on latest MLS report
Homes for sale are up 11.9% year over year (YOY), and in the upper end ($5 million plus) they’re up 23.6%. However, closed unit sales are down 20.9% YOY, from 6,465 to 5,113 units. And even worse, pending sales are down 41.3% YOY.
Homes are sitting on the market longer — median-priced homes are on the market 15% longer, and the average-priced home is up 5.4% days on market. The absorption rate YOY is 6.2 months, up 87% and in the upper end, absorption rate is up to 9.6 months.
On a very positive note, the CB report noted that Anderson called out that California’s employment is up 16% from the depth of the 2007-09 recession, payroll jobs are up 21%, which includes a two-day work week. One in four jobs created in California is in construction, logistics, and state employment.
So where does this leave us? We can expect to see home prices continuing upward, inventory behind previous years, and minor improvements in unit sales. But as noted above, California and the nation are facing housing challenges with rising rates, less new home construction, and affordability issues, especially with Millennials, the largest home-buying generation in the U.S.
Earthquake early warning system…. getting close
Californians are used to being wary of the slightest tremble, and if you’ve lived here long enough to have experienced the 1971 Sylmar or 1994 Northridge earthquake, you know how a really, powerful tremble can feel — it’s nerve shattering, frightening, especially if you’re near the epicenter.
California has always been noted for its earthquakes, the most devastating one, of course, the 1906 San Francisco quake that destroyed a good portion of the city. But we have been making headway in trying to find the solution for an early-warning system that is scientifically sound and actually works.
According to a recent article in the Los Angeles Times, scientists are saying they’re getting closer to what will be the world’s most sophisticated earthquake warning system, with officials announcing they were expanding the test program in the coming months in advance of a future public rollout. Even a warning time of a few seconds can save lives, allowing utilities to turn off large high-pressure fuel lines, doctors to potentially stop surgeries, transit agencies to slow trains and schoolchildren to shelter under desks.
Earthquake warnings work on a simple principle: Seismic shaking travels at the speed of sound through rock — which is slower than the speed of today’s communications systems. Earthquake sensors that detect a big earthquake that starts at the Salton Sea and has begun to travel up the San Andreas fault can sound an alarm in Los Angeles, 150 miles away, before strong shaking arrives in the city, giving Angelenos perhaps more than a minute to prepare. It’s not here yet, but there’s a promise that we can avoid, at least, the loss of life and limb with such a system
Bundling insurance can save but….
It’s the perfect sales pitch…by bundling your insurance policies (home, auto, life, and umbrella, etc.) with one insurance company, you can save as much as 20% to 25%. That’s the good news. Homeowners insurance typically gets the biggest discount since your home’s value is likely far greater than your car’s. Although homeowner’s insurance is always part of the ‘bundle’, insurance companies really don’t make much money on them. For example, if your home and auto insurance is bundled, you might receive discounts of 10% on your auto policy and 15% on your homeowner’s insurance. If you bundled your auto insurance with a renter’s policy instead, you might see up to a 5% discount.
The bad news is: Bundling policies encourages a “set it and forget it” mentality, but automatically renewing year after year with the same company could come at a cost. You’re less likely to check out competitors’ rates if you have to switch to two policies instead of one, especially if one is paid automatically.
Prices tend to increase at policy renewal time, and they can inch up well beyond what you would pay with another company if you don’t check rates Companies are not always equal on pricing and coverage, and my recommendation is to always review your insurance policies on an annual basis — before their year-end date, and compare. You could save a bundle by unbundling them, too. A word to the wise, just be careful to check before you automatically renew your insurance.
What is going on with me? You might see me walking with a new companion. The weekend of the 13& 14th of October, Coldwell Banker is sponsoring a national Pet Adoption program with the philosophy of having a pet, primarily a dog or cat adds to the feeling one has of having a home, so I worked helping people adopt a new pet for themselves. I love dogs, but honestly do not have the time to really give a dog the time they need and deserve, but I might cave in if I fall in love with one of the pups the shelter we are working with are bringing to the event. Fingers crossed that I don’t weaken!
As for work, I am very busy with my real estate life; offers on properties, managing escrows, and selling homes. We just reduced my wonderful listing at 11736 Gwynne Lane in Bel Air Crest to $1,940,000. This represents a $50,000 adjustment in the price and is an example of listing to the universe. The house is great and has been staged. Please get in touch with me to see it.
Don’t forget to check out my app. Carole Schiffer.