Timely Real Estate News…………… 1 May 2018
May Day is a public holiday usually celebrated on May 1! It is an ancient northern hemisphere Spring festival and a traditional spring holiday in many cultures. Dances, singing, and cake are usually part of the festivities. In the late 19th century, May Day was chosen as the date for International Workers’ Day by the Socialists and Communists of the Second International to commemorate the Haymarket Affair in Chicago.
Sales prices jump…. Is this good news?
You must be getting tired to hearing this, but Southern California median home prices rose again with March prices jumping 8.4%, an all-time high. Buyers are certainly tired of hearing this news. Bidding wars are breaking out across our land as the supply of homes is falling abysmally behind needs. Did you know that California needs 186,000 new housing units each year to handle its rising population, but we only produce 100,000?
The rapidly rising home price situation combined with the continued lack of available housing is causing alarm at the National Association of Realtors. NAR’s chief economist, Lawrence Yun stated, “There is no let-up to rising home prices. The Case-Shiller Index and National
A report from the Association of Core Realtors and core logic on median home price both show gains of roughly double the average wage growth. Even as the tightening job market is starting to boost incomes, those looking to buy are facing a double whammy of fast rising home prices and higher mortgage rates. The way to make housing more affordable is to build more homes, particularly smaller-sized entry level homes and condominiums.
Yun went on to say that regulatory relief to small-sized community banks will also help boost construction loans. “Local governments need to speedily approve housing permits,” he stated. “And there needs to be a way to more easily acquire trade skills like carpentry, wood framing and other construction specialties for those wanting to earn good middle-income salaries without having to go to college. Such actions will boost economic growth and provide better access to home ownership.”
Every day, I witness the effects of short supply and high demand here on the Westside, where the scarcity of quality housing is at a minimum. Multiple offers can rule the day, and competitively-priced homes move quickly. If you are thinking of becoming a seller or buyer, I urge you give me a call to discuss your options, Carole @ 310-442-1384.
Buyers stretch their budgets to close the deal…
As housing demand soars and supply hits record lows, today’s buyers are moving fast to find their ideal home and close the sale. And in the process, they are stretching their budgets and testing their financial limits to make the transaction work.
According to Realtor.com, buyers not only need to be pre-approved for a mortgage, but they must also have a mortgage commitment. Home prices are hitting new highs and the gains are growing, just as mortgage interest rates are turning higher again. All of that has more buyers stretching their budgets, putting less down or using adjustable rate loans, or ARMs, that offer lower rates.
Buyers feel more confident today that even though they’re stretched, the improving economy and strong stock market are going to propel them through the short-term fiscal challenges. Borrowers also have more options today with low-down-payment loans (3%), options that were not available until a few years ago.
In sum, house hunting has become a highly skilled art of finance, research, and plain old detective work. Many homes today are not listed on the MLS, which means there are many private sales, especially on the Westside’s high-end market. I utilize a broad peer network of agents with whom I have worked with for many years — we help each other find buyers before their clients’ homes come on the market. It works! However, there are pros & cons to buying & selling “pocket listings”. Sellers like it because they don’t have to deal with the buyers coming through their house, open house, etc., but there is also the need to know that by not putting their home on the open market, there is a possibility that they may not always get the optimum price, and buyers like it because they can avoid the multiple offer situation that we all know about.
Affordability… the “Great Disappearing Act”
For many, there is a “will” but no “way”. Housing affordability is taking on crisis proportions throughout much of the U.S. and on a national level affordability is down from a year ago. Based on their income, fewer households can afford the active inventory of homes currently for sale on the market That is according to joint research from the National Association of Realtors and Realtor.com, a leading online real estate destination.
Using data on mortgages, state and metro area-level income and listings on realtor.com®, the Realtors Affordability Distribution Curve and Score is designed to examine affordability conditions at different income levels for all active inventory on the market. A score of one or higher generally suggests a market where homes for sale are more affordable to households in proportion to their income distribution.
States with the lowest affordability are Hawaii, California, Oregon and the District of Columbia. Even states like Montana and Rhode Island made the list. What is happening is that while wages are, indeed, growing, housing prices are rising faster. It’s that simple. Sellers can smell a hungry market and do not have any trouble pushing up their price.
California home sales tick higher… good news
It’s not all bad news for buyers. There has been an uptick in the number of homes on the market. As of the end of March, adjusted, existing home sales rose for both month to month and year to year. Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 423,990 units in March, according to information collected by California Association of Realtors from more than 90 local realtor.com associations and MLS’s statewide.
The statewide annualized sales figure represents what would be the total number of homes sold during 2018 if sales maintained the March pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.
March’s sales figures were up 0.3% from the 422,910 level in February and up 1.6% compared with home sales in March 2017 of a revised 417,380. The year-to-year increase was slightly stronger than the six-month average sales growth of -0.1% recorded between September 2017 to February 2018. The big sales winner was the San Francisco Bay Area with six of the top nine counties in the State showing increases in unit sales. Los Angeles lagged behind, including the more affordable Riverside and San Bernardino counties.
Does the single family home have a future?
That’s a strange question, isn’t it? Not if one looks at the current state of housing in the US. For as long as we can remember, it wasn’t the question of “if” you were buying your own home, it was always…. what type? Cape, ranch, colonial, contemporary …what was your house going to look like?
But now, demographic, political and meteorological changes are calling the future of the single-family house into question. Its critics say that the house is too sprawling in a time of climate change, too expensive in a time of economic inequality and just too boring for many city-dwelling Millennials; that more of us should live closer together, in neighborhoods near mass transit, with less need to drive and more chance to interact.
Its defenders say the single-family house is what most people want, if not what professional planners, social reformers and academics want for them. And they say that construction of new houses on empty land at the edge of the metropolis offers working- and middle-class people the best shot at the American dream.
Right in our own neighborhoods, we’re seeing opposition to increased density of housing near our Metro rail system, and Millennials, in particular, are opting to stay in urban areas where they can walk or ride a bike to work and enjoy the spoils of a cosmopolitan environment. And this translates to multiple housing complexes — apartments and condos, not single-family dwellings. Land is too expensive. The other day I was with one of my associates at a listing she is getting in the hills in Malibu. The house is beautiful, and the setting fabulous, very private with views from the Palos Verdes Peninsula to Point Dume… but it is very remote, with long winding roads with no street lights, etc. I honestly could not see myself living there, but I know it will appeal to a great deal of people wanting to be close to “town”, yet “getting away from it all”.
“Go east, young man.” The West — our ‘coastal zone’ — as we know it, is too expensive and/or saturated already and anyone who is looking for a reasonably priced home in Southern California is looking 60 to 90 east of Los Angeles. Median sales prices are reaching record highs in Los Angeles and Orange Counties, and if you want to own a home in LA these days…expect to pay nearly $600,000 and up, way up!
High-end sales lag behind 2017
While we are seeing sales gains through the Westside so far this year, we are also witnessing a slight lag in the high-end market. There has been a total of 146 closed sales of $5 million-plus, versus 151 at this time last year. You might have read about the record setting sale the other day of a house on the beach in “the bu” for $110,000,000. That will change the numbers some!
There were 41 closed sales of $10-million-plus the year, versus 51 at this time in 2017, a 20% decline). There were 15 closed sales of $20 million-plus — versus 19 last year. And only two of these sales were above $40 million, versus three last year.
Buyers of the $20 million-plus homes were 12 Americans, 1 Canadian, 1 Japanese, and one from Monaco. These sales were in Beverly Hills, Malibu, Sunset Strip, Bel-Air, Holmby Hills, Beverly Hills Post Office, Brentwood, and Pacific Palisades. Interestingly, 15 of the sales of $20 million-plus homes sold were not listed in the MLS.
Here are 5 new tax law changes for investors…
A quick, edited review of the how the new tax law can impact real estate investors. Please check with your financial advisor on the following specifics and how they apply to your situation.
- Retention of like-kind exchanges for real estate. This tax incentive is a terrific boon for real estate investors. Like-kind exchanges were eliminated for personal property. Examples include livestock and equipment along with automobile trade-ins. The new law retains the like-kind exchange rule for real estate.
- Retention of exclusion for sales of residence A real estate investor can now purchase a residence, fix it up, live in it for two years and rent it for up to three years. And they can sell it for no gain recognized other than some depreciation recapture
- Increase in holding period for carried interests Real estate investors who do private equity deals will see changes. The rule allowing profit from the property to be treated as long-term capital gain is different. Anyone who raises funds from investors to purchase and improve rental property is impacted.
- Exemption from percentage-of-completion method. This exemption is for taxpayers with less than $25 million of gross receipts. This increase in the availability of the completed-contract method of accounting is a huge benefit for home developers and others with major projects.
- Business loss limitation of $500,000 The new rule says net business losses can only offset $500,000 of other income. These losses include all business income against all business losses. And real estate losses are included. This change is an entirely new limitation on using losses that will impact major real estate investors. There are opportunities to expense repairs and improvements under the tangible property regulations with increased bonus depreciation. This now includes roofs, HVAC, security and fire systems. Most leveraged real estate investors will show losses for these updates
My Take On Real Estate Today
I have a great home in Mountaingate that is available for sale. With a view of the driving range, golf course and hills, it has 5 bedrooms, 4.5 baths, family room and library/study. Wonderful flow for entertaining, big yard with room for a pool, and all behind the security gate. Priced at $2,540,000. I also have a lease in Bel Air Crest that will be available in mid June. We are asking $8900 for this lovely 3 bedroom, 2.5 bath home that has been updated and remodeled from the inside out. We are showing it now, but have to wait for the owners children to finish their current school terms. With all of the talk about multiple offers, believe it or not we had multiple offers on my lease listing in Bel Air! I look forward to hearing from you as to
how I can assist you with all of your real estate needs.
Felix Cinco de Mayo…. I hope you have/had a happy Cinco del Mayo and enjoyed a Margarita or two. It is a fun time to kick off Spring.
Sunday the 13th of May brings us Mother Day. A wonderful day to celebrate all of the Mother’s. I’m looking forward to spending the day with my Mom who will be turning 96 on the 23rd of the month. Enjoy!!!!