SchifferLine 15 December 2014

Timely Real Estate News………………..15 December 2014

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Happy Holidays — Best Wishes for the New Year!

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UCLA Anderson’s Forecast brings some good news….
Well, it’s about time we got some good news about California’s economy, especially when the respected Anderson Forecast delivers the good news. According to the report, which was delivered last week on campus in California, steady gains in employment are anticipated through 2016. The increases in the natural growth from construction, automobiles and business investment, along with higher consumer demand, continue to power the state’s economy. California’s unemployment rate hovers above 7.0% but it is expected to drop to 5.3% by the end of 2016, which will then reflect the national average.

The Forecast also noted that the U.S. economy likely will grow during the next two years (at a rate of 3 percent), as lower oil prices and higher wages bolster consumer spending, with the unemployment rate falling to 5% by the end of 2016. Aggressive corporate spending in equipment and software will also fuel this growth.

However, it wasn’t all good news — In a companion report published in December by UCLA, it examines the state of infrastructure and residential investment in Los Angeles, confirming that Los Angeles is the most congested city in the nation, with a dire need for greater investment in public transportation and integrated infrastructure — sometimes called “green infrastructure.” In a panel discussion, the panelists agreed that serious infrastructural problems plague the region. In a dense metropolis, higher demand for multi-unit construction lowers the demand for labor. Big companies automate manufacturing, which means fewer jobs are created relative to the size of the enterprise. And everyone concurred that we can’t take for granted that the drought will end anytime soon: Weather will become more erratic, with storms shorter and less frequent but much more intense (didn’t we just witness this?).

According to the panelists there are some positive trends beginning to form too: UCLA Anderson economist William Yu observed a positive shift away from what he calls the “suburb syndrome” as younger Angelinos adapt to high-density living and choose to reside close to work and access to public transportation. And, as another UCLA Professor Matthew Kahn said, “Cities with a great quality of life have a bright future.” Across the panel there seemed to be great hope for new technologies that would transfer the power to measure, monitor and make decisions about energy consumption into the hands of individual consumers.

Money is the not the problem for Los Angeles. The Forecast’s David Shulman said: “There’s so much money around,” he says, “you could finance almost any infrastructure project.” It’s permitting that’s the main obstacle, and other panelists agreed that CEQA requirements tend to retard the pace of improvements.

We all need to remember the increase in tax for gasoline, diesel and transportation fuels that goes into effect 1 January 2015.
The increase is sponsored by the California Air Resources Board. The expected increase in gasoline prices is between 4 and 19% which obviously will partially offset the continued lowering in crude oil and gasoline prices

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Westside sales continue forward to next year….sales up over 8%!
I’m always curious when the Multiple Listing reports come out around the 7th of each month. It’s like our Real Estate report card. “How are we doing?” It’s simple — we’re doing just fine. Sales activity remains 8.2% ahead of last year. Sales activity through the first 11 months of 2014 was $2.874 billion vs. $2.657 billion for same period in 2013. You have to remember too, that Beverly Hills had some large sales in 2013, which affected the overall percentage decrease in BH’s sales through the year, but not so much in median sales prices.

Four of the five communities I report on (Beverly Hills, Beverly Hills Post Office, Bel-Air, Westwood/Century City, and Brentwood) have had median sales prices through the first 11 months of this year up substantially over last year. Prices are not running away, only Beverly Hills is down 4% from median sales price levels of 2013 at $4.500 million.

Beverly Hills Post Office is up 19% in median sales price at $2.405 million (single family residences); Bel-Air is up 8% to $2.113 million. Westwood/Century City is up 20% over 2013 through November 30, at $1.795 million; and Brentwood is up 16% at $2.712 million. These are strong #s for the Westside, as our market continues to show strength across the board.

Digging deeper into the numbers, we find that Beverly Hills, on the other hand, was up 29% for November 2014 sales vs. November 2013, averaging $6.200 million vs. $4.797 million for last November. BHPO was up 55% to $2.595 million….Bel-Air was down 11% at $1.755 million. Westwood/Century City as down 5% to $1.523 million and Brentwood was up 7% to $2.224 million.

The point is: Every community has its ups, downs — and we’re no different. Some months, Beverly Hills is down, as its median sales prices have reflected for this year. But their sales volume remains up over last year, as are all of the other communities, too.

One of the key measurements for us are “days on market”, and it becomes clear that the higher the price is for the home, the longer it takes to sell. For example, Beverly Hills’s average Days on Market is 99 days, Bel-Air is also 99 days; BHPO is 77 days, and Brentwood is 61 days. Westwood/Century Century, with a median sales price of under $1.8 million, is average only 45 days on market.

But this is not the whole story…..hold on.
I must confess — the report I get monthly from the Multiple Listing Service is not a “complete” report. Private sales are never included in these statistics — meaning sales volumes are greatly affected (the #s I give you are generally lower than what is actually happening). This is not to say that you’re getting inaccurate information — no. We are comparing “apples to apples” each month with the standard statistical data I get from the MLS. However, in each area in our Westside market, there are scores of private sales that are never submitted to the MLS — they are “private” and, they are intended to never be part of a MLS information stream. For the neighborhoods that receive my Quarterly Updates, (January, April, July, and October), you receive a complete list of ALL transactions that have taken place that past quarter. Private sales are included in this report. For example, there were five private sales in Westwood Hills last month. So the good news is that sales are really higher than reported, and that’s encouraging.

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Mortgage applications increased — this is a really good sign, no kidding
This is one of those little known, nobody-ever-notices stats: The Market Composite Index, a measure of mortgage loan application volume, increased 7.3 percent on a seasonally adjusted basis from one week earlier.

Why should I care? Good question. This is a good sign that reflects “home buyer confidence” — a key indicator of how the market is really doing in terms of buying property. Unless you are paying cash, you can’t buy a home unless you submit a mortgage application to a lender. So we Realtors always look at this index to gauge the market’s heart beat….and when we see the Index increasing on a weekly basis, we feel confident about the future and health of our local industry.
On an unadjusted basis, the Index increased 52 percent compared with the previous week. The Refinance Index increased 13 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 37 percent compared with the previous week and was 4 percent lower than the same week one year ago.

Suffice it to say, that the Index is a closely watched indicator that measures the “strength of the market”, especially from a
lender’s point of view: More applications, more lending.

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Cash sales make up 34.8% of the total home sales….it is not a fad
It’s always nice to see buyers show up with cash in their pockets — usually cash buyers go to the head of the line (not as many lingering doubts for the seller)….sellers, realtors, and title companies all love cash buyers. While there has been a slight decline in cash sales since September 2013, down from 37.2 percent, cash remains an important purchasing tool and has always proven to be a strong leveraging tactic.

But cash isn’t the only driver when viewing the total real estate market — more than 65% of all sales are financed with a mortgage, even though we see a steady stream of all-cash buyers. The assumption is that many buyers are from Asia or South America, and that’s not true even though the media has talked about Chinese buyers coming to Southern California with lots of cash. They’re coming but they are not focusing on the Westside — it’s more in the San Gabriel VAlley in communities such as Arcadia, San Marino, and Monterey Park.

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Mortgages just got less expensive for first-time buyers….think Silicon Beach
A new federal mortgage program is most likely going to spur home buying, especially on the Westside. If you haven’t noticed, there is a boom going on in “Silicon Beach” — that area from Santa Monica south to Venice, Playa Vista, Westchester and Mar Vista that is LA’s answer to Silicon Valley.

Google just announced the purchase of 12 acres in Playa Vista where it will build more facilities. And with that, it is most likely going to mean that hundreds of employees most likely will be being looking for housing, many of them first-time buyers. This should also spur more development and expansion in the tech sector in Silicon Beach, too.

This new mortgage program is a twist on a previous program, and it’s designed to spur first-time home buying. Federal agencies that guarantee most mortgages — Freddie Mac and Fannie Mae — announced last week they are launching new loan programs that require only 3% down payments for first-time buyers. Is this the start of financial crisis redux? A lack of down payment has according to the National Association of Realtors gone a long way to explaining why first-time homebuyers have recently accounted for about one-third of homes sales, down from a historic norm of about 40%.

This is a counter tactic for the mortgage industry which has been unable to help many first-time buyers. To fix this problem, Freddie Mac and Fannie Mae decided to kick off this program to address an urgent need with younger adults and new families. But this program has other benefits: It is harder for households that want to trade up to find potential buyers; and spending by homeowners for homes and housing-related services accounts for about 15% of the GDP. So this new program has a strong benefit for expanding the housing market.

Where are these new folks going to land? You can bet they will find opportunities in Playa Vista, Venice, Culver City, Mar Vista, Palms and Santa Monica. New home, condo, and town house construction will continue in the Playa Vista area — and this will be the new “boom town” area of the Westside.

Don’t get too worried that is just “a repeat of the disaster” that led to our last recession. There are significant differences between now and then. The only transactions that will qualify for the 3%-down programs are plain-vanilla, 30-year fixed-rate loans. No adjustable-rate deals, no teaser-rate come-ons and, no interest-only payment options, the home must be the borrower’s principal residence.

Both Fannie Mae’s and Freddie Mac’s programs are aimed at moderate-income households. For example, to qualify for Fannie Mae’s program, household income must typically be below the area median. Income limits are relaxed a bit in some high cost areas, such as the State of California (up to 140% of the local median) and pricey counties in New York (165% of the median).

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A few words about 2014…..slow start, fast finish
I wanted to leave you with some closing thoughts before we all launch into next year. For me, considering I had one of my best years ever in 2013, the first part of the year was slow. I wasn’t worried, but I wasn’t busy as I normally am — so this was frustrating. But frustration soon turned into fatigue — too much to do and not enough time. And the year is ending on a very positive note, and next year already looks super. I look for strong, positive growth in 2015.

In many ways, it has been a year of growth for me — I’m learning all about commercial real estate as our family commercial property in Santa Fe Springs is being re-leased, and I am working with our agents and attorney: all of which will continue to occupy some of my focus for next year….and owning a condominium in Coronado turned out to be another “growth opportunity” — our unit was flooded by a unit above us whose leaky pipes filled our kitchen below and caused significant damage. After learning about homeowner associations, dealing with insurance companies, contractors, and yes, even other owners, I have a new perspective of what it’s like to own a condominium .

I want to wish all of you a very Happy Holidays!  I’m looking forward to spending the holidays in Vancouver, Canada, with family and return here New Years. Please give me a call for any questions you may have about The SchifferLine.