Timely Real Estate News…………………………………..15 December 2017
So how will the fires affect real estate prices?
That’s a big question we all have. California already faces enormous pressure on housing availabilities without the costly and tragic eradication of homes and rental units up and down the state during these two-major fire disaster, one of which (Santa Barbara) continues to rage on. It could “exacerbate an already challenging market for buyers,” says Chief Economist Danielle Hale of realtor.com. “People will probably look more toward apartments.” But there aren’t enough affordably priced rentals to go around either.
In all of California, nearly 2,045,000 homes are deemed at high or extreme risk from wildfires, according to the 2017 Verisk Wildfire Risk Analysis. That’s 15% of the state’s households, according to the insurance, natural resources, and financial services data
analytics company based in Jersey City, NJ. Usually after a major disaster, real estate prices drop. Buyers don’t want to look out their windows to see the burnt-out remains of their neighbors’ homes. Whole neighborhoods can become loud and messy construction zones as residents rebuild their beloved communities. And of course, there are always fears that another disaster could strike.
The October fires in Northern California killed 44 people, damaged more than 21,000 homes and 2,800 businesses, and cost more than $9.4 billion in insurance claims as of Dec. 1, according to the California Department of Insurance. About 100,000 residents were forced to flee their homes.
However, hold on to your hats, but prices are actually going up…. But instead of prices going down, they actually shot up in Sonoma and Napa counties after the tragic wildfires. For example, Median prices of single-family houses rose 6.1% in Sonoma and 7.5% in Napa from September to November, according to real estate brokerage Pacific Union.
In Santa Rosa, the Sonoma County city that was devastated by the fires, median home prices have risen about 9%, says a local real estate agent. They typically fall this time of year as the market slows down ahead of the holidays.
What’s going on? Despite the destruction, this is still an incredibly desirable area to be—so much so that folks are willing to take the risk. Many of the residents who lost their homes still want to remain in the area, and will pay whatever is necessary to do so.
That’s why in these sorts of anomalous places, prices can rise as a result of the disaster, says Orell Anderson, a national real estate appraiser with Strategic Property Analytics in Laguna Beach, CA. The fact that there weren’t enough homes on the market before the crisis only exacerbates the situation.
Undamaged homes are now receiving multiple offers and going as high as $100,000 to $200,000 above asking. And many buyers in the wealthy area, whose high-end homes were damaged in the flames, have the means to pay all cash.
“The majority of people here are saying, ‘This is my home, this is my neighborhood, this is my community,'” say the locals who want to stick around as they fix up their homes. “We’re going to rebuild and we’re going to make our community and our homes nicer than they were,”.
That kind of topsy-turvy post disaster price appreciation may not occur in Los Angeles and the other counties affected by these latest infernos. After most natural disasters, homeowners can expect to absorb a roughly 10% discount if they put their properties on the market, says a real estate appraiser.
People buy neighborhoods…. they stick together
Real estate research has long proven that people buy neighborhoods as well as homes. So, properties that were miraculously spared on burnt-out blocks are going to see the biggest discounts. (Buyers are unlikely to want daily reminders of the devastation.)
Los Angeles has some of the nation’s most expensive real estate, but the city is very different from the wine counties up north—vastly larger, more diverse, and perhaps less predictable.
Generally, most people after a disaster are risk-averse, and yet most will rebuild says. All we can do and take a ‘wait and see’ attitude about all of this. The Skirball Fire claimed 6 homes in Moraga, Linda Flora, all of the vines at Moraga Vineyards and on Casino…. but no homes were damaged or destroyed at Bel Air Crest or Mountaingate. Each of the communities have well-established land-clearance practices and Emergency Preparedness procedures in place. In fact, Bel Air Crest has its own water-fire truck which was on the scene immediately after the fire was first reported.
Of course, I will keep you all posted about this…. a most critical topic for some time to come. Thank all you and the first responders for their tireless support and sacrifice.
Prices accelerate upward…sellers happy
Depending on your point of view, there are two ways to look at the continued rising home prices in our communities especially on the Westside. From the seller’s view, rising prices mean more money in their pockets, but from a buyer’s point of view, the rising prices just add to the stress of finding a home one can afford and avoid the increasing competitive bidding for ‘gem-level’ homes (priced competitively, good location, well presented). Inventories continue to lag well below demand, but we are seeing moderate increases in availabilities. But they all come with a ‘price’.
Median sales prices continue to move up for the five communities I report on — Beverly Hills, Beverly Hills Post Office, Bel-Air/Holmby Hills, Westwood/Century City and Brentwood — all have shown strong “year-to-date” price increases. Beverly Hills leads the pack with a 27% Y-T-D increase since January 2017, and by the end of November, the median sale price was an even $6.000 million. Beverly Hills Post Office posted a 26% for the same period at $3.235 million….Brentwood was 16% ahead — $3.157 million — since last year…Westwood/Century City was at $2.015 million or 9% plus and Bel-Air/Holmby Hills was 6% over 12 months ago at a median sales price of $2.286 million. I also report on Santa Monica which had no change in its median sales price at $2.500 million.
Sales volume continues strong, too!
The five communities I report on accumulated more than $3.463 billion in total sales, a 11.7% increase over this time last year, which demonstrates the strength in the market which has been positive all year. Frankly, with lower-than-desired inventories and our continued strong demand, I don’t see prices ebbing any time soon, even though buyers continue to look for bargains…there just aren’t any. Santa Monica remains 16.1% ahead of sales for 2016, however prices remain steady there.
Across the board, there were strong year-over-year increases in median sales prices in all of the communities…for example, Bel-Air/Holmby Hills was up 61% in November 2017 over same month last year…Westwood/Century City was up 28%…BHPO was up 20%…Beverly Hills was up 23%, and Brentwood was still up 8%. The trend lines all reflect a demand curve that doesn’t appear to be declining.
On another front though, the average “days on market” — always a bellwether for buyer demand in real time is averaging 98 days in Beverly Hills, 65 days in BHPO, 78 days in Bel-Air, 35 days in Westwood/Century City, and 34 in Brentwood…inventory priced correctly is moving quickly when it appears on the scene.
Fed does the expected…raises rates
The Federal Open Market Committee announced that it will increase the federal funds rate by 25 basis points to a range between 1.25% and 1.5%. This marks the third increase of 2017, with three more rate hikes expected in 2018.
However, even with the Fed rate hikes, which were anticipated, the Fed anticipates faster growth in the coming year, noting in a statement it expects “economic activity will expand at a moderate pace and labor market conditions will remain strong.” This is good news.
Despite no signs of inflation on the horizon, the Fed offered almost no change to interest-rate projections. The average 30-year fixed rate mortgage stands at 4.08%, still near historic lows. Not only does this present potential borrowers with an opportunity to purchase a home with a low rate in the coming months; it represents an opportunity to refinance, particularly for those with an adjustable rate mortgage.
Retirees fret about paying off mortgage….
Many retirees are worried if they’ll ever be able to pay off their mortgage. Forty-four percent of 60- to 70-year-old retirees have a mortgage in retirement, according to American Financing’s 2017 Retirement and Mortgages Survey. Thirty-two percent predict it will take still take them more than eight years to pay off their mortgage.
Baby boomers are carrying mortgage debt into retirement more than previous generations, a survey by Fannie Mae showed earlier this year.
Sixty-four percent of 60- to 70-year-olds say, as of now, they plan to remain in their current home. Sixty-two percent say they plan to one day leave their home to their children or their estate, according to the survey of 800 consumers between the ages of 60 and 70 across the U.S.
Fifty-eight percent of boomers say they have refinanced their loan at some point, mostly motivated to do so in order to lower their mortgage rate. But 19% say they do not know what a reverse mortgage is.
Impressive job #s fuel economy…..
According to the National Association of Realtors’ Chief Economist Lawrence Yun, November marked another impressive month for the labor market, adding up to now over 2 million net new jobs over the past 12 months.
From the deep recession in 2010, 17 million new jobs have been created. In fact, current employment levels are way above the pre-recession levels by nearly 10 million. That means an abundance of new potential homebuyers in the near future. Yet, the construction employment is still slow in coming.
Even the though the latest month’s job growth rate in the construction sector of 2.7% is twice as fast as the overall growth rate, total construction jobs are still well below the pre-recession levels by roughly 20%. Without more skilled construction workers and more hiring in the sector, the housing shortage will continue well into 2018.
Economically speaking, with a strong market, low mortgage rates (still), low unemployment and job growth, 2018, indeed, looks like an early Holiday present.
Luxury home buyers want “over the top”
We just happen to experience a unique lifestyle on the Westside where the outrageous is, well, not so outrageous after all. However, this philosophy is not limited to Los Angeles, there are some crazy “over the top luxurious items being added to homes all over the country! It seems people are trying to outdo their own fantasies of creating something “over the top” …and that’s the trend we’re told by leading spec developers Nothing is being held back.
As one developer noted…” it’s the buyers who are making demands…the market is pushing us to fulfill their dreams.” For example, developers in Los Angeles are focusing on expanded floor plans with the finest upgrades in luxurious amenities. Specific rooms are receiving bigger and better improvements than others, especially those where residents spend the greatest amount of time while at home. One room in particular — the bathroom, is receiving more of attention over the others more recently, due to the increasing need to relax and retreat from the harsh stresses of daily modern life. On a more practical scale, buyers have in mind a specific list of highly desirable wants when it comes to a luxurious bathroom. At the top of the list is a soaking tub to wash away the stress and strain of daily life. Buyers also want an oasis of greenery, especially if the room does not have any windows.
Some of the over-the-top amenities include indoor golf simulation room, wine cellar with fully ventilated cigar room, large movie theaters, bowling alleys, and of course, full-on automated and smart home technology throughout. Outdoor summer kitchens that operate year-round is gaining traction as is roof-top patios and gardens that provide that ‘extra view of the world.’
There appears to be no limit except a buyer’s or developer’s imagination.
Reflections on the Fires
I must tell you, it was/is a horrible thing to wake up and see that HUGE, ugly ball of fire looming at what could be your front door. While it was/is terrible, we in Bel Air Crest were very lucky that the winds blew in the direction they did or we would have been in a much more difficult situation. Our Emergency Preparedness volunteers were amazing, and the first responders of both the LAFD and LAPD, along with the fire fighters from all over, including Northern California, Oregon and Washington State were life savers, literally. I also learned more about voluntary vs. mandatory evacuation. The fire dept. was more causal about having us evacuate, while the police were much more strident about it, and so for a while we were getting conflicting instructions.
Finally, the LAFD — because of the liability — agreed with the LAPD, and the final mandatory evacuation order was released. Even with that, I estimate that approximately 30 % of my neighbors did not leave. Having been evacuated from my house for four nights, gave me a new perspective on what I hold valuable and dear, and what I should think about the next time this happens, and unfortunately it will happen again. I also learned a lot.
Here are some things you may want to think about for yourselves:
1) Does your home owners’ insurance policy have a “brush fire” exclusion from their coverage? Apparently, there are some that do.
2) When you are preparing to pack up and go, and you should have your “go” bag with meds, cash, credit cards, important papers (even though they should all also be on “the cloud” – deed to house, birth certificate, etc.) family photos, clothes for a few days, you should also think about your art work. Again, check your homeowners’ policy about your art, and I also highly recommend taking a video inventory of all of the items in your house that may need extra coverage, art, jewelry, china, etc.
It is really sad that the Skirball fire was started at one of the many homeless encampments that we have in the Sepulveda Pass area. Hopefully we will be able to assist these folks in re-locating to another location that will be better for all involved.
Real Estate News
While it is quiet in my office, real estate life does go on, and there are still sales & transactions being made. Open house activity is good, and the buyers are out there wanting to participate on the market. At my open house in Mountaingate last week, I had 4 guests, all of them buyers, and this was after the fire! After the first of the year, I have a number of listings coming up and will be happy to share the information with you then.
Happy Holidays….it’s that wonderful time of year
As we await the arrival of Santa Claus with his momentous job of delivering all of the gifts throughout the world in one night, and are now enjoying Hanukkah, I want to wish all of you the happiest greetings for the Holidays. We have much to be thankful for…and even though our December was visited by the fire tragedy, the losses could have been much worse. We should all be thankful for that. For many of us who have friends and relatives who have suffered losses in other parts of Los Angeles, Ventura, Santa Barbara, Napa, and Sonoma counties our thoughts and prayers go out to them all.
I hope you have a wonderful, safe and happy holiday!!!!!!!!!