Timely Real Estate News ……………………………………………………………… 1 August 2022
Interest rate hike spikes impacting real estate. Not so much.
The big question is: Will the increased interest rate hike by the Fed last Wednesday by another .75 basis points have a major impact real estate? It will. But not in the way you’d expect.
According to a report last Wednesday in the LA Times, “…that is a significant jump, yet analysts don’t expect mortgage interest rates to respond much, if at all. That’s because the Fed’s interest-rate moves have only an indirect effect on mortgages and other long-term loans. They’re just one of multiple forces at ay in mortgage interest rates. In fact, mortgage rates were lower the week before the rate announcement”.
The Federal Reserve continued to move quickly to reverse its easy-money policies by approving another unusually large interest rate increase and signaling more rises were likely coming to combat inflation that is running at a 40-year high. Fed Chair Jerome Powell said it was too soon to say whether the Fed would dial down the size of its rate increases to a half-percentage point or a quarter-percentage point at its next meeting in September. But he said that at some stage, it would be appropriate to slow the pace of rate increases to assess their cumulative impact on the economy.
So, what does this mean for our real estate market? Economists were quick to point to previous periods where there was an aggressive attack to bring inflation under control, and some are predicting that we could face a recession where real estate prices coming down and inventories tighten. So, with last week’s action, the central bank has raised rates since March as much as it did between 2015 and 2018 and returned the fed-funds rate to a level last seen three years ago, before a slowing economy led the Fed to cut rates slightly. Officials slashed them to near zero in March 2020, when the Covid-19 pandemic raced around the world.
Heard on the street:
What some of my financial gurus are telling me is that, yes, the number of sales is down, but the prices continue to rise. I am also seeing homes still selling quickly if they are priced properly. As it has always been, homes that are overpriced are lingering on the market. They are also saying that buyers who are standing on the sidelines should not hold off purchasing the home they want because:
- Most likely, we are at the top or close to the top of the interest rates, and once they come down, we could be “off to the races “again” with multiple offers.
- They are also saying that should you buy that home now, you can re-finance it in the future, of course, you will need to factor in the cost of the re-fit which is most likely a few thousand dollars, so you will need to figure the spread with the mortgage payment savings, and those re-re-expenses.
I am here as always to work with and assist you in figuring this all out. Call me. Carole – 310 442-1384
Are foreign buyers coming to the rescue? Maybe.
Foreign buyers purchased $59 billion worth of U.S. existing homes from April 2021 through March 2022, an 8.5% increase from the previous 12-month period and stopping a three-year skid in foreign investment in U.S. residential real estate, according to a new report from the National Association of Realtors. That’s a lot of real estate!
Foreign buyers purchased 98,600 properties, down 7.9% from the prior year and the fewest number of homes bought since 2009, when NAR began tracking this data. Overall, in the U.S., existing-home sales totaled 6.12 million in 2021 – the highest annual level since 2006.
“For the second year in a row, restrictions and general caution tied to international travel during the pandemic slowed home buying by wealthier foreign buyers,” said NAR Chief Economist Lawrence Yun. But their buying spree picked up in the past 12 months.
Foreign buyers who lived abroad purchased $24.9 billion worth of existing homes, up 13.2% from the 12 months prior and accounting for 42% of the dollar volume. International buyers accounted for 2.6% of the $2.3 trillion in existing-home sales during that time period.
The average ($598,200) and median ($366,100) existing-home sales prices among international buyers were the highest ever recorded by NAR – and 17.7% and 4.1% higher, respectively, than the previous year. “Affordability challenges along with the inability to find the right property were the top reasons given for prospective international buyers who showed interest but ultimately did not purchase a home in the United States,” said Yun.
Pending home sales decreased in June…West led the decline
Pending home sales decreased in June, following a slight increase in May, according to the National Association of Realtors. All four major regions posted month-over-month and year-over-year pullbacks, the largest of which occurred in the West. However, with all the national media reports, they are not talking specifically about West Los Angeles. That situation is different from other parts of the country, including the West.
The Pending Home Sales Index, a forward-looking indicator of home sales based on contract signings, dipped 8.6% to 91.0 in June. Year-over-year, transactions shrank 20.0%. An index of 100 is equal to the level of contract activity in 2001.
“Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date,” said NAR Chief Economist Lawrence Yun. “There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize.”
According to NAR, buying a home in June was about 80% more expensive than in June 2019. Nearly a quarter of buyers who purchased a home three years ago would be unable to do so now because they no longer earn the qualifying income to buy a median-priced home today.
“Home sales will be down by 13% in 2022, according to our latest projection,” Yun added. “With mortgage rates expected to stabilize near 6% and steady job creation, home sales should start to rise by early 2023.”
Existing U.S. home sales dropped for fifth straight month
Affordability is taking a hit. Existing-home sales dropped for the fifth straight month in June, according to the NAR. Three out of four major U.S. regions experienced month-over-month sales declines and one region held steady. Year-over-year sales sank in all four regions.
Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, dipped 5.4% from May to a seasonally adjusted annual rate of 5.12 million in June. Year-over-year, sales fell 14.2% (5.97 million in June 2021).
“Falling housing affordability continues to take a toll on potential home buyers,” said NAR Chief Economist Lawrence Yun. “Both mortgage rates and home prices have risen too sharply in a short span of time.”
Total housing inven
tory registered at the end of June was 1,260,000 units, an increase of 9.6% from May and a 2.4% rise from the previous year. The median existing-home price for all housing types in June was $416,000, up 13.4% from June 2021 ($3
66,900), as prices increased in all regions. This marks 124 consecutive months of year-over-year increases, the longest-running streak on record.
Huge rent increases are expected to go into effect August 1
Tenants across California can expect their rental fees are going up substantially come August 1. And there will be something familiar to blame — inflation. Landlords will be allowed to boost the rent on millions of apartments statewide by as much as 10% starting this month.
It is the maximum allowable annual increase under a state law passed a few years ago was designed to protect tenants from being pushed out of their homes due to exorbitant rent hikes. The law caps annual rent increases at 5% plus an inflationary figure that varies by region across California.
In the first years that the law was in effect, the total allowable increase hovered between 5.7% and 9%. (It has been 8.6% in Los Angeles this year and 8.8% in the Bay Area, to give two examples.) But beginning in August, because inflation is so high, every region in the state meets the requirement for the cap to be set at a 10% rent increase. The 10% allowable rent increase applies only to apartment complexes that were built before 2007 and not otherwise subject to local rent control rules.
In the city of Los Angeles, apartments built before October 1978 — nearly three-quarters of the city’s rental stock — fall under rent control. Through regulations that began at the beginning of the pandemic, landlords are not allowed to increase rent for existing tenants in those units at all.
Our beloved Monarch butterfly moves closer to extinction
The beautiful Monarch butterfly moved a step closer to extinction last week as scientists put the iconic orange-and-black insect on the endangered list because of its fast-dwindling numbers. “It’s just a devastating decline,” said Stuart Pimm, an ecologist at Duke University who was not involved in the new listing. “This is one of the most recognizable butterflies in the world.”
The International Union for the Conservation of Nature added the migrating monarch butterfly for the first time to its “red list” of threatened species and categorized it as “endangered” — two steps from extinct.
The group estimates that the population of monarch butterflies in North America has declined between 22% and 72% over 10 years, depending on the measurement method. “What we’re worried about is the rate of decline,” said Nick Haddad, a conservation biologist at Michigan State University. “It’s very easy to imagine how very quickly this butterfly could become even more imperiled.”
Haddad estimates that the population of monarch butterflies he studies in the eastern United States has declined between 85% and 95% since the 1990s. The butterflies are imperiled by loss of habitat and increased use of herbicides and pesticides for agriculture, as well as climate change. There are things people can do to help, including planting milkweed, a plant that the caterpillars depend upon. Nonmigratory monarch butterflies in Central and South America were not designated as endangered.
So, what else isn’t new? Drought. Heat. Fire season.
I was reluctant to include earthquakes in this list, but since we have not had a moderate-to-large quake in recent years, all we have to do is face one of California’s most severe droughts in its history, the heated dogdays of Summer 2022, and a fire season that never leaves. So, perhaps, it could be worse.
As I reflected on how the drought is affecting our beautiful home landscapes, the City of Los Angeles continued to praise our water conservation performance, at least for now. “We’ll wait to see how homeowners follow through with restricted water usage on their property this summer,” Metropolitan Water District spokesperson said last month.
The DPW has a free recycled irrigation water. It offers up to 300 gallons of disinfected water per person per visit. Currently it is available at the Los Angeles -Glendale Water Reclamation Plant and the LA Zoo Parking lot. To qualify for the program, one be an active customer with LAWD, complete an application form and take training classes which are available at the sites. For more information, contact the LAWD on their web site.
We can’t do much about the weather, but we all need to be mindful of the threat of fires in our canyons and mountains. As I have mentioned so many times, please follow the guidelines laid down by the City of LA Fire Department — clear brush from around your home and other structures, remove clutter, clean your gutters, and always have an escape plan. We are not immune to fires in our beautiful neighborhoods. Stay safe. Please.
Keeping up with me
Every day I thank my lucky stars for my life, where I live, work, my family & friends, and health. When you see what is happening all over with the crazy weather, people fighting one another, food insecurity, etc.
In working with my clients, I am sooooo very fortunate to see some pretty amazing properties and watch the trends of what is happening in the real estate world. One of my clients, is looking for a home in the Ocean Park area in Santa Monica, one that has the open floor design concept. With more inventory coming on the market now, we are seeing a lot of the same potential buyers all looking at the same house as we are, and all of these homes are receiving multiple offers, all over asking.
Unfortunately, for my client she needs to sell her house first, and with the market conditions that exist, none of the sellers are interested in that type of proposition. We will keep digging and I know we will find one where the scenario will work.
I also have a great 3/2.75+ den home for lease in Bel Air Crest. The asking price is $11,900. It looks like we will have it leased by the end of the week as we have two applications which means it will have been leased in a week.
Let me know how I can supply the excellent service for you in your real estate needs.
Carole – email@example.com