Monday, November 19, 2018

21 Housing Market Factors That Will Affect Pricing and Sales in 2019




After writing and reporting about the housing market for over a decade (and commonly getting it right except for interest rates), I have been perplexed about the direction of housing prices and sales as we finish up 2018 and head into 2019. Most of my prior reporting has focused on eight major factors: Inventories, affordability, interest rates, population trends, projected new housing, current pricing, the economy, and the rent vs buy equation. Another factor has also played a part at times - investors, including foreign buyers.

If you take a quick look at each of those, four of the eight would bode very well for continued increases in prices and flat-to-increasing sales as inventory allows:

1.     Inventory is still very low
2.     The economy is still red hot
3.     The population is bursting with new families
4.     New housing starts in the pipeline are generally insufficient to meet overall demand

The other four are either soft of negative

1.     Interest rates are up, and likely to continue up a bit more
2.     Increasing housing prices have outstripped increasing income in the middle class
3.     The wealthy overseas buyer is not as active in the US right now
4.     Investors are no longer scooping up bargains, as bargains are harder to find

A huge factor doesn’t really fit with the above. This would be the rent vs buy equation. Generally, as rents rise, tenants consider buying. Of course, as rents rise, investors are willing to pay more for rental properties, and builder are attracted to build more. Lots of moving parts there. The reality is that very, very few markets have anywhere close to enough affordable housing when you combine owned and rented units, and there isn’t enough being built to catch up with population.

Overall, there is still a huge squeeze on tenants to afford apartments, and many are doubling up who don’t prefer that arrangement. Thus, this 9th issue would point towards more demand for purchased housing.

If these were the only factors at work, you might expect a flat market, and that seems to be what we have right now. But, a fantastic article in the NY Times provided a few nuances. Moreover, in a shocking development, the letters to the editor provided significant insights that the author didn’t uncover. Here are some fascinating elements to consider. Each, on their own, would not have much effect on the market, but taken together they might give hints as to future trends.

1.     Grandma still isn’t selling – This is huge and is reducing inventory. But if she sells, she still needs to live somewhere and there is no rental property available at reasonable prices.
2.     Millennials are still living at home – This is reducing demand, but will these kids still live at home at 35 or 40? This could be a huge demand component that is lurking.
3.     Student debt – For some professionals this debt is six figures and hurts their ability to borrow or pay. For some middle-class young people, the debt is less substantial, but still cuts into what they can afford.
4.     Very little affordable housing being built – You will hear that new home sales are down, and that homebuilders are despondent. The reality is that they are not building the homes that new families want. This is partly due to the reality that building a smaller home isn’t as profitable, given all the regulations and the cost of land.
5.     Earnings are just starting to improve. Through the first eight years of the recovery, earnings have been very flat. With unemployment so low, it would be odd to see earnings not respond, and now they are. This will improve affordability.
6.     Immigration – legal and illegal. Every nation with low birth rates must increase immigration or their economy will stagnate. One way or the other the US will see more immigrants moving here due to our huge demand for labor. This will increase demand.
7.     Doubling and tripling-up – Singles are commonly living with roommates who would rather not be. This is, of course, due to the cost of rentals. As these individuals find a better job, they will be adding to demand.
8.     End of mortgage deduction - The changes in the tax law that increased the amount of the standard deduction, eliminated a major advantage to ownership. This is a factor right now, but will play itself out. 
9.     Massive housing wealth – Those who owned their home 10 years ago are now sitting on massive amounts of home equity. If these individuals choose to move, they have substantial down payments, whether they are moving up or downsizing. 
10.  The millennials and Z gen are not that different than the boomers or X gen that went before. Their folks and other relatives are likely to be needed for down payment help. The good news is that the older generation has massive equity, and may have also created additional wealth through the soaring stock market.
11.  Concentrations in major urban areas – In the major tech cities, prices are high due to lack of new places to build. Los Angeles, San Francisco, Boston, NYC, and other such cities can only build up. While these areas may see some relaxation in rental pricing over the next two or three years, it will only be a pause.   
12.  Lower expenses in other home budget areas beside housing – This is a huge factor in the last 25 years. We are spending less and less AS A PERCENT OF TOTAL INCOME on food, cars, clothes, entertainment, travel, children, and almost every other category of expense. This frees up dollars to be spent on housing. The result is that the average individual or family has more money to compete in the market.

For instance, if a family used to spend on average 70% of their $50,000 a year income on everything but housing, they would have $15,000 a year to spend on housing. If their cost for everything else dropped to 50%, then they have $25,000 to spend on housing. This provides more buying power, and therefore more competition for scarce resources. Put another way, we aren’t spending 50% on housing because we have to. We are spending 50% because we can.

2019 Housing Forecast

Where does all this leave us? What might 2019 bring in sales and prices in 2019?

  • Location, location, location – Real estate will still be about location in 2019. Crazy high rents and prices for luxury apartments and condos in major cities are likely to soften. The same can’t be said for middle and affordable housing. This will likely be steady to up.
  • Areas with lots of building, such as the Inland Empire in Southern California, may see slackening demand for resales, but the demand is great due to outward migration from the urban and suburban areas where prices are much higher. Therefore, don’t expect much downward pressure on pricing, and rents will continue up.
  • Suburbs that are fully built out will likely see continued increases if the business climate holds.
  • Sales will follow established patterns. Activity will bounce up in March with excellent sales in the Spring.
  • The Fed might pause on interest rates. Once the reality of historically normal interest rates has sunk in, some buyers will move off the sidelines.
  • Days on market will increase, but still not reach traditional norms.
  • What might seem like dropping prices will really be more realistic increases.

Maybe you have a very different opinion. Please leave your comments below.

If you need a mortgage, call Bill Rayman right now at (424) 354-5325. Bill specializes in tailoring a mortgage to fit your needs. When you work with someone like Bill, you will realize that there are many, many products on the market, and one size does not fit everyone. Call (424) 354-5325 














Saturday, August 25, 2018

Tight inventories, increasing demand, prices up, seller’s market in Los Angeles Residential Real Estate


 Los Angeles Housing Market Heading Into 2019 – More of the Same

The LA housing market is not heading toward disaster, no matter what the headlines are saying. If you spend five minutes reading the what is actually said in articles like “Southern California home sales crash, a warning sign to the nation,” you’ll soon see that the writers can’t support their crazy headlines.

The articles actually say you’ll find that respected sources say that the LA market is 500,000 housing units short of what is needed, and that this is concentrated in so called “affordable” homes and apartments for rent or purchase. Nobody has figured out how to create more land to build these sorely needed units, so LA will take years to catch up, if ever. 

There is available land in the Inland Empire, and that is where affordable housing is being built. As fast as it is built, LA and OC residents are moving out to buy it.

Within LA County, the only way to add units is to tear down and increase density. This only happens at a snail’s pace due to limited properties being offered for sale, and layer upon layer of city, county, regional, and state hurdles to jump through after the property is acquired.

Will the exodus of residents heading to the IE and beyond (Las Vegas, Phoenix, Dallas) ever actually impact the housing prices in LA? Possibly, but so far, the lure of weather, entertainment, sports teams, and high paying jobs is keeping folks in LA. You can move to Riverside and get a lot of house for the money, but the IE is becoming the distribution capital of the US, and warehouses don’t use much labor or pay much for the labor they do use.

Meanwhile, LA has become a huge draw for the wealthy and well paid. The entertainment, high tech, health care, and finance sectors are drawing folks from Northern California, Seattle, Hong Kong, China, Korea, India, and Europe. They are arriving with cash and are competing for available properties.

Here is one caveat. The number of new arrivals from China has dropped off. This may be due to a slightly softer Chinese economy, the tariff situation, or other issues. But word on the street says there is reduced competition in some LA markets that seems to be related to fewer mainland Chinese vying for scarce inventory.

What about the other headlines declaring that prices are easing, homes are staying on the market longer, not as many offers, more sellers cutting prices. Once again you need to dig. All four of these markers have been so high for so long that they had to come down. The amounts they are coming down is a percent or two. People are cutting the asking prices from the ridiculous to something just less ridiculous.

Where are we in the bubble? We are just now hitting prices from the 2006 highs in the “affordable” neighborhoods These are actual, not inflation adjusted prices. Some are still slightly below. Based on historical patterns we could have 40% upside left before a bubble could be declared. But if prices only continued to track inflation for the next several years, it is likely we would see 3% average increases year after year.

What about a recession? Everyone agrees that there will be a recession at some point. In order for the housing market in LA to go lower, you need more inventory. It will not come from new units. It can only come from people moving away from the county, people doubling up, or boomers finally moving to retirement villas. If we endure a normal two quarter recession, it seems unlikely that there will be any impact on LA real estate.

What about mortgage interest rates? As long as we stay under 6% or so, there is likely to be enough elasticity in the market to absorb the hit. If we have several factors impacting all at once, then we could see a drop in prices.

For instance, imagine that the World has a year-long recession, drying up money from Asia. Maybe the US has a six-month recession, driving up the unemployment numbers to 6%. The final leg in the stool could be interest rates at 7%. In this case, you are likely to see the historical 30% drop in home prices for a year, followed by seven more years of prices going up. 

 Mortgage rates? They are up from the crazy days, but they are still way under historic averages. The latest from the fed would suggest that rates are going to stay moderate as long as inflation is under control. 

When is the perfect time to sell your home? When is the perfect market to buy a new or upgraded home? It is not a good idea to try and time the market. The best thing you can do is make your decisions based on your needs. Do you need to buy a different home to handle a growing household, or just because you’d like a nicer home or a better neighborhood? Call Bill Rayman today and lay out your hopes and dreams. No better time to start looking than right now.

Call Bill Rayman at (424) 354-5325

 

 


Thursday, July 26, 2018

Will $120 a Month Kill the Deal on a $1,000,000 Home Purchase – Interest Rate Facts






Morgage interest rates are going up. We have finally come to the end of the amazing and historically unique time when mortgage interest rates on 30-year fixed mortgages hovered around 4%, even dropping to under 3.5% for a while. This aberration did not result In a massive influx of new home purchases or of new home building. The reasons for this are many and varied, but while the US enjoyed these rates, the main benefactors were existing homeowners who refinanced.

Simultaneously, the lack of new residential construction and the inclination for seniors to age-in-place, created shortages in available homes and apartments to buy or rent, driving prices and rents up rapidly.

Now the pundits and some in the real estate industry are panicking over the interest rate increases, with mortgage interest in the late Spring of 2018 reaching over 4.75%. In the historical context, these rates are still very low. To give a bit of context:



From 1900 – 1967 rates were narrowly confined between 5% and 6%, except for a brief time at the end of WWII.

From 1967 – 2007 Rates ran up starting in 1967 all the way through the housing bubble bust of 2007. During this period rates were well above 6%, climbing as high as 17% in the credit crisis of 1982.



2007 – 2018. The housing bust, bank debacle, great recession combination drove mortgage interest rates to unimagined lows for over a decade. With the economy getting stronger, the Fed has seen fit to increase Fed Funds Rates and is starting to sell off assets purchased to keep the economy from crashing. The net intended affect is to send all interest rates higher to stave off potential inflation above the Fed goal of 2% annually.



Thus far in the 2018, we’ve seen rates increases that the headlines have described as the fastest increases in history. There seems to be some panic around all this. However, there is every reason to believe that rates will eventually settle into the 5%-6% range that seems to “normal” outside of extenuating circumstances. 

Will we have extenuating circumstances? Who can know? The primary driver of mortgage interest rates is bond interest rates and Federal Reserve rates. Some would argue that we have a bond bubble caused by massive borrowing in the government and public spheres. If that we to bust, we could see bond rates go much higher. Very few are expecting that in the near term.

The economy could accelerate out of control, creating inflation, and Federal Reserve efforts to slow the economy down using higher interest rates. It is hard to find anyone predicting economic growth above 4%, and most seem to agree that the economy could grow quite a bit without serious inflation.

What does all this mean to the average citizen who owns a home or is contemplating purchasing a home?

The big worry is that higher interest rates means that the cost of ownership goes up. But while every decision about purchasing can be affected by small incremental changes, the increases here would seem unlikely to do much damage in the overheated real estate market.

As noted in the headline, each increase in the interest rate of 0.25%, from say 4.5% to 4.75% will increase the payment on a $500,000 home by $60 a month or about 0.025% of the payment of $2450 (including property tax, insurance, etc.) Another way to look at it is that the increase of an entire 1% will increase the payment by $240.
If this buyer was maxed out on their ability to pay, either by their own budgeting or by the mortgage underwriting, they would need to drop their expectations to a home of about $450,000. For the first time homebuyer this could be an issue and could drive down prices by some amount.

However, a huge part of the market right now is all cash deals, high-roller tech employees, and homeowners looking to move up or down. The first group has high incomes, the second group has flexibility regarding down payments. Having said this it would be pollyannaish to think that a 1% or more move will have no force in home pricing.

The mitigating forces that are likely to keep home prices moving up

Demand is high, increasing, and likely to continue to increase.
Supply is low, decreasing, and unlikely to increase compared to supply
Current home prices have not retaken 2007 levels when adjusting for inflation.

If you’d like to review the details of those three assertions, please go here.

Assuming those three statements to be true, the upward force on prices has been at the rate of about 7% per year. A ballpark guess might be that the interest rate increases might slow that in half for a couple of years. But there’s one more mitigating force that needs to be considered.

People tend to panic, and the panic in this case would cause folks to try and get the today rate at 4.75% before it goes to 5%, and under one theory of investing, they would be correct. This theory assumes that to the extent that you wish to own, and that you intend to own for many years into the future, even if you sell and buy one or more times in your life, what you pay to make your initial purchase will not be that consequential.

Moreover, if interest rates continue up and home prices, too, you’ll be thrilled at your decision. If interest rates drop in the future, you can refinance. If home prices drop, you only lose if you sell and don’t repurchase at an equally deflated price.

Final recommendation

If you want to own your own home, or if you want to buy a different residence, don’t fret the price or the interest rate. Make the wisest decision regarding your needs, the neighborhood, and your ability to pay. The rest will sort itself out over time. 

To learn more about current rates or to arrange for a fully underwritten mortgage prior to looking for a home, call Bill Rayman today at (424) 354-5325












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12 Easy Household Budget Hacks That Will Save You $250 - $500 or More - Guaranteed




One sage said: “It is easier to save money than it is to make more.” That may or may not be the case for you, but if you follow the steps below, I can pretty much guarantee you that you will save at least $250 a month and maybe $500 or more. How many more hours would you have to work each month to make that much? How much more house could you afford? What would it do for your credit report.

  1. Get rid of recurring charges you don’t need anymore – Go through every bank statement and every credit card statement. Look for recurring charges that you have forgotten about from online resources, magazine drives, newspaper subscriptions, and more. We’ll assume you find one of these at $10 a month. You might find way more.
  2. Call your cable TV provider. Tell them you are considering going off grid or switching to satellite. If you have satellite, call the provider and tell them you are thinking of switching to cable. Watch the dance begin. You are very likely to end up with at least $20 or more in savings. Now call the competition with your new rate and see what they will do. You are likely to end up with the same or better rate and some kind of promotional money or free stuff for switching.
  3. Go off the grid on cable. Between Apple TV, Hulu, NetFlicks, RedBox, Amazon Prime, and other TV offers, it is hard to justify any upgrades to basic service on cable or satellite. The savings for getting off of cable could easily be $50 or more.
  4. On to your cell phone, internet, and land line providers. This gets a bit more complicated, but the cost of all of this is dropping fast. By changing providers, bundling, unbundling, and just shopping, you are very likely to end up saving another $30 a month and improving MBPS. Recently I tried to end my land line service, but the bundle cost less with it that without. 
  5. Saving on your utilities. The water company (at least in California) will be happy to help you cut down your water use. Check with your supplier to find out how to get free or reduced costs products to reduce use in bathrooms and irrigation. Then check to see what the recommended water needs are for your yard. The electric company will help you with lighting and other ways to save on electricity. LED lights are fantastic and save a huge amount of money. Switch appliances to natural gas to save even more. Saving $25 or more per month for these changes should be a cinch.
  6. Budget. Keep a penny by penny ledger of all expenses for three months. There are many online tools that can help with this process. Once you see where the money is going, you will almost certainly be able to find ways to cut that won't hurt even a little bit. We’ll put this down as $25.
  7. Shop your car insurance. We have 4 drivers on the policy, so your results may vary. Don’t forget to check Costco or AAA. It is not unusual to save $100 or more. You should also review your other insurance policies annually to make sure you have the coverage you need, and to see about savings on rates. Life insurance is another very likely savings point.
  8. Speaking of Costco. The savings by purchasing your groceries and other items at Costco are real and significant. Costco marks up all items by 15%. What they buy for $10.00, you pay only $11.50.  Most discount department stores mark up 50% to $100.  So you would pay $15.00 - $20.00. I know you have to buy huge quantities. Find nooks all over the house for storing commodities. Buy and extra freezer. A one-time small cost for huge savings. Multiple online sources report Costco as cheaper than Walmart, Sam’s, and Amazon Prime. Imagine the savings compared to your local chain market. Potential savings of at least $25 per month per person.
  9. Amazon Prime. When it isn't a Costco item, why not buy on Amazon Prime?!? Pricey toothpaste, supplements, household items and more are almost always cheaper on Amazon than at Target or CVS. And there is no freight and no auto expense. When you need more, you have a record of what you bought. Savings of another $10 per person per month.
  10. Get rid of any high interest credit card. Use the savings from these other suggestions to first pay off all credit cards with interest rates higher than your mortgage interest rate. The only good use for a credit card is to build credit. Pay them off every month. Or get an interest free credit card and transfer all balances into the interest free card. If you owe $10,000 on credit cards that charge interest and you put this on an 18 month no interest card, you’ll pay 3% for the transfer ($300) and save at least $1800 if you pay the card off in the 18 months for a savings of $100 a month. Most families will save at least $25 per month. If you owe more than that, try a credit union for a low interest loan. If you owe a lot more, consider a HELOC.
  11. Take your lunch to work. Eating out a lunch is expensive and usually not great for your waistline. A normal lunch your make at home will cost under $2.50. Savings of $100 a month and maybe 10,000 calories.
  12. We promised not to suggest changes to lifestyle, but if you want to add another huge amount of savings, get rid of one expensive, useless or worse, habit. Smoking, buying booze in bars, daily Starbucks, fast food, gambling (including lotto.)  This could be the biggest savings of all. An expense of just $10 per day is $300 a month.

We would love to hear from you in the comments. How much did you save? What will you do with the savings. If you are interested in purchasing residential real estate for any purpose, primary home, second home, investments, or some combination, Bill Rayman can help you secure the exactly appropriate mortgage for your needs. Call Bill now at (424) 354-5325
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