Mortgage Quick Facts – 1

Did you ever wonder where the money comes from to make mortgage loans? Or, how the interest rates are determined? As complex as lending can become, most of the time it’s pretty straight-forward. When the systems are operating as designed, it works as follows.

And the money goes round & round

The Federal National Mortgage Association (Fannie Mae) and theFederal Home Loan Mortgage Corporation (Freddie Mac) are semi-privatized financial institutions that buy mortgages and bundle them into financial securities and treat them like bonds. Then they sell the mortgage-backed securities to investors.

It’s those investor funds which keep money flowing to the mortgage finance system. After you get a mortgage, the lender sells the loan on the secondary market, probably to Fannie or Freddie. By selling the mortgage, the lender gets its money back quickly so it can lend the money again, to another mortgage borrower.

The secondary market and you

The secondary market encourages mortgage lenders to lend more funds to more buyers, because the lender’s money is returned quickly, rather than being tied up as you gradually repay it over the years. When the lender sells your mortgage, the lender gets the full amount of the loan back immediately, with a profit, which can then be reinvested.

Meanwhile, investors, predominantly “institutional investors,” such as employee retirement funds, buy these securities because they offer stable payments for the members of their institution.

It’s these investors in the secondary market who collectively determine the interest rate of your mortgage loan. Your lender offers you an interest rate that investors on the secondary market are willing to buy.

Ups and downs of bonds

As with stock and bond markets, prices and yields on the secondary market move up and down. When the economy is on an upswing, investors demand higher yields on mortgage bonds, trying to keep pace with the stock market. In turn, this forces lenders to raise mortgage rates. In a market downturn, the paucity of investment opportunities means investors will accept lower interest rates which then tend to drop for home buyers.

Next Issue: How does the Federal Reserve Bank impact interest rates?

Climate Change Beach Warning

For several years we have been hearing about rising sea levels and the loss of oceanfront land as a result. Living at the beach, we’re obviously concerned about the flooding potential for multi-million dollar Strand properties, our local harbors, and Catalina Island.

To our surprise and delight, the rising ocean levels have both negative and positive impacts. The United States Geological Service (USGS) has been studying the issue for some time as part of their Coastal and Marine Geology Program. The report titled Why research on climate change and sea-level rise is important, notes, In California alone, roughly half a million people and $100 billion worth of coastal property are at risk during the next century.”

Specifically speaking of the southern California coast, the USGS says, “In southern California, the team identified places particularly vulnerable to climate change, such as Venice, Marina Del Ray, Huntington Beach, Newport Beach, and many areas around San Diego.

As it turns out, our three Beach Cities will actually gain beachfront sand, assuming current conditions continue. Decades of study have shown the coastline in northern California erodes, losing soil to the ocean, while in southern California, the coast accretes, gaining soil.

Of course, no one knows if the Pacific Ocean will rise fast enough to exceed the rate of accretion, or not.

The UN is warning that we are now on course for 3C of global warming, with the latest projections pointing to an increase of 3.2C by 2100. If this comes to pass, it will ultimately redraw the map of the world as low lying areas are inundated.

The map on the right shows Manhattan Beach gaining from .5-2 meters of sand by the year 2100. Hermosa Beach gains slightly less, at approximately .5 meters.

Most of Redondo Beach falls into a coastal category known as “cliff retreat” because of the high bluffs above the beach, as does all of the Palos Verdes Peninsula. We’ll look at that in a future issue.

Have We Recovered, Yet?

The simple answer, for houses in south Redondo Beach, is yes. In December of 2007, TheMLS showed the 6 month rolling median sales price at $1,082,250, then the plunge began.

Most of the decline in value … 31% … occurred between December of 2007 and autumn of 2011. Prices bounced along the bottom until they hit a low median of $748,250 in October of 2011. Fall of 2011 was the beginning of a gradual increase which, six years later, is now beginning to level off.

March of 2017 saw the most recent high with a rolling median of $1,437,000. That was a 7% year-over-year blip which quickly fell back to the January prices of about $1,300,000. The median has remained relatively stable since then at roughly 25% above the high of 2007.

Location, Location, Location

Compare these numbers to the city of Bakersfield, which currently stands ~23% below the pre-recession high of 2007. Bakersfield is an extreme example, but the new reality in housing is more tied to location than ever. State-wide, and national sales numbers no longer tell the story. Since 2007, determining home values has evolved into a very complex, hyper-local process.

A New Paradigm in Real Estate Pricing

Warren Dow, editor & publisher of South Bay Digs, has been preaching about the onset of hyper-local real estate for years. The Great Recession and ongoing recovery (or failure to recover, depending on where your home is) has proven the concept beyond any doubt. In addition to proximity to work, shopping and family, homebuyers now need to take into consideration the economic strength of the neighborhood before buying. If you are thinking buy or sell, give us a call for hyper-local help.

SFR Sales in South Redondo Beach, August-October, 2017

For the most recent three month period, house sales in Redondo Beach, south of Torrance Blvd, and west of Pacific Coast Highway totaled 20 units. The lowest sale price for $970k for a 3 bed / 1 bath home, while the highest sale was $2,850k for a 5 bed / 7 bath home.

The median price was $1,815k, for an older, 4 bed / 4 bath house.

55+ Options: Redondo Beach

Now in their golden years, the baby boom generation continues to shape our environment. Until about 10 years ago, senior housing in Redondo Beach was limited to a couple of rental complexes. One in north Redondo and one in south Redondo, they are both operated by non-profit organizations, and both have long wait lists.

With Boomers asking for alternatives, developers soon constructed two condominium projects exclusively for senior citizens. Following is a brief introduction to each of those projects.

Both have been quite popular and sold quickly when available. As of this writing, no units are available in either complex.

Next issue … The four cities of the Palos Verdes Peninsula have another unique set of senior living accomodations. In addition, the newest project on the hill, Soli Mar in Rancho Palos Verdes (?), has sold out the first phase and is working on phase 2. If you’ve been considering a move to a 55+ community, give us a call. We’d love to show what’s available in the south bay.

Breakwater Village

2750 Artesia Blvd,
Redondo Beach, C
A 90278

Built in 2007. this senior community offers 191 units, ranging from one to three bedrooms.

Amenities include a recreation room with kitchen, big screen TV, game tables, pool table, and a conversation area with a fireplace.

The exercise room is equipped with state-of-the-art fitness machines.

A sparkling pool is located in the central courtyard, with a built-in barbeque island nearby and an inviting separate outdoor fireplace area. It’s a secure building with gated underground parking garage.

The Montecito

2001 Artesia Blvd,
Redondo Beach, CA 90278

Built in 2008, The Montecito comprises 48 senior condos and three retail units in a combined commercial and residential building.

The three commercial storefronts are located on the sidewalk level, while the residential units are above and behind.

Amenities include high ceilings, private laundry, air conditioning, floor to ceiling windows, granite counter tops, and stainless appliances.

How Does Retail Marijuana Affect House Prices?

Voters, policy-makers, and economists are interested in the ways recreational marijuana legalization affects communities. Similarly, economists and homeowners are interested in how marijuana sales impact the value of their most prized possession … their home.

Using publicly available data from the city of Denver and the state of Colorado, business analysts from the University of Georgia, University of Wisconsin and California State University studied the impact of retail marijuana sales on property values. This study reflects a time before and after retail marijuana sales became legal in Colorado in 2014.

In the words of the authors, “…this is the first study to examine at a micro-level the highly localized effect of retail marijuana establishments on house prices…”

Houses closest to dispensaries increased in value 8.4% …”

Economic impact was determined by measuring the distance from the marijuana facility, the value of a house before legalization and the value after legalization. Proximity to marijuana dispensaries was grouped into three categories: The first was 0-.1 miles, the second .1-.25 miles and the third greater than .25 miles. Then, changes in value during the study period were compared to identify any impact and how distance from the dispensary related to the change.

The conclusion: Houses closest to dispensaries increased in value 8.4% more than houses in the second category, which remained the same as those more than a quarter mile away. These findings supported those of an earlier Colorado study, which looked at economic impact on a municipal level, and found a 6% increase city-wide where recreational marijuana was adopted.

Coupled with “no evidence of increased marijuana usage or crimes due to recreational marijuana legalization,” these findings bode well for homeowners near retail marijuana dispensaries.

For greater detail, see Contact High: The External Effects of Retail Marijuana Establishments on House Prices at

Where is the Real Estate Market Headed Today?

Successful people know having the most current information is key to making wise decisions.
This is especially important, and especially difficult, in a hyper local real estate market such as the Beach Cities. Hyper local means we have very few sales to work with on a daily basis, which is the most current data we can possibly bring you.
This October chart shows daily activity in blue, and the trend line in red. The red line shows the overall direction, taking time and daily volume into consideration.