Higher interest rates and demand predicted in coming few years

Global markets are stabilizing, which will cause interest rates previously held in check by cautious investors to increase. This predicts a slight downtown in 2018, since currently sales volume is low and prices are high, so rising interest rates will initially decrease demand from prospective buyers who can no longer afford to qualify for what they were aiming for. However, once sellers readjust their prices to the state of the market, buyer demand is expected to go up, peaking in 2020.

Speaking of 2020, analysts are predicting a small recession that year. But don’t worry, it won’t be as bad as 2008. After the peak in 2006, buyer demand plummeted due to an inability to afford to buy. But now that the job market is recovering, more first-time homebuyers that have been slow to build up their careers are expected to be looking in the next few years. In addition, many Baby Boomers are now retiring or will soon, and with that comes selling and relocating to retirement homes. So there will still be plenty of buyer demand after the 2020 peak.

Population growth is far exceeding new construction in California

Between 2010 and 2016, only one new housing unit was built for every four new residents in California, half the rate of most states in the nation. Builders are slowing down after the Millennium Boom, a period between 2000 and 2007 of overbuilding that led to an excess of 338,000 new housing units in California. But those slots are filling fast as California continues to see population growth without the rapid construction. Compounding the problem, many of the housing units being built now are designed for high-end buyers. The average price difference between old and new construction has more than doubled in the past six years. Low and middle income buyers, particularly first-time homebuyers who are just now able to enter the housing market after the recession, can’t afford new constructions.

The solution? Build more. But don’t just build anything — California needs more new affordable housing, not just more new housing. Looser zoning restrictions are necessary in densely populated areas so that more high-density housing can be built. Streamlining the building permit process and giving builders incentives to build low- and mid-tier housing would also help alleviate the issue.

More: http://journal.firsttuesday.us/california-worst-in-the-nation-for-new-affordable-construction/61626/

The Changing Face of Real Estate Advertising

California beach towns have universal appeal, around the country and around the world.  A 3 bed/2 bath home, a few short blocks from the beach, with a private yard, in a California beach town is indeed desirable.

While most of the world would gladly live here on a southern California beach, there are only a handful who can actually do so.  By far, most people must live where they work.  Of the few with work location flexibility, even fewer can support the mortgage payments on a home at the beach.  Many of those are already located where they want to be … they have the money and flexibility … they aren’t waiting for anything.

Over the past 20+ years we have moved from advertising exclusively in local, hard copy publications, to advertising in globally available, internet-accessed media.  Nearly everywhere on earth an individual interested in buying a beach house can find a California beach home advertised.  And, it is those few people … the ones who are actually looking for a home to buy … we are trying to reach.

The goal is to find capable, serious buyers.  Few of the thousands of people who browse through glossy magazines looking at pretty pictures of SoCal homes are serious buyers. For example, we could buy ad space in Surfing Magazine, SURFER Magazine, Surf News, Stab Magazine, Surf Europe, and Surfing World.  At that point we will have advertised in about 1/10th of the available surf media, and to a lot of people who have no interest in, or ability to buy, such a house.  That model of advertising is obsolete because it relies on the chance of finding a single buyer in a huge audience of non-buying people.

The shift to internet advertising gives the ability to expand the audience to everyone who has a computer or smart phone.  By reaching out to everyone with an internet access, we (hope to) reach those people who really are buyers.

Internet advertising has it’s own particular challenges.  One of those is quality photos, depicting spacious, sun-lit rooms, with charming scenes of relaxation.  We now employ photographers to a much greater level than ever before.  Twenty years ago, one snapshot of the outside was enough.  Today, most agents post 25-75 photos per listing, and the listings with the best photos get the most attention.  We use professional photographers, and many, highly appealing photos to facilitate that.

Another challenge is creating ‘search-engine-friendly content’ for the MLS and related third party sites.  We constantly review & rewrite the descriptions of our listings to make sure terms are included that buyers will be searching for.  Arda’s Masters Degree in English Literature is a significant asset when building an attention getting description.

Accessory Dwelling Unit or Bootleg Rental?

Call it granny unit, granny flat, mother-in-law quarters, in-law quarters, casita, secondary suite, guest quarters, guest house, accessory apartment, or simply bootleg rental.  They are here and they are legal.

Last year the California legislature made that final term obsolete and took a dramatically firmer stance on one solution to the state’s housing shortage.  Local government can no longer outlaw accessory dwelling units (ADUs).  For years municipalities have thrown roadblocks in front of legislative attempts to allow secondary homes in neighborhoods currently zoned for a single residence on a single lot (R1).  Typically parking has been the ‘escape clause’ in that building codes required multiple off street parking spaces for the additional unit, whether granny owned a car or not.  Because most single family residences (SFRs) can’t reasonably accommodate a second garage, the ploy worked and second units were not built.

In 2017 the legislature tackled the problem by clarifying existing law (AB 2299) to forbid a string of local rules designed to foil what local residents perceived as increased density.  These changes were numerous and included reorganizing existing law to apply one standard for the ADU permit review process regardless of whether a local government has adopted an ordinance or not, changing specified ADU building and parking standards, and placing limitations on utility
connection fees and capacity charges and requirements.

This law makes several changes to ADU law, which include the following key items, among others:

  • requires that a local agency’s ADU ordinance include that the
    ADU may be rented separate from the primary residence, but may not
    be sold or otherwise conveyed from the primary residence;
  • specifies that parking requirements for ADUs may not exceed one parking
    space per unit or per bedroom, whichever is less;
  • removes the option for local agencies to prohibit off street parking in
    setback areas or through tandem parking whether or not that parking is
    allowed anywhere else in the jurisdiction;
  • defines “tandem parking” as two or more automobiles that are parked
    on a driveway or in any other location on a lot, lined up behind one
  • provides that no setback shall be required for an existing garage that
    is converted to a portion of an ADU.

Undoubtedly these new laws will result in court battles between state government, which is desperately trying to increase housing throughout the state, and local governments and citizen groups who are trying to maintain the status quo with equal fervor.

While many owners fall in the “Not In My Back Yard” category, there are others who see this as an opportunity.  Along the beach, where housing is incredibly scarce, and rental rates are sky high, dollar signs are dancing before many eyes.  Homeowners who have rented a converted garage for years, and watched out for city inspectors the whole time, can now stand tall knowing they are helping avert the housing crisis.  Not to mention making a positive addition to their bank account.

What are the positives and negatives?  Clearly, anything that helps remedy the shortage of homes is positive, as is the opportunity for increased income.

Beyond that, for many families, the most important benefit is the ability to house an aging family member, while according them the privacy of a separate living space.  Equally desirable is providing cost-effective housing for young adults who have been priced out of the real estate market where they grew up and their families still live.

On the flip side, there are added costs to having a second house on your property.  Maintenance comes to mind immediately, as does the increased load on utilities.  Less obvious is the loss of outdoor living space.  SoCal beach communities are known for outdoor living and on tiny lots yard space is limited.  Then there’s the increase in traffic, and the neighbor who objects to anything that looks like increased density.

For follow-up reading and greater detail, see:
Assembly Bill 494 (https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180AB494); and
Senate Bill 229 (https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB229); which have been codified as;
Government Code § 65852.2 (https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=65852.2.&lawCode=GOV) effective January 1, 2018.

For personalized information regarding the cost of constructing/maintaining/leasing an ADU on your site, please call Carl at 310-963-4788.  We can help you evaluate the increase in your property value for adding a guest facility to your existing home.  Alternatively, we can help you locate a ‘trade-up’ from your home to another with secondary living quarters.  We look forward to hearing from you.

Stay up to date on kitchen remodelling trends

Want to remodel your kitchen, but don’t know what will wow your guests or grab the attention of prospective buyers? Whether you want to go with the flow, become a trendsetter, or stand out from the crowd, you’ll want to know what everyone else is doing. Classic and neutral continues to be the trend, according to a survey of more than 1700 respondents who just finished remodelling, are in process, or are planning a remodel.

If you don’t want to do a full remodel, start with countertops, the most frequent upgrade at 94% of projects. Replacing the sink and backsplash is next most common, and many people upgrade their faucet, wall finish, lighting, and cabinets. Flooring and appliances are often brought up when people talk about a kitchen remodel, but if you’re on a budget, it’s not mandatory. Less than three-quarters replace their flooring and only 59% replace all their appliances with 31% replacing some appliances.

So what do all these new countertops look like? Top color options are tied for multicolored and white, each at just over a quarter of all new countertops. The next most common choices are gray, black, and beige. All other colors are less common. Though 45% of new countertops are made with natural stone, homeowners are split on which type of stone. Granite is the most common natural stone at 34%, but 43% say that engineered quartz is the way to go. The new backsplash is usually also white, multicolored, or gray, though white is most common. Wall colors are similarly neutral, with gray, white, and beige each being used for about a fifth to a fourth of all new remodels.

Shaker style cabinet doors tower over other options at 57%. Flat-panel and raised-panel doors are next, both about equally as common. As has been the case for quite a while, a plurality of kitchen remodels still feature white cabinets; currently the number is 43%. A quarter of cabinets retain a traditional wood color.

If you are planning to replace your floors, you may want to pick hardwood. Even with the numbers slipping since the previous year, it was the top choice, used in 29% of new floors. Other wood choices are also a budget option for a similar look, with over half of new flooring being wood-colored, even with a close second common material being ceramic or porcelain tile.

You can find more data at https://www.houzz.com/ideabooks/102410579/.

Home-sales-per-household ratio remains flat despite inventory concerns

On a monthly basis, 2.9 homes sold per 1,000 households at the end of 2017. Home sales have remained basically flat since 2012, with a brief dip in 2014-2015.

Home sales peaked during the Millennium Boom when five homes sold per 1,000 households each month during 2006. This figure plunged to bottom at 2.4 homes sold per 1,000 households in 2008. Home sales rebounded slightly in 2009, and have remained stuck at just under three homes sold per 1,000 households since then. 

This dynamic is important to keep in mind when flooded with reports of historically low inventory and rapidly rising prices. While these factors are important to buyers, sellers and sales agents, the flat figure presented here tells a different story about demand.


Chart update 02/02/18

Nov 2017 Nov 2016 Nov 2015
Home sales 37,539 37,594 30,592
Home sales per 1,000 households 2.9 2.9 2.4

The chart above shows the number of homes sold each month per 1,000 households. In November 2017, 2.9 homes sold per 1,000 households — including owner and renter households. Home sales vary greatly from month-to-month. Therefore, to get a feel for the trend, this chart shows a 12-month moving average.

California home sales volume has remained relatively steady each year since rebounding from the 2007 housing crash. But is it possible the ratio of homes sold per household is flat because it’s at its historically appropriate level?

It’s possible, but not likely.

The number of homes sold per household is well below the pre-Millennium Boom average, according to Trulia. This points to a lack of homebuyer demand.

There a few reasons for this demand shortage:

  • home prices began increasing in 2012 and are near or even past their Millennium Boom peak, depending on their location in California;
  • low inventory means fewer sellers are listing their homes, meaning less choice for buyers;
  • insufficient new construction exists in desirable coastal locations due to zoning challenges; and
  • lingering doubt in the housing market following the housing crash and foreclosure crisis.

Further, rising interest rates mean homebuyers will continue to be discouraged in the coming years as their purchasing power is reduced, even as prices rise faster than their incomes can keep pace.

When will demand regain the steam it had during the Millennium Boom?

The next peak in home sales will occur due to a demographic convergence on the housing market from:

  • Baby Boomers, the largest generation of homeowners, who every day are increasingly retiring, selling and buying replacement homes for their golden years; and
  • Generation Y (Gen Y), the up-and-coming generation of first-time homebuyers who patiently waited for the economy to recover following the 2008 crash so they could become established in their careers and save up to become homeowners — albeit later than other generations due to their late start.

Baby Boomers will essentially swap homes with members of Gen Y, as Boomers sell their oversized suburban homes in favor of more manageable condominiums near family and services. Gen Y first-time homebuyers will eagerly buy, as inventory swells for the first time in years. This activity is expected to peak around 2020-2021.