The Buyer Purchasing Power Index (BPPI) was calculated for June at the beginning of January, and the value landed at -6.9. This negative value means that buyers are able to borrow less with the same amount of income, in this case, 6.9% less. The cause is a steady increase in year-over-year mortgage rates after a spike in January, reaching an average rate of 4.4% for fixed-rate mortgages (FRMs) in June.
Short term rates, which the Fed is also raising, also affect FRMs. In addition, the Fed is selling mortgage-backed bonds, further increasing FRM rates. Rates are expected to continue increasing throughout the year, and the BPPI is expected to continue its downward trajectory for the next decade. This will result in pressure to lower prices as fewer buyers will be able to acquire loans with their current level of income.
On Tuesday, July 24, the Hermosa Beach City Council approved an ordinance allowing accessory dwelling units (ADUs), also called granny flats or in-law units, on residential lots meeting specific requirements. The lot must already have a single-family residence on it and must also be at least 4000 square feet. The ordinance was initially drafted with no parking requirement because Hermosa Beach has public transportation. It was later determined that Hermosa’s transit stops, despite covering the entirety of the city, do not qualify as “major transit stops,” and therefore state law would require at least one parking space per bedroom in the ADU. Once this qualification was added, the ordinance was approved.
While Hermosa Beach has had nonconforming residences for quite some time, some factors have made the city slow to accept the state’s guidelines, requiring a city ordinance geared towards Hermosa’s circumstances. Hermosa Beach has relatively high population density and relatively small lots for the area. State guidelines would allow ADUs on any lot with a single-family residence on it as long as sufficient parking is available, which would be difficult with more people in a smaller space, leading Hermosa Beach to limit applications to larger lots of at least 4000 square feet.
UPDATE: On July 18, 2018, the California Supreme Court ruled this proposal unconstitutional and therefore it will not appear on the November ballot.
Over the course of California’s 168-year history, there have been 200 attempts to reconfigure its boundaries or secede from the union. Last month, another — a plan by venture capitalist Tim Draper to split California into three states — garnered enough signatures to appear on the November 6 ballot. This isn’t Draper’s first attempt, either, and he feels this three-state proposal is more economically sustainable than his last two six-state proposals. Draper contends that vast regions of California currently are not represented by elected representatives, and splitting the state into three would enable representatives to better serve local interests.
If successful, it would be the first split of an existing state since 1863 when West Virginia split from Virginia. It won’t be easy, though. It could be shot down in court, as it would necessarily revise the California constitution, which must be done by the Legislature or a constitutional convention, or either house of the California Legislature could reject it outright before it reaches the court. It would also need the approval of Congress, which is unlikely since California has been historically a Democratic state and the specifics of Draper’s plan are probably beneficial to Republicans, as one of the three proposed states is predominantly Republican. This is all assuming it gets the popular vote, by no means a given. We won’t even go into the logistics of the matter.
Housing costs are so high in Los Angeles that nearly half of households are spending over 30% of their income just to keep their homes, even cutting into income that should be available for other basic needs such as food and healthcare. While the poverty rate in LA county is at 16%, United Ways of California says it isn’t a good measure of how much people are actually struggling. They call their statistic the “real cost measure,” and it consists of costs for housing, healthcare, food, transportation, childcare, taxes, and miscellaneous expenses. Using the real cost measure, 38% of LA county residents fail to meet their basic needs, over twice the poverty rate. The value is slightly lower statewide at about 33% and in the poorest areas of LA county soars to 82%. High rents are also a problem, with people who recently lost a job or had an unexpected expense being unable to afford rent due to such a large percent of their income covering basic needs.
In the last decade since the economic crisis, the economy has been improving steadily. Unemployment is at 3.8%, the lowest since 2000. Prospective buyers have been able to save money and are feeling confident. More people have enough money to buy now. There’s just one problem: There aren’t enough homes, so the market is stalling. There are two main factors driving low inventory. Sellers want to hold on as prices continue to rise, and the international market is increasing construction costs, leading to builders seeking more expensive projects with a bigger return on investment. Also contributing to a stalling market is still-rising interest rates. First time homebuyers are struggling the most, as they’re entering into a highly competitive market and getting outbid the moment they save enough to buy.