While you’ll never get just one answer to that question, here’s one more possibility.
All booms come to an end eventually. There is an undeniable link between home sales volume and pricing. Typically, when more homes sell, prices rise 12 months later. When fewer homes sell, prices fall back 12 months after.
The currently unsustainable, slowing sales and rising interest rates imply prices will fall back in 2019-2020.
We feel the cyclical peak for California home prices already occurred in the third quarter of 2018.
So far in 2019, the Federal Reserve is continuing their process of raising interest rates to cool off the economy and induce a business recession. Despite slowing of interest rate increases, experts expect the effort will continue to pull prices down through 2019 and into 2020, with a bottom likely in late 2020 or early 2021.
Further reading: https://journal.firsttuesday.us/todays-housing-boom-is-one-of-the-largest-in-history/66318/
Year over year sales for condos and townhomes (legally defined as condos) in the Los Angeles metro area fell 24% from December of 2017 to December of 2018. We expect SFR sales volume to be very similar. While 2018 launched with high sales figures and the accompanying bidding wars, the year tapered off quickly after the third Fed interest rate increase in September. The fourth Fed rate increase in late December threatened to be the death knell for mortgage loans, however lenders almost universally ignored the Federal attempt to slow inflation and kept rates down in the mid to high 4% range.
The number of transactions went negative, but prices managed to stay on the upward trend, albeit just barely. Some forecasters were still talking about 10% overall price increases. Actuals show only 1.8% increase, year over year.
It looks like the “handwriting is on the wall,” so to speak. The real estate market has reached the apex of the current price run-up and started the downward slide. At ten years, it was an exceptionally long economic recovery from the 2008 economic collapse. In a number of respects the nation is still experiencing the fallout. In many parts of the country, homes prices continue to lag behind the high points of the last boom period. Even in places that have recovered, like LA, individuals are still fighting to get back what they lost.
Pundits have yet to settle on a uniform picture of what 2019 is going to look like in a real estate sense. In the face of the many drama-filled events surrounding the United States, we here are expecting a relatively rapid drop in both, sales and prices. Technology has brought the speed of light to the communication channels buyers and sellers use. Thus, when a panic starts, it spreads almost instantly.
For more detailed information on this and other real estate topics, call or send us a note. We’ve been making our clients’ dreams come true for 25 years. We would be honored to help you with yours.
For more details, see https://la.curbed.com/2019/1/23/18194592/los-angeles-condos-for-sale-market.
Home improvement website Porch.com wanted to know what influences the decisions of first-time homebuyers, what causes them to fall into “love at first sight” with a home. So they conducted a survey, which had about 1000 respondents. The survey consisted of a list of various factors and asked respondents to rate how much that factor influenced their decision.
According to the results, the three most important factors are affordability, being “move-in ready,” and neighborhood. Across all three generations surveyed — baby boomers, Gen Xers, and millennials — the home being within the budget was the most important factor, though baby boomers were unique in placing neighborhood above “move-in ready” status. Budget was the most influential factor for 67% of baby boomers, 61% of Gen Xers, and interestingly, only 48% of millennials, though it was still the largest single category. The lower value may be because many millennials are currently caught in an economic environment in which housing affordability is low, so they must take more budget risks to be able to afford a home at all.
As of September 2018, median home prices are up 5.6% year-over-year. The more relevant figure, though, may be mortgage payments. The “typical mortgage payment” is a measure adjusted for median home prices, so if people are paying similar percentages, the value shouldn’t change much even if prices increase. In reality, this measure is up 16.4% over the prior year, as a result of a 0.8% increase in mortgage rates.
Both of these values are expected to decrease for 2019, with an estimated 5% increase in median home prices and up to an 11.3% increase in typical mortgage payment. However, a gap this large is still an indicator of the effects of inflation. They represent an inflation-adjusted increase of 2.7% and 8.9% respectively. Fortunately, real disposable income is expected to increase 2.6% over the year. And with the mortgage rate having been 6.7% in 2006, we’re still a ways off from the all time peak typical mortgage payment of $1,281.
Macro-economics is a volatile field. Any little thing can take a wrong turn and move the world economy in ways no one has predicted. These days we are truly talking about a world economy, too. When a beggar lights himself on fire in Bangladesh, our stock market takes notice.
But, we keep trying to make sense of it all. Here’s my take on the next few months, narrowing the focus down to real estate here in the south bay. Barring socio-political disasters, this is roughly where I see the market going.
Last year was all about interest rates. Buyer reaction to mortgage rate increases in 2018 holds some lessons for the coming year. We watched the Federal Reserve Bank raise the Fed prime rate four times through 2018, a quarter of a point each time. The first couple times, the number of home sales dropped off for about a month, then swung back to almost where it was before the rate increase. The September increase provoked a different reaction.
Keep in mind that in the weeks ahead of a Fed rate meeting, lenders typically nudge their published rates in the direction the Fed is anticipated to move. As lenders gradually adjusted rates up in September buyers started walking away from the marketplace. Loan applications slowed and lenders watched September profits drop. Then October dropped some more and November some more. Buyers were staying home, and lenders noticed. In December, lenders started dropping rates despite knowing the Fed planned to raise the prime rate another quarter percent.
It worked. Buyers saw the rates drop and wrote offers. December transactions were up 16% over Nov and a tiny 1% over October. Lenders have seen where buyers stop and, for now anyway, are keeping mortgage loan rates down, as well as lobbying to keep Fed rates down. The Fed has already agreed to only two prime rate increases instead of three for the year. Current rate forecasts show the average 30 year mortgage actually declining until May of 2019. Presumably, the Fed will make their first increase for the year in June and we’ll see how the market responds.
Effective July 1, 2019, procedures for postponing property taxes for some owners will be established by a new law. The Senior Citizens Manufactured Home Property Tax Postponement Law replaces a law which only affected mobile homes, and now includes all manufactured homes. Homeowners must meet the following criteria to qualify:
1. blind, disabled, or over 62
2. own and occupy the property as their primary residence
3. total household income of $35,000 or less
4. at least 40% equity on the property
5. no reverse mortgage on the property
Should the homeowner meet these requirements, the payments can be deferred by requesting that the State Controller pay the county. The owner will then need to pay the deferred amount plus interest. The amount is paid upon sale or transfer of ownership of the property, or if the owner moves or dies.
The Los Angeles area is one of only 17 so-called “ultra-prime” residential markets worldwide. This means that during each of the prior three years, at least three homes per year sold for over $25 million. The latest report from global real estate brokerage Knight Frank goes through August 2018, and the total for the LA area comes to 51 ultra-prime qualifying homes. This doesn’t include Malibu, which, despite being within Los Angeles County, is counted as a separate market with its own 12 homes sold for over $25 million during the same time period.
Three more of the 17 ultra-prime markets are in the US: New York City, Palm Beach, and Aspen. Also among the 17 are London and Hong Kong, which along with NYC are in the top 3 spots each with over 150 qualifying sales. Los Angeles comes in fourth, followed by Singapore then Sydney in the fifth and sixth spots. Not featured in the list is San Francisco — despite an average sale price much higher than Los Angeles, the rate of sales over $25 million is lower. So far, the top price in the city of Los Angeles was $100 million, however, it could be bested by a 157 acre plot of undeveloped land in Beverly Hills, currently listed at $1 billion.
A three-structure complex known as Flyte El Segundo, near the I-105 Freeway, is undergoing renovations totalling about $40 million. The complex is owned by Swift Real Estate Partners and contains over 580,000 square feet of leasable area. Some offices are currently leased during the renovations. Others will be available as soon as sometime this month, and the remainder are expected to be available in 2021. The renovations include a new plaza with space for seating, dining, and food trucks as well as an amphitheater and shade structures.
German property design, construction, & management company Medici Living is looking to be a leader in the growing field of co-living. In order to achieve that, they’ve partnered with another German company, Corestate, to raise $1.1B of capital for housing for up to 6000 people throughout Europe. Medici also has plans to expand their business to several larger cities in the US, where they currently have operations only in New York City and Chicago. They’ve compared their efforts to those of WeWork, a leader in the field of co-working — creating high-density office space — except that Medici’s attention is focused on residences, not office space.
Medici recognizes that younger buyers are at the forefront of the market, and accordingly is linking housing with technology. The goal is to enable young professionals to rent space with the click of a button. In large cities, and with a large target audience, Medici expects low-risk and high-yield investments with this approach. Knowing that other businesses will want to join in, they want to jump on the opportunity before those other businesses are able to gather the necessary capital.
The California Homeowner Bill of Rights of 2012 expired at the beginning of 2018. With 2019, though, comes a new beginning. Effective January 1, 2019 — the date of this blog post’s publication — many of the protections granted by the 2012 law will be reinstated.
A notice of default (NOD) may not be recorded unless at least 30 days have passed since the homeowner was contacted. Attempts to contact must include mailing a notice and calling at multiple times of the day, unless the homeowner requests no telephone contact in writing. Once an NOD is recorded, lenders have five days to notify the homeowner, in writing, of any foreclosure prevention alternatives that may be available.
Foreclosure prevention alternatives cannot have a fee associated with them. One option includes submitting a complete application for a first lien mortgage modification, which has specific timeline requirements, and must have a single point of contact. Approved mortgage modification applications retain their terms even if transferred to another mortgage servicer. Homeowners must be notified of why an application is denied, and they have 30 days to submit an appeal. Lenders who do not comply with these laws may be subject to a lawsuit of up to $50,000.