Should You Buy a Townhouse or SFR?

If you’re looking to buy, but aren’t quite sure what you want to buy, this article may help you. There are a few factors you want to consider when deciding between a townhouse and a single-family residence (SFR). The factors we look at here are cost, maintenance, space, and proximity to neighbors.

If price or maintenance are big concerns of yours, you probably want to look at townhouses. Townhouses are generally less expensive than SFRs, both in up-front cost and future costs. Many of your maintenance costs will be handled by the community association. This also goes for the maintenance tasks themselves, so you don’t need to spend as much money or time on maintenance. In addition, the smaller size of townhouses means there will be less maintenance to do in the first place.

Speaking of size, if you want a lot of it, SFRs are the better bet. SFRs are frequently larger and have more flexible space, allowing for the increasingly popular home office. You can also rearrange and redecorate as you please, or add or renovate rooms. Another type of space you’ll have more of is the space between you and your neighbor. SFRs are more private and often quieter with no shared walls.

Remember that there’s no right or wrong answer; it depends entirely on your budget and preferences. If you need help making a decision, though, don’t hesitate to call or email us.

Photo by Sieuwert Otterloo on Unsplash


August 2020 Sales Analysis

It’s September already! That means it’s time to look at a summary of real estate activity for LA’s South Bay neighborhoods over the past month. Our data is ultra-local which means you get to see the market conditions almost immediately after the month ends.

This summer we’ve been enjoying a relatively busy real estate market with a big jump in sales and mixed results in prices. August 2020 weighed in with the median price nearly 6.8% higher than August of 2019. However, it wasn’t enough to beat the median for this July. August median prices were down by 1.8% from last month. In the first eight months of the year, we’ve seen two months where the median increased, versus six months when it decreased.

Median PricesAugustJuly

We saw 450 homes sold in August, up by 10% from July of this year. Compared to August of 2019, sales this year were up 13%. July and August were exceptional sales months compared to January through June. Both months had sales in excess of 400 units, while the first six months of the year were less than 300. March of 2020 made it all the way to 291 sales despite pandemic activity kicking into high gear that month.

Closed SalesAugustJuly

July & August sales were up nearly double the sales numbers from the first half of the year. Why the jump in summer? Anecdotally, we’re hearing interest rates being at or below 3% brought those buyers not financially impacted by Covid-19 to the table. That huge savings in interest helped drive prices, as well. To buy now and take advantage of the interest rates, many buyers have been willing to offer slightly above asking price, to lock the deal in.

August brought a significant increase in the number of homes available for sale. At the end of August total available counts stood at 3.68 months of inventory, compared to 2.17 months at the end of July. In raw numbers, that’s an 18% increase in homes available for sale. More sellers put their homes on the market, and there weren’t enough buyers to absorb the increase. As Covid-19 moves to a back burner, we expect the inventory to return to higher numbers comparable to the beginning of the year.

A rising inventory indicates downward pressure on prices.

With subsidies and protective government programs closing, we anticipate fewer buyers will be able to purchase. At the same time, we expect the continuing stress will create more defaults and short sales. Forced sales, also known as ‘distress sales’ tend to push prices down.

Combined, a growing inventory and economic stress are precursors of a shift to a buyers’ market. Several noted commentators are predicting a recessionary market lasting through 2021 and possibly into 2022. Like so many things in today’s world, no one is sure of where we’ll end up. But it’s pretty much guaranteed to be different than we had planned.

Photo by Gustavo Zambelli on Unsplash

Majority Believe Home Prices Will Continue Rising

According to a recent Gallup poll, only 10% of respondents believe that prices will fall. The remaining 90% are split between rising and staying the same, at 64% and 26% respectively. In 2009, during the recession, only 22% of respondents believed home prices would be going up soon. Because of rising house prices, about the same number, 65%, also think it’s a good time to buy a house sooner rather than later and accrue value. Of course, buying a house is nearly always a good long-term investment if it can be achieved; the percent hasn’t fallen below 50% in the past 40 years. The question is more a matter of feasibility. Certainly, rising prices seem optimistic to those who have the extra money to invest now. A less optimistic viewpoint is that even those who can’t afford to buy now still recognize it would be a good time to buy if they were able to, and probably won’t be able to any time in the near future.


Should You Consider Downsizing?

If you’re an “empty nester” whose children are all grown and have moved out of the house you’re still living in, it may be time to downsize. Chances are, your current home is bigger than you need it to be, perhaps too big. Unless you’re renting out rooms, perhaps you never see half your home, or perhaps you’re cleaning rooms regularly that you don’t spend any time in. If you’re a retiree, you may want to stretch your reduced income by moving somewhere with a smaller mortgage payment or less upkeep, or maybe you’d be just as comfortable in a lower cost-of-living neighborhood. If you’ve built up equity, you could use that extra cash to put an even bigger dent in your mortgage payments, or eliminate them entirely, especially with recent changes to capital gains tax law allowing you to exclude up to $500,000 even when downsizing. Another possible benefit is fewer or no stairs. Or maybe you just want to move to a more preferable location.

That doesn’t necessarily mean it’s a decision you should jump on immediately. For many, change can be hard, especially if you are moving far away from friends, family, and neighbors. Many people have trouble knowing what to leave and what to take, since a smaller home will probably have less storage space. In addition, all the normal stress and costs of moving still apply.

Student Loans Can Crush Homeownership Dreams

There are three major ways student loans can have a drastic impact on ability to own a home. The first is debt-to-income ratio. Most mortgage officers want your expenditures to be less than 36% of your income, and expenditures include student loan payments. Though those with a college education tend to make more money, because student debt can reach such high numbers, about 20% of applicants with student loans can’t meet this requirement.

Another is credit score. Currently, about 8% of borrowers are denied mortgages due to their low credit scores, and about 40% of those with student loan debts are expected to default on their loans by 2023. Once the debt stops being paid, credit score plummets, and it becomes near impossible to qualify for a loan.

The last barrier is down payments. Even if student loan borrowers have enough income to make the payments on time, often they aren’t able to save much — if any — of their yearly income. They aren’t able to pay the lump sum required for a down payment.

The result: well over 50% of current graduates with student loans will not be able to purchase their own home for decades.  This exacerbates the strain currently impacting rental availability, and further disrupts housing markets.


Rising House Prices Lead to Longer Commutes

It’s no secret that many people dream of living in California. This comes at the cost of an average statewide house price over twice the national average, for a number of reasons. Despite its size, California is limited in amount of vacant land available, as a result of both the high population and topographical constraints. Many areas in the state are unbuildable due to factors such as high variance in elevation and bodies of water. Construction is also expensive, and local government has until recently had little incentive to approve new construction projects.

These high prices mean a large percentage of buyers, especially those from out of state, need to look in less expensive areas far away from major cities. At the same time, the majority of business opportunities are in large cities. So new buyers are needing to purchase homes quite a distance from their workplace, leading to longer commutes. Rising house prices, especially in coastal areas, are only exacerbating the problem. Not only that, but the areas where people are able to afford to live are experiencing relatively slow growth in value, so selling often isn’t viable.

Overall, areas with higher property values correlate with higher commute times to the area, and you’ll need to pay more than the average to shorten your commute, while areas with lower property values correlate with lower commute times to the area. Prospective buyers will need to weigh the pros and cons of purchasing a particular property and be aware of areas prone to natural hazards such as fires, earthquakes, floods, and landslides, which are often expensive to insure despite being cheaper to buy.


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.

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.

55+ Options: Palos Verdes

The four cities of the Palos Verdes Peninsula have two unique senior condominium communities.  Rolling Hills Villas, built circa 2008, has occasional resales.  The newest project on the hill, Sol y 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 sit down with you and discuss the pros and cons of down-sizing, and buying versus leasing.  In either case, we show you what’s available to fit your needs in the south bay.

Rolling Hills Villas
901 Deep Valley Dr
Rolling Hills Estates, California 90274

Close to the “top of the hill,” Rolling Hills Villas has 40 condominium units for active seniors, 55 and older.  The association maintains a secure building, with subterranean parking, a rooftop patio lounge and bbq facilities.   Nearby are pharmacies, medical, the Post Office, library, restaurants, cafes, grocery shopping, Norris Theatre, banks & more.

Sales during the past six months totaled two units, ranging in price from $679,000 to $875,000.  At publication time, there were none available, however, that can change at any time.  If we know you’re looking, we can keep you updated on new and future listings.

Sol y Mar
5601 Crestridge Rd.
Rancho Palos Verdes, CA 90275

In phase two of construction now, Sol y Mar, a 55+ luxury community of ultimately 60 new homes in Rancho Palos Verdes is perched atop the Palos Verdes hill. Spectacular coastal views, great weather throughout the year, an engaging lifestyle, and beautiful homes designed for quality and comfort make Sol y Mar an incomparable place to call home.  Amenities (complete or planned) include: Clubhouse, Fitness Center, Conference Room, Meeting Room, Catering Kitchen, Jacuzzi, Outdoor Patio, Fire Pit, Bocce Ball Courts, and a Dog Park.

Every two-story residence features an elevator; a one-story floor plan is also available.  Plans range from 1,550 to 2,352 square feet.  Each residence includes two bedrooms, up to three baths, a study or flex room and a two-car garage.  Prices vary considerably, based on size, floor plan, selected options, and the view.

MLS sales during the past six months totaled four units, ranging in price from $840,000 to $1,146,000.  At publication time, two units were in escrow in the $825,000-$850,000 price range.  Three units are currently available in the range between $975,000 and $1,700,000.

Monthly Market Direction – December 2017

To give you the most current information, we personally chart sales activity in the LA South Bay.  This hyper-local information often involves very small numbers of sales to work with on a monthly basis.

This December 2017 chart shows the daily changes in the number of homes available in blue, and the trend line in red. The red line shows the overall direction, taking time and daily volume changes into consideration.

Given that Christmas and New Year activities take up huge amounts of time, it’s not surprising to see real estate activity decline.  Only the most serious buyers and sellers are on the market this time of year.  The final quarter of 2017 showed a typical movement in favor sellers, simply as a result of fewer homes being available for buyer competition.

We’ll be watching January closely, looking for changes resulting from the new tax laws.

Starting this year, monthly charts will be available on our blog:  Look for “Market Direction.”