January Sales Sink in SoBay

As 2020 ended, it looked like the real estate industry here in the Los Angeles South Bay was going to run right through the pandemic with prices climbing the whole way! It didn’t happen. January put the brakes on sales across the board. Every area showed a drop in the number of sales, with Palos Verdes dropping the deepest at 40% below December’s transaction volume.

Along with a decline in the number of sales, The South Bay showed a 35% drop in sales dollars from December to January. Monthly statistics can be misleading though. With a year like 2020 we need to look at the wider perspective. On a year to year basis, we’re still riding high with a 33% increase across the area.

Keep in mind these are relatively small volumes of data, dealing only with the “hyper-local market” here in the South Bay, so some large percentile swings are unavoidable.

Month-to-Month

Month-to-Month sales volume indicates a general softening of the market with a significant drop in the number of purchases. In addition, the price side of the chart hints at a pending drop in prices.

Much is being said about the January sales decline, most of it anecdotal. There is a seemingly hopeful general consensus that a pandemic peak, combined with the political climate, were the main drivers keeping people from buying real estate. Theoretically, now that spring is in the air and “herd immunity” is in sight we might again see those scorching increases of last year.

The Beach cities showed a 12% decline in January sales prices compared to December, however we need to remember that December 2020 was a record month for median prices at the beach. In fact, for much of the year, high-end sales dominated the charts for Beach area sales.

There’s good reason to hope for stabilizing volume and pricing, though. Even at the comparatively modest 2% monthly increase we’re seeing in PV and the Inland areas, the annual increase is nearly 25%. That far exceeds the 2% annual increase the Federal Reserve Bank is targeting. These numbers are reminiscent of the lead-in to the Great Recession.

Year-to-Year

On the year over year side, things look somewhat different. In January of 2020, before the pandemic became front page news, overall sales volume was 13% higher than 2019. Building on that impressive growth, this January shows a similar 18% sales increase for the South Bay. The pandemic has taken a negative toll in many aspects of life, but real estate here in the South Bay is prospering throughout it all.

While the number of sales has increased over last January, price growth has been equally impressive. Beach areas and the Palos Verdes cities came in at 10% and 11% respectively. Boosted by the record low interest rates, the lower priced Harbor and Inland areas were up an even greater 14% and 15%. Recent inching up of the mortgage loan interest rates threatens to dampen sales as the least qualified buyers slip out of the market.

Beaches

We’ve looked to the Beach area more and more often in recent years as an early indicator of where the market is going. We do that because a large percentage of the transactions in the Beach cities are primarily for investment value as opposed to being simply homes. Right now it’s looking like investors are taking a pause. The coming three to six months should tell us how long it’ll be until they come back into the market.

Harbor

Long Beach, San Pedro, Harbor Gateway and similar locales have benefited greatly from the currently low interest rates. The month to month sales volume has had the least impact of the South Bay, with only a 25% decline compared to 30% across the board.

Similarly, prices have maintained nicely. Up 1% from December and up 14% from last January puts homes there in competition with the Inland cities for being the most marketable homes.

Palos Verdes

Prices are up 2% on the hill compared to December, and they’re up 11% over last January. A very respectable performance considering that month to month sales are off 40% and annual sales are only up by 5%.

It’s always important to note that homes on the peninsula are quite diverse in nature and in size, and the market is relatively small, so one or two transactions can distort statistics.

Inland

While the Beach cities are known to be havens for investment, the Harbor certainly has it’s own share of investment dollars. Many of the remodeled tract homes flying off the market in the Inland areas have already been purchased off-market by developers who refurbish and resell them. This has been especially prevalent over the past year as sales burgeoned in the entry level markets.

Despite dropping 35% from December, sales volume was up 24% over last January. At the same time there was a tidy 15% improvement in pricing over the same month last year.

Photo by Jason Blackeye on Unsplash

How the Pandemic Has Reshaped Office Design

During the lockdowns, businesses had an excuse to try out work-from-home models and see how well it works. Is it better than office spaces? Worse? Just different? Offices and and work-from-home models both have their advantages and disadvantages, and the experience will be different for different people. By surveying employees who had a chance to work from home, some companies are rethinking whether they want an office space at all. Those who are keeping their offices are also learning what they can do to make the office a better place to work.

The main advantage of office space has frequently been assumed to be that workers are more productive without the distractions of home. While this is true for some people, especially those with young kids, by and large productivity has actually been higher using a work-from-home model. Some of this can be attributed to employees specifically focusing on work because they don’t want to appear unproductive, but for the company, this achieves the same result.

According to employees at advertising and marketing firm R/GA, the purpose of the office was not productivity. It’s human connection and collaboration. Two of the biggest disadvantages they saw while working from home is that they missed seeing their coworkers and weren’t able to coordinate with them efficiently. Many of them wanted to keep working from home, but still be able to access the office a few days a week to meet with coworkers. R/GA saw that as a pointer for how they could change the office experience to prioritize it being a collaborative space. Individual desks and cubicles serve little purpose here — what’s needed is more informal meeting rooms. There are larger conference rooms, but those don’t allow for smaller teams to work together without interruptions from other groups coming and going.

Photo by Amy Hirschi on Unsplash

More: https://www.newyorker.com/magazine/2021/02/01/has-the-pandemic-transformed-the-office-forever

Manufactured vs Prefab Homes: What’s the Difference?

There are many terms thrown around when talking about factory-built housing — manufactured home, mobile home, prefab, modular housing — and many of them are used interchangeably. These are all factory-built, but in some cases, there are important differences you should be aware of.

Two terms that actually do mean the same thing are manufactured home and mobile home. This refers to a home that was fully built in a factory and transported to the site whole, without any customization possible. The law varies by state, but in California, a mobile home must be registered with the DMV because it is a vehicle, not a house. There are legal provisions to consider it real estate if it is affixed to a foundation. In any case, being vehicles, mobile homes actually depreciate over time rather than appreciate. They also are not necessarily well-built to begin with, since the regulations that govern their construction are different and more lenient than the regulations for prefab housing.

Speaking of prefab housing, this is actually a category of types and not a single type. All prefabs have components that are built in a factory, then shipped to the site to be composed on-site. Modular housing is just one type of prefab, with the other being panel built housing. The modules of modular housing are large sections which can be quickly combined for more efficient construction, but they are less customizable than panel built homes, which are constructed one single panel at a time from the bottom up. Some prefabs combine both modules and panels to get the best of both worlds. Prefab houses are actually houses and are subject to the same rigors of quality as traditional stick-built houses, and may even be higher quality since they are factory-tested before being sold.

Photo by Clayton Cardinalli on Unsplash

More: https://modularhomeowners.com/do-you-know-the-difference-between-prefab-and-manufactured-homes/

Made a Resolution to Exercise More? This is the Year

“Exercise more” is a common New Year’s resolution, but few are able to keep to it for long. They may go to the gym for a couple months, but the lack of time or energy makes it difficult. The simplest solution is actually something that many people are planning to do already as a result of the pandemic forcing them to stay at home: Build a home gym.

If you don’t know where to start, here are some tips for you. The first step is to designate the space where you want your home gym to be. Dedicating an entire room allows you to work out without distractions, but that may not be possible for everyone. A couple alternatives are a section of your garage or basement. Next, lay down some rubberized flooring, and make sure there are mirrors to check your form as you work out. Now for the actual equipment: at least one cardio machine, weights and a bench, and a yoga mat for post-exercise stretches. There are many types of cardio machines variously suited to different types of exercise. Common ones include treadmills, elliptical machines, stair steppers, and stationary bikes, or, if you don’t have the budget for expensive machines, simply a jump rope will do just fine.

Photo by Damir Spanic on Unsplash

More: http://blog.mattgoeglein.com/around-the-home/build-a-home-gym-for-your-new-years-resolution/

Price Cuts Signal Falling Prices Soon

As of September, the number of price cuts nationwide was at its highest point since the recession. Throughout the last half of August and first half of September, over a quarter of homes — 26.6% — took a price cut. While it’s normal for price cuts to be more common in the third quarter, as holidays are approaching but not yet upon us, the trend has been upwards for several years. This means sellers should begin listing lower in 2019, realizing that they are listing their homes above value for the market conditions brought on by income not keeping up with prices and rising interest rates.

In California, price cuts were on the rise in every major city. Very significant increases occurred in the following counties:

  • 56% of homes in Fresno;
  • 49% of homes in Bakersfield;
  • 40% of homes in Sacramento;
  • 37% of homes in San Diego;
  • 31% of homes in Orange County;
  • 28% of homes in Riverside;
  • 25% of homes in Los Angeles; and
  • 13% of homes in San Francisco.

More: http://journal.firsttuesday.us/price-cuts-hit-post-recession-high/65508/?utm_source=newsletter&utm_medium=email&utm_content=100818&utm_campaign=saprior

Beach Cities Real Estate Slowing

By Carl Clark
The sellers’ market has peaked for the Beach Cities. If you’ve been waiting for the “top of the market” before listing — this is it!
Real estate is the quintessential example of the law of supply and demand. Ideally there would be one buyer for every seller in the market. That way it’s given the property will sell. The only discussion is over price, and because there’s no competition, the dollars are by definition fair because it resulted from agreement between “ready, willing and able” parties.

Most of the time that’s not the real world. As you can see in the August chart above, daily fluctuations can make a chart look like sales are leaning toward sellers. In fact, the red trend line shows the longer term trend has shifted from a flat line, to a downward line, more favorable to buyers.

The chart below shows available inventory, confirming the market slowdown. In just eight months the number of homes available has risen from ~400 to ~1000.
Looking back at 2017, we see the precursor to this market shift. Throughout the year more and more homes came on the market, as sellers became more anxious about the impact of rising interest rates. Concurrently, more buyers dropped out of the market because they could no longer afford to buy. By the fourth quarter, buyers and sellers were approaching the one to one ratio.

January of 2018 the center shifted and there were more sellers with homes available than buyers able to buy. The difference is miniscule at this point. It won’t be ‘statistically significant’ for a long time yet. The most important thing to note is the impact to local prices.

Without bidding wars, prices increase at the rate of inflation. This round of bidding wars has ended. Buyers are now writing offers at asking price, or a little less.

So, statistically we can say there is probably going to be one buyer looking for a home just like yours. The next most important factor is the time it takes your broker to find the buyer for your property. Sellers, like everyone else, have a timetable to be concerned about. You need to know whether it will take two days to find a buyer and six weeks to close, or if it’ll be six weeks to find a buyer and six more to close.

In theory we could look to Average Days On Market (ADOM) to estimate the time between your listing date and Close Of Escrow (COE). Unfortunately, sometimes the ADOM reports how long it took to get an offer, sometimes how long it took to close escrow.

There’s no way to programmatically derive the time it takes to sell a property. Experienced brokers will have a good idea based on personal experience. Careful agents will have analyzed comparable sales to manually determine the time on market for those homes.

What is expected for the longer term? Most forecasters are saying the traditional 10 year real estate cycle will be extended this time because the recession had significantly more impact than is usual. Some are predicting a short downturn starting late in 2019 and ending in 2020. Others are saying sales and prices could remain flat until 2020 when prices will begin to drop.

In reality, the Great Recession was a blow to the US economy not seen since the Depression. Coupled with the fast swirling political waters of the nation, most financial rules and expectations have lost validity.

One of the most important changes over the past few years has been the isolation of local market conditions. For example, here in the Beach Cities we have been seeing record high prices for quite some time. In contrast, the homes in the Central Valley are still priced below pre-recession highs.

My best guess for our local market is a continuing gradual slowing of sales and drop in prices this year. The second half of the year should look very much like the first eight months.

A caveat: Real estate is not subject to tariffs, but wars, whether trade wars or real wars, have a way of impacting far beyond their anticipated reach.

Keep up to date by visiting us on the web at www.carlandarda.com and follow us on our Facebook page CarlandArdaClark.

Multigenerational Households at All-Time High

The Pew Research Center analyzed 2016 Census data to discover that the number of US households spanning multiple generations of residents over the age of 25 had reached 20%. This amounts to 64 million, an all-time high for the US. For comparison, the numbers were 19% at 60.6 million in 2014 and 17% at 50.5 million in 2009.

Some demographics can account for a large percentage of this trend, such as Asians and Hispanics — traditionally more likely to live in multigenerational households — at 29%, as well as millennials at 33%, some of whom are still recovering from the economic situation in 2008. Nonetheless, it’s a trend that is growing among all races and most age groups, and is largely independent of sex.

More: https://www.housingwire.com/articles/43055-number-of-multigenerational-households-hit-all-time-high

Easing the Probate Burden for Your Heirs

Last year California introduced a newer, simpler, way to bequeath real property to your loved ones.  Before this many homeowners went through a long process of creating a living trust, transferring real estate into the trust, and leaving it to the heirs, aka successor trustees, to sort it all out.  In most cases it took an expensive attorney on both ends … to create the trust, and to unwind it.  It was easier than probate court, at least that’s what we were told.

For most homeowners, the one page, revocable Transfer On Death Deed (TOD Deed) will transfer your home to your heirs without the need for an attorney, a living trust, a court probate, or a real estate agent.  It’s not the perfect solution.  It won’t work for everyone, but for most it’s a major improvement in how we handle our final affairs.

The law works best for an individual whose most valuable asset is their home, and who otherwise has limited assets.  Under such circumstances, the house can be transferred by the TOD Deed, while other assets may be handled via naming your intended heir as a beneficiary.  California, like many states, allows automobile owners to identify a beneficiary when registering the vehicle.  Many stocks, bonds, bank and brokerage accounts may be transferred in a similar manner.

Key Facts for the TOD Deed:
► May be changed or cancelled at any time prior to death
► Does not supersede joint tenancy or community property
► Property must be residential, 1-4 units
► Deed must be notarized & then recorded within 60 days
► Applicable taxes remain in force
► Transfer may be subject to existing debt

A copy of the current form may be found at this link to the Los Angeles County Recorder’s office.  https://www.lavote.net/documents/Revocable_Transfer_on_Death_Deed.pdf  Not being attorneys, real estate agents are not authorized to file for you.  However, we can provide the information and explanations you need to complete the form.

If you’d like more information, call us at 310-963-4788 or write to info@carlandarda.com.  We’d be happy to stop by with the form, instructions and a list of frequently asked questions, and the answers. No cost. No obligation.

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.

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.

home-sales-per-household-2017

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.