Old Houses Attracting Millennial Buyers

We’ve just talked about the Millennial generation’s impact on the luxury real estate market and their desire for updated, move-in ready homes (see: https://www.beachchatter.com/2021/02/11/millennial-preferences-reshaping-luxury-market/). It turns out there’s another type of home that Millennials are itching to buy, and it’s quite on the opposite side of the spectrum. They’re moving across the country to buy old, cheap houses in need of extensive renovation.

Not all Millennials have the income to enter the luxury market, so for those with budget constraints, the alternative is to expand the search radius. There are plenty of houses under $100,000 that are in need of some updating in historically less desirable areas. A Utah couple bought a Victorian-style 1885 house in Connecticut for $85,000. They’re expecting to spend about $100,000 to remodel it. This is still far below Utah’s median house price of about $575,000. It’s likely that this trend will continue, as work-from-home enables prospective buyers to look anywhere within the country. More expensive areas such as New York City have already had a significant exodus.

Photo by Glenn Hansen on Unsplash

More: https://www.reuters.com/article/amp/idUSKBN2AB1HO

Millennial Preferences Reshaping Luxury Market

There may be a surprising answer as to why younger generations have seen increased rates of living with their parents. Popular belief is that they’re either too lazy to get jobs or simply saddled with too much college debt. While lack of employment and exorbitant tuitions definitely play a role for some of them, Millennials are actually the largest group of homebuyers, so what’s true for some won’t be true of all of them. It appears some contingent of them have simply been biding their time, waiting for the perfect opportunity to skip past starter homes and enter straight into the luxury real estate market.

College may have brought with it a mountain of debt, but as a result, Millennials currently are the most educated group of buyers in the US and are earning more than any prior generation. They are also set to inherit more than prior generations did. It takes time, but they are able to save up money to buy a house. And not even just a house — the first homes of some Millennials are multi-million dollar residences. Of course, this is partly because rising prices have meant that more areas have multi-million dollar homes for sale. But another reason is Millennials’ wishlist items: move-in ready, good walk score, high-tech green features. These all add value to a home, making Millennials’ tastes — while not ostentatious — expensive.

Photo by Daniel Barnes on Unsplash

More: https://www.bloomberg.com/news/articles/2021-02-01/millennials-are-changing-the-luxury-real-estate-market

The Evolution of California’s 2020 Market

California’s housing market saw multiple shifts during 2020 as different sectors reacted differently and regulations changed with the times. When 2020 began, we already had high home prices and a construction deficit. The lockdowns of the pandemic propelled an economic recession that was already in the making, causing it to arrive faster than expected. Normally recessions cause a drop in prices, but the circumstances of this recession were forced, and therefore not necessarily subject to the same natural tendencies.

In the beginning of the lockdowns, real estate agents were not able to meet with clients or show property, causing the market to grind to a sudden halt. As the year progressed, regulations loosened somewhat, allowing showings under safe conditions. That prompted a spike in demand, as people who were itching to buy, especially with low mortgage rates, were finally able to start looking again. However, that did nothing to change available inventory. Inventory is low as a result of lack of construction, and what little construction there was being halted by lockdowns. In addition, most of the construction being done was for higher-end single-family residences, even as many prospective buyers were losing income due to the pandemic. With high demand and low inventory, prices simply continued to go up.

The market itself isn’t the only thing that changed, though. Prospective buyers are no longer looking for the same types of properties they wanted before 2020. If people are going to spend more time at home, they want the type of home that they’ll be happy living in. Move-in ready. Plenty of space. Home offices. Room versatility. It even extends to the outdoor amenities — houses with pools and outdoor living space are selling quickly, since people are able to be outside without leaving the confines of their property.

Photo by Roberto Nickson on Unsplash

More: https://patch.com/california/across-ca/how-coronavirus-changed-ca-housing-market-2020

2021 Real Estate Forecast Looking Hopeful

2020 hasn’t been quite as bad for the real estate market as expected; Quarters 3 and 4 have actually experienced incredible recovery and even some growth from Q1 since the enormous downturn in Q2. Home sales are up about 800 from Q1, after falling by over 1100 in Q2. Despite the slowdown in construction, total housing starts now are slightly higher than they were in Q1, with the main difference being that more of them are individual homes and fewer are the more affordable multi-family residences. And now, the announcement of the COVID-19 vaccine has brought even more hope for a better 2021. Fannie Mae still expects a slowdown during the first half of 2021, but that’s because people, including builders, are going to need a bit of time to get back into the flow of things. Once prospective buyers have their incomes sorted, sellers see values going up, and halted constructions have been completed, those new homes should fly off the market. While it’s true that this is a lot of things that need to go right, it’ll be an automatic, albeit slow, process once lockdowns end and employment starts back up.

Photo by Brett Jordan on Unsplash

More: https://www.fanniemae.com/newsroom/fannie-mae-news/economy-poised-considerably-stronger-2021-covid-19-vaccine-distribution-efforts-commence

What Exactly is a Home Inspector?

Chances are you’re familiar with the concept of inspecting a home before sale. Seller’s agents are required to list observable defects, but sometimes problems aren’t as easily noticed, which is why seller’s agents will frequently recommend that a qualified home inspector take a look. A good home inspector will always look for defects that affect the property’s value, desirability, habitability, and safety, and they are required to provide the seller’s agent with a home inspection report (HIR). But it may surprise you to know that who can be considered a home inspector is actually rather broad.

A home inspector is really anyone whose business is conducting home inspections and preparing an HIR. The State of California has no home inspection licensing. That doesn’t mean they are necessarily unlicensed, however, as many home inspectors have general contracting licenses or are pest control operators, architects, or engineers. You will occasionally find home inspectors without a license of any kind, which is why seller’s agents always want to be cautious about which home inspector they choose. There are some rules that even unlicensed home inspectors must follow, such as that the inspection be non-invasive and non-damaging to the structure, and that they provide an HIR to the seller’s agent.

Photo by Markus Winkler on Unsplash

More: https://journal.firsttuesday.us/brokerage-reminder-home-inspectors-the-buyers-choice/27766/

US Sees Shifts in Foreign Buyers

For quite some time, foreign real estate investors have predominantly been coming from mainland China, with a total of $31.7 billion spent by Chinese buyers between April 2016 and March 2017. Changes in the laws in China have seen these numbers decrease recently. Despite this, the number of international buyers is actually increasing. Among the countries now more greatly represented are Taiwan, Vietnam, Thailand, Dubai, Kuwait, Georgia, and Turkey. Buyers hailing from Great Britain are eyeing the luxury market in the US.  Foreigners continue to view the US real estate market as stable and secure, and are even expanding the geographical range of their investments.

More: http://realtormag.realtor.org/daily-news/2018/03/05/foreign-buyers-coming-us-are-changing

Market direction unclear as statistics suggest opposing trends

The end of February, interest rates were at a four-year high, with 30-year fixed rate mortgages averaging 4.40% and 5-year adjustable rate mortgages averaging 3.65%. At the same time, interest on treasury notes is down. This means investors are abandoning bonds and now buying mortgages. Despite changing their methods, investors don’t have any concerns about the market, which they say still features low supply and high demand.

While supply and demand may currently be low and high respectively, this analysis doesn’t account for which direction those are moving. In fact, supply is going up and demand is going down, as prospective buyers can’t afford to purchase higher-end homes as a result of the higher mortgage rates. Investors purchasing mortgages may see high mortgage rates as a sign of an improving market, but buyers don’t.

The market overall is currently wavering near the line between a buyer’s and seller’s market, so it’s hard to guess which direction it will go next. We should be able to get a better idea of the market direction at the end of March, signalling the end of the first quarter.

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.

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.

Have We Recovered, Yet?

The simple answer, for houses in south Redondo Beach, is yes. In December of 2007, TheMLS showed the 6 month rolling median sales price at $1,082,250, then the plunge began.

Most of the decline in value … 31% … occurred between December of 2007 and autumn of 2011. Prices bounced along the bottom until they hit a low median of $748,250 in October of 2011. Fall of 2011 was the beginning of a gradual increase which, six years later, is now beginning to level off.

 
March of 2017 saw the most recent high with a rolling median of $1,437,000. That was a 7% year-over-year blip which quickly fell back to the January prices of about $1,300,000. The median has remained relatively stable since then at roughly 25% above the high of 2007.

Location, Location, Location

Compare these numbers to the city of Bakersfield, which currently stands ~23% below the pre-recession high of 2007. Bakersfield is an extreme example, but the new reality in housing is more tied to location than ever. State-wide, and national sales numbers no longer tell the story. Since 2007, determining home values has evolved into a very complex, hyper-local process.

A New Paradigm in Real Estate Pricing

Warren Dow, editor & publisher of South Bay Digs, has been preaching about the onset of hyper-local real estate for years. The Great Recession and ongoing recovery (or failure to recover, depending on where your home is) has proven the concept beyond any doubt. In addition to proximity to work, shopping and family, homebuyers now need to take into consideration the economic strength of the neighborhood before buying. If you are thinking buy or sell, give us a call for hyper-local help.