Our official Privacy Policy is completely re-written stating clearly that we only have data you have given us and we don’t share it.
Renters and Homeowners Alike Unsure of Their Economic Security
As of September, California had lost about 1.5 million jobs in the prior 12 months, resulting in many people falling behind in house payments. This includes both renters and homeowners with a mortgage, who are both reporting various degrees of certainty about their ability to pay. Of those renters who are still paying rent despite the moratorium on evictions, about 48% don’t have high confidence in their ability to pay next month. Less than 70% of homeowners think they can pay their mortgage.
All this uncertainty is leading to a very static market. Buyers simply don’t have the income to purchase a home. Sellers are raising prices to recoup some of their losses, or just not listing right now. A stimulus package isn’t going to be enough to solve this problem — the people need more confidence before they will want to buy or sell. This means we need job recovery. While the unemployment rate may make it appear as though the situation isn’t dire, that’s largely because of the manner in which unemployment is calculated. Those who aren’t actively looking — as many are not currently during the pandemic — aren’t included in unemployment numbers, as they have dropped out of the labor force (See this article for more information about the labor force participation rate and its connection to unemployment: https://www.beachchatter.com/2020/11/23/understanding-labor-force-participation/). We’re not likely to see a recovery until 2023 at the earliest at the current rate.
Photo by Sandy Millar on Unsplash
Most Younger Generations Still Can’t Afford to Buy
Many would-be homeowners in the Millennial and Gen Z generations are going to need to wait. Despite the fact that some who wished to buy are instead renting, apartment vacancies are on the rise as 27.7 million have moved back in with parents or other relatives, if they ever left home at all. The good news is that this number is dropping, but only the luckiest of them will be able to snatch an opportunity in the coming months amid heavy competition.
11% of renters were excited to make the transition to homeownership in the beginning of 2020, but the COVID-19 pandemic and the recession squashed those dreams for many of them. Those who experienced income loss as a result of the pandemic are twice as likely to have trouble with paying bills, rent, or mortgage, or need to withdraw savings or retirement or borrow from friends or family. That isn’t the whole of the problem, though: California has been lacking affordable housing for decades as a result of mere population growth, an issue that was only accelerated by the recession and lockdowns, which have slowed or halted construction.
Photo by Georg Bommeli on Unsplash
More: https://journal.firsttuesday.us/homeownership-remains-elusive-for-young-adults-amid-recession/74939/
Understanding Labor Force Participation
Labor force participation (LFP) and unemployment may seem like direct inverses of one another, but that isn’t the case. LFP measures the percent of employed people plus the percent of unemployed people actively seeking employment. Those who are unable to work or have chosen to leave the workforce are not included in LFP, and in fact such people aren’t even included in the unemployment count. This includes many people affected by the COVID-19 pandemic who either can’t work from home or have decided that continued employment isn’t worth the risk of infection. This has actually decreased the unemployment rate, but not because people are getting their jobs back, rather because a smaller percent of people are under consideration for employment. The California LFP has been roughly 2% below the US total for nearly two decades, with a few exceptional years. They most certainly are not static, though, as both have been trending downward, with the first half of 2020 demonstrating a steep decline before partially recovering.
Photo by Kemal Kozbaev on Unsplash
LA County Tightens COVID-19 Restrictions
The number of COVID-19 cases spiked dramatically in November, spurring LA County to increase safeguarding measures, effective tomorrow, November 20th. The number of customers at any time can be no more than 50% maximum outdoor capacity at outdoor restaurants, breweries, wineries, cardrooms, outdoor mini-golf, go-karts, and batting cages. This number is 25% at businesses permitted to operate indoors, such as retail stores, offices, and personal care services. In addition, restaurants, breweries, wineries, bars, and all other non-essential retail establishments must close from 10:00 p.m. to 6:00 a.m. At personal care service locations, both staff and customers must wear a mask at all times, disallowing services that would require the mask to be removed, and these establishments cannot serve food or drinks. The maximum number of people at outdoor gatherings is 15, with a limit of 3 households. LA County has also established potential future guidelines that will be implemented if the number of cases or hospitalizations increases beyond certain levels.
Photo by Bill Oxford on Unsplash
CFPB Plans to Replace Debt-To-Income Requirement
The Consumer Financial Protection Bureau (CFPB) is planning to make some changes aimed at widening the accessibility of mortgage loans by allowing lenders more freedom in determining a borrower’s ability to repay. Currently, one of the requirements for a qualified mortgage (QM), the loan type preferred by both lenders and consumers, is a debt-to-income ratio of no more than 43%. This criterion is designed to be an indicator of the borrower’s ability to repay. However, there are other methods of determining this that can broaden the range of QMs. The CFPB’s solution is to compare the loan’s annual percentage rate (APR) to the average prime offer rate (APOR). Because a borrower with a high DTI would likely also have a high APR compared to APOR, DTI considerations are still indirectly included, but there will also be people with a high DTI but low risk of default that are able to get a good APR to APOR ratio and therefore successfully get a QM loan.
Photo by Igal Ness on Unsplash
More: https://journal.firsttuesday.us/cfpb-sets-crosshairs-on-dti-requirements-for-new-qm-criteria/74918/
2021 Tax Rate Information Now Available
The IRS released the new numbers for 2021’s tax rates in October. The lowest individual bracket has shifted from $9,875 or less to $9,950 or less, and the highest went from $518,400 or more to 523,600 or more. The majority of people will fall in the second or third bracket, up to $40,425 or $86,375. The standard deduction has increased by $100, to $12,500. Also going up are the capital gains tax rates and alternative minimum tax (AMT) exemption and phaseout thresholds. See this article for information about those amounts, as well as amounts for married couples filing jointly: https://journal.firsttuesday.us/irs-announces-new-tax-rates-for-2021/74936/
Businesses Are Preparing for Smaller Thanksgivings
Throughout the US, COVID-19 is threatening to put a damper on people’s Thanksgiving celebrations. Families don’t want to break tradition, but many will have to settle for smaller gatherings of only close family members. With fewer people, the normal Thanksgiving fare will surely create plenty of leftovers, even with the tradition of stuffing yourself to overfull. Luckily, businesses are ready for it, so you don’t have to buy a 25 pound turkey.
Some companies are offering measly four-pound turkeys — wouldn’t cut it during your traditional festivities with all your distant relatives, but perfect for a family of six. Restaurants are preparing full meals, available for takeout, serving four to six people. Others are banking on people bucking the trend and buying prime rib, pork, sausage, ground beef, or even lobster. Vegan restaurants are also making necessary preparations. One thing is for sure, though: grocers and restaurants are definitely not going to be losing money. They’re actually expecting far more sales, since there will be a greater number of smaller celebrations.
Photo by Annie Spratt on Unsplash
Individual Chicken Pot Pies
Cold weather is coming and with Covid still keeping us more or less restricted to the house, it’s time for comfort food. What could be more comforting than your own personal hot savory pie?
One thing I really like about this recipe is the absence of a bottom crust. You know–the one that never quite cooks properly and then is thoroughly soggy by the time you reach it. This is adapted from a recipe by Deb Pearlman of Smitten Kitchen. You can find the original here: https://smittenkitchen.com/2014/10/better-chicken-pot-pies/
Makes 4 2-cup pot pies
Pastry Lid
2 cups all purpose flour
1/2 teaspoon salt
13 tablespoons cold unsalted butter, diced
6 tablespoons sour cream or Greek-style yogurt
1 tablespoon cider vinegar
1/4 cup very cold water
1 egg, beaten with 1 teaspoon water, for egg wash
In a large, wide bowl, combine the flour and salt. Add the cold butter. Working quickly so the butter doesn’t melt, use a pastry blender or a couple of table knives held side-by-side to cut the butter into the flour mixture. The result should be coarse texture with no visible butter. In a small dish, whisk together the sour cream, vinegar, and water, and combine it with the butter & flour mixture. Using a flexible spatula, stir the wet and the dry together. Knead the dough mixture into one big ball. Wrap it in plastic wrap, and chill it in the fridge for 1 hour or up to 2 days.
Filling
Salt and freshly ground black pepper
3 1/2 to 4 pounds bone-in, skin-on chicken parts (breasts, thighs and drumsticks are ideal)
3 to 4 tablespoons olive oil
2 medium leeks, white and light green parts only, cut in half lengthwise and then into 1/2-inch slices
1 large onion, diced small
1/4 cup dry sherry (optional)
3 cups low-sodium chicken broth
1/4 cup milk or heavy cream
1 bay leaf
1 teaspoon minced fresh thyme
3 tablespoons unsalted butter, at room temperature
4 1/2 tablespoons all-purpose flour
1 cup fresh or frozen green peas (no need to defrost)
2 large carrots, diced small (about 1 cup carrots)
2 tablespoons chopped flat-leaf parsley
Make filling: Generously season all sides of the chicken parts with salt and freshly ground black pepper. If your chicken breasts are particularly large, halving them can ensure they cook at the same pace at the other parts. Heat half the olive oil over medium-high heat in the bottom of a large Dutch oven (minimum of 4 quarts; mine is 5). Brown chicken in two parts, cooking until golden on both sides. Transfer to a plate and repeat with second half of chicken. Set aside.
Heat the second half of olive oil in the same pot. Add onions and leeks, season with salt and pepper, and saute them until softened, about 7 minutes. If using, pour in sherry and use it to scrape up any bits stuck to the bottom of the pan. Simmer until mostly cooked off. Add milk or cream, chicken broth, thyme and bay leaf and bring to a simmer. Nestle the browned chicken and any accumulated juices into the pot. Cover and gently simmer for 30 minutes, after which the chicken should be fully cooked and tender.
Transfer the chicken to a cutting board to cool slightly. Discard the bay leaves. Allow the sauce to settle for a few minutes, then skim the fat from the surface.
In a medium bowl, mash butter and flour together with a fork until a paste forms and no flour is still visibly dry. Pour one ladle of filling over it, and whisk until smooth. Add a second ladle, whisking again. Return this butter-flour-filling mixture to the larger pot, stir to combine, and bring mixture back to a simmer for 10 minutes. The broth should thicken to a gravy-like consistency. Adjust seasonings to taste.
Add carrots and peas to stew and simmer for 3 minutes, until firm-tender. Shred or dice the chicken, discarding the bones and skin. Add the shredded chicken to stew and re-simmer for 1 minute. Stir in parsley.
Assemble and bake pies: Heat your oven to 375 degrees F.
Divide chilled dough into quarters. Roll each quarter out into rounds that will cover 4 2-cup ovenproof bowls or baking dishes with a 1-inch overhang. Cut vents into rounds. Ladle filling into four bowls, filling only to 1 to 1 1/2 inches below the rim to leave room for simmering. Whisk egg with water to make an egg wash. Brush edges of bowls with egg wash. Place a lid over each bowl, pressing gently to adhere it to the outer sides of the bowl. Brush the lids with egg wash. Bake until crust is bronzed and filling is bubbling, 30 to 35 minutes.
Do ahead: The dough for the lids can be made up to 3 days in advance and chilled. The filling can be made up to a day in advance and re-warmed before assembling and baking the pot pies.
Real Estate Sales, Oct. 2020
We’re looking at sales in the South Bay area of Los Angeles a little differently than usual this month. Typically we analyze the area as a single entity. This month we’ll divide the South Bay into four parts, allowing you to see a greater level of precision about those four areas.
Within each area the homes will be more similar, both in style and in pricing. We started by combining the four beach cities, El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach. Each of the cities has it’s own unique character, but they share many common traits. (If your home is in Hollywood Riviera, you can consider yourself one with the beach cities.)
The cities on the Palos Verdes Peninsula come together naturally, so we’ve combined Palos Verdes Estates, Rolling Hills Estates, Rolling Hills and Rancho Palos Verdes.
While Torrance does have it’s own beach, most of the city has more of an inland character, so we’ve combined it with Lomita and Gardena. One immediate benefit is the median prices are more representative of actual prices in those three communities.
Finally, we conjoined San Pedro, Long Beach, Harbor City, Wilmington and Carson, collecting the harbor area cities together.
Beach Cities
Prices have been trending up at a pretty rapid pace for most of the year, so it was a real surprise to find the median price in the Beach Cities had dropped by 6% from the September numbers. Last month the median price was $1.5M, while October only came in at $1.41M. Likewise, the number of sales dropped by a surprising 20%, from 209 sales in September, to 167 in October.
Year over year, beach prices increased by an impressive 17%, from $1.2M last October to $1.4M this October. Over the same time frame, sales volume went up by 45%, climbing from 115 units in October 2019, to 167 units in October of 2020.
Palos Verdes
On the Peninsula is where you really want to be in 2020. Prices and sales volume increased month to month and year to year. From last month to this month was on par with most of the South Bay, with the October median price of $1.68M coming in 5% above September’s median of $1.6M. The sales volume increase was a modest 3%, going from 95 units to 98.
The real treat for the PV cities is the 2020 over 2019 sales prices. October of last year showed a median price of $1.2M versus $1.68M this year. That’s a whopping 36% median price increase in 12 months. At the same time, October unit sales jumped 51% from 65 homes sold in 2019 to 98 sold in 2020.
Inland Cities
Going just a short distance away from the sandy shores of the beach, or from the bluffs of Palos Verdes, makes a huge difference in property prices. Like the coastal cities, the inland cities showed a 6% increase in prices from September to October. In contrast to the beach and the hill, the median price only went up $40K, from $719K to $759K. Like the beach cities, fewer inland homes were sold in October falling 11% from September. The drop wasn’t as great, going from 183 units in September to 163 in October of 2020.
October of 2020 versus October of 2019, the inland cities had median prices go up by 9%, from $600K to $656K. At the same time, the number of sales dropped by unit, from 164 homes sold, to 163 homes sold this October.
Harbor Cities
Median price in the harbor cities is typically lower than anywhere else in the South Bay. Similarly, price increases are slower. For example, while the rest of the areas saw 5-6% increases in month to month sales prices, the harbor came in at 3%. From September to October, the median increased from $636K to $656K. During the same time frame, the number of homes sold climbed 5%, from 435 to 457 units.
Comparing last October to this October, homes in the harbor area enjoyed a slightly more sustainable 9% rise in median price. The median for October 2019 was $600K compared to $656K this October. Sales volume jumped by 15%, from 397 units last year to 457 this year.
Why These Crazy Numbers?!
They are crazy, you know. There is no way prices can continue to climb at 5-6% per month. That’s more like what we would expect on a year over year increase.
| October | 2020 | September | 2020 | Change | M-M | |
| Med Sales $ | Sales # | Med Sales $ | Sales # | Med Sales $ | Sales # | |
| Beach | 1,407,500 | 167 | 1,500,000 | 209 | -6% | -2% |
| PV | 1,682,750 | 98 | 1,600,000 | 95 | +5% | +3% |
| Inland | 759,000 | 163 | 719,000 | 183 | +6% | -11% |
| Harbor | 656,000 | 457 | 636,000 | 435 | +3% | +5% |
| So Bay | 820,000 | 885 | 799,500 | 922 | +3% | -4% |
It’s been a long time since we’ve seen Beach Cities prices decline. We’ll be watching November closely.
The answer lies in the interest rates. One the borrowing side, mortgage interest rates have been under 3% for some time now. With rates that low, many people who couldn’t afford to buy a home before, now qualify for a loan. Those who are still employed despite Covid-19 are buying homes if at all possible.
The demand created by that phenomenon has created a plethora of bidding wars. Homes with 20 offers on them are not uncommon. All those offers are pushing prices up at clearly unsustainable rates.
| October | 2020 | October | 2019 | Change % | Y-Y | |
| Med Sales $ | Sales # | Med Sales $ | Sales # | Med Sales $ | Sales # | |
| Beach | 1,407,500 | 167 | 1,202,000 | 115 | 17% | 45% |
| PV | 1,682,750 | 98 | 1,233,000 | 65 | 36% | 51% |
| Inland | 759,000 | 163 | 680,000 | 164 | 12% | -1% |
| Harbor | 656,000 | 457 | 600,000 | 397 | 9% | 15% |
| So Bay | 820,000 | 885 | 699,000 | 741 | 17% | 19% |
Adding to the entry level buyers who are driving the market at the low end, there is another group who have cash in the bank. Unfortunately, that cash is only earning 1%, or less. Those buyers are watching the price of real estate climb astronomically, and are hoping to cash in on a windfall profit. Some of them will.
The Crystal Ball
Watching the median price drop at the beach by 6% is a hint at what’s coming next. We can’t be sure when it will happen, but steeply escalating prices inevitably plummet in a subsequent correction. Current increases are reminiscent of the rapid run-up of prices in 2006-2007 which resulted in the Great Recession.
Further complicating matters, today we have government and consumer response to Covid-19 as a uncontrollable factor. The third quarter of 2020 looked really good compared to the second quarter, until we remember the coronavirus struck in March. Business during the second quarter was essentially nil.
We can’t forget the election. Fallout from the presidential election could push the economy in any one of several directions depending on who the President is, and the degree of polarization in the Federal government.
One would need a crystal ball to forecast this winter, but I predict a volatile ride for the real estate market.
Crystal ball image by Jamie Street on Unsplash
Investors Expect Remote Work Trend to Continue
In a previous post (found here: https://www.beachchatter.com/2020/10/29/post-covid-real-estate-predictions/) we made some predictions about which trends during the pandemic may be permanent and which may be temporary. In that article, we predicted that the drop in urban desirability as a result of being able to work from home would be temporary, and though people would be moving South, others would eventually take their place in urban industry centers. Investors seem to be willing to bet on remote work, though. We do see people moving away from industrial centers such as San Francisco to cheaper areas like Sacramento, at the same time that commercial investors are putting money into Sacramento. The consensus appears to be that even though job centers will recover slightly after the pandemic is over, there are enough businesses embracing remote work that putting money into cheaper areas now before their popularity skyrockets is a worthwhile investment, and expensive urban areas aren’t a solid investment anymore.
Photo by Austin Distel on Unsplash
Stop Water Damage Before It Happens
As we’re approaching the winter months, we’re likely to see an increase in precipitation. Most areas of California don’t get snow, but rain could be an issue if it’s able to cause water damage. Fortunately, there are several things you can do to prevent water damage from the rain. Preventative maintenance does cost money, but it’s usually a worthwhile investment, since repairing damage after the fact can often cost even more.
One thing you can do yourself if you don’t want an extra expense is to clear gutters and drains of debris that could prevent the rainwater from draining, though you can also hire a professional to do this for you. The same is true of tree trimming in wind-prone areas. You can hire a contractor to inspect your windows, doors, skylight, and roof to ensure tight seals and detect any potential issues. Something you’ll definitely want a trained professional for is inspecting the foundation, retaining walls, and concrete sloping for defects.
Photo by Danielle Dolson on Unsplash
SoCalGas Stations Will Begin Using California-Sourced Renewable Fuel
For the past year, Southern California Gas Co. has been using renewable natural gas (RNG) sourced from out of state. Now, they’ve partnered with a California company, Calgren, to source their RNG from in-state. Calgren is the largest dairy biogas company in the US. Incentive programs in California will likely bring other companies to do similar, and it’s expected that California will have over 160 RNG facilities with the next three to four years.
The RNG Calgren produces is derived from methane from cattle waste. This is doubly effective because it not only is a source of renewable energy, but also prevents large amounts of methane from reaching the atmosphere, where it would function as a greenhouse gas to accelerate climate change, unlike the renewable fuel produced from it. California has also recently enacted legislation to allow for other sources of renewable natural gas, such as dead trees, which will help the process of becoming carbon-neutral.
Photo by Jakob Cotton on Unsplash
More: https://sempra.mediaroom.com/index.php?s=19080&item=137843
The Impact of Climate Change on Real Estate
Climate change has been a hot topic for debate for decades, but what no one seems to be discussing is how it has affected real estate. Climate change can drastically affect the frequency and severity of natural disasters. Natural disasters such as wildfires and hurricanes are known to temporarily displace evacuees, but in many cases displaced people remain in their new location much longer than expected, either because they are unable to return or simply choose not to. Even the threat of a natural disaster that hasn’t occurred yet can prompt people to move away from a disaster-prone area.
What does this mean for real estate? It means that disaster-prone areas are losing significant value, and less prone areas are gaining an influx of new residents that they may not have the ability to house. After all, the housing shortage is still in full effect and the displaced residents may not be able to afford much, due to the likely lesser value of their previous home. People across the real estate industry need to work together to identify the key factors of where people may want to leave, where they may want to go, and how they’re going to acquire housing, as well as work to reduce our environmental impact.
Harvard Professor Explains How Masks Work
Joseph G. Allen is an Assistant Professor of Public Health at Harvard and Director of their Healthy Buildings program. The New York Times has worked with him as well as several other professors to explain the process behind masks, to demonstrate that they do indeed work. In essence, particles get bounced around inside the fibers and trapped there. Interestingly, in the case of most masks, which are generally made of tightly woven cotton, the particles least likely to get trapped are medium size particles, as they’re big enough to be less influenced by surrounding air molecules yet small enough to not randomly make contact with the fibers as often. Large particles are most likely to get trapped, followed by small particles. Coronavirus particles are small and often get carried inside large particles, so they are in the two categories more likely to be caught by the fibers.
Photo by Photoholgic on Unsplash
NY Times has created an infographic demonstrating the process. You can find that here: https://www.nytimes.com/interactive/2020/10/30/science/wear-mask-covid-particles-ul.html
Second Project Homekey Purchase Approved
Los Angeles County and the City of Long Beach have been working with Project Homekey, a California state project designed to create more affordable housing by converting hotels into homeless housing. The project was started during the pandemic. The purchase of a Holiday Inn location in Long Beach had already been approved on October 13th, and on October 20th another location was approved in Los Angeles, the Motel 6 on 5665 E. Seventh St.
Long Beach is aiming to purchase another yet undisclosed location as well. The city has asked for up to $36 million from the Project Homekey fund, majority funding for which is from Coronavirus Aid Relief Funds. The city council isn’t expecting to be approved for the full amount, but is hoping to get at least $15 million to go toward acquisition and operating costs.
Photo by Gabriel Alenius on Unsplash
The K-Shaped Recovery: What Is It?
You’ve probably heard of a W-shaped recovery, even if you don’t know what it means. This refers to a false start in recovery, whereby the economy is improving in one sector, but doesn’t have the momentum to continue recovering, so it wobbles a bit. This has been what experts believed the current recovery would be like. Now, though, some people are wanting to call the recession and recovery K-shaped. What does this mean? It means that some sectors will recover and retain their momentum, while other sectors haven’t yet left the recession and continue downward. In other words, the recession has very clearly disproportionately affected various groups.
More specifically, this recession has had comparatively little impact on wealthy individuals. People with higher paying jobs are more likely to work in fields that can be done from home, so they haven’t been out of work during the pandemic. People who have the capital to invest in stocks as their primary means of income don’t have to worry so much about the pandemic, since stocks can’t get sick. They’ve actually been on an upward trend since before the lockdowns even began. Even those higher-income workers who did experience losses won’t have as much necessary expenditure proportional to income as those living paycheck to paycheck. This means that the recession has significantly widened the already large income inequality gap.
Photo by Volodymyr Hryshchenko on Unsplash
More: https://journal.firsttuesday.us/2020-recession-stretches-income-inequality/74733/
Incorporating a Home Office into Your Home
The trend of home offices is continuing to rise, and wasn’t just a result of the pandemic. In fact, it was already on the rise before the pandemic started. Some people already had spaces for a home office, others attempted to make do with what space they had. Now, builders and renovators are catching on and looking for ways to incorporate home offices into their plans.
The problem that designers are tackling is creating a space that works for everyone. Builders know that the space needs to be flexible, so they’re making flex spaces, usually on the main floor. But many people also want their home offices to be private. Sharing office space, even with someone who lives with you, can be loud or distracting. Combined with the fact that many homes don’t have a lot of space to work with, spaces for home offices must be large enough to do the work you need to do, yet small enough to be a separate space. It’s a difficult balance.
Photo by Standsome Worklifestyle on Unsplash
Post-COVID Real Estate Predictions
Some trends are already appearing in how COVID-19 has impacted real estate decisions. The economy is going to recover at some point, so some trends are likely to be temporary. However, there will certainly also be long-term impacts as experiencing the pandemic has altered people’s outlook on approaching real estate decisions, and even decisions made for the here and now could have lasting effects.
The less permanent changes include fiscal troubles at the state and local levels as revenue from commercial real estate taxes drops, retail vacancies, and a drop in urban desirability, expected to be temporary because of urban districts’ importance in certain industries once job recovery is underway. With this drop in urban desirability comes people wanting affordable suburban housing. This is being achieved now by many people moving to the Southern US, which already features low-cost suburban housing.
In the long term, however, we expect plenty of attention to enabling more affordable housing through government action and zoning changes, as well as programs to help traditionally low-income groups, such as minorities, get into the real estate game. These programs would be a direct response to COVID-19, but with lasting impacts. Another such change is greater attention to health and safety within the technological infrastructure of commercial buildings such as hotels and restaurants, which need not be eliminated post-pandemic. But there’s also a major change that was brought about by the pandemic, but addresses a different issue entirely, and that is office size. The prediction is that companies will want more, smaller offices, in more spread-out locations. This is because companies recognize both the feasibility of remote work and also the importance of office space for coworker cohesion and training. Their solution is small offices where a few coworkers can reliably meet up regardless of where they live while they aren’t working at home.
Photo by You X Ventures on Unsplash
More: https://magazine.realtor/daily-news/2020/10/15/8-real-estate-trends-emerging-from-the-pandemic
Homebuyer Priorities Shifting in Wake of COVID-19
While confined to their homes during the pandemic, people have had plenty of time to take a good look at what their homes offer them — and what they don’t. Homeowners are reevaluating what’s important in a home purchase. Previously, many homebuyers were looking for a place close to everywhere they may want to go — likely in the city. Now, buyers don’t care too much about proximity to destinations if their own home offers them most everything they could want. That means single family residences with plenty of square footage and extra rooms.
Reshaping the home’s function is so important to people now that they don’t even want to wait until their next purchase. According to a survey by Porch.com, 78% of houseridden homeowners are increasingly looking at renovating their homes, commonly by adding a pool, home gym, or home office. A third are considering upgrading their home internet connection.
Photo by Ярослав Алексеенко on Unsplash
Compton to Launch Guaranteed Income Program for Low-Income Residents
On October 19th, Compton Mayor Aja Brown announced a pilot program called the Compton Pledge. The Compton Pledge is a guarantee of monthly payments over a two-year period to some irregularly employed residents, immigrants, and formerly incarcerated persons, and is expected to reach 800 people. The exact amount of the monthly payments is not yet determined, but will be approximately a few hundred dollars.
The Compton Pledge is not the first guaranteed income program in California. Due to the success of the Stockton Economic Empowerment Demonstration, the Compton Pledge has received strong support. It currently has about $2.5 million in funding.
Photo by Giorgio Trovato on Unsplash
More: https://www.cnn.com/2020/10/20/us/compton-guaranteed-income-trnd/index.html
LA County Offering Free Flu Shots
Free flu shots will be available at select LA County libraries while supplies last, and select Kaiser Permanente locations through at least November 14th. Insurance is not required and you do not need to be a Kaiser Permanente member. Flu shots are especially important for those with weakened immune systems or who regularly live with or care for someone who is at risk. This can be due to chronic conditions or age (both under 18 and over 65), but also remember that pregnancy can result in a temporarily weakened immune system.
The following link, provided by California Senator Steven Bradford, provides more information about locations and times that you can get your free flu shot:
https://sd35.senate.ca.gov/sites/sd35.senate.ca.gov/files/e_alert/20201021_SD35_newsletter_459.htm
Photo by National Cancer Institute on Unsplash
[UPDATED] What Will Halloween Look Like During COVID-19?
![[UPDATED] What Will Halloween Look Like During COVID-19?](https://www.beachchatter.com/wp-content/uploads/2020/09/jackolantern.jpg)
[UPDATE] As of Oct 18, there is some additional guidance regarding holiday activities. Buying and carving of pumpkins is allowed, as long as the pumpkin patches follow safety guidelines. Some outside gatherings are now permitted, a change from the prior guidelines. These gatherings can have a maximum of 2 other households, can last no more than 2 hours, and require face coverings and social distancing across households. There are also new recommendations for Dia de los Muertos. These include displaying your altar outside or in a front window, utilizing virtual spaces such as email or social media, and limit cemetery visits to your own household with masks and social distancing.
LA County has issued its regulations regarding Halloween activities, if restrictions continue through October 31. Many traditional activities won’t be permitted, and others are allowed but not recommended. The activities not permitted include carnivals, festivals, haunted houses, live entertainment, gatherings, and parties with non-household members, whether or not it is outside. Of note, trick-or-treating is not listed as a non-permitted activity, but LA County Public Health does not recommend it.
The guidelines also provide a list of suggested activities that are safer. Drive-in movie theaters, outdoor dining, outdoor museums, and car parades are still allowed, subject to the normal regulations. Public Health Director Dr. Barbara Ferrer is hopeful that no more COVID-related regulations will be necessary by Thanksgiving or Christmas.
Photo by Benedikt Geyer on Unsplash
More: https://www.laweekly.com/trick-or-treating-discouraged-in-l-a-county-this-year/
What is the MID?
You may have heard the term MID in the context of purchasing a home or filing taxes. But what does this term mean? MID stands for mortgage interest deduction, and is a type of reduction in taxable income available to homeowners with a mortgage on their first or second home, or secured by their first or second home. When filing taxes, you can either take the standard deduction or itemize your expenditures. It’s common to simply take the standard deduction because many people aren’t sure how to itemize and may not even benefit from doing so. However, MID is one reason homeowners with a mortgage may want to itemize, since it is one of the itemizable deductions. The amount that the MID reduces your taxable income varies from 10% to 37% based on your homeowner’s tax bracket. It’s still possible that you would be better suited taking the standard deduction, depending on your expenditures and tax bracket.
Photo by Constantin Wenning on Unsplash
For more specifics regarding the MID, please see the full article at https://journal.firsttuesday.us/tax-benefits-of-ownership-the-mortgage-interest-deduction-2/73853/. You can also call or email us with any questions you may have.
Prop 15 Explained
By now you all should have received your ballots for the upcoming election. You may even have already voted, but if you haven’t and are struggling with understanding Prop 15, here’s an explanation.
Prop 15 aims to close a loophole created by Prop 13 that reduces property taxes for investors and businesses. Under Prop 13, property taxes are based on their purchase price rather than current market value, and caps increases at 2% per year. In California, property values increase at a rate higher than 2% per year, which means removing this limit and switching to assessments based on current market value would certainly increase property taxes. But if you’re struggling to pay property taxes on your home, have no fear — Prop 15 won’t remove the cap for everyone, only commercial and industrial properties. The measure also excludes properties zoned for commercial agriculture and small businesses whose properties are worth $3 million or less.
If Prop 15 passes, the changes will begin to be phased in in 2022, over three to four years. Reassessment for commercial and industrial properties would be required at least every three years. 40% of the estimated $6.5-11.5 billion in additional property tax revenue would go to schools and community colleges, with the remaining 60% going to cities, counties, and special districts.
Photo by Josh Hild on Unsplash
More: https://journal.firsttuesday.us/prop-15-property-tax-measure/74456/
The Impact of COVID-19 on Senior Housing
It’s been demonstrated that senior citizens are a vulnerable group for COVID-19 and experience worse symptoms, with 73.6% of COVID-19 related deaths being those age 65 and over. It’s important to keep them safe and isolated. Senior living communities, on the other hand, are often multi-family. Even though they do frequently have health care workers on-site, that doesn’t negate the proximity to other people. This means fewer seniors are going to want to live in a senior living community if they can avoid it, instead living at home.
Those not yet at the normal retirement age have also had to change their plans. Some purposefully retired early in order to lessen their exposure to COVID-19. Others were unfortunately forced into early retirement, as a result of losing their job at an age when it’s near impossible to re-enter the workforce. These groups will also be living at home. They’ll be hoping to later sell, but in the meantime will suffer from reduced or no income and have no guarantee of getting a good price when they do eventually sell. This in turn impacts other age groups, as more homes are occupied and unavailable for purchase by first-time prospective buyers, especially with residential construction being inadequate.
Photo by camilo jimenez on Unsplash
More: https://journal.firsttuesday.us/is-covid-the-end-for-senior-housing/74433/
San Pedro’s ‘West Harbor’ Set to Open in 2022
What was previously known as San Pedro Public Market has been rebranded as West Harbor, and is expected to open in 2022 after delays due to COVID-19 that have pushed the date back from the previously expected 2021. The San Pedro Fish Market is definitely staying, and the U.S.S. Iowa may have a new location within West Harbor. Likely or confirmed new additions include AltaSea, Harbor Breeze Cruises, another Gladstone’s location, at least two other restaurants, a farmer’s market, and an amphitheater. Also in the works are plans for a brewery and beer garden, a barge, and possibly a beach. West Harbor is also getting a new nautical theme and color scheme.
Photo by Ronan Furuta on Unsplash
Housing Opportunity Index at its Lowest Since 2018
The National Association of Home Builders (NAHB) now has data for Q2 of the year for its Housing Opportunity Index, which measures affordability of homes compared to median income. The US adjusted median income is currently $72,900. With these earnings, 59.6% of home sales were affordable in Q2 of 2020. This is down from 61.3% in Q1. This downward trend is largely expected, though, since the overall direction of movement has been down since NAHB introduced the Housing Opportunity Index in 2012, with occasional ups and downs. At its inception, the value was 78.8%.
What causes affordability to go down? The index looks at three factors: mortgage interest rates, median incomes, and home prices. Since interest rates are at historic lows right now, they’re not the culprit for falling affordability. Home prices are still rising more quickly than the median income, despite the rate of increase for home prices dropping in the last several years. Not to mention much of the recent boost to median income is not actually a result of increased wages, but rather job losses — since unemployed persons are not included in the median income figure, low-wage earners losing their jobs due to the recession and COVID-19 has artificially inflated the median income.
Photo by Diane Helentjaris on Unsplash
More: https://journal.firsttuesday.us/homebuilders-housing-opportunity-index-declines/73810/
Residential Construction Continues to Slow
Residential construction of both single-family residences (SFRs) and multi-family housing has been on a downturn since the most recent peak in 2018. SFR construction in particular is a long way down from the 2005 numbers when they started to nosedive, while multi-family housing construction has been relatively stable since the 1980s, albeit much lower than it should be.
The number of SFR starts in 2020 is projected to be about 53,000, 10% lower than in 2019 and less than a third of the 2005 number of 154,700. Multi-family housing construction has rebounded from the 2009 trough, but at an expected 48,000, is still down 5% from last year. For multi-family housing, the 50,300 value in 2005 was actually lower than the 2017 and 2018 peak of 53,800 both years.
Photo by Sven Mieke on Unsplash
More: https://journal.firsttuesday.us/the-rising-trend-in-california-construction-starts/
Real Estate Speculation Expected to Rise
As with any recession, at some point the direction of prices is going to change. In most cases, real estate speculators purchase at low prices so they can later sell at a higher price. Currently, speculators are most likely to be sellers, not buyers, since home prices are already high, and are expected to decrease in 2021 as sales volume continues to drop. Once prices start dropping, as buyers are waiting for prices to bottom out, sellers are looking to sell as quickly as possible to get the most money. With more seller willingness, buyer speculators are also coming in 2021.
Given the current high buyer demand, a sudden increase in seller willingness is going to look like the beginning of a recovery. Don’t be fooled by this. Speculators are generally people who can afford to be wrong. This increase in activity is not going to be a result of a stabilizing economy, but of opportunists who were largely unaffected by the recession wanting quick sales. Speculators generally only constitute 20% of buyers. For an actual recovery, the rest of the populace needs a stable income. That means job recovery, which isn’t expected until 2023.
Photo by Thought Catalog on Unsplash
More: https://journal.firsttuesday.us/prepare-now-for-the-return-of-real-estate-speculators/73795/
HUD Discards Fair Housing Guidelines
A 2015 Department of Housing and Urban Development (HUD) rule, called Affirmatively Further Fair Housing (AFFH), had presented guidelines for what constitutes barriers to fair housing and required recipients of HUD funding to reduce or eliminate these barriers. This rule was deemed to be an overstep of federal bounds, as matters of this nature should be determined at a local level. The HUD’s new rule, called Preserving Community and Neighborhood Choice, still requires funding recipients to affirm that they’ve furthered fair housing, but no longer offers any guidelines for what that means.
Of course, this is no longer federal overreach, but that’s because it doesn’t actually do anything. Barring any state or local laws, the definition of fair housing is now entirely up to the individual receiving the funds. With no need to report any plans or data, the recipient can simply affirm that they did further fair housing, without needing to change anything or provide any proof. In essence, the HUD has simply eliminated the AFFH while pretending it was a partial rollback.
Photo by Blake Wheeler on Unsplash
More: https://journal.firsttuesday.us/hud-kills-fair-housing/73816/
Spinach & Strawberry Salad
The traditional dinner salad is most often an unexciting food. Ditch that classic iceberg lettuce studded with cherry tomatoes in favor of this taste treat. These flavors will burst in your mouth from the first bite to the last. Whether you serve it in the heat of summer, or as a year-round starter, this dish is a treat for the eyes and the taste buds.
Serves 6
Ingredients
2 (6-oz.) bags baby spinach
1 (16-oz.) container strawberries, quartered
1 (4-oz.) package crumbled blue cheese, feta cheese, or goat cheese
1/4 medium red onion, thinly sliced
1/2 cup sliced toasted almonds or halved candied pecans
Balsamic vinaigrette (recipe follows or use bottled vinaigrette)*
Directions
Toss all the salad ingredients together and drizzle with dressing.
*Easy Balsamic Vinaigrette
1/4 cup balsamic vinegar
1 tsp prepared mustard
1/2 tsp salt
1/2 tsp freshly ground black pepper
3/4 cup olive oil
Directions
Place the vinegar and seasonings in a bowl and whisk to combine. Slowly add the olive oil and whisk until the dressing is emulsified.
Some surprises in South Bay Real Estate, 2019 vs 2020
It’s October 1, so it’s time to look at the changes in the local real estate market, both for the month and for the third quarter.
2020 has been a year for making and breaking records. Most of them have been records we truly didn’t want to even consider, like the number of pandemic deaths, and the number of unemployed. Until now, we had little reason to believe the real estate market might bring better news.
Through the first half of the year, the number of homes available on the market just kept climbing. At the same time, the number of homes selling remained stubbornly flat. Despite interest rates hovering just above zero, it seemed buyers had other things on their mind. Then in July the number of closed sales jumped 41%, while available inventory came up a tiny 7%.
Sales continued to climb in August and September, though nothing as dramatic as July. Overall, for the third quarter, unit sales were nearly double those of both, the first quarter of the year (+79%) and the second quarter (+76%).
Comparing to last year, that huge spike in sales brought September in at 47% more sales than in September of 2019. On a quarter over quarter basis, Sales are up 23% over 2019. The red bars in the “Sold vs Available” chart above shows the climbing number of sales, with the blue bars showing the sudden drop of available inventory in September.
Not only were the number of sales climbing, but prices have continued to escalate year over year. September of 2020 showed median prices had increased 23% over September of 2019. Median prices rose 15% for the third quarter of 2020 versus the same time period in 2019.
Combined, the impact of the increased sales and increased prices brought the total dollar value of sales for September 2020 up 89% over that of September 2019. Quarter to quarter, the annual increase was 40%.
“South Bay residential sales for the third quarter of 2020 exceeded two billion dollars.”
How do we explain record sales and prices during a pandemic, with sky-high unemployment, and the threat of a recession coming from behind? It’ll be weeks before the pundits have sorted it all out. In the meantime, here are a couple of possible explanations.
Third quarter sales range from $285K to $10.5, so we know some of these have been entry level homes. Folks who have been priced out of the area, and because of the lower interest rate could suddenly qualify to purchase here, have jumped at it. Sales under $1M comprise 42% of the total.
At the opposite end, sales over $3M made up 9%. Once again, the interest rate makes it possible to leverage a mansion at a relatively affordable monthly payment. A lot has been said about the future worth of property compared to today’s dollar. Investing at a reduced interest rate usually contributes to a sizable profit at some future sale date.
In between, from $1M to $3M, we have 49% of the third quarter sales. That’s roughly the number of people we would expect to sell for one or another of the typical reasons people move. In fact it corresponds nicely with the rate of market activity for the first half of the year.
In summary, if the thought of making a move in the near future has crossed your mind, this may be the best moment to do so. Call and we’ll put together some numbers specific to your property and your situation. No problem–no obligation!
Photo by Richard Horne at unsplash.com.
Long Beach to convert hotels into homeless housing
California, in partnership with Long Beach and LA County, has begun the process for Project Homekey, a project to convert two hotel properties into homeless properties. One will be a 100 unit project and the other approximately 50 units. While it’s not yet announced which properties have been chosen, the decision has already been made, and these criteria narrow it down significantly. Only one property fits for the 100 unit structure — the Best Western of Long Beach. There are a few different options for the 50 unit project.
The converted units aren’t going to be ready immediately. The properties have not yet been purchased, and the deadline to do so is December 30, so it could be up to two months before the conversion even begins. The contract for funding the conversion process is expected to last several years, though the conversion could already be complete before the contract expires.
New Long Beach port bridge opens soon
The port of Long Beach will open its eagerly awaited new bridge on Oct. 5 after seven years of construction. The long wait was due in part to COVID-19 restrictions and was also intentionally delayed for careful attention to earthquake safety. The bridge currently has no name, but will be replacing the Gerald Desmond Bridge.
This new bridge will have three lanes in each direction across its two mile length to reduce traffic congestion. It will have connections to the 710 Freeway, Terminal Island, and Downtown Long Beach. In addition, larger container ships will be able to pass under the bridge, as it is taller than the Gerald Desmond Bridge.
Photo by kyler trautner on Unsplash
More: https://www.lbbusinessjournal.com/bridge-to-everywhere-set-to-open-for-vehicle-traffic-oct-5/
The Federal Reserve’s post-recovery plan
The Federal Reserve is now looking to the future to figure out their plan for once the economy has recovered. The Fed doesn’t intend to make changes until a solid recovery has occurred, which they anticipate will be at least three years from now. Their new goals will be to maintain stable prices, maximum employment, and moderate long-term interest rates.
How do they plan to enact this? Well, not directly. The Fed’s plan is to maintain a 2% average annual inflation rate, which actually means increasing it above 2% in the years following a recession when inflation rates are low. Their expectation is that higher prices will boost the job market. The Fed can’t increase the annual inflation rate directly, though. They will have to put money into the hands of investors and lenders, and simply hope that they spend it.
This is only one pitfall of the Fed’s plan. It also promises nothing for the housing market, as prices are already high, not low as they are normally during a recession. The housing market needs the job market to stabilize before it can even begin to recover. Additionally, the Fed’s reasoning that higher prices will increase employment is flawed. Most people don’t choose to remain unemployed, unless they’re abusing the unemployment welfare system, which is extremely rare and what few cases there are would be better resolved by reforming the welfare system. Forcing already unemployed people to pay higher prices is not suddenly going to give them a job.
Photo by Jess Bailey on Unsplash
More: https://journal.firsttuesday.us/how-the-feds-new-policy-stance-impacts-housing/73439/
Job recovery will be slower than expected
Reports demonstrate record job gains in California in the last few months, nearly 700,000. But that doesn’t mean we’re actually making new jobs. It means that we lost so many jobs this year that even recovering a small percentage of them is going to look like a large number. There were actually over 2.7 million jobs lost in California between December 2019 and April 2020, significantly more than were lost in two years during the 2008 recession. So we’re still a long way off from returning to the December 2019 peak, let alone generating new jobs.
Federal assistance has been necessary to keep the economy floating, but it’s also been inadequate. We’re going to need a lot more help. A COVID-19 vaccine is a solid step, allowing more people to return to work. It’s not going to be enough, though, since the economy was already on a downward trend before COVID-19 — recall that the peak was December 2019, three months before the lockdowns. The recovery is expected to be W-shaped, with some unstable gains from now through 2021, and no clear upward trend until 2022 or 2023. Even then, job recovery will have just started, and the real estate market is going to need even more time after jobs start back up.
Photo by Ibrahim Rifath on Unsplash
More: https://journal.firsttuesday.us/job-losses-will-inevitably-continue/73104/
Companion robots: Are they a good thing?
Companion robots, whether for practical or sentimental purposes, have been around for a while. But this pandemic presents an opportunity for their popularity to grow. With many people isolating themselves, they’ve grown lonely or are lacking in vital assistance. Some things robots are able to do are provide comfort, tell jokes, recite Bible passages, play music, or, for those with more physical needs, feed you, bathe you, or lift you up out of bed. Benefits of robotic companions are that they are always available and never get angry at you, won’t forget important dates or times, and won’t be abusive or fraudulent.
There’s fairly solid consensus that robot companions are useful during a pandemic. Some worry, though, what may happen to human companionship or caregiving if robots catch on beyond their use during a pandemic. As much as social robots can try to fill the void for people who are truly isolated, humans still require interaction with other humans for their mental health. Family members may feel their elderly relatives are completely fine because they aren’t totally on their own, but that would be a mistake. And there are also concerns with the robots themselves — some of them have built-in cameras to monitor when they are needed, which, while they are intended as a safety feature, may be a privacy concern for many people. It’s also inevitable that some caregivers would lose their jobs to robots.
Photo by Brett Jordan on Unsplash
Despite fierce competition, it’s not indicative of recovery
Throughout California, homes are selling quickly. 46% of homes are on the market less than two weeks. Using data from Redfin, 54% of offers were contested. The breakdown by region is 67% in the San Francisco/San Jose area, 65% in San Diego, 58% in Los Angeles, and 47% in Sacramento. However, don’t mistake this for a healthy market — we’re still in a transition period.
The actual reason for low days-on-market is a combination of high buyer demand, due to low interest rates, and low inventory. Those who are able to buy correctly recognize this as a great time to do so if you are able to afford it, and are scrambling to get at what few properties are available for sale. Even the high demand, though, is merely high relative to inventory — there still aren’t very many people who are able to afford a purchase right now. Whether or not we get a COVID-19 vaccine before then, the housing market won’t properly right itself until the job market stabilizes. The expectation is that this won’t happen until 2022 or 2023.
Photo by Randy Fath on Unsplash
More: https://journal.firsttuesday.us/summer-2020s-unseasonably-hot-housing-market/72921/
California gets revised eviction protections under AB 3088
AB 3088 was signed into law, extending eviction moratoriums to January 31, 2021, under certain conditions. While tenants will still be responsible for unpaid amounts after this date, they cannot be evicted for missing payments between March 4 and August 31. For rent due between September 1 and January 31, tenants will be required to pay at least 25% of the amount owed each month to be immune to eviction. Tenants also are not immune to eviction for causes unrelated to missing payments.
In order to be eligible for these protections, tenants will also need to declare financial distress as a result of the COVID-19 pandemic. This could be in the form of loss of income, increased expenses related to performing essential work or to health care, child care, elderly care, disability, or sickness, or some other category, but must be a result of the pandemic. This declaration also applies to 15-day eviction notices the tenant may receive. If no response is provided, the tenant may still be evicted.
Photo by Bill Oxford on Unsplash
More: https://journal.firsttuesday.us/ab-3088-new-eviction-protections/72951/
Work-From-Home likely to continue beyond COVID-19
The increasing number of people working from home was initially supposed to be a temporary response to COVID-19 lockdowns. Companies also took it as an opportunity to experiment with the work-from-home model. And for the most part, it seems to work. It’s expected that there will be many more permanent work-from-home positions even after vaccines are distributed.
This has had and will continue to have implications for spending patterns and stock values. Traditional work clothes aren’t necessary for many people, nor is spending on commutes, work lunches, and coffee breaks. Most shopping is going to be done for the home — and also at home, signaling a boon for e-commerce. In the real estate sector, commercial construction is expected to drop as fewer companies require as much office space. A major advantage of the work-from-home model is that more people are able to enter the workforce, since it opens the doors to people unable to commute, such as those who are disabled, can’t afford reliable transportation, or have children at home.
Photo by Mikey Harris on Unsplash
More: https://www.morganstanley.com/ideas/coronavirus-work-from-home-trend
Unemployment delays homebuying for adults under 30
As of July, over half of adults under 30, 52%, are now living with one or both parents. The previous recorded high was 48% in 1940, eight decades ago. No data is available for the period including the Great Depression, but it’s likely the number was higher during that period. The majority of this increase comes from those in the 18 to 24 age range, with particularly large spike in April.
In some instances this could be a conscious choice, at least initially, as people moved in with their parents during lockdowns so they could isolate with family members instead of alone while working from home. Even for those for whom this was the plan, their stay has been extended longer than expected. For most people, though, it’s because they aren’t working from anywhere — it correlates strongly with rising unemployment numbers. Unemployed young adults aren’t financially stable enough to become independent homeowners. Increasing student loan debt is also a significant factor.
Photo by Thought Catalog on Unsplash
More: https://www.huffpost.com/entry/young-adults-living-with-parents-covid_n_5f53a937c5b6946f3eb291b0
Lenders in uncertain territory, but hopeful
As a result of home sales volume dropping by 30% in Quarter 2 of 2020 from 2019, loan origination has also dropped considerably. The effect was somewhat lessened by low interest rates, which resulted in more refinances. The commercial sector, however, didn’t have that luxury. The Mortgage Bankers Association (MBA) forecasts a 59% decrease from 2019 in total commercial loan amount, from $601 billion to $248 billion. The majority of this will be from the multi-family sector, which was at a record high of $364 billion in 2019 but is only expected to reach $213 billion this year.
Lenders are optimistic, though, as long as governments can continue to keep people housed. Vacancies aren’t great for lenders, as they reduce the prospects of landlords, and recently evicted people certainly won’t be looking to originate new home loans any time soon. The MBA expects 2021 to bring the number up to $390 billion for commercial loans. The catch is that commercial landlords aren’t protected by the recently extended foreclosure moratorium. If multi-family homeowners are hit with a foreclosure, all their tenants will be affected as well. Commercial property owners as well as lenders are looking for new methods of loan accommodations.
Photo by Morning Brew on Unsplash
More: https://journal.firsttuesday.us/commercial-lending-plummets-in-2020/72811/
Demystifying mortgage insurance
There are two types of mortgage loan insurance, and it’s also possible to avoid needing insurance. Mortgage insurance premiums (MIP) are the type of insurance required by the Federal Housing Authority (FHA). The other type is private mortgage insurance, or PMI. It’s easier to qualify for FHA loans, but private loans come with some additional benefits if you do qualify. Most notably, it’s only PMI that you can avoid; if you only qualify for an FHA loan and not a private loan, MIP can’t be ignored.
Private lenders generally have stricter credit score requirements than the FHA. In return, the higher your down payment, the lower your premium amount. Furthermore, if your down payment is at least 20%, you aren’t required to get loan insurance, so you avoid paying PMI. If you’re getting an FHA loan, you’re stuck with MIP for at least 11 years. On the bright side, the down payment amount to qualify for a reduction to 11 year MIP is 10%, not 20%.
Generally, the greater you can make your down payment, the better. Of course, paying all cash to avoid a loan at all is ideal, but not everyone can afford to do that, so keep in mind the important breakpoints. If you qualify for a private loan, putting at least 20% down is probably your best bet. Even if you only qualify for an FHA loan, be sure to put at least 10% down so that you aren’t stuck with MIP for the entire duration of the loan.
Photo by Letizia Bordoni on Unsplash
More: https://journal.firsttuesday.us/fha-pmi-or-neither/
Is sales volume a good predictor of economic recovery?
Sales volume and home prices tend to correlate, albeit on a delay of about a year. It’s usually helpful to look at changes in one to predict changes in the other. But sometimes that’s not the case — most notably, at the start of an economic recovery. Looking only to sales volume to forecast a recovery can result in some false starts.
This happened in 2008, and may be about to happen now. Home sales volume shot up between 2008 and 2009, but crashed back down the next year. This is because economic stimulus resulted in temporary buyer demand, which fell off as soon as the stimulus was used up. Now, in 2020, despite actual buyer demand, sales volume is low as a result of low inventory. Low inventory doesn’t decrease home prices, though, so they’re still going up. Pent-up demand means that as soon as the economy recovers, inventory may be snatched up quickly, resulting in another sudden burst of activity that will rapidly fall off.
So what does need to happen for an economic recovery? The answer is jobs. While sales volume may predict short-term direction of change, the job market is an excellent reflection of the housing market stability, since both homeowners and renters require income in order to make payments. Job numbers aren’t going to be stable for a while either. A full recovery of the job market isn’t expected until 2022 at the earliest, at which point we can start to see the regular patterns emerge again in home sales volume and home prices.
Photo by Chris Liverani on Unsplash
More: https://journal.firsttuesday.us/sales-volume-a-powerful-magnet-for-home-prices/34319/
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 Prices | August | July |
| 2020 | $1.10M | $1.12M |
| 2019 | $1.03M | — |
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 Sales | August | July |
| 2020 | 450 | 408 |
| 2019 | 398 | — |
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.
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
FHFA delays additional refinancing fees
The Federal Housing Finance Agency (FHFA) announced in August that it would be charging an additional refinancing fee to offset losses due to COVID-19. The new fee was expected to come into effect yesterday, September 1st, but at the last minute, the FHFA rescheduled it to December 1st. We’re still in the midst of a recession, so the FHFA doesn’t want to make too many changes too early.
The new fee exempts refinance loans with balances below $125,000, affordable refinance products, Home Ready, and Home Possible. Applicable loans, which are cash-out and limited cash-out refinance loans, will have 0.5% added to each transaction. While this fee applies directly to lenders, it also indirectly affects borrowers in the form of higher interest rates. While the FHFA certainly wants to recoup their projected $6 billion in losses, they’ve agreed that now is not the time; the economy still needs to recover first.
Photo by Morning Brew on Unsplash
More: https://journal.firsttuesday.us/additional-refinancing-fees-delayed/72824/
Long Beach approves basic income plan
Long Beach just started the planning process for a basic income pilot program. It’s very early in the process, so not much is known, but the City Council just had their vote today, September 1st, and unanimously approved the program, which means it’s sure to happen in some capacity. This pilot program will be privately funded, so it’s not going to be a tax burden.
The decision arrived after witnessing the success of a similar program in Stockton. The Stockton program tested a $500 basic income for 18 months, given to 125 randomly selected residents. The spending breakdown was 40% on food, 25% on merchandise, and about 12% on utilities. It’s unclear what happened with the other 23% — it’s possible it was saved, or maybe it was spent on other categories not listed. Now the mayors of 15 other cities across multiple states want to try it, including Oakland, Long Beach, and Los Angeles in California, Newark in New Jersey, and Columbia in South Carolina.
Photo by Damir Spanic on Unsplash
More: https://lbpost.com/news/long-beach-to-begin-planning-for-basic-income-pilot-program
Here’s why house prices are still high despite the recession
It may seem intuitive to look at past recessions, such as the one in 2008, to predict the market during the current recession. But that doesn’t always work, since the circumstances surrounding the downturn may be different. In 2008, what caused home prices to drop was reduced buyer demand and increased foreclosures and short sales. Now in 2020, that’s not happening.
Buyer demand is actually relatively high right now, as a result of interest rates being low. The Fed decreased interest rates in 2019 in expectation of a recession. They were right, of course, but couldn’t have predicted the exacerbating effect that COVID-19 would have. Interest rates can’t get much lower without the Fed going negative, so the market doesn’t have anywhere to go. Foreclosures may be on the horizon if federal and state governments don’t maintain protections. But for the time being, there’s a moratorium on most foreclosures, so there’s no need to drop home prices. Another factor is the lack of construction. With fewer homes being built, especially in the form of affordable housing, low inventory means there’s no competitive pressure on sellers to reduce prices.
Photo by bruce mars on Unsplash
Foreclosure moratorium extended through December
The CARES Act, signed into law in March, provides multiple benefits to those impacted by the COVID-19 pandemic, including a moratorium on most foreclosures. On August 24, real estate journal First Tuesday pondered what may happen beginning August 31, when the CARES Act was set to expire. However, it was announced August 27 that the moratorium has been extended through December 31.
Even had the moratorium not been extended, First Tuesday said not to panic. The foreclosure process would have to start from the beginning, and it takes time, so homeowners would not be evicted overnight. That said, it’s important that state legislators make efforts to soften the blow even after the federal moratorium ends. Just like foreclosures won’t happen overnight, nor will affected parties recover overnight. Fortunately, there is a statewide bill for California, AB 2501, that seeks to extend it for another 12 months as well as offer forbearance.
Photo by Bruno Figueiredo on Unsplash