You may have been told that a listing is contingent or seen a list of contingencies. But what is a contingency, exactly? A contingency is a condition that, only if met, causes a transaction to proceed as normal. It’s a way to protect both the buyer and the seller in case something goes wrong. It both assures the seller that the transaction will go through as long as the condition is met, and may enable the buyer to renegotiate or back out if it isn’t met.
Not every contingency is something the seller can necessarily provide, though, so it’s never a guarantee of a successful transaction. There are several types of contingencies. There is one that the majority of sellers can meet without any effort, and that is a title contingency. This specifies that the seller must be able to demonstrate that they have clear title to the property. In most cases, this isn’t difficult, but things such as inheritance could complicate this. A couple types of contingencies relate more to the buyer. These are financing contingencies and sale contingencies. Transactions with financing contingencies are contingent on the buyer being able to acquire financing. Sales contingencies refer to the sale of the buyer’s current property. This is normally used when the buyer is reliant on funds from the sale of their home in order to afford the new home. The last two common contingencies rely on a third party, an inspection contingency and an appraisal contingency. As the name might imply, these make the transaction contingent on a successful inspection and an appraisal at or above the purchase price respectively.
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In August the South Bay real estate market showed some slowing of what has seemed a continuing slide into negative numbers. Closed transactions showed a partial recovery from the July report of declining sales and declining values, across both the past month and the past year.
August showed positive growth over July in sales volume except for transactions on PV Hill. Median prices compared to July were down except at the Harbor.
Annual statistics were similarly mixed with notable increases in sales at the Beach and Inland areas. Median prices compared to August of last year with modest increases in the Beach Cities and Harbor Area.
Beach Cities Show Strength in August
Sales volume at the Beach seemed surprisingly strong, however a look back in history reveals weaker than normal sales in July of this year and August of last year. The 127 units closed in August was much more in line with expectations, than the 91 sold in July or the 103 sold in August of 2022. Sales in a normal year would come in at about 125-135 units, showing that the Beach Cities are currently close to a normal number of transactions for the month.
Median prices came in negative compared to July, though less than a 1% drop. Last year’s weak sales led to an increase of 2% in median price this August, despite an overall downtrend for the year. Hypothetically, assuming the Federal Reserve policy of 2% growth, median price at the Beach should have been about $1.62M in August. As the market stabilizes from the pandemic, the median has steadily dropped from a high of $1.76M in April to the August actual of $1.67M..
Year to date transactions showed a continuing decline in sales volume (-19%) and median price (-4%) versus 2022. Likewise, sales volume was off 31% compared to the baseline year 2019. Median price is still coming in positive compared to the baseline, up 28% from 2019.
August Harbor Area Sales Climb
Looking at August versus July of this year shows Harbor area sales volume up a healthy 22%. While the month over month numbers are positive, sales are off 8% compared to the same month last year. For perspective, note that in 2019, the last normal year of business, there were 436 homes sold compared to 328 this August. Using that reference point, monthly sales are off by 25%.
Median price for last month was $751K, up 1% from July and up 4% over August of last year. Going back to 2019, the median was $575K, giving the current median price an increase of 32% over our baseline year. At the same time, the high median for this year was in June at $772K, and the lowest was $675K in February.
Year to date, the number of homes sold at the Harbor is down 22% from last year and likewise 22% from 2019.That decline in sales volume is driven by the increased median price which is up 32% compared to the first eight months of 2019. Being generally an entry level market, the Harbor area has shown a drop in sales every month of this year. Likewise, the year over year median price has dropped every month until August.
Palos Verdes Volume and Prices Drop
Sales and median prices were mixed everywhere in South Bay except for the PV Hill. All the statistics for August went down on the Hill. Month over month saw a drop in sales of 2% and decline in median price of 6%. Both are modest changes by comparison to most of the South Bay, but are indicative of the direction of the market in general.
Looking at August of last year compared to August of 2023 shows a dramatic decline of 36% in sales volume. Closed escrows dropped from 77 units last year to 49 this year. Annually, median prices dropped 6%, the largest drop of the four areas.
It’s important to note that in 2019, which being the most recent ‘normal’ year of business, August saw 90 units sold on the Palos Verdes peninsula. Monthly sales volume has dropped off by nearly 50% from the reference year.
Year to date through August shows sales volume down 25% from last year, with median prices falling by 10% over the eight month period. Comparing to 2019 year to date volume is off 21%, while median price comes in at 32% above the 2019 figure.
The disparity created during the pandemic is gradually leveling out as the year goes on. Palos Verdes median prices have fallen six out of eight months this year. The same has been true of the balance of homes sold in the South Bay.
Sales Up, Prices Down for Inland Area
From July to August transactions in the Inland area climbed 15%. Simultaneously, median prices fell by 2% for the month. January kicked off the year with a 16% increase in the median price. February saw that pricing promptly reverse and fall 14%. Since then sales volume has gradually dropped each month and median prices have shifted into a pattern of decline.
Year over year pricing numbers are nearly identical with a 15% jump in median price for January, followed by dropping prices every month since. Similarly, most of 2023 has seen falling sales for homes in the Inland area. So far, August has been the only month with growth in closed transactions.
Year to date statistics compared to 2022 have been much the same with the number of homes sold dropping by 17% and the median price down 2%. In keeping with the rest of the South Bay, comparisons to 2019 reflect sales falling 18% while the median price remains 32% above what it was before the pandemic.
Where Is the Real Estate Market Going?
The number of homes being sold has consistently fallen this year. Likewise, the median price of sold homes has generally been falling since the beginning of the year. The driver behind this has clearly been mortgage interest rates rising from under 3% to over 7% in a matter of months. The Federal Reserve managers have been very upfront about continuing these rates into the foreseeable future.
Most estimates state that about one third of potential buyers can no longer afford to continue with their purchase plans. We see a continued decline in the median price, as sellers find it impossible to sell at the price points reached during the pandemic. When ‘’time on market’ increases without a sale, sellers who ‘must sell’ will gradually lower prices.
Polls are showing those who aren’t compelled to sell are finding it hard to let go of mortgage interest rates below 5%. This reluctance, combined with the sliding median prices, will contribute to more stagnation in the market.
The average time it takes to sell a home from listing with an agent to closing the sale is about 90 days. Many factors affect how long it takes to sell a home. These elements can include market conditions, buyer financing, the time of year, and the prep time to get a home ready for marketing.
A home that is in good condition, has good curb appeal, and is in a good location will attract buyers more quickly. Competitively pricing a home is key to having a reasonable time on the market. A cash buyer and one who is willing to buy a home in as-is condition can expedite the closing time.
Once an offer is accepted, the average closing time will be 30 to 45 days. The buyer’s loan is processed during this time along with the lender obtaining an appraisal. Property inspections also occur during the closing process. The title and escrow companies will then coordinate the signing of all the final documents, collect the buyer’s closing funds and finalize the settlement statements so the transaction can close.
With many of us feeling the squeeze of a higher cost of living, you may be looking for a few ways to lower your utility bills that won’t involve a complete change of lifestyle. Here are just a few simple ideas to reduce your utility costs.
-Switch your switches to dimmers. We don’t always need our lights on full brightness, so using a dimmer switch instead can help save on electricity by only using as much light as you need.
-Fill your freezer. You may not expect this, but having a full freezer actually helps to insulate it, keeping your food cool while using less energy to do so.
-Let food cool before refrigerating. If you’re saving leftovers from your dinner, putting them in the refrigerator while they’re still warm actually causes the fridge to have to work harder to cool them down. Let them cool first.
-Unplug unused chargers. Did you know that many phone and laptop chargers continue to suck electricity even when your phone isn’t connected? Make sure to unplug any that you aren’t using.
-Use solar night lights outdoors. Solar night lights spend the day soaking up the sun’s energy then turn on in the evening when it’s dark. It saves the need for any electricity or batteries and is totally green, helping the environment and your wallet.
-Lower your hot water heater temperature. Do you really need the hot water to be totally boiling? You can turn the temperature down so that your water is only as warm as you need it to be.
-Cold wash your laundry. Most laundry washes are just as thorough when washed cold. Switch your machine settings to cold washes rather than hot to save unnecessary extra spending on heating the water.
When applying for a mortgage loan, your lender may ask you for an insurance binder. In that event, you’re going to need to know what it is, and how to acquire it. An insurance binder is a temporary proof of insurance. If your loan is being insured, you’ll need to ask the company insuring it to provide an insurance binder before the loan can be approved. This temporary proof of insurance exists because the official proof of insurance probably won’t come until after the deadline for loan approval has passed.
Mortgage loans aren’t the only situation in which you may need an insurance binder. You may also need proof of insurance to buy a car, start a business, or rent property. Some of these may involve loans as well, but even if they don’t, it’s still possible you need to be insured for other reasons. The insurance binder in these situations is exactly the same thing — temporary proof of insurance before the official proof of insurance arrives.
Most people don’t purchase their retirement home until after they retire. There are certainly valid reasons for this. You may not know where you’ll want to be living, especially if you move frequently. After retirement, you’ll have more time to go house hunting and think about your options. But just as there are justifications for waiting, there are also advantages to buying your retirement home early, primarily financial.
An important one is mortgage approval. It’s significantly easier to get approved for a mortgage while you still have an income. Unless you plan to pay cash for your retirement home, you’ll want to consider whether or not you can qualify once your income is gone. Not to mention this income is probably also what you’ll be using to pay the mortgage. By purchasing while you still have an income, you’ll have a better understanding of how much your payments are and how much you can save.
If you have the money to purchase a retirement home without selling, that can be an excellent boon for you, especially in the long term. It prevents the need to deal with moving while you are still working. You can turn it into income property, allowing you to use the rental income to pay the mortgage, or just for extra income. You’ll also be building equity in two homes at once, while home values continue to inflate naturally, as they do over time. If you start early enough, by the time you retire you may be able to use the sale of your old home to pay off the mortgage on your retirement home.
As of August 2023, interest rates are somewhere around 7%, possibly higher. While this isn’t astronomically high — they have historically been over 10% — it’s too high for current homeowners to want to exchange their homes. This is because 92% of current homeowners with a mortgage have an interest rate below 6%. Almost a quarter even have locked in an interest rate below 3%.
High home prices are actually somewhat helping current homeowners, since the price boost increases their equity. Prices have increased 14% in the past two years, which results in approximately $86,000 in equity over that time period. However, this may not be enough to offset the increased mortgage costs, especially for those with very low interest rates. Assuming a mortgage of $500,000 and a current interest rate of 3%, a new purchase with the same loan amount would result in a $1,200 increase in mortgage payments per month.
Normally, when demand is low like this, supply is high. This isn’t the case right now. Previously, we would have been able to blame declining construction due to increased construction costs. That’s no longer the case, though, as construction has largely, though not completely, recovered. It may even be simple lack of demand that is the final obstacle to a full recovery for construction. To see the real problem, remember which group we’re talking about — current homeowners. These are the same people who would be selling to buy a new home. If they’re not willing to buy in the current mortgage climate, they’re not selling either.
The share of teachers able to afford homes near where they teach is dwindling rapidly. This year, teachers can afford only 12% of homes within 20 miles of their schools. This is a decrease from 17% last year. In 2019, before the pandemic, they could afford 30% of homes in their school’s area. Fortunately, there are options to help teachers.
The Department of Housing and Urban Development (HUD) is sponsoring a program called Good Neighbor Next Door, which sells homes in revitalized areas to certain government workers at half the listing price. This program is available to pre-K through 12 teachers as well as law enforcement officers and firefighters. Some of Fannie Mae’s programs, while not specifically aimed at teachers, have qualifications that teachers frequently are able to meet.
In addition to federal programs, there are also state and private programs to help teachers. California created the School Teacher and Employee program back in 2018. This specific program is discontinued, but is now folded into their MyHome program, opening it up to more people. The private program Homes for Heroes provides a 0.7% rebate on home purchases made through the organization’s specialists. It is available to firefighters, EMS, law enforcement, military, healthcare professionals, and teachers.