The original BeachChatter discusses the housing market in the coastal communities south of the city of Los Angeles. Some articles are peculiar to a single city. Some discuss the region as a whole. The focus is on privately owned housing.
Between April 2020 and March 2021, foreign investors purchased 31% fewer properties than the previous 12 months. The total sales volume was down 27%. In a way, this should be expected, since pandemic lockdowns made transactions more difficult. But it comes at the same time that domestic competition was, and still is, heavy. Competition shouldn’t be a huge issue for foreign investors, since they’re usually already wealthy and intending to pay cash.
That said, restrictions are still loosening in other countries, and they’re in a volatile place even in the US. It’s likely that foreign investment simply needs a bit of time to settle back into place. Though there was a drop of over 50% in dollar volume in China, Canada, and Mexico, they’re still all among the top investors in the US, along with India and the UK. This means it was probably a temporary drop-off due to adverse conditions, not a radical shift in general sentiment towards the US.
Mortgage rates have been low for quite a while, even despite a bump earlier due to pandemic-related fees. Those fees have now been eliminated, allowing lenders to drop their rates back down. The current average of 2.78% is not quite as low as the January record low of 2.65%, but anything below 3% is very good.
With rates being so low, now is probably a good time to refinance if you didn’t take advantage of the low rates already. But refinancing is not always the right choice, even with low rates. If you’ve already had your loan for a long time, starting over could just make you end up paying more overall. If you do think refinancing may be right for you, get multiple quotes and take steps to lower your rates. You can do this by improving your credit score, increasing your home equity, or paying optional fees upfront called discount points.
Before we get into the run-of-the-mill analysis of real estate, let’s look at the real estate market in South Bay from a different perspective. We’ve been using a microscope to zoom in on the details of sales volume and median price in various locations, etc. Pretty traditional stuff.
For a couple paragraphs, let’s zoom out and look back at what has happened to the LA South Bay market over the past few years. I want to take a moment to acknowledge my friend James Allen for prompting me to do some research and analysis along this vein. James is editor and publisher of Random Lengths News in the Harbor area. We trade thoughts occasionally about one aspect or another of local real estate and economy. Earlier this month he asked me what I thought about the recently announced 2021 property rolls for Los Angeles County.
Thank you for asking, James.
Let’s start by saying the primary task of the County Tax Assessor is to establish every year a value for all the property subject to tax in the county. This year the Assessor has given the total value of LA County property as $1.76 trillion.
Not knowing what to expect, first I pulled in the immediately available data from the Los Angeles County Assessor’s new web site. (I noted a couple of inconsistencies along the way, but given the relative size I decided to consider them rounding errors.) I pulled data back to 2006, which includes the “Great Recession.” The result is shown here and discussed below.
This chart shows the total assessed value, before exemptions, of all property assessed in Los Angeles county. It’s a snapshot in time, taken mid-year corresponding with the tax assessment year. The county has had a steady upward climb with the exception of a flat spot and a shallow trough following the Great Recession during 2007-2008. Taxes are paid in arrears, so the losses didn’t show up until about 18 months later. It took that long to work through the system and show up as a $20B drop in 2010, and then stretch into 2011 and 2012.
The loss of property values following the lending collapse is appears surprisingly shallow. Looking closer at the detail, we see that two of the three primary property value categories offset much of the decline in Single Family Residential (SFR) category. Residential Income (ResInc) values increased .3% and Commercial/Industrial (Comm) values increased .7%, while SFR decreased 1%.
The pattern since 1975 has been that each year the Residential Income category (that’s 5 or more residences in one complex) is stable and brings in about 14% of real property tax revenue. In 1975 ResInc represented 13.5% of real estate values in the County. In 2020 it represented 13.9% of the County value.
The Commercial/Industrial category, which deals in the sale/manufacture of products, has a slightly decreasing percentage of the tax revenue each year. In 1975 Comm property represented 46.6% of taxable real estate value in the County. By 2020 it had declined to 29.2%, about a 17% tax savings for business.
The Residential category represents single family homes and residential complexes of 2-4 units. Commonly termed Residential 1-4, this category has borne an increasing share of the tax burden since 1978. In 1975 SFRs represented 39.9% of taxable real estate in the county. By 2020 homeowners were paying 56.9% of the County’s real property taxes, about a 17% tax increase for homeowners.
Another interesting thing is the strong similarity between 2009 and 2021 relative to the surrounding history. Both years show the market rolling up to the top of the chart, and then taking a slight dip. If 2022 follows the same pattern we should be looking at 12-18 months of flat market followed by several years of steady appreciation.
We do want to be careful here to recognize that there will be adjustments after the fact. Some of these numbers may be changing for years as errors are discovered. Historically, those late changes seldom have a measurable impact.
June 2021 Total Dollars Sold
Continuing the trend of recent months, total sales dollars for residential real estate in the Los Angeles South Bay went up in every area. We saw the slowest growth in the Inland Cities which remained nearly level with dollar volume from May.
As usual, the Beach and the Hill had the steepest growth incline on the charts. Overall sales activity has been showing strength in the harbor area. Smart money would consider the future potential from both a residential perspective, which is the primary zoning of both San Pedro and Long Beach, but also from the Commercial/Industrial perspective. The Harbor area has one of the largest concentrations of manufacturing in Southern California.
June 2021 Inventory is Rising
June enjoyed a larger inventory of available homes in the South Bay than we’ve seen recently. Earlier this year the shortage of property on the market had reduced listings to as little as two weeks of inventory in some areas.
Active listings right now show that if we stopped listing homes today, all available properties in the Inland cities would be sold within 21 days. That’s a far cry from a normal inventory of 5-6 months, but is better than the 1-2 weeks we’ve been seeing. Similarly, inventory levels are up to 24 days in the Harbor area, 30 days in the Beach Cities and 32 days on the peninsula.
As the inventory climbed, June saw a sizable increase in sales. Back in May, every area recorded declining sales, not because no one wanted to buy, but because not enough people wanted to sell. The chart below shows a healthy increase in volume nearly everywhere. Sales dropped a mere 1% in the Inland cities and were up as much as 16% at the Beach.
Median Prices are Stabilizing
Let’s face it. Society cannot afford prices that climb 10+ percent in a month. Those are numbers that bespeak failing economies. So, watching South Bay prices level off on the chart below is a good thing. To put perspective on the matter, housing prices traditionally tend to rise at about 4% per year.
June brought some relief in that the steepest price increase was 5% on the Hill, closely followed by the Harbor area at 4%. (Keep in mind that the Palos Verdes peninsula is a very small market area and subject to more vacillation than the other, larger markets.) The Beach came in with no increase in prices and the Inland cities showed a restrained 1% increase.
While homes are selling quickly in the current market, the vast majority of those are existing homes. Construction has been slow for quite some time, and is weakened by high lumber prices. Though lumber prices are below their peak in May, wildfires are still hampering the ability to procure lumber. With so few homes being built, sales of new homes hit a 14 month low in June.
This is a problem not only for construction companies, but for the economy as a whole. Without many homes being built, supply is significantly lagging behind the already high demand. What’s more, many existing homes are not in the category of affordable housing, meaning low-income homebuyers are struggling to find something within their budget, especially with prices being high right now.
Properties selling above the asking price isn’t a new concept. It happens regularly if a property is in high demand or demand is just high in general. However, it doesn’t normally happen with condos, which are usually an option for people who are on a low budget. This year, the number of condos sold, percent of condos sold over asking price, the sale price, and the average price over asking all skyrocketed. The trend began in May, and June saw record numbers across the board.
In a climate of high demand and low mortgage rates, like the current real estate market, properties are selling fast. Very fast. The median days on market for condos halved in the past year. The reason it’s condos specifically is that prices are also high, which means many people are looking for a budget option. They still need to stretch their budget, though, since heavy competition means they’re probably not going to strike a deal without offering over asking price or paying cash.
The best way to turn a profit through real estate is with investment property. Flippers certainly wouldn’t do what they do without some return on investment, but the return is much greater if you’re keeping the property and renting it out. Of course, not everyone can afford to make that type of investment, but if you can, these tips will help ensure you do it right.
It should be obvious that your bottom line is important, so make sure to take a look at average rent values in the area where you’re buying. If it’s not enough to cover whatever your costs would be, look elsewhere. Also keep in mind vacancy rates; investment property won’t bring in any money if the properties are all being left unoccupied. The second factor is location. You can change a lot about a home through renovating or even demolishing it and rebuilding, but what you can’t change is where the plot of land is. The properties with the highest rental values tend to be in areas near good schools, recreation, and public transport, that are quiet and have a low crime rate. The final thing to look for depend on current trends, so be sure your information is up to date. Short of demolishing the home, it’s quite difficult to change a property’s overall floor plan. By contrast, peoples’ floor plan preferences do change over time. A home with a modern floor plan is most likely to be well received by tenants.
If you’re looking for a place that is affordable yet in a nice neighborhood, look no further than neighborhoods that are up and coming. The process of gentrification significantly increases an area’s desirability, but unfortunately also significantly raises prices. Areas that have just begun this process, though, are probably still inexpensive.
There are a few things you can look at to determine which neighborhoods are in this category. Two of them involve correlations with hard data that you can access from professionals. The city’s municipal office can provide information about building and renovation permits. A high degree of activity in either of these, but especially renovation permits, implies that the neighborhood is about to become more expensive — but isn’t yet. The other statistic to look for is days on market. Slowly dwindling days on market is a precursor to a highly desirable neighborhood. If this is information you’re interested in, just call or email us, since as your real estate agents, we can help you track it so you can grab the best deals before it’s too late.
The third way to find blossoming neighborhoods may take a wider social network, since it’s not easy to just find the data. This way is to figure out where the young, creative types are going. Young adults and all types of artists generally have lower income and will be looking in cheaper areas, but also seek out trends and will want to know what areas are becoming more popular. In addition, creativity gives neighborhoods a type of personality that strongly attracts multiple kinds of buyers.
The National Bureau of Economic Research (NBER), a private non-profit economic research institution well known for researching recessions, has declared that the 2020 recession is over. In fact, it ended quite a while ago, and only lasted two months, the shortest recession in history. NBER defines the start of a recession as the month following a peak in economic activity, and the end of a recession as the month at the bottom of economic activity. In this case, those months were March 2020 and April 2020 respectively. The delay in declaration is because it generally takes several months to figure out whether a recession is truly over or not, since there can be ups and downs in between the peak and trough. With this declaration, another downturn would officially be considered a separate recession.
So what does this mean? Well, it doesn’t mean the economy is healthy again. It just means we’re past the worst of it, and are in the recovery stage after the recession. We’ve been in recovery for quite some time, and will continue to be. It’s important to note that while the start of the pandemic and the start of the recession occurred at approximately the same time, they aren’t codependent. Rather, the pandemic was merely an exacerbating factor in a recession that was already approaching. Many of the effects, both psychological and government mandated, of the combined scare of a simultaneous recession and pandemic are still lingering and slowing down the recovery. The major factor keeping us back is lack of recovery in the job market.
Most of the time, investors look to buy when the market is down and sell when it’s up. This is actually quite useful for the health of the real estate market as a whole, since it makes up the majority of transactions during weak economies, even if it does primarily benefit the already wealthy.
However, that’s not what has happened in this situation. When the pandemic hit, investors were not immediately able to purchase and didn’t have a strong sense of where the market was headed, so investment dropped off dramatically. Prices actually continued to rise throughout the pandemic and even now, meaning there was never a low point for investors to take advantage of. They’re realizing that now, and starting to invest again, expecting prices to continue to go up.
While it’s not a huge cause for concern yet, this is problematic for people intending to buy homes to live in. Investors generally don’t live in the homes they invest in, yet frequently win out during heavy competition due to high cash volume. They’re also not serving the same purpose they do during down markets, since demand is already high. The most problematic type of investor is a flipper, who generates no value or utility at all, merely making a profit off of a home being temporarily vacant.
The first thing anyone is going to see when looking at a listing is the photos. People aren’t going to be interested if there are no photos. But that doesn’t mean you can just take snaps with your phone’s camera and toss them up there, even with some editing. The fact of the matter is that no one is going to come see your property if it looks terrible in the photos. In addition, while there are plenty of photography tricks to improve the appearance, no one is going to buy your property if it looks significantly different from the photos.
That’s where professional photography comes in. Professional photographers know how to manipulate not the photographs themselves, but the camera settings and lenses, angles, lighting, and even which aspects of your home to highlight. None of these are making false promises. Rather a professional will find the best way to make the truth of what your home is stand out to buyers. Good panoramic shots require a specific type of lens. The colors of your home influence what time of day and which flash settings will provide the best lighting. Pros will seek out intricate details and unique features that make your home stand out from the competition.
Even though racial discrimination against homeowners was banned in 1968, the homeownership gap between White and Black households in the US is actually higher now than it was before the ban. Between 1960 and today, the gap has increased by 4% and sits at 31% nationwide, and 27% in California.
In order to address this issue, the Black Homeownership Collaborative has drafted a plan that they hope will bring homeownership to 300,000 more Black households by 2030. Their 7-point plan was approved by the Mortgage Bankers Association. The focal points are homeownership counseling and education, down payment assistance, affordable construction, improved credit and lending opportunities, increased civil and consumer rights, sustainability of homeownership, and marketing and outreach towards Black communities. Similar proposals are also in the works for Latinx communities, which make up a significant percentage of California’s population.
The recent strong shift away from urban centers and towards more rural areas is thought to be a direct response to the increased popularity of the work-from-home model, brought on by the pandemic lockdowns. However, even though this is certainly a factor in the urban exodus, it’s not a new phenomenon. As early as 2010, people were starting to move away from urban areas towards suburban and rural areas. Being able to work from home simply accelerated the existing trend.
Why does the trend exist, though? Well, the statistics alone can’t give us a a certain answer, but we can speculate. It’s possible to conclude that people are liking the idea of living in a rural area. But that’s not necessarily the case. It’s important to note that the data holds true exclusively for mortgaged home purchases. This means that people who have excess cash lying around aren’t at all interested in rural living. In effect, this means that, quite possibly, no one is. Rural areas are generally less desirable, and because of this, are also generally cheaper. Buyers who need to take out a mortgage are looking within their budget, not necessarily for their dream home in their dream destination.
The FHFA established a new refinance fee at the end of 2020 called the Adverse Market Refinance Fee, which was designed to cover projected losses during the pandemic. But they’ve now said that their losses were not severe and that the market was not as adverse as they expected. Only 2% of single-family loans remain in forbearance. So, this fee is going to be removed come August 1st. The FHFA hopes this encourages more buyers to take advantage of low rates.
Due to prices rising at a rate far exceeding wage growth, many believe that most of those in younger generations — Millennials and Gen Z — will probably never be able to afford homeownership and will be renting forever. While this is certainly true of some of them, some young adults are hoping to disprove this. The pandemic came with a lot of job losses, but for those who were able to retain their positions, their decreased spending during lockdowns meant increased savings.
And many of them are using their savings very smartly — as a down payment on a home. In a 1200 person survey of young adults, 83% said they had increased their savings during the pandemic. 59% of those with extra cash intend to put some of it towards a down payment. 64% plan to spend it on everyday expenses. The total is greater than 100% because some percentage of them plan to do both.
Young adults don’t necessarily know how to purchase a home, though, especially since many of them are first-time homebuyers. The survey also asked how respondents are making their decisions and who has influenced those decisions. The biggest factor was parents, with 71% asking their parents for advice. 61% asked friends and half asked their siblings. Over a quarter stretched further for help, asking grandparents or even taking advice from celebrities.
The Latinx population has long suffered and continues to suffer discrimination in the real estate industry, from the general population and industry professionals alike. Deep-seated systemic injustices also play a major role, with Latinx households frequently having lower income and lower credit scores. Now, in a hot market, they’re also facing heavy competition.
Despite these hardships, they actually account for over half of homeownership growth in the past decade, and the number is expected to reach 70% for the period from 2020 to 2040. After the 2008 financial crisis, the Latinx population took a huge hit, but now it has rebounded. What’s causing the scales to tip in favor of Latinx populations? We could say it’s their stereotypical strong work ethic, but experts point to their age. The average age of the Latinx population in the US is 29 years, 14 years below the national average. This places them squarely in the prime age for first-time homebuyers, which are currently a large segment of homebuyers.
It’s pretty obvious that when you’re looking for a home for yourself, you’ll want to do plenty of research and scrutinize all the details. But when people are making investment purchases, their bottom line is often the only thing they look at. That’s not a good practice — there is definitely research to be done before deciding how to invest.
First you’ll want to decide whether or not this actually is just an investment property, or there’s a possibility you’ll want to live there in the future. If you have long-term plans, you’ll certainly want to consider much more about the property than your bottom line. Multi-family residences are generally higher income, assuming all or most units are rented out, but most people would prefer to live in a single-family residence.
Even monetary considerations don’t stop at the buying and subsequent renting of the property. Make sure that any necessary repairs are within your budget. Whether your plans are short or long term is also important here; it may be okay to take a loss early if the rental income over time is going to make up for it in the future, but you don’t want to buy a fixer if you want to see an immediate return on investment. The bottom line also doesn’t tell you whether you are going to get an income at all. If no one wants to rent in the area where you’re buying, it’s going to remain vacant. Look at crime rates and school ratings for the area. Crime rates are especially important, since even if you manage to get a tenant in a high crime area, you don’t want to suffer the losses even if you aren’t the one living there.
NASA has set the date for their Near-Earth Asteroid (NEA) Scout to this November, when it will launch along with the Artemis I test flight mission. The NEA Scout is a small craft with solar-powered sails, the first of its kind to be released outside of Earth’s orbit. If the mission goes well, it’s a good sign for an expected 2025 mission named Solar Cruiser, with a much larger solar sail. The NEA Scout is outfitted with a high-powered camera and its pictures are expected to provide valuable information about a certain class of asteroids. But it will take two years for the NEA Scout to reach its destination, even though it’s only a small asteroid near Earth.
In response to increasing frequency of wildfires in California, the state wants to make sure residences are in compliance with fire safety law. Existing state law already requires what is called defensible space, which is a buffer zone between flammable plant material and any structure on the property. Now, sellers are going to be required to provide proof of compliance with this law if their property meets certain conditions. This applies if the property is a condominium, common interest development, or manufactured home, is zoned residential 1 through 4, or is located in a high or very high fire hazard severity zone.
California is proposing a plan to start the “California Dream Fund,” which is intended to allow the state to subsidize purchases by first-time homebuyers without any tax increases. They hope to achieve this by allowing investors to use their money to subsidize the purchase, in exchange for an equivalent share of ownership. This will be limited to 45% to prevent the investors from owning a majority share.
The plan is still in the works, but there are already a few criticisms. Currently, there is no indication of who is liable if the property goes into default. Is it only the buyer? Do the investors have a stake, since they have an ownership share? Is the state liable since they’re the ones providing the subsidy program? Perhaps these questions will be answered later, but if the answer is simply as existing law, the program is no different from a state matchmaking program between investors and prospective homebuyers. Furthermore, subsidizing home purchases does nothing to address the real problem — the fact that home prices are so exorbitantly high in the first place that the plan is being discussed to begin with. Subsidies will increase demand, but demand is already high; it’s the low supply that needs to be addressed.
A 2016 state law requiring organic waste to be processed separately from inorganic waste goes into effect at the start of 2022. However, even with the six year forewarning, cities still aren’t necessarily equipped to handle the change. Some cities, such as Carson, have processing plants allowing them to convert food waste into methane for use as renewable fuel, with fertilizer as a byproduct. But food waste isn’t the only type of organic waste, and the Carson facility can’t process other kinds.
Processing infrastructure isn’t the only issue, either. The cities’ sanitation departments will also need to change the way they collect. That’s easier said than done. The new law didn’t provide any additional funding, and Long Beach can really only afford to provide one additional bin to each household, so they’ll need to put all of their organic waste in the same bin. That means it’s going to need to be either resorted later, or processed at a facility that can process all types of organic waste. Some of the costs are probably going to come in the form of increases to collection bills for residents.
