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.
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See the following link for statistics: https://www.redfin.com/news/condo-comeback-selling-above-asking-price/
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.
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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.
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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.
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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.
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California was once a dream destination in the US, and probably still is for some people unable to afford it. But as for the people already living here, they’re leaving at a higher rate than people are coming in. What’s happening? Is California simply not living up to its expectations? What about the state do people not like?
There’s a theory that it’s California’s high tax rates that are pushing people out to nearby states such as Texas, Washington, and Arizona. But this is a misconception — it’s not that people don’t want to live in California, it’s that they can’t. The median home price in California has increased by 300% since the 1970s, even adjusting for inflation. Meanwhile, incomes have increased only 33% in the same time period. People who have been living here happily for years or even decades can no longer afford to do so, and are moving to less expensive states. California desperately needs more affordable housing or a wage overhaul if it wants to reverse its negative domestic migration numbers.
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The eviction moratorium for federally backed mortgages was set to expire at the end of last month, but on June 24th, it was extended through July 31st. California has even gone above and beyond the CDC recommendations, extending the state residential moratorium through September 30th. With a third of renters in California feeling they were likely be evicted in July or August, and an additional 6% being quite sure of it, something needed to be done. 10% of California renters are still behind on their payments, and over a fifth of them had little to no confidence in their ability to make their July payment.
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One of the ways lenders try to make sure mortgage applicants are good on their loans is by looking for a down payment. A down payment tells lenders that the applicant does currently have money, and is therefore probably capable of saving some portion of their income. But that starts to fall apart when the money isn’t theirs — if the down payment was gifted to the buyer, generally by their parents, the buyer doesn’t necessarily have any skin in the game. They may be more likely to default on their loan.
Homeownership is a struggle, especially in California where home prices are exorbitantly high. In many cases, first time homebuyers actually do need a little bit of help to get started. The Consumer Protection Finance Bureau (CPFB) has data available for the years 2009 to 2016, which states that 31% of homebuyers aged 25-44 received a down payment gift. Unfortunately, not all homebuyers are able to get one. Black households in particular are often lower income, and the parents don’t have excess savings to give to their children. Given how frequent gifting is, this is a considerable blow to Black homeownership. While down payment gifts may seem like a necessary evil to overcome low homeownership rates, in the end they primarily boost white homeownership, exacerbating racial inequality, and are also only temporary boosts, since they result in more foreclosures.
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We’re all aware of racial disparities when it comes to homeownership, even if we don’t all know the extent of the disparity. What may come as a surprise is that the issue even extends to refinancing for those Black and Latinx households that do already own a home. Surely Black and Latinx households can benefit from refis just as much as white households — so why don’t they? The increasing volume of refis this year, due to lower interest rates, could shed some light on the issue.
Two of the major reasons are actually readily observable. Because Black and Latinx households are usually lower income, they also tend to have lower credit scores and higher loan-to-value ratios. Both of these pose risks to lenders, which causes lenders to quote higher interest rates. These combined probably account for about 80% of the disparity. Possible reasons for the remaining 20% include lower education, lower financial literacy, less employment stability, and weaker social networks. All of these are, in fact, underpinned by systemic inequality. While changes in the mortgage and lending industry can help to address the disparity, the long-standing effects of systemic inequality will dampen any such efforts.
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Data from 2021’s Quarter 1 Housing Affordability Index is now available, and while the numbers haven’t changed much from last quarter, the continuing downward trend is apparent. Affordability is equal to or slightly lower than the Q4 2020 numbers in all major categories, including overall US affordability.
Only seven counties experienced an increase in affordability: Kings, Merced, Butte, Plumas, Siskiyou, Tehama, and Humboldt. The already lowest affordability rating of Mono County took an enormous nosedive, dropping from 11 to 3. Lassen County remains the most affordable county at 62, despite being down from 67, but the top spot may be up for grabs as Kings County went up one point to 58.
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The Mortgage Credit Availability Index (MCAI) is a measurement of how easy it is to acquire a mortgage tax credit, which allows buyers with lower incomes to acquire mortgages without worrying so much about the tax payments. The MCAI went up by 0.6% in April, indicating loosening standards for getting a mortgage credit. First-time homebuyers, presently a large homebuying cohort, are especially helped by this since they often have lower incomes, lower credit scores, and outstanding debt.
This move is not without risks, though. One of the differences between the current recession and the recession of 2007 is that our lending standards are tighter now. Tighter lending standards are part of what helped the real estate industry avoid the brunt of the current recession. However, first-time homebuyers are seeing far more competition than they would have ever expected. In many cases they’re losing out to more established buyers with better credit or higher incomes. Loosening standards is a risk, but it may pay off if we can help lower income homebuyers get their foot in the door.
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Real estate has consistently been considered a strong long-term investment, stronger than either stocks or gold, which take the second and third spot. In the current economic climate, real estate is continuing to prove itself a highly resilient industry, able to bounce back from a recession and become highly active and competitive even while the recession is still going on. The confidence in real estate as the best long-term investment is now the highest it has ever been in Gallup’s 11 years of reporting the statistic, at 41%. Stocks are now a long way behind at only 26%. Just a year ago, the confidence in real estate was 35%.
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When discussing economic sectors, nonprofits are often lumped in with for-profit businesses, or simply ignored. But ignoring them doesn’t paint a full picture, and they aren’t impacted by economic crises in the same way as businesses. In fact, depending on the type of nonprofit, they aren’t affected the same way among each other, either. One may expect nonprofits to struggle more than businesses that are able to utilize profits as an emergency fund. During this pandemic, that was true for arts and culture based nonprofits, but the opposite was true of basic needs nonprofits.
During an economic and health crisis, food services, support programs, and health education programs are in high demand. Nonprofits focused on these types of projects flourished. Food Finders, which partners with nonprofits to provide food to those in need, acquired 400 new volunteers in 2020 and supplied 6 million more pounds of food than the prior year. Charitable donations in the US are way up, with an estimated 4.1% increase.
The arts, on the other hand, took an enormous nosedive. International City Theatre had a great year in 2019, but 2020 was shocking. Revenue went down a whopping 90% in 2020. The majority of their revenue is one-time subscriptions and ticket sales. No one is going to purchase a subscription while under lockdown, and even though they tried implementing virtual programs, they weren’t in high demand. Fortunately, smaller arts nonprofits weren’t hit as hard, since they have lower overhead costs.
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Though it’s been six years since same-sex marriages were legalized in the US, that didn’t mean an end to discrimination. It was only this year that LGBTQ+ discrimination was banned at a federal level. The LGBTQ+ homeownership rate is only 49%, compared to the overall number of 65%. The rate is particularly low for transgender individuals, at a mere 25%.
Part of the lower homeownership rate for the LGBTQ+ community can be attributed to secondary factors, but not all of it. Many of these people live in urban areas, where they are more likely to rent as opposed to buy. But even that has discrimination as an underlying factor, since a major reason they tend to live in urban areas is that these areas are usually more welcoming to the LGBTQ+ community. Moreover, the estimated purchasing power of the community as a whole is $1 trillion. It’s certainly the case that more than 49% of them have the income to purchase a home.
The fact is that LGBTQ+ people face discrimination not only from their communities, but also from real estate professionals and lenders. Less than a quarter report no discrimination at all. 13.8% say they signed documents that misrepresented themselves in order to get their documents in order. 10.6% report discrimination from real estate professionals and 5.2% from sellers. It’s not just prospective homeowners, either; 5.3% of LGBTQ+ members attempting to rent a home were denied by the landlord. Fortunately, with the anti-discrimination order being signed this year, things are looking up.
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Prior to the increasing popularity of work from home models, most people only travelled on vacation when, well, on vacation. While they were working, they needed to live close enough to work to have a reasonable commute. That meant resort areas such as Palm Springs and Lake Tahoe didn’t have a high permanent population, just a lot of transient residents, especially during holidays. Now, these areas are in high demand for homebuyers who wish to live there permanently.
It’s true that vacation towns are generally expensive. You’ll get that anywhere where tourism is a major source of the city’s income. But the 30% price jump in Palm Springs over the past year was not because of tourism, since tourists don’t buy houses there. Demand is increasing for areas close to recreation, since the same people can also work there, at their new home, instead of commuting. This is especially true of outdoor recreation, but even Truckee, with its numerous art galleries and clothing boutiques, doubled its median home price.
Some of these towns are struggling to take in new residents, though. Housing can’t be built overnight. While vacation towns often have more than enough space for their relatively small number of permanent residents, it’s frequently in the form of hotels, AirBnBs, and second homes. The former two are generally still occupied as well, just not by their owners.
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California is the most populous US state, and as with every state in the nation, the population is continually increasing. Well, most of the time. California’s population actually decreased from 2018 to 2019 for the very first time, albeit only by 0.1%. From 2010 to 2020, California’s population growth of 6.1% was 1.3% below the national average of 7.4%. Growth has been on a decline for quite some time: It was 13.8% in the 1990s and 10.0% in the 2000s. In fact, California is set to lose one of its congressional seats due to lack of population growth.
There are several factors that combine to account for this. Birth rate has declined in recent years, with younger generations waiting longer to have children, or not having children at all. The death rate also increased by 26% between 2019 and 2020. California’s immigration rate is also slowing, partially due to increased housing costs. Increased housing costs primarily affect the more expensive coastal cities, which are the areas that saw actual population decreases in 2019; less expensive areas of California had increases in population. Rising prices can be traced back to slowing construction, which in turn is partly a result of strict zoning laws, and has been exacerbated by job losses due to the pandemic and recession.
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If you’re wanting to sell but don’t think you can get as much as you want for your property, you may want to reconsider. The current market climate heavily favors sellers, as demand is quite high and inventory is low. Cutthroat competition means many prospective buyers are willing to pay significantly more to secure a purchase amid the limited supply.
This is especially true in 11 states, where half or more of sales are for over the asking price. In California and Colorado, a full 60% of properties sell for over the asking price. Only one state, Louisiana, had a percentage of sales over asking below 20%, at 19%. Unfortunately, there is no data available for Idaho, Alaska, or Hawaii.
Though buyers are at a disadvantage in today’s market, you can still use this knowledge to your advantage if you are looking to buy. Expect to pay more than the price range you’re looking for, which means get pre-approval for a higher amount. Be aggressive in your offers, and round numbers up, not down. While there’s always a chance sellers will accept low offers after some time on the market, properties aren’t staying on the market. If you’re not able to afford a solid offer, move on and look elsewhere.
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The Home Purchase Sentiment Index (HPSI) is a 100 point scaled measurement of housing consumer optimism based on Fannie Mae’s National Housing Survey (NHS). The HPSI is an aggregate of several categories within the NHS. Only one category decreased in March from February, which is mortgage rate outlook. Overall, the HPSI increased 5.2 points in March, up to 81.7, and the year-over-year increase was 0.9 points.
Multiple factors have contributed to this increase. More people are being vaccinated against COVID. Stimulus checks had just been sent out. The spring season also naturally brings more homebuyers, and in this case, even more than usual as buyers had pent up demand from being unable to purchase the prior March due to lockdowns. The statistics generally point to a seller’s market, so prospective sellers should be even more optimistic.
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Death rate is a regularly documented figure within most countries in the world. Less common is calculating the excess death rate — the number of deaths in one country in excess of a control rate. An international study used the average rate in western Europe as a baseline and compared 18 individual countries to that rate. The US ranked among the worst for individuals under age 75.
This isn’t even about COVID — the study examines the years from 2000, 2010, and 2017, well before COVID was a thing. In 2017 alone, Americans between the ages of 30 and 34 were three times as likely to die as those in Europe. This is mostly attributed to drug overdoses and gun violence. The US has much laxer gun laws than many other countries, and drug abuse is usually not medically treated. Structural inequality is also a large factor, including in access to health care.
The category in which the US actually fared better than Europe was those over age 85. There were 97,788 fewer deaths than expected based on the control rate in 2017. The reason is not entirely known, but one suggestion is the fact that US medical care places higher emphasis on end-of-life care. Another possibility goes back to the inequality in access to health care. Access is higher for senior citizens; in addition, those with good health care are more likely to have reached age 85.
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It shouldn’t be surprising that rates of education are trending upwards, but what you may not be aware of is that the median age is also going up. In 2000, the median age was roughly around 30-34 in most major areas of California, with a statewide median of 33. Our most recent statistics are from 2019, which show that the median age is now above 34 in all but two of these same major areas. The statewide median is up to 37.
This is relevant for the real estate industry, as it portends that there may be fewer first-time buyers. First-time buyers tend to be younger, primarily in the 25-34 age range. The real estate market has generally been able to count first-time homebuyers as a reliable source of market stability, even in uncertain times. Granted, it is true that Millennials — who make up the largest segment of homebuyers currently — are trending towards making their first purchase later in life, which may mean that the effect of an increasing statewide median age is going to be less apparent to the real estate market.
The increasing rate of education, while not necessarily surprising, also could have an impact on the real estate market. More educated people statistically have a tendency to live in large urban centers and are wealthier. This is consistent with the upwards trend in total home value sold despite fewer homes being sold. It is not, however, consistent with the fact that more people are moving away from urban industrial centers as a result of being able to work from home, so the effect is still rather nebulous.
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