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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Currently, there are approximately 2.7 million homeowners protected under forbearance programs. When the foreclosure moratorium expires, which it is slated to do June 30, 2021, these homeowners will have a respite as long as they are in good standing with their forbearance program. This is important, because 2.1 million of those are delinquent in their payments and would otherwise be subject to potential foreclosure immediately after June 30th. This is a fate likely to befall 1.1 million more US homeowners, who are delinquent and aren’t protected under a forbearance program.
Why aren’t they protected? Well, the answer is probably that they don’t know what their options are. Some may not know that forbearance programs even exist, but they certainly do and are still available. They may think they aren’t eligible for whatever reason, even though the only eligibility requirement is financial hardship due to COVID-19. It’s possible they don’t think they will be able to make a lump sum payment after their forbearance period. This is a real concern for a few people; however, most mortgages are backed by Fannie Mae or Freddie Mac, who will allow you to continue to make payments throughout the life of the loan, rather than immediately as soon as forbearance ends.
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Statistically, single women purchase fewer homes than couples or single men, as a result of both economic and societal factors. The gap between single women and single men is only roughly 3-4%, but it’s still not negligible. Fortunately, it’s slowly shrinking, as women are beginning to have a larger share of home purchases. The percent of homes purchased by single women increased by 8.7% in Q4 2020 as compared to Q4 2019. The same statistic for single men is 4.6%. For couples, who may have dual incomes and/or better access to loans, the increase was 11.5%.
This doesn’t mean everything is great for women, though. The pandemic did disproportionately affect women, especially women of color. The industries hit the hardest were restaurants, retail, and healthcare, all of which statistically employ more women than men. What this actually demonstrates is the disparity between economic classes. Those single women who were able to buy in 2019 but held off were likely also able to buy in 2020, and simply had more incentive to purchase because of low interest rates. In some cases, these women were saving up with the intention of buying in the future, and took the opportunity to buy something less expensive to take advantage of interest rates. But those women that were struggling in 2019 definitely had no chance in 2020.
In response to the coronavirus pandemic, the Federal Reserve (the Fed) reduced the Federal Funds rate to near zero, which is the rate that the Fed charges banks for loans. Its lowest, and current, point was 0.09%. For comparison, it was at 1.55% in the beginning of 2020. Typically, the 10-year Treasury Note interest rate follows suit. However, the relationship is indirect, so we could see anomalies — which is what has happened.
The T-note rate correlates strongly with investors’ economic certainty, as T-notes are an extremely safe investment. In times of uncertainty, the rate drops as more people are buying T-notes. In more certain times, investors instead move their money to less secure investments with a higher return. While it did decrease from 1.76% to 0.62% in the first half of 2020, it bounced back in the second half. At 1.08%, it is still below the Jan 2020 rate, but is continuing to climb. The Feds meanwhile have no intention of changing the Federal Funds rate until 2023, at which point the T-note rate is virtually guaranteed to go up.
What does all this mean? Well, we can say for sure that the Fed’s decision to keep the Federal Funds rate at 0.09% means they aren’t hopeful for a recovery until 2023. There are a few possibilities as to what the increasing T-note rate means. It could be that investors are too hopeful about less secure investments, and they’ll experience losses. Maybe the Fed is being overly cautious, and the economy is actually about to start recovering soon. Or it could be that investors realized in the first half that they have been largely unaffected by the economic recession, and don’t particularly care that the overall economy is in a slump.
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Real estate was halted only briefly as a result of pandemic lockdowns, but real estate is not the only aspect of the economy. Not all sectors were equally affected, so real estate won’t recover at the same rate for each sector. Retail was hit the hardest, with many businesses closing temporarily during lockdowns and some being entirely replaced by e-commerce. Success of retail is somewhat difficult to measure from a real estate perspective, but one obvious statistic is vacancy rate, which increased to 6.2% in Greater Los Angeles. It’s since dropped slightly to 5.9%, though restaurants still seem to be faring better than other retail establishments even with weakened restrictions.
Offices are essentially treading water after a steep dropoff. Many businesses have already recognized the need to transition to fully or mostly work-from-home, and already have plans in the works for how they’re going to adapt. Though they’ve certainly experienced losses, it’s unlikely to get much worse for them.
The residential market is still a flurry of activity, albeit predominantly from buyers trying to get a competitive edge. With how low inventory is, it’s inevitable that some of them will fail. Competition favors higher-income buyers, who were also less affected by the recession to begin with, so they haven’t experienced any pull to slow down. Nevertheless, it’s still clearly a seller-controlled market, and sellers don’t want to sell right now.
Meanwhile, the industrial sector has actually experienced gains. Contrary to brick-and-mortar retail, consumers don’t need to go anywhere to pull products out of warehouses. They just buy everything online. Currently, the industrial sector’s biggest roadblock is not having enough land to build even more warehouses to keep up with demand.
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The lockdowns from the pandemic negatively affected several industries. With most flights being cancelled, you’d expect the aerospace industry to have suffered quite a bit. In reality, their employment numbers rose 6% during the shutdowns. How? They adapted, beginning to focus more on space technology and even on pandemic relief engineering.
Several aerospace companies aided the coronavirus relief effort by designing and manufacturing ventilators, face helmets, and face shields. These include Virgin Orbit, Virgin Galactic, and the Jet Propulsion Laboratory. Some focused more on the booming space industry. All in all, aerospace lost 1400 jobs but gained 3000.
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It’s a well-known fact that Black and Latinx people tend to struggle economically more than whites and Asians in the US. The wealth gap may be larger than you think, though. Examining homeownership statistics demonstrates just how significant the difference is.
California’s housing affordability for Latinx people is 20% for single-family homes and 33% for townhomes or condos. Blacks fare even worse, at 19% and 30% respectively. By contrast, 38% of whites and 43% of Asians can afford an SFR in California, and 51% of whites and 56% of Asians can afford a condo or townhouse. Part of the problem is California’s high prices, but while affordability at the national level is higher for everyone, the disparity remains about the same, and possibly larger. 62% of whites and 70% of Asians can afford a home in the US. Only 51% of Latinx people and 42% of Blacks are able to.
Within California, the disparity is smallest in San Bernardino County, which is also the most affordable for Black and Latinx households at 46% and 54% respectively. The difference between Latinx and white households is only 3%. It’s not the most affordable for white and Asian households, though — those are actually Fresno County at 61% for whites and Kern County at 68% for Asians. The least affordable county for Blacks is San Francisco County at 8%, and for Latinx households it’s Santa Clara County at 11%.
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Demand is so high compared to supply that many prospective buyers are finding competition to be a larger impediment to purchasing a home than lacking funds, even in the midst of a recession. In January 2021, 56% of prospective buyers had bidding wars. This number is up 4% from the prior month. Getting outbid is the primary reason that 40% of prospective home buyers’ searches have dragged on. Only a year ago, just 19% cited this as the primary reason, with 44% saying it was high prices that drove them out of contention. Prices don’t seem to be as much of an issue now, as buyers are willing to overpay in order to get their chance at slim inventory while mortgage rates are still low.
That 56% nationwide doesn’t tell the whole story, though. Competition is much fiercer in some areas. San Diego, San Francisco Bay, Denver, and Seattle all had numbers over 70%. Even beyond that is Salt Lake City, where a whopping 90% of offers had competition.
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In many cases, a recession results in credit scores dropping as more people are forced to temporarily rely on credit to make routine payments. This is just one of the many ways that the current recession bucks the trends. Lockdowns, work-from-home, moratoriums, and federal relief packages have all resulted in people spending less and recouping more of their losses than their normally would during a recession. As a result, people are less reliant on credit and their credit scores go up.
The two credit scoring services lenders use the most are FICO and VantageScore. Generally, one’s FICO score is slightly higher than their VantageScore, since FICO requires a full six months of credit history to calculate a score and therefore counts fewer people. Both systems range from 300 to 850, with a FICO score of at least 660 or VantageScore of at least 670 being considered good credit. At the start of 2020, the average FICO score was 703. This increased to 711 by October 2020. Average VantageScore also went up from 686 to 690 from 2019 to 2020. VantageScore reports indicate that subprime scores — those below 600 — decreased by about 3% between January and November 2020, while prime and super prime scores went up. Near prime scores remained about the same.
Unfortunately, some of this is just delaying the inevitable. Some of those who did take out loans during the pandemic were able to negotiate deferring their payments, which also had the effect of protecting their credit scores. Once federal protections end, which will occur 120 days after the coronavirus emergency declaration is lifted, some people aren’t going to be able to repay their deferred loans. That’s going to result in credit scores plummeting.
WalletHub, normally a personal finance website, has released data of a somewhat different nature. They’ve decided to rank 182 of the most populated US cities according to various indicators of health. The categories measured are health care, food, fitness, and green space. On a scale from 0 to 100, the top scoring city averaged across all categories was San Francisco, CA, with a score of 69.11. The lowest score was 23.39, given to Brownsville, TX.
Half of the top 10 cities are on the west coast, with 3 of them being in California. Two through ten are Seattle, WA, Portland, OR, San Diego, CA, Honolulu, HI, Washington, DC, Austin, TX, Irvine, CA, Portland, ME, and Denver, CO. In addition to being #1 overall, San Francisco also takes the number 1 spot for two categories, food and green space. Top rank for the health care and fitness belong to South Burlington, VT, and Scottsdale, AZ, respectively. These cities are also in the top 20 overall, though South Burlington ranks rather low in green space.
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See the full chart here: https://wallethub.com/edu/healthiest-cities/31072
Those who have been able to buy during the pandemic have enjoyed extraordinarily low interest rates. It seems like time may be running out, though. At 2.96% as of February 10th, the 30-year fixed rate is still below 3%, but it has started to go back up, from 2.92% the prior week. Because of the increasing rates, mortgage applications to buy dropped 5% in that week. Refinances also went down, by 4%.
It’s still not clear whether this trend will continue in the future, as it’s only just begun. And both applications to purchase and refinances are still up significantly from last year, by 17% and 46% respectively. The Mortgage Banker’s Association (MBA) is predicting that this was only a slight dropoff in total loan volume, as a greater percentage of the loans are for higher-priced homes, primarily because their availability is higher. Of course, even though this is a silver lining for mortgage bankers, it doesn’t help the general populace at all.
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In a survey of 1000 people who either just bought their first home or were trying to, 68% were surprised by just how much they were able to afford — 47% pleasantly and 21% unpleasantly. It makes sense that first-time homebuyers would generally have a less refined sense of what they can afford, but in this case, there’s a reason for it. Much of it can be attributed to the sharp decline in 30-year mortgage rates, from 3.65% in March 2020 to 2.65% in January 2021, which was a record low. This allowed prospective buyers to afford more without stretching their budgets too much.
Even if you think you can’t afford your first house at all, like 44% of respondents, you may want to reconsider in the near future. Half of the successful buyers were able to save enough for a down payment in 3 years or less. There were various methods they used to save up, and didn’t use just one method. The most common were getting help from friends or family at 52%, setting aside a portion of their paycheck at 50%, cutting spending at 33%, and saving lump sum money, such as tax refunds, at 32%.
Nevertheless, with prices on the rise, recent buyers have still had to compromise to find something within their larger-than-expected budget. 21% expanded their search area to include less desirable, less expensive neighborhoods. 18% dropped some wish list items. 20% wanted to avoid compromising on their wish list, but ended up spending more than they initially hoped. Increased competition also meant that buyers didn’t get what they wanted immediately. 20% were outbid at least once and 20% made at least five offers.
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One of the many effects of the pandemic was that a large segment of the population transitioned to work-from-home. In some cases, those were renters who had the fortune of being able to move back in with their families. Perhaps their rental home was closer to work, and the distance no longer mattered. Maybe they just wanted to be able to shelter in place with their family as opposed to alone. No matter the reason, this segment of the population suddenly is no longer worried about rent payments, yet still has a place to live and is still working. Depending on the prices in their area, this could be rather useful in saving towards a down payment on a house.
The national average of a down payment on a median-priced house is 5%, the US median rent for a one-bedroom is $1,533, and the average home price is $340,000. Given these numbers, it would take the average former renter approximately 11 months of not needing to pay rent to save up for a 5% down payment. Across the 20 largest metros in the US, the average is about 15 months. The numbers range from 11 months in Chicago for a median priced home of $327,000, to 22 months in Los Angeles at $999,000.
Of course, national averages don’t tell you everything. A down payment of less than 20% in California is going to result in increased mortgage premiums, so a 5% down payment isn’t ideal. It’s also unlikely that the entirety of the former rent payment is being put into savings. It’s true that a long-term work-from-home trend could be a boon for former renters who moved back in with family, but the effect is probably considerably lower than these statistics suggest.
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According to a recent survey from finance magazine Kiplinger and wealth management organization Personal Capital, over 40% of those saving for retirement are less confident in their savings now. The pandemic triggered a significant economic recession with the highest number of job losses since the Great Depression, reducing the ability to save and in many cases, forcing people to withdraw from savings.
33% of respondents took a distribution or loan from their retirement account. 58% of loans through the CARES Act borrowed between $50,000 and the maximum allowed of $100,000, and 33% of those who withdrew money took out $75,000 or more. A third of respondents also said they plan to work longer and delay their retirement, and some were forced to do the opposite and retire early without the ability to find work at their age. This could pose an issue, since retirees are quite reliant on Social Security. 20% of retirees use Social Security for at least 90% of their income, and 50% use it for over half their income.
The survey also only included people with at least $50,000 in their retirement savings. The problems may be worse for those without much savings, which could be a large segment of the population. In 2019, almost half of those in the US between the ages of 32 and 61 have no retirement savings at all. The majority of those with savings had less than $21,000. And remember that this was pre-pandemic — the recession only would have exacerbated this issue.
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If you’re going to be stuck at home, you probably want your home to be in good condition, or at least a safe condition. Unfortunately, many people aren’t able to get necessary home repairs done, and 70% of people have delayed them while the pandemic is still going on. 47% of those who have delayed repairs say it’s because the economic situation has landed them in debt. It’s not clear why the other 53% are delaying repairs, but we can speculate that they either want to avoid going into debt or don’t want contractors in their houses in the middle of a pandemic.
It’s a bigger issue than it may seem, since 31.7% of respondents admitted to even delaying critical repairs, and 21.7% say the deferment is potentially dangerous. Nevertheless, 59% of respondents considered this an acceptable risk given the circumstances. In the context of financial struggles, the most commonly deferred maintenance is for broken appliances, water damage, electrical issues, and roof repair. Some maintenance, such as water damage, are particularly dangerous to delay since they will only get worse and more expensive over time.
As far as repairs that were done, just over half of the funds needed to complete the repairs were drawn from savings accounts. That doesn’t necessarily mean they paid for it only with savings, though. Many people evidently drew from more than source of funds, given that the totals from other categories sum up to much more than 100%. The largest of these other categories were credit card at 36.7% and checking account at 31.3%.
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It’s generally a good idea to see a property in person before purchasing it. Even if you’re planning on flipping or bulldozing it, you may want to take a look at the condition of the structure or land the property is on. With advancements in virtual tour technology, they’ve gotten more popular, but until 2020 they didn’t serve as a full replacement for an in-person tour. However, with the lockdowns, almost two-thirds of homebuyers were content with just a virtual tour before submitting an offer.
Redfin conducted a survey asking respondents whether they, at some point during their most recent search, made an offer on a property they had not seen in person. In December 2020, the number of yes responses was 63%. It was steadily progressing all year, and was at 45% at the year’s midpoint. Their 2019 survey was conducted in November, where it was only 32%, which was still not the lowest that year.
Besides lockdowns making in-person tours difficult, there are a couple other reasons for the upwards surge. One is related, and that is that the work-from-home experiment is becoming more permanent, which allows for cross-country moves without losing one’s job. The other reason is improvements in virtual touring technology and methods. 3D walkthroughs and image slideshows only tell you what the seller wants you to know. With advancements in and increased popularity of video conferencing, your agent can give you a complete video tour and show off those details that are usually missed in virtual tours.
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In many cases, high-profile construction companies will purchase large areas of land and build many homes at once. In theory, this ensures that once this project is finished, they will already have homes available to purchase while they start their next project. This theory has started to break down in the current market, as demand has far outpaced construction in the wake of the pandemic lockdowns.
In fact, many buyers not able to find what they’re looking for among the low inventory of homes are actually purchasing homes that haven’t even been built yet. New residential construction sales went up 20% between November 2019 and November 2020. In some cases, buyers will contract builders to build new homes on a plot of land they have bought, but this isn’t the norm and doesn’t explain the surge in new construction sales.
A big part of the problem is that builders aren’t building. During the past year, they simply couldn’t, as lockdowns and rising costs of business made it near impossible to finish construction projects. But the issue started long before then. California’s most recent peak in SFR construction starts was in 2018 at 62,600, but this pales in comparison to the 2005 number of 154,700. And this is just SFRs — multi-family construction is also dropping. Meanwhile, more and more homes are needed, as California’s population increased by 17% between 2000 and 2018.
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We’re all aware that the pandemic has disproportionately affected lower-income residents, including renters. But there are many statistics to look at when examining trends in the rental market, and some of them may not be so obvious. Who, when, where, and how much are all questions to consider.
The when is the most obvious — as a result of the pandemic, there were very few rental applications in the spring when the lockdowns began. What you may not know is that this is approximately when rental application volume typically goes up, so the normal rental market was effectively delayed by about two months. The period was shorter as well, ending in July rather than August as usual.
In prior years, the most frequent age group for renters was Millennials, followed by Gen-Xers. While Millennials are still at the top, their percentage among renters is shrinking, and Gen-Xers have lost their second place spot to a new group, the Gen-Zers. This is particularly striking because most people in Gen Z are not actually old enough to sign a rental agreement. What happened is that Gen Z was the only group to have an increase in percentage of renters, as every other category dropped, including Boomers who still retain 4th place. 16 of the 30 largest cities in the US had an overall decrease in rentals, and even in those few cities where the percent of people moving in was increasing, the percent of people leaving accelerated even more.
The good news for renters is that average rent prices in expensive cities are dropping from last year, which is particularly important because average income for renters stagnated in 2020. Only one city among the 30 largest, Baltimore, had an increase in rent prices leaving it above $1300. All the others with prices above this figure had a drop in rent prices. The largest dollar increase was $62 in Phoenix, from $1120 to $1182. By contrast, average rent prices dropped $640 in San Francisco, from $3695 to $3055.
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There are many factors leading to the current housing market being a rough time for first-time homebuyers. This group is already at a disadvantage from the outset, not having the ability to sell their existing home to help pay for a new one, and frequently already saddled with rent payments. In addition, first-time homebuyers tend to be lower income workers. This is further exacerbated by high home prices, low rates of construction for affordable housing, and an ongoing pandemic.
Home prices have been high for quite some time, and are continuing to climb. In a volatile market, sellers want to be sure to get as high of a return on investment as possible, and with the majority of buyers now being higher income, they can afford to raise prices. There is buyer demand at all income stages, as a result of low mortgage rates, further incentivizing price increases. However, the pandemic causing job losses for those unable to work from home, who are primarily lower-income workers, means they’re unable to take advantage of the moment. Lack of affordable housing construction also plays a part in higher prices. It’s not that we aren’t building. It’s that the construction demand currently is primarily for higher income housing, which is also preferred by builders, since high-density, low-income housing is more costly to build.
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Whether a high priority on the checklist or just a nice-to-have, most everyone wants to live near the places where they shop. While some people remain loyal to their store of choice regardless of distance, others are perfectly happy to live nearby any place that serves their shopping needs. But which stores are local can say a lot about another important criterion for buying a home — price.
ATTOM Data Solutions releases an annual comparison of properties near three grocery stores: Trader Joe’s, Whole Foods, and ALDI. The data analyzed are current average home values, 5-year home price appreciation, current average home equity, home seller profits, and home flipping rates. Based on their data, Trader Joe’s is the best bet for homeowners wanting to sell, while ALDI reigns supreme for investors look to flip homes. Whole Foods is in the middle of the pack for all measures except home price appreciation, where it is weakest.
Near a Trader Joe’s, the winning scores are average home value of $644,558, average home equity of 37%, and home seller ROI of 51%. ALDI leads in flipping ROI with 58% and 5-year home price appreciation at 41%. It’s important to note that despite ALDI’s advantage in appreciation when measured by percent, the rather low average price of $250,850 means the gross appreciation amount is still lower than the 35% appreciation near Trader Joe’s and 33% appreciation near Whole Foods. Overall, buying near Whole Foods is a pretty safe bet as long as you don’t plan on flipping, since you’d lose out on a 22 percentage point difference in flipping ROI at 36%, still higher than Trader Joe’s at 30%. Of course, whether or not you actually want to shop at the store you’re near is also important!
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