Los Angeles Luxury Real Estate Bidding Wars

los angeles luxury real estate marketFew real estate markets are as exciting or as interesting as the Los Angeles. Not only are many homes filled with rich histories or owned by celebrities, but the luxury homes here can often have some of the most fabulous amenities in the country. And to add to that ‘interesting’ factor, a new trend has shown up – bidding wars and all-cash offers.

In our latest luxury real estate market upswing we’ve already seen firsthand just how much people are willing to fight for the home that they want. The big factor driving things forward is simple – inventory levels for the high end of  the Los Angeles real estate market are lower than ever, and that’s especially true in the case of the luxury home market. This sudden shortage of homes being listed means that people are now ready to pay higher prices for the home that they want.

Recent data suggest that another housing bubble burst isn’t likely to occur any time soon. This is because today’s current price appreciation is not driven by speculation or high-risk loans. Instead, it’s just a simple economic formula of supply and demand. Values have already increased dramatically and it’s expected that they’ll rise by as much as 35% over the next 4 years.

That means two things. The first is that buying a home is trickier than ever, with bidding wars occurring on an almost regular basis and cash offers trying to help persuade sellers to accept an offer quickly.

The second is that this could be a great time to invest in the luxury home market and properties in the area. New developments from the Palladium Residences to Millennium Hollywood are offering chances to purchase homes in the area which could turn into valuable properties later. It’s an exciting time in the LA real estate market, and one that’s well worth taking a look at more closely.

Luxury Real Estate and the Elections

real-estate-and-elections-300x282With the national elections ramping up, many voters already have voter fatigue (also called voter apathy). That is, we’re already so tired of hearing about the elections that we don’t bother to vote at all. In fact, voter apathy is quite high in the United States: Somewhere between a third to a half of eligible voters do not vote in national elections and even fewer vote in local elections.

But, “the likelihood that a homeowner will vote in a local election is 65%, compared to 54% for renters” and they are 3% more likely to vote in national elections than renters.

Here’s why not voting is a bad idea:

  1. Local elections can affect the marketability of your home

The value of your home is determined by a variety of factors, one of which is the rating of the local schools and another is the infrastructure of the community (the age and condition of the bridges, roads, drainage, street lights and other municipal projects). When a municipal bond issue comes up for vote, the outcome can affect both your bottom line through property and sales taxes, and the community desirability via new roads, better schools and protection from flooding (for example).

  1. National elections can affect home prices

The affect on home sales prices is not because of the specific outcome of the elections, but because consumers become more nervous about the economy during election years. When larger blocks of homeowners vote, they are placing their trust in the economy and the expectation that home values will rise.

  1. Direct effect on property taxes:

Some propositions have direct effect on your property taxes and the sharing or distribution of municipal expenses. For instance, in an upcoming election in Texas, directly changes the amount that a homeowner is able to exempt from property taxes (the homestead exemption) and makes that change a constitutional amendment … meaning that it takes another vote of the State’s entire electorate to change it. You might think that this would raise marketability to non-child families and lower marketability to families with children, but proponents believe that instead, it will increase home values across the board, thereby increasing tax revenue to schools.

One aspect of participating in local elections is that the homeowner gets to know what is important to other people in their community. Being part of a community is one of the benefits of homeownership. Connecting with your neighbors to improve your schools, streets and bridges can bring a sense of civic pride and camaraderie to your neighborhood.

As your local real estate professional we can indicate which areas in your neighborhood adversely affect the market value of your home. If you can help improve those things now, you should, so that when you’re ready to sell, your home’s value is at its highest.

The Upside of Downsizing Your Home

Downsizing your homeMost people think of downsizing as something you do in retirement. It can happen when the kids leave home or retirement looms or your first grandchild is born hundreds of miles away. You start to think about leaving a house that’s now too big for you and downsizing to a smaller house or condo or a retirement community. So, you sell the large family home to moving to a smaller, retirement-style home, free up some cash and have more to spend on leisure.

To many, downsizing is a negative: smaller house, less space, cutting back. But, downsizing can be an important step in “upsizing” your life. You just have to determine what “downsizing” means to you.

Smaller Space, Bigger Life

Moving to a smaller space (as in “fewer square feet”) doesn’t have to mean that you have less living space. Many family homes have large square-footage cut up into little spaces to house multiple family members. When downsizing from a large family home, look for a layout that maximizes the living space so that you don’t feel closed in. That might mean an open floor plan, more windows, adding outdoor living space, foregoing formal spaces or even choosing a wall-less loft.

An important idea to keep in mind is that downsizing shouldn’t mean moving into a smaller version of what you already have. Moving from a four-bedroom/three-bath 5000 square-foot home into a four-bedroom/three-bath 1800 square-foot home just feels cramped and crowded. Moving your living area, home office and master bedroom into an 1800 square-foot two bedroom, open floor plan, however, can seem like a mansion. In fact, some people find that fewer rooms mean more living area to enjoy.

Less space doesn’t necessarily translate into less money. For example, you may long to live downtown, You may find the lifestyle you want in an active-adult community or a continuing-care retirement community

Freed-Up Cash? Or, Freed-Up Life?

Okay, yes, for some people, the purpose of downsizing is to free up cash for other things. If however, freeing up cash isn’t your aim—for example, if you need to reinvest all the money from the sale of your family-sized home as part of your financial plan—downsizing into an upscale high-rise condominium or townhome in your favorite urban area can massively upgrade your lifestyle.

Think of it … spend your evening at the theatre, dining out or entertaining friends at the rooftop pool. Just being able to lock the door and head to the airport for some long-anticipated trip without having to arrange for a house-sitter, lawn-care and yard work, or the myriad other requirements of property frees you to travel on a whim, be spontaneous, grab a good deal on a weekend cruise or visit the kids and grandkids as often as you like.

Even if you can’t afford a luxury place, where you locate your new home can free up your life from the tedious efforts of maintaining a larger property. If having freedom to do other things is important to your new life goals, make certain your real estate professional knows: lifestyle options may exist that you’ve never thought of.

If you’ve thought about downsizing, your real estate professional can help you determine the best options for your lifestyle and goals.

How Accurate is Your Zestimate

zestimateI am often asked about the accuracy of home valuations available online. I generally reply that Zillow and the other sites are a good place to start if you want to get a general estimate of what your home is worth. A “Zestimate” will give you a property value range, based on public records of the property’s:

  • Physical attributes
  • tax assessments
  • Prior transaction data

The drawback? These estimates are generated by a computer, not a knowledgeable real estate professional. Improvements and defects are not taken into consideration. Intangible features like ocean view, curb appeal, high-traffic streets and other factors are not considered. The estimate is really more of a snapshot of the overall market than an accurate estimate of a particular homes value.

If you are serious about selling, you will need more than a general estimate. Your homes unique features will need to be considered in order to reach an accurate estimate of its current value. An accurate comparable market analysis is based on:

  • Property type and size
  • Number of bedrooms and bathrooms
  • Age, condition and style
  • Location and appeal

To gather the data necessary for an accurate analysis it is necessary to research the Multiple Listing Service data, preview comparable properties or view online photos and compare that data to the subject property. Zillow and other home valuation tools are important in today’s market and certainly make interesting reading, but they are not a replacement for a professional opinion.

Are you thinking about selling your home? Call me today for a comparable market analysis. I will do the necessary research to determine an accurate valuation of your property. Of course there is no cost for the service or obligation.

Eco Friendly Home Tech That Really Works – Run Your Home on a Battery

tesla-powerwallThe biggest challenge to solar energy is the inability to both capture it and store it in any meaningful way. In fact, while efficiency in capturing solar power has increased from about 15 percent of most solar panel models to 35 percent efficiency in the higher ends, even when captured the energy grid is unable to store and regulate its flow throughout the day.

Enter the Tesla Powerwall

Elon Musk, CEO of electric carmaker Tesla Motors, announced earlier this year that Tesla’s new Powerwall for the home and Powerpack for commercial use already garnered 38,000 preorders. The Tesla Powerwall offers 92 percent efficiency in DC round-trip power.

Here are the basics: The Powerwall home battery charges via electricity generated by solar panels. As solar energy wanes throughout the evening or on a cloudy day, the battery supplies energy back to your home instead of pushing it into the public power grid. The Powerwall also offers energy during a power outage, so homeowners in storm-prone areas or country homes with unreliable utility service can access emergency power.

The Powerwall utilizes a lithium ion battery with technology similar to that in Tesla automobiles and installs on the wall of your garage, basement or even outdoors. The sleek-looking unit is shipped in a self-contained, space-saving unit that can be mounted up on any wall, even in a closet. One can combine two or more batteries to get even more power. The fact that it is wall-mounted is vital, because it means you don’t have to have a battery room … filled with nasty batteries … It’s designed to work very well with solar systems right out of the box.

For larger homes, or those with higher power consumption requirements, multiple batteries can be installed together with up to 90 kWh total available power. Each battery in its weather resistant enclosure is just 51.2 inches by 33.9 inches and only 7.1 inches deep.  The system uses rooftop solar panels connected to the Powerwall and an inverter that directs current from both the solar panels and the Powerwall battery into your home’s alternating current power system.

For an example of how much energy your home uses in the day, consider that your refrigerator consumption is commonly 4.8 kWh/day (kilowatt hour per day) while your washer and dryer together equal about 5.6 kWh/day. Add to that your lights, laptop, flat screen television or stereo and you’re looking at about 2.5 kWh/day additional consumption. Of course, the first question that comes to mind for a cutting –edge home technology like this is the cost. According to Tesla Motors specifications, the home-sized batteries cost just $3000 for the 7-kWh model and $3500 for the 10-kWh version. Each comes with a 10-year warranty. If you’re looking for an energy efficient home that conforms to the requirements for solar panels, let your real estate professional know. We can optimize your search so that you find the home that is just right f

Are We Nearing Another Real Estate Bubble?

Housing_Bubble_articleThe “bubble” word has reentered the real estate conversation and with it, much worried comparison between current market conditions and those of the mid-2000s housing bubble.

It’s easy to see why the word has been resuscitated: thanks to low inventory levels coupled with burgeoning buyer demand, many markets are indeed becoming frothy. Bidding wars have erupted in the most desirable neighborhoods and some buyers have started adopting pre-2007 tricks to win those face-offs including worrisome non-contingent offers at full asking price or higher.

Last week, the National Association of Realtors (NAR) released their Existing Home Sales Report. The report announced that the median existing-home price in June surpassed the peak median sales price set in July 2006. This revelation created many headlines in the Wall Street Journal and USA Today exclaiming that home prices had hit a “new record”.

Does this mean we have another problem on our hands? Not really… Even after adjusting for inflation, median prices aren’t a great barometer because they can be distorted by the “mix” of what’s selling. In 2009, for example, median prices plunged in part because an unusually large share of homes were selling out of foreclosure. Bank-owned homes tended to cluster at lower price points both because they weren’t as well maintained and mortgage companies were motivated to sell quickly to cut any losses. Prices were already falling, of course, but looking at changes in median prices probably overstated the rate of decline. There may be other reasons to worry abo ut housing affordability by comparing prices with incomes or prices with rents for a given market. But crude comparisons of nominal home prices with their 2006 and 2007 levels shouldn’t be used to make claims about a new bubble.

But before we start worrying about unsustainable home prices and the future bubble they could inflate, let’s take a look at several factors emerging now that will likely make that worrisome run-up in home prices slow down in coming months.

  1. Inventory Levels Won’t Stay Tight – As prices increase more owners become right-sided on their mortgages, a financial factor that enables them to more easily list and sell their homes. Confidence among prospective sellers is rising, with 40% of Americans believing now is a good time to sell, according to a Fannie Mae survey
  2. The Mix Of Homes Is Changing – Both that dwindling supply and the subsequent rise in prices have led to a decrease in distressed sales. Simultaneously, as distressed activity ebbs, luxury sales have surged, also pushing median prices higher.
  3. Mortgage Rates Are Rising – While those rising rates will do little to actually derail housing’s recovery, they will put downward pressure on the dramatic run-up in home prices.

Bottom line, home values are appreciating. However, they are not increasing at a rate that we should have fears of a new housing bubble around the corner.

Home Buyers Interested in Down Payment More Than Rates

lower down payment Changes in down payment requirements have more influence over home buyers’ willingness to buy than changes in mortgage rates, according to a new study published by economists at the New York Federal Reserve.

Federal Reserve Bank of New York’s Survey of Consumer Expectations found evidence that buyers and renters impact of interest rates is highly overrated compared to the impact of even small changes in down payment requirements. The study found that decreasing the required down payment from 20% to 5% increases the willingness to purchase on the average about 15% among all buyers and 40% among renters.  Decreasing interest rate on a 30-year fixed rate mortgage, though it would save the buyer much more than the lower down payment, raised the willingness to purchase a home by only 5% on average.

A key takeaway is that the effect of a change in down payment requirements on housing demand strongly depends on households’ financial situation. For instance, a loosening of down payment requirements will have little effect on the willingness to purchase for a new home of current owners with substantial equity, or of renters with substantial liquid savings.  The results also imply that macroprudential measures such as a loan-to-value (LTV) cap may predominantly affect the lower end of the housing market, and that the effect on house prices will depend on the state of the economy and other asset markets,” said economists Andreas Fuster and Basit Zafar of the New York Federal Reserve.

Wealthy Chinese Flood Market With Special Federal Program

chinese real estate investorsThe Chinese are coming here with their money, and, often, with their families. Rather than seeing China as the land of opportunity, more Chinese have been establishing homes in America, particularly in California, where they account for roughly one-third of foreign homebuyers, with upward of 70 percent paying cash. Overall Chinese investment in U.S. real estate has grown from $50 million in 2000 to $14 billion in 2013, surpassing all other foreign investors.

Chinese are buying U.S. homes and investing in U.S. mega-developments. Chinese home shoppers spent $28.6 billion on U.S. homes in the year ending in March, double the amount two years earlier, the National Association of Realtors reported. At least $10 billion of that went to buying homes in California.

In addition, Chinese citizens seeking green cards are a growing source of cash for housing and commercial developments under a federal program known as EB-5. The program allows foreign investors to get permanent U.S. residency for themselves, their spouse and children under 21 if they invest enough to create at least 10 jobs here. EB-5 investors in 2014 claimed the full 10,000-visa allotment by August. This year’s allotment was gone by May. More than 80 percent of the visas are going to Chinese citizens.

Since most foreign investors don’t have the ability to create their own businesses, designated organizations pool cash from multiple investors, funneling the money into job-creating development projects. Minimum investments range from $500,000 to $1 million. The most recent data available shows EB-5 investments totaled almost $2 billion in 2013, of which $317 million was spent in residential and commercial real estate development, according to Invest in the USA, an industry trade group.

EB-5 spending in the county, totaled $25.1 million in 2013, up from $2.1 million, Invest in the USA reported. “It’s very hard to get residency here. EB-5 is a foolproof way,” Fieldstone said. EB-5 money also is helping to finance the Hunters Point Shipyard and Treasure Island projects, two San Francisco housing developments managed by Orange County-based FivePoint Communities, he said.

Is Another Housing Bubble Forming

Housing_Bubble_articleA lot of forces came together in the early 2000s to fuel the US housing boom while putting it at risk of its ultimate crash.  Two trends related to loose lending standards stand out: 1) lots of new homebuyers were able to get mortgages, and 2) many of those new borrowers were able to do so by putting very little money up front. Combining these two forces, you got a massively leveraged housing market.

After the housing market bust we experienced  in 2008, many experts have been quick to warn that a new bubble may be forming in some areas of the country. There’s not yet a bubble, despite factors reminiscent of the last housing bubble, including low interest rates and somewhat lax rules on down payments for first time buyers. But this is no longer the case. And this lower leverage may be the most important difference between the housing market today and the housing bubble because it reduces the risk of a major downturn.

The biggest challenge facing the housing market right now is the lack of inventory available for sale. Prices are determined by supply and demand. If prices continue to outpace inflation and income in these areas, that can eventually become a problem. Right now buyer demand is out-pacing seller supply, across many price ranges, driving prices up.Current homeowners list their home to either trade up or downsize, opening up inventory for first-time buyers to come in. One can’t happen without the other. But current homeowners aren’t flooding the market with “For Sale” signs. Some are worried they won’t be able to find a new house or they’re still waiting to recoup their home’s value lost in the crash.

If you are a homeowner debating listing your home for sale this, now is the time, meet with a local real estate professional who can guide you through the process.

Asian Ultra Rich Buying Trophy Properties

super-rich-asianThe ranks of the super-rich are swelling, but nowhere faster than in Asia. Ultra-high-net-worth individuals, classified as having a net worth of more than $30-million (U.S.) each, are snapping up properties all over the world.

Dubai, Hong Kong, London, Los Angeles, Miami, New York, Paris, San Francisco, Sydney, and Toronto were found to be the most desirable cities for the affluent home buyer last year, according to the recently released 2015 Luxury Defined report from Christie’s International Real Estate.

The average starting price for a luxury home around the globe is $2-million. Beverly Hills, where luxury begins at $8-million, has the highest price entry point.

Ultra-high-net-worth individuals are looking to diversify their portfolios into different asset groups, one of which is luxury real estate. They’re looking for a safe place to invest at a reasonable rate of return. Just as some ultra-rich buy masterpieces of art or exquisite jewels, an emerging trend in the luxury market is the “trophy home. The trophy home is becoming effectively a collectible asset class.  The ultra-high end of the real estate market established new benchmarks for price in 2014, with buyers buoyed by the global economic recovery and soaring stock market prices. Five properties around the world changed hands for more than $100-million. In the same way people may buy a Picasso, those same buyers are now buying some of those trophy properties. Trophy is the new buzzword in luxury real estate.

Asia had the highest growth rate in its super-rich population last year, increasing by 3.5 per cent compared with the global average of 3.1 per cent, according to the 2015 Wealth Report by Knight Frank, an international property consultancy. Real estate is increasingly seen as a mainstream investment class, accounting for 38 per cent of an investment portfolio on average among the ultra-wealthy in Asia.

Asia’s ultra-wealthy population will surpass that of North America in the next 10 years by 11 per cent. The especially affluent in Asia hold more in total wealth than those in North America, with net assets of $5.9-trillion and $5.5-trillion respectively. The super-rich in China and Hong Kong own the most number of homes, at 4.7 and 4.6 respectively, compared with the global average of three.

Ultra-high-net-worth property investors are becoming increasingly confident and are looking to diversify their property portfolios by exploring new asset classes and locations. They invest in these key cities as they’re deemed to be safe haven and have a historical trend of good capital appreciation.  And the Asian investors are flocking to the West Coast.