Out With The Old House, When Buying the New?

Buy-sell-hold-skaffoldThe current housing market, while up in most areas, has one basic problem: low supply. With many buyers choosing to keep their old home when they purchase a new home, fewer homes are on the market, driving up demand.

Buyers that do not need the equity in their current property in order to purchase the home into which they are moving, are choosing to become landlords instead. The financial crisis and ensuing recovery has increased the demand for rental housing. In fact, the cycle of buyers not selling their current home before buying a new one reduces the supply for homes to buy, thereby raising the prices and pricing entry-level buyers out of the market. Unable to buy the home they can afford, they then seek to rent a home that better meets their needs instead, resulting in rental price increases due to higher demand.

For those able to become landlords, it is somewhat of a perfect storm since the ability to demand a higher rent increases the income from your rental property, increasing your equity.

Don’t forget the other advantages of being a landlord too. Since your former home is now a business for tax purposes, repairs, maintenance, utilities, taxes, insurance, some fees, and other costs may be tax deductible. Be sure to consult a qualified tax accountant to find out what your tax liabilities or deductions may be when making your former home a rental. Remember too that collected rents count as business income, so be sure to establish proper accounting records for your property.

Some property owners, especially if they lived in the property, find it difficult to make the shift from homeowner to landlord. They mourn painting over their faux finishes with generic rental neutrals, and seeing a nursery turned into an office. They worry about potential damage to their property, and the associated costly repairs, and they fret about the possibility of months without a renter and having to pay on two mortgages at once.

The best solution toward making this shift is to hire a professional property manager. A professional helps you establish the appropriate rental amounts to cover both the initial mortgage and other costs and repairs that may become necessary. In addition, they offer a buffer between the owner and the renter that keeps the relationship entirely professional. Having a property management service handle your rental and renters can give you peace of mind while ensuring that your former home is in good hands.

As your real estate professional, we can connect you with a property management professional, so let us know what your plans are so we can help.

Luxury Real Estate Defined

luxury real estateWhile the term “luxury” can be subjective, a luxury home or luxury real estate is generally defined as a property priced within the top 5-10% of a given real estate market. In most markets that is a home of value of more then one million dollars in the Los Angeles market it’s defined by an entry-level price of about $2 million.

However, there’s more to luxury than a price tag, a home that may have a unique quality or distinct feature that makes it stand out in the luxury real estate marketing arena. One’s perspective has as much to do with the definition as does the opulence, location or architectural significance of a particular property. We offer the following common characteristics of homes classified as luxury:

Exclusive location

Luxury starts from the ground up, and requires a home to be built on pristine property that usually offers an exclusive view. This includes lakefront, mountaintop and ocean-side real estate.

Natural Materials

There’s nothing mass produced about a high-end home, especially when it comes to the material it was constructed with. Common luxury materials include hardwood, marble and granite – all of which carry a timeless beauty, and are built to last.

Clean Design

Luxury calls for a clean and crisp design that is timeless rather than on-trend. Too much clutter can appear cheap rather than chic. That’s why luxury features the very best of a home’s collection, resulting in a richer look.

Harmony

In an upscale home, every element of the house works together in harmony. A luxury home can be classic, contemporary or transitional, but conforms to a consistent style of architecture, furniture, décor and landscape.

Attention to Detail

Detailed décor finishes off a luxurious look, and is handled with the same amount of care and thoughtfulness as constructing the home. While luxury can be bought, it can’t be mass-produced – so decorating an interior to be luxurious takes time to get to details just right.

Has the Real Estate Market Peaked

Positive Housing MarketOne of the oddest things about this current housing market is the dwindling amount of supply.  For areas like Los Angeles and nationwide, total housing supply has been on a downward trajectory since 2010.  While an environment of rising home prices, less supply, and hungry buyers would lead you to believe that more home building would be occurring, not much of that has actually happened.Though the housing market is recovering nicely, it is not doing quite as well as some analysts had predicted. There has been no shortage of excuses offered as to why this is: the rise in interest rates, more stringent lending standards, the weather. However, we feel that there is one factor that is most responsible for curtailing the number of houses sold – the number of houses available for sale!

Inventory Levels are BELOW Historic Norms

In a recent economic forecast, Freddie Mac addressed this exact issue: “Including newly built homes in the inventory count, the total number of homes offered for sale relative to the number of households in the U.S. has been running at the lowest level in more than 30 years, as shown in the second exhibit. The relatively low for-sale inventory reflects several features of today’s market.” “A supply-constrained market (holding other factors constant) will result in a decline in the volume of sales and an increase in real transaction prices.”

NAR Report Confirms Inventory Constriction

History shows us that a balanced real estate market requires a six month supply of available housing inventory. The National Association of Realtors released their Existing Homes Sales Report last month. The report revealed that we are still only at a 5.5 month supply of homes for sale. We have not reached the 6 month mark in over two years. The recent increase in buyers now looking will again put a strain on this number. .

Bottom Line

While inventory levels remain below historic norms, it will remain a seller’s market. This being the case, if you are considering selling your home, now may be the time to list it for sale.

Luxury Loans Surge To Record Levels

luxury home buyerBanks are handing out mortgages of as much as $10 million to the wealthy in record numbers while first-time home buyers struggle to get loans. Wealthy borrowers are having an easier time getting a mortgage, with banks issuing a record number of mortgages in excess of $1 million while continuing to keep lending tight for first-time home buyers, Bloomberg News reports.

These high-net-worth borrowers do act differently than first-time buyers, who borrow because they have to.  High-net-worth borrowers don’t have to borrow. They choose to, so they’re very strategic about what, why, and when they borrow. The wealthy are choosing to borrow while mortgage rates are still low, with some fetching mortgage rates as low as 3.15 percent for a seven-year adjustable-rate mortgage. By choosing to finance, the wealthy borrowers are avoiding having to liquidate other investments to purchase the home.

In Southern California, millionaires are boosting demand for the largest loans because of an improving economy and brisk sales of luxury homes gives them confidence in the market, said Mark Cohen, a mortgage broker at lender Cohen Financial Group in Beverly Hills. Cohen, whose average loan has increased to $1 million from $800,000 this year, said he gave a $9.9 million mortgage recently to an executive at a publicly traded company in Brentwood

For wealthy home buyers of single-family homes, the number of loans from $1 million to $10 million in the 100 largest metro areas soared by more than 15,000 in the second quarter, the highest point ever, according to CoreLogic, a housing data provider.

The luxury market has been heating up in recent months. During the first half of this year, sales of homes costing at least $2 million in 30 of the biggest metro areas increased to the highest since at least 2006, CoreLogic reports. What’s more, sales of existing homes of $1 million and more rose 8.5 percent in June compared with a year ago, which was the biggest jump among all price ranges, according to the National Association of REALTORS®.

Los Angeles Real Estate Surging

Home-Prices-UpThere is very little doubt that the real estate market is on much firmer ground that it was five years ago. Home values are rapidly rising and a confluence of factors will likely continue to drive the market even higher. Pent-up demand, job growth and still-slow mortgage rates continue to put pressure on home prices. The median price of a home in Los Angeles County rose by 5.9 percent in June, compared with the same month a year ago, while the number of homes sold dipped by 7.5 percent, a real estate information service announced today. According to DataQuick, the median price of a Los Angeles County home was $450,000 last month, up from $425,000 in June 2013. A total of 6,792 homes were sold in the county, down from 7,342 during the same month the previous year.  In many markets price appreciation has slipped into the more sustainable single-digit range, compared with gains exceeding 20 percent this time last year. Home values are rrising and a confluence of factors will likely continue to drive the market even higher. Consider the following:

  • Prop 13 – A voter initiative passed in 1978 amid an anti-tax revolt, it caps California property tax rates at 1.25% and freezes assessed property values at the original purchase price. While no one likes higher taxes, the measure artificially constrains inventory and make prices soar because it offers older homeowners a remarkable disincentive to sell.
  • Greater investment property ownership – Investors flooded the middle market after real estate hit bottom during the financial crisis, gobbling up foreclosures and short sales at bargain basement prices and converting them into rentals – further squeezing what little affordable inventory exists within these markets.
  • Lack of available land – In the most desirable neighborhoods within Los Angeles land is scarce. And when there is development in such neighborhoods, it often involves tearing down a $1 million home and replacing it with one that is three times more expensive.
  • Foreign buyers inflating prices – From locating a property to negotiating price to going through each exhaustive step of the mortgage process, buying a home often takes months. But for wealthy foreign buyers seeking the safe haven of US-based hard assets, and making all-cash offers to sweeten their deals, it only takes weeks.  And by frequently going above market prices in their offers, foreign buyers have helped drive up the price for everyone else.

Introducing: 2014 Innovator Awards Finalists

Inman News is pleased to announce the finalists for the 2014 Innovator Awards. We are humbled to be recognized in the category of Most Innovative Real Estate Agent.

gary gold inman news innovator

 

Heart of the Home Moves Outside

Outdoor-Living-Room-Design-IdeasMany of us take pride in our homes, investing countless hours rearranging and remodeling the interior. But it can also be refreshing to step out of the confines of the inside and spend some time outside. As millions of Americans ready their outdoor space for summer season, a new study reveals just how enamored U.S. homeowners are with their backyards. Eighty-three percent of homeowners across the country say their outdoor living space is the favorite place in their home. And it is the most used space in American households just behind the kitchen, and way ahead of the game room, living room and dining room. According to Saber’s “Outdoor Living 2014″ survey, approximately 81 percent of respondents called their outdoor space “the heart of the home.”

As your clients are prepping their homes for the summer selling season, they may want to keep outdoor space in mind. The outdoor space s a major factor in today’s home buyers decision and they are very engaged in making it comfortable. Turning a yard, patio, porch or other outdoor area into a functional living space can be a rewarding task, and will expand your living space to the outdoors. Americans view their backyard as both a Zen spot and an entertainment zone and the space is outfitted accordingly with a grill, shade, chairs & dining sets and access to wi-fi. Universally, on the top of our wish list for our outdoor space is a pool or hot tub. Home seller should consider how this group and lead the way in defining how an outdoor space can be used and decorated. With the right setup, you can spend more time in the sunshine and fresh air, and host events al fresco for friends, family and neighbors.

Luxury Real Estate is Leading the Recovery

luxury real estate salesWhen real estate values dropped during the downturn and other investments lost their luster, luxury residences really became an investment focus and became a portfolio as much as a lifestyle purchase.

The luxury market has been leading the recovery for about two years. The pause button might have been hit on home sales this year, but the luxury market is keeping pace.  Sales of the priciest 1% of homes in the U.S. are up 21.1% so far this year, following a gain of 35.7% in 2013. For the rest of the market, sales have dropped 7.6% since the start of the new year. There are currently more than 9 million millionaires in the U.S., according to Millionaire Corner Affluent Market Insightsand they’re spending. According to the National Association of Realtors, sales of homes costing $1 million or above increased 7.8% in March from the same period a year ago. During that same time, homes costing $250,000 or less dropped 12%

There are many factors stimulating the growth of the top sector of the real estate market. First of all, the wealthy are opting to invest in fewer stocks due to the volatility of the European markets. Instead, they are taking advantage of historically low mortgage rates and investing in real estate assets. Foreign buyers from Asia, Russia and Latin America are also contributing to the decreased inventory of real estate in the most sought after U.S. neighborhoods.

While it seems wealthy individuals are comfortable with the economic recovery and spending money again, that doesn’t mean they’ve totally forgotten about the housing bubble burst.  When it comes to luxury home purchases, it’s not all about the McMansions. Many high-income buyers are not actually downsizing, but moving to big cities like New York and Los Angeles—the top two luxury markets in the U.S.

When it comes to buying a home with a seven-figure price tag, here’s what  buyers are demanding:

Décor that Tells a Story. Owners want to be able to tell their guests stories about a home’s features. It’s like luxury travel; it’s all about the experience. They want their home to have a story.

Not Your Average Amenities. People paying top dollar want all the bells and whistles from their homes

Outdoor Living Space. Not only do these buyers want a big back yard that they can landscape and entertain in, they also want to be able to cook outdoors. Affluent homeowners want outdoor space that offers room for multiple gardens, swimming pools, and maybe even a putting green.

Every Chef’s Dream Kitchen. According to Leslie Piper, consumer housing specialist at realtor.com, 54% of luxury buyers identify a chef’s kitchen as their top feature when house hunting.

Green for Green. Expert says wealthy homeowners want properties that have environmentally-friendly appliances and features–and are willing to pay extra for them.

Wine Cellar. Move over wine fridge, luxury homeowners want a wine cellar that allows for both case and bottle storage.

Want to Sell Your House? What About the Price?

house price-tagAre there any negative effects from changing the listing price of a property? This question haunts Brokers/Agents as well as sellers of property every day.The housing market is recovering nicely. Prices have increased by double digits over the last twelve months. Competition from the shadow inventory of lower priced distressed properties (foreclosures and short sales) is diminishing rapidly. Now may be the perfect time to sell your home and move to the dream house or beautiful location your family has always talked about.

The one suggestion we would definitely offer: DON’T OVERPRICE IT!! Sellers should be aware of the critical necessity of getting the price correct from the start. Sellers wanting to over list will ultimately take longer to sell and will sell their property for less. Even though prices have increased by more than 10% over the last year, the acceleration of appreciation has slowed dramatically over the last few months. As an example, in their April Home Price Index ReportCoreLogic revealed that home prices actually depreciated by .08% this month as compared to last month’s report.

Because investor purchases are declining and there are more listings coming onto the market, we believe that sellers should be very cautious when they price their house. The alternative might be that you could lose money by overpricing your home at the start.  On average, properties which experience a listing price change take longer to sell and suffer a price discount greater than similar properties. Furthermore, bigger price changes are found to experience even longer marketing times and greater price discounts. Finally, as for which properties are most likely to experience a price change, Knight finds that the greater the initial markup; the higher the likelihood that any given property will experience a listing price change.

Bottom Line Though it is a great time to sell your house, pricing it right is crucial. Get guidance from a real estate professional to ensure you get the best deal possible.

Southern California Luxury Real Estate Outpaces the World

9305-Nightingale-Dr28Southern California luxury estates are in extremely high demand. Whether buyers and sellers are California natives or have arrived in Los Angeles for the first time, the beauty and amenities offered by living in Southern California are unmatched almost anywhere

While 2013 was noted globally for wealth creation as the global economy continued its recovery, Los Angeles and Southern California luxury estates became known globally for a huge leap in supply of the most exclusive properties while seeing their time on the market drop by an eye-popping 47%. The market for the highest end luxury, $5 million and up, is extremely strong as estates of this size are selling in 77 days on average The market experienced a 40% jump in supply and still sold faster in Southern California than every other market except one world wide. Southern California broke records with 4,514 sales at 2 million plus, an increase of 33% and L.A. County also eclipsed previous highs with 2,628 sales.

Luxury estates are becoming to a certain extent a global capital market and the world is embracing the incredible values and offerings of the Los Angeles market. The upswing in pricing and demand in L.A.’s luxury market was not only fueled by local billionaires, many foreigners, house flippers and celebrities added to the mix. A lot of foreign money is funneling into SoCal properties, in particular Beverly Hills and Bel-Air which are still considered good value by comparison. It’s a real estate phenomenon that when people start paying more for houses, other people follow suit and don’t mind paying more, and so on and so on. With home prices rising, equity gains have prompted the segment of the market that was waiting on the sidelines to make their move releasing pent-up demand