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.

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.

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.

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.

Tight Inventory Challenges Propel Home Prices

spring home salesA fourth national market report has added to the evidence that winter inventories are extraordinarily—even dangerously—low.  Realtor.com has joined RE/MAX, NAR and Zillow in reporting levels significantly below last year.

The dramatic drop in listings tracked by REMAX echoed findings by NAR, Realtor.com and Zillow that supplies are tighter than they were last year and even two years ago when lack of supply sparked double digit prices increases and bubbles in several California markets

The realtor.com January National Housing Trend Report shows that inventory has decreased 6.7 percent month over month and 8.7 percent year over year.

Sales were also down dramatically from December. the number of home sales decreased 32.1 percent from a robust December and were nearly 5 percent below sales in January 2014, according to the National Association of Realtors. Typically, January closings are lower than those in December. Higher prices, coupled with weak supply, caused an unexpectedly large drop in January home sales.

Most markets are struggling to achieve the proper balance of homes for sale and qualified buyers, said realtor.com.  Low inventory has become a national challenge as homeowners opt to stay put longer—a record 10 years—rather than move up and move on. Most housing markets are appreciating in value as homes sell faster. In fact, prices increased 8.8% in January over 2014, according to the report.

On a year-over-year basis, the Median Sales Price has now risen for 36 consecutive months. Price appreciation is the result of pressure from year-over-year inventory losses. Inventory has dropped by roughly 10 percent for the last three months. There is strong demand, but it is hitting a roadblock in supply. Potential buyers are saying they can’t find a home that meets their needs and/or budget.

We are not seeing enough growth in inventory to support recovering demand Prices will therefore continue to rise in a market when demand outstrips supply. Home prices are beginning to grow at a faster pace again, which is not good for the spring market. Sticker shock was behind weak sales in 2014, but as price gains began to ease, buyers came back. Now prices are heating up again due to severely weak supply.

Chinese Spending Billions on California Real Estate

california real estate marketWealthy Chinese with a few million yuan to burn will spend billions on U.S. real estate in the years ahead, according to a report released Wednesday by CB Richard Ellis, a large global real estate firm.

The United States is the country of choice for China buyers.  Canada and Australia come in next at No. 2 and No. 3 respectively. That rich Chinese individuals and savvy corporations are buying up real estate in world class cities is no surprise at this point.

News of new Chinese real estate deals are popping up every quarter.  Similar moves happened with the Japanese back in the 1980s. Now it’s China’s turn. And by most estimates, they are snatching up high end real estate in Los Angeles, San Francisco and New York, in particular. In California, China is the third largest foreign buyer of real estate, following Mexico and people from the Philippines, according to Realtor.org.  Across the country, however, Chinese purchasers bought over $10 billion of U.S. real estate in 2011 and account for 9% of foreign U.S. house buyers, second only to Canadians, according to Juwai.com, a Chinese real estate website geared towards international home shoppers.

By comparison, and across the 50 states, the Chinese buy more U.S. homes than Indians, Mexicans or the British. While Mexicans are big in California and all across the south, China still ranks within the top five foreign nationalities buying real estate in 44 states.  China, for instance, is ahead of Mexican buyers throughout the more costly Northeast. They already are the number one foreign buyer group in states like West Virginia and Massachusetts. They are number two in New York, Maine, Indiana, Missouri, Colorado, Wyoming and Hawaii.

Companies are starting to cater to this niche globe trotter looking for their dream home. The Chinese are interested in real estate as both investment opportunities and also second homes outside of China. The properties they purchase as their own personal homes tend to be in the $1 million to $5 million range whereas as investment purchases range from $500,000 to $2 million, according to Affinity China.

Residential properties are as hot as commercial ones right now. Home prices in the U.S., coupled with economic uncertainties and tight regulations designed to curb a housing bubble in China, are driving record Chinese investments in the U.S. residential and commercial real estate markets, according to the Asia Society, a multinational think tank with offices throughout the U.S. and Asia Pacific.

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.

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.

Experts Say Home Values to Rise Through 2018

043013_homeprices_600A recent survey of over 100 real estate experts and investment and market strategists asked panelists to predict the path of home values through 2018. Even the pessimists expect home prices to rise for the next five years. The idea that homes are a good stable investment has largely been debunked, in particular by Yale economist Robert Shiller. As usual, he is  reluctant to declare that home prices had bottomed. With that said, home prices are impressively up 23% from their March 2012 lows.

On average, panelists say they expected nationwide home value appreciation of 4.5 percent this year, with a steady slowdown in appreciation rates each year through 2018. But it’s worth noting that the most pessimistic quartile of those surveyed also see prices going up. It’s a modest amount, but they see prices going up a cumulative 10.9% through 2018. That’s a 2.1% rate annualized. Based on current expectations for home value appreciation during the next five years, panelists predicted that overall U.S. home values could exceed their April 2007 peak by the first quarter of 2018

Should we be worried that almost no one sees prices falling? The good news is that all of these home price bulls don’t see prices accelerating to bubble-era rates. Throughout the recovery, large-scale investors have purchased thousands of homes nationwide, particularly lower-priced vacant and foreclosed homes, fixing them up and keeping them in their portfolios as rental properties. This investor activity helped put a floor under sales volumes during the depth of the housing recession, but also created competition for many would-be buyers and contributed to rapid price spikes in some areas.

Panelists were also asked when the Federal Reserve should end its ongoing stimulus efforts, known as “quantitative easing.” Since September 2012, the Fed has been purchasing tens of billions of dollars worth of Treasury bonds and mortgage securities each month, which has helped keep mortgage interest rates low and stimulate demand. The program is now being wound down. More than 70 percent of the experts want to see the monetary stimulus reduced to zero before the end of this year, and the current pace of tapering will get us there.

Low Inventories Threaten Home Selling Season

housing crystal ballRecord low inventories last January set the stage for a selling season featuring soaring prices, bidding wars and the outbreak of price bubbles in several California markets. The improved conditions for sellers prompted many to list their homes, but not enough to measurable improve the inventory picture as real estate markets go into hibernation to prepare for the 2014 season. November listings were only 0.18 percent above levels of November 2012, when inventories in the Realtor.com database had already begun the dramatic decline that culminated in the spring, 2013 shortages. With inventory levels enter the winter at virtually the same level last year, should sellers remain leery of the market, inventories may not restock sufficiently to meet buyer demand next spring, setting the stage for a repeat of last year’s wild spring and summer conditions. Despite the remarkable price gains in 2013-exceeding 13 percent through the third quarter in the latest Case-Shiller numbers and the freeing of millions of owners from negative equity sellers seem to be pulling back. Recent consumer surveys have tracked a significant decline in consumer confidence in home price expectations.  In addition, the share of those who expect mortgage rates to climb in the next 12 months remained at an elevated level since it spiked in June.

Home Price Increases Are Slowing

Home-Prices-UpHome price increases will end up at 6.7 percent year-over-year before slowing to roughly 4.3 percent next year, on average, and eventually falling to 3.4 percent by 2018, a panel of more than 100 forecasters concluded. The Home Price Expectations Survey was conducted from Oct. 21, 2013 through Oct. 31, 2013 by Pulsenomics LLC on behalf of Zillow, Inc. The survey of 108 economists, real estate experts and investment and market strategists said appreciation is expected to remain strong through the remainder of this year, but the pace of home value growth is predicted to slow considerably. Based on current expectations for home value appreciation over the next five years, panelists predicted that overall U.S. home values could exceed their May 2007 peak by the first quarter of 2018. “Rising mortgage rates, diminished investor demand and slowly rising inventory are all contributing to a modest cooling off of the housing market, which is both expected and welcome after months of unsustainable, breakneck appreciation,” said Zillow Chief Economist Dr. Stan Humphries. By comparison, the CoreLogic Case-Shiller Indexes, though they reached 10.1 percent year-over-year in the second quarter over 2012, are expected slow to an average of 5.4 percent across all U.S. markets by the end of this year. CoreLogic Case-Shiller projected that price appreciation will decelerate through the second half of 2013 and into the beginning of 2014.

Investors Are Leading the Way in Real Estate Market

Though most real estate market observers have been predicting that rising home prices would drive investors out of the market for single family homes, that fact is that investors have purchased more homes than they did in all of 2012 or 2011. Investors have purchased more than 370,000 properties so far in 2013, which is already more than in either of the previous two full years according to a new investor insight report released today by RealtyTrac. The Real Estate Investor Purchase and Finance Patterns: 2011 to 2013, looks at a number of investor habits relating to real estate purchases since 2011, including the volume of properties purchased, breakdown of cash versus financed purchases, property situation (distressed, non-distressed, underwater etc.), investor purchases by property value, and number of investor-purchased properties that have since resold. A couple of interesting findings 1) Investors have purchased more than $1 trillion in US real estate since 2011. Fifty-four percent were all-cash; 2) Among all investor purchases during the time period, 57 percent have subsequently been re-sold. The smart money still sees the real estate market as a solid long term investment.

Home Sales Continue Reaching Higher

Existing-home sales increased in August, reaching their highest level in 6 1/2 years. What’s more, the median price shows nine consecutive months of double-digit year-over-year increases, according to the National Association of REALTORS®. Sales are at the highest pace since February 2007, when they hit 5.79 million, and have remained above year-ago levels for the past 26 months. The median time on market for all homes was 43 days in August, little changed from 42 days in July, but is much faster than the 70 days on market in August 2012. Total housing inventory at the end of August increased 0.4 percent to 2.25 million existing homes available for sale, which represents a 4.9-month supply at the current sales pace, down from a 5.0-month supply in July. Unsold inventory is 6.3 percent below a year ago, when there was a 6-month supply. Limited inventory in some areas means multiple bidding remains a factor; 17 percent of all homes sold above the asking price in August. As the equity position of most homeowners continues to improve, some who have been on the sidelines will list their home for sale. Current home owners—whether move-up, move-down, or move-over buyers—accounted for nearly 45 percent of the market share in home sales. Meanwhile, first-time home buyers are still being held back, with a slight drop in their market share from 36 percent to 35.7 percent month over month. The investor share in home purchases dropped to 19.7 percent from 23.1 percent.

Investors Demand Easing: Opens Door for Buyers

The proportion of investors involved in the housing market has fallen in the last few months. As their numbers dwindle, it may allow other buyers to step in, according to housing experts.In recent years, many buyers—particularly first-time home buyers—may have lost out to investors’ all-cash offers on homes. Banks and sellers may have been lured by the idea of a quick deal that cash offers typically provide over offers from buyers who require financing. But with less competition from investors, some housing experts say this may allow an opportunity for other potential buyers to get into the market. Investors have gone from accounting for 23 percent of home purchases in February to about 20 percent in June—the lowest level since September 2012, according to data from Campbell/Inside Mortgage Finance survey. With mortgage rates rising in anticipation of the Federal Reserve scaling back the generous stimulus to the economy it introduced during the financial crisis of 2007-2009, investors are pulling back. Their numbers will likely decrease even more in the coming year. About 48 percent of investors recently surveyed say they plan to lessen their home purchases over the next year, according to a recent survey by ORC International. Only 20 percent of the investors surveyed say they plan to buy more homes in the next year, a drop from 39 percent 10 months earlier. The softening of investor demand has also coincided with a drop in sales of so-called distressed properties, whether foreclosures or short sales. These homes usually sell for less than others and had been the focus of investor interest. In July, distressed homes made up only 15 percent of sales, according to the National Association of Realtors. That matched June’s reading, which was the lowest since the group started monitoring distressed sales in October 2008.