Saturday, April 4, 2020

Real-Time Market Update + Property Taxes Due by April 10th!

 Last week’s notes on the market were well received and we are going to keep this going whenever we have good information to pass along during this unprecedented time.  Most importantly, we hope you and those close to you are healthy and safe and are able to implement positive ways to stay connected with each other while practicing social distancing.

Property Taxes- Property taxes are still due by April 10th! Get your payment in if you haven’t done so! Due to state law, it cannot be extended and is a hugely important source of local government revenue. However, beginning on April 11, the day after property taxes are due, people unable to pay on time for direct reasons related to COVID-19 may submit a request for penalty cancellation online. The department has set up a special team to process these requests for those who demonstrate they were affected by the outbreak. Please note, this is just to delay the penalty cost but not the actual taxes due. Here is a link to the LA County Property Tax web-site.

Market Update- Overall, March sales volume for Compass in So Cal ended up on par with last year’s numbers. The first 2.5 weeks of March were on pace to be quite a bit stronger than March 2019 but the slowdown in the last 1.5 weeks of the month balanced it out.

However, April closings will be down at least 30% compared to last year and probably closer to 40% as we won’t see very many quick closings in this environment. Unless a deal is all cash, lenders are not guaranteeing anything quicker than a 35 day escrow with 21 day loan contingency and prefer a 45 day escrow.

New listings in our offices are down about 30% compared to last year which is actually better than anticipated with city of Los Angeles barring agents from showing property, despite the state calling real estate agents an “essential” service. We are expecting new inventory to stay very light until we have a definitive light at the end of the tunnel.   Thus, May closings will be lighter than April.

Once we see a light at the end of the tunnel, new listing inventory will pick up quite a bit with many people waiting out the pandemic combined with those who have withdrawn their home from the market.

Lending- Most banks are offering 90-day mortgage deferment programs. Apparently the process is fairly easy and efficient with most of the larger banks. You will still be on the hook for the mortgage payment at a later date but just gives you a three month reprieve to focus on other pressing issues in your life and it is not supposed to negatively impact your credit, but definitely confirm with your bank what program is available and the implications as they vary among banks.

The average U.S. rate for a 30-year fixed mortgage fell to 3.33% this week, according to Freddie Mac, as the Federal Reserve’s bond-buying program created demand for securities backed by home loans. It is a 17-basis point drop from last week. Mortgage applications dropped 24% last week, compared to year earlier. Rates are expected to fall further… More competitive Jumbo rates are being offered by the big banks when it comes to purchases. They are really the only players right now when it comes to jumbo loans.

As I described last week, the re-fi business is still pretty strong and they have enough of a backlog that the rates being offered are not as enticing as one would think…though this could easily change in the next month and something to keep an eye on.

Title- Sampling a few different title companies, new openings this week were off about 40-50% compared to normal levels.

Title companies can close escrows electronically but the grant deed and loan docs are still required to be notarized in person. Escrow companies and the California Association of Realtors are lobbying local country recorder offices to allow notaries to be done electronically by video, but thus far, it has not been considered.

Rental Market After checking in with multiple landlords and property management companies in terms of rent being paid at the first of the month, the average came to about 90% paying on time. They unanimously have concerns about what it will look like next month if things stay status quo.

Here are a few links to information/articles you may find useful-

Los Angeles sees rental prices fall for the first time in a decade

Los Angeles webpage explaining their eviction moratorium 

Mortgage lenders are tightening standards as coronavirus crisis worsens

Thursday, March 26, 2020

Real Estate Market and Industry update as we navigate Covid-19

After speaking with colleagues, management, lenders, title/escrow officers along with our own experiences during this turbulent time, I thought it would be prudent to put together a summary of pertinent information on the Los Angeles residential real estate market as of 3/26/20–

 Market Update-

 *Despite a shut-down of open houses this past weekend and most brokers highly discouraging any in-person showings, 25+ deals went into escrow this week between four Westside Compass offices…quite a few with multiple offers and new to the market. This was surprising to management but also another sign of the lack of inventory we have faced over the past couple of years coupled with low interest rates.

*The vast majority of deals that went into escrow were “entry level” purchases for a neighborhood. For example, homes around $2M in the Palisades or $1.4M in Mar Vista. The “high-end” level of homes are not getting near the attention.

*Across the board in Los Angeles, Compass has had a surprisingly low rate of escrow cancellations. Deals are sticking together but a handful (5%) are seeing some buyers try to re-negotiate the sales price before closing escrow. In some cases the tactic has worked while in others the seller has initiated cancellation escrow instructions with the intent of keeping the deposit. Overall, the deals are making it through escrow with the normal back and forth re request for repairs, though buyers are definitely being sticklers when it comes getting their requests taken care of.

*New listings started decreasing a few weeks ago and are probably off about 70% this week (educated guess), compared to the normally busy spring season. This will undoubtedly be the case until some sense of normalcy is restored. Once that happens, we may very well see quite a few listings between those held off to sell and those forced to sell.

*Preliminarily, our real estate executives are predicting a 10-15% initial price correction. However, this number is shifting on a weekly basis at this point and doesn’t take into account the recent surge in the stock market.

Lending-

*The big banks which do the majority of loans on Westside/South Bay, are operating as business as usual when it comes to standard purchases. The rates for a 30-year jumbo mortgage are typically around 3.25% and the 7/10 year ARM’s are in the 2.5/2.75% range. However, the secondary loan market has dried up, especially when it comes to jumbo products or loans that are more difficult to qualify.

*The surge in re-finance applications a few weeks back has created enough of a backlog that many lenders have increased their rates to slow down demand. It was described multiple times as a “bit of a roller coaster”. That said, if a homeowner is willing to contact a variety of banks, they will be able to find someone who is beating the market…it literally shifts from day to day.

*Most big banks have agreed to defer mortgage payments for those directly impacted by Covid-19. Article

*Appraisals are still happening. With many homeowners not wanting the appraiser to enter their home, appraisers are walking the outside of the property, asking to see through windows and then having the homeowner take interior photos and e-mail them.

Title-

*Title companies can close escrows electronically but the county recorder office is otherwise closed and is not having any in-person meetings.

*The grant deed and loan docs are still required to be notarized in person. Some states have figured out ways to complete this process electronically by video, but not California. Some traveling notaries are working but people are advised to schedule signings as soon as possible.

Construction – Jobs considered “essential” 

*As I write this, Construction/remodeling of homes is considered essential. Most city permit officers are working but at a slower pace so be prepared for delays. Landscaping/gardening/pool service/moving companies are all considered essential.

Rental Properties

Here is a link to the city of Los Angeles web-site explaining their eviction moratorium.

We hope you and yours are doing well and are safe during these difficult times. Please feel free to reach out if you would like to further discuss or just catch up...we can chat in-between my attempts at kindergarten and pre-school teaching sessions…:).

Friday, November 1, 2019

Santa Monica City Council restricts new construction to 45% - Creating potential unintended consequences

The Santa Monica City Council adopted regulations that aim to limit the size of the city’s single-family neighborhoods even though a majority of residents say the new rules will prevent them from renovating their homes to accommodate growing families. The new regulation will restrict the size of new construction to 45%, about a 35% restriction compared to the original 61% baseline. In a bit of good news for those with second story homes, the City Council did allow for homes to be remodeled up to 55% (includes garage space). The revisions will be in place beginning January 1st.

City Hall has spent a year and a half reworking the rules on building height and size that apply to the Sunset Park, North of Montana and North of Wilshire neighborhoods, as well as a small portion of the Pico neighborhood, after residents complained that they were being boxed in by the large houses being built around them — or by two-story homes erecting an additional two-story Accessory Dwelling Unit (ADU).

The issue of lot cover
age was complicated by the ADU issue as California lawmakers recently approved a set of bills that allow property owners to build larger ADU’s (up to 1,200 sq. ft.) as well as a junior ADU’s without it counting against the lot coverage standard. Local and state lawmakers have heralded ADU’s as a way to address California’s housing crisis.

Unfortunately, neither the planning commission nor the City Council sought the advice of local real estate professionals, developers and architects when making such a drastic decision. Some on the City Council were extremely concerned/paranoid that developers would build a large home and then consume the whole backyard with more structures. What they fail to understand is the majority of buyers for new construction single-family homes are growing families with young children that value yard space over building secondary structures. The 45% restriction along with building height and set-back restrictions, will make it very difficult to accommodate a second-level home that can house bedrooms all on the same level per the testimony of architects. This could end up pushing some families away from Santa Monica. A simple adjustment to 50% or 55% would have made things a lot easier from a build-ability standpoint while also accomplishing more appealing looking homes.

Furthermore, the only way to make up for more s"saleable" square footage is to either add very expensive basements or the much cheaper alternative, which is an ADU.  The ADU's would be maximized, and frankly, many will build two-story ADU’s to maximize saleable square footage, thus you will now have properties appearing as duplexes…which will look even more cumbersome/ugly then the homes that created complaints. A two-story ADU will further limit privacy as they would look down directly into backyard space. This will be the unintended consequence of the city council’s decision.

It will not be surprising if upset property owners try to make this a ballot initiative or those in the north of Montana neighborhood approach the city with a plan to create their own set of guidelines.

Mortgage rates rise for the third consecutive week

The average U.S. fixed rate for a 30-year mortgage rose to 3.78%. That’s 3 basis points above last week’s 3.75% but still more than a percentage point below the 4.83% at this time last year. This marks the third consecutive week of rate increases, which hasn’t happened since April.

The 15-year Fixed rate morgate (FRM) averaged 3.19% this week, crawling forward from last week’s 3.18%. This time last year, the 15-year FRM came in at 4.23%. The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.43%, ticking up from last week’s rate of 3.4% That being said, the percentage still sits well below 2018’s rate of 4.04%.














Source- Housing Wire

2019 has been a slower year for LA’s luxury market ($5M and above)

Despite a hot LA economy and near record low interest rates, the luxury real estate market in greater Los Angeles ($5M+) has slowed down since last year with overall sales volume down and the days on market for homes actively on the market continuing to climb. As of August, there were 339 sales of $5 million or more in the L.A. area this year compared with 402 sales at the same time last year, according to the Multiple Listing Service.

The trend continues at higher price points but the gap is not nearly as big. There have been 12 sales of $30 million or more this year compared with 13 last year.

Although many speculate about an increase of foreign buyers in the luxury real estate scene, the data show otherwise. Of the 24 home sales of $20 million or more this year, 15 of the buyers were American. The only other countries with more than one buyer were Saudi Arabia and China, which each had two.

Another issue factoring into the decline in luxury sales is the inability to write off property taxes above $10,000 under the recent tax law changes. It has had an adverse impact on the “trade-up” market in which would-be buyers of some $5M+ homes do not want to take on the tax hit, especially if they have been in their current home for a long period of time and paying taxes on a lower property value. Remodeling their current home to fit their needs becomes a more palatable option.

Los Angeles Market Summary and Compass in-depth 3rd quarter market report

https://compasscaliforniablog.com/wp-content/uploads/Q3-2019_LA-Micro-Market-Insights-Report_2019-10.17-Spreads.pdf
Buyers bounced back in the third quarter from being cautious in the first half of the year. The overall number of home sales was only 2 percent below last year, compared to about a 14 percent decline seen in the first quarter.

The improvement in home sales activity was most driven by solid increases in West San Fernando Valley, though other areas saw more sales as well. Still, Eastside communities, which entered the year outperforming their Westside counterparts, saw relatively more slowing in the third quarter. Interestingly, changes to home sales activity varied a lot in this quarter and across regions. Sales of homes in higher priced communities also showed strength in this quarter, particularly areas around Bel Air and Brentwood, as well as Beach Communities to the south.

Home prices generally continued to remain flat compared to last year.

Buyers do seem to be motivated by the lower mortgage rates that characterized the latter quarter of this year, especially given the swift increases seen at the end of 2018 which stopped buyers in their tracks. With mortgage rates expected to remain low and possibly go lower, and more balanced dynamics between buyers and sellers, we are expecting the last quarter of 2019 to post stronger numbers compared to last year. More inventory to choose from has also been a welcome reversal from the severely undersupplied housing market that we saw last year.

Lastly, while economic expansion started to slow and fewer jobs will be added to the labor market, consumers should remember that current housing conditions remain particularly favorable. Buyers of homes in the recent decade have paid much larger down payments than during the last housing boom. Consumers are notably less leveraged as well, while financial institutions have put significant checks in place to keep them well-capitalized. At the same time, the levels of new construction seen in the last decade is still 50 percent and more below the levels seen during the last boom. Together, the current housing scenario is much better prepared to weather slowing economic growth than was the case the last time around.

Here is a link to download the full report

Last-minute policy tweak could hand Airbnb a key victory in LA

The L.A. City Council could consider an ordinance amendment by council member Mitch O’Farrell to allow home-sharing at owner-occupied homes that are rent-stabilized. '

The current ordinance, issues a blanket ban on home shares on rent-stabilized units, which make up the bulk of L.A. apartments built before Oct. 1, 1978. There are about 600,000 such units in the city.

The measure, which passed the city’s planning committee last week without opposition, could be a boon to Airbnb and other competitors in the short-term rental space, businesses that have spent the past four years wrestling with Mayor Eric Garcetti and council members over regulation facing their industry.  The ban on rent-stabilized units for short-term stays stemmed from concerns about the city’s lack of affordable housing stock, an issue that has gripped L.A. politics during the Garcetti administration.

Council members moved for the ban last fall, arguing that leasing rent-controlled apartments should be for long-term tenants, instead of short-term guests. O’Farrell moved to undo the ban because the council member’s East Side district is one of several L.A. districts that contains a “high density of older housing stock,” said O’Farrell’s policy director Christine Peters, including myriad “cute, little Spanish duplexes.”

Owner-occupied units engaging in short-term rentals is a natural fit for L.A, Peters said, because there are a lot of entertainment industry workers who can leave on projects for consecutive weeks – enough time to rent out their homes for short-term stays, but not enough for long-term tenants.

Peters noted that the amendment does not allow multifamily landlords at rent-stabilized dwellings to engage in short-term rentals, unless it is their primary residence. It also does not let renters to do so, though Peters said the council member may seek to amend the ordinance at a later date. Affordable housing proponents have not yet spoken out against the O’Farrell amendment.

Source- info pulled from Real Deal