Author: Marlowe Clark

189-Unit Residential Building to Be Added to Long Beach

In Long Beach, construction has now started on a seven story residential building on The Promenade. The structure, currently named The Inkwell but subject to change, will have 189 units as well as 10,000 square feet of commercial space on the ground level. It will also have a fitness room, club room, pool decks, and pool. Subterranean parking is available, with 268 car stalls and 40 bike stalls.

The Promenade is an established commercial district, with multiple popular restaurants within walking distance of the new building. Business owners in the area have mixed feelings about the new construction. While it’s sure to bring more traffic to the area once it’s completed, we can guess that’s probably 18 to 24 months away from now. In the meantime, dust and construction noise are likely to cause a dropoff in activity for local businesses, particularly during lunch hours. Some of these businesses are just getting back on their feet after a rough time during the pandemic.

Photo by iMattSmart on Unsplash

More: https://lbbusinessjournal.com/189-unit-residential-project-underway-on-the-promenade

Mortgages Keep Market Competitive Despite Lack of Job Recovery

2020 saw a large increase in mortgage originations, particularly refinances, as a result of low interest rates. It was expected that this would start to fall off in 2021, since interest rates are starting to go back up. However, they’re still low enough that refinances continue to be common. The statistics are a bit misleading for purchases, though. Low inventory is boosting home prices, accounting for a significant part of the increase in loan origination dollar amount even beyond increasing the number of loans originated.

Something is still missing, though. Even though much fewer loans are delinquent now than in 2020, the share of them that are over 90 days delinquent is increasing. This is because people continue to tread water through moratoriums, but aren’t earning any money. Jobs still haven’t recovered from 2020. Foreclosure moratoriums and forbearance programs are going to end eventually, and that’s going to be a problem for some people who have lost their jobs during the pandemic and haven’t been able to find work yet. If home prices continue to rise without an actual jobs solution, these stopgap measures are going to be the proverbial dam that causes the market to crash when it breaks.

Photo by Jilbert Ebrahimi on Unsplash

More: https://journal.firsttuesday.us/mortgage-originations-will-2021-shatter-2020s-record/77747/

California Suffers Steady Decline in Population Growth

California is the most populous US state, and as with every state in the nation, the population is continually increasing. Well, most of the time. California’s population actually decreased from 2018 to 2019 for the very first time, albeit only by 0.1%. From 2010 to 2020, California’s population growth of 6.1% was 1.3% below the national average of 7.4%. Growth has been on a decline for quite some time: It was 13.8% in the 1990s and 10.0% in the 2000s. In fact, California is set to lose one of its congressional seats due to lack of population growth.

There are several factors that combine to account for this. Birth rate has declined in recent years, with younger generations waiting longer to have children, or not having children at all. The death rate also increased by 26% between 2019 and 2020. California’s immigration rate is also slowing, partially due to increased housing costs. Increased housing costs primarily affect the more expensive coastal cities, which are the areas that saw actual population decreases in 2019; less expensive areas of California had increases in population. Rising prices can be traced back to slowing construction, which in turn is partly a result of strict zoning laws, and has been exacerbated by job losses due to the pandemic and recession.

Photo by Timo Wielink on Unsplash

More: https://journal.firsttuesday.us/californias-housing-shortage-has-led-to-population-decline/77704/

What Factors Does an Appraiser Look For?

Appraisers may have to make some minor personal judgments when examining a property’s potential value, but they have less leeway than you may think. There are several factors that an appraiser must take into consideration. It’s important to realize that an appraiser’s job is to report a property’s value, not determine it. The factors that an appraiser looks for include those related to the property itself in addition to the surrounding environment.

The property’s individual characteristics are called elements of value, and they can be remembered using the acronym DUST. They are demand, utility, scarcity, and transferability. Demand is the same for an appraiser as it is for anyone else — the number of buyers who may be interested in the property. Utility looks at all of the property’s potential uses. Scarcity is similar to supply, but is specific to properties similar to the one in question. Transferability relates more to the seller than the property itself, and simply asks whether the seller is legally able to transfer the property.

The environmental factors include physical, economic, government, and social considerations, or PEGS. Physical considerations are the property’s proximity to various resources, such as public transportation or amenities, and even natural resources. Economic factors include data such as rents, vacancies, and homeownership rates, as well as employment opportunities. Among the government considerations are property taxes, zoning and building codes, and local government services. The social aspects are such things as crime rates, school ratings, and recreation.

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Heavy Competition Poses Problems for Appraisers

We’ve mentioned several times already how cutthroat the competition is in the current housing market, and how this is raising already high prices. The effect on people across the industry — such as buyers, sellers, lenders and real estate agents — is apparent. One group that you wouldn’t think would be strongly affected is appraisers, since their pay isn’t affected by home prices. In reality, they are beginning to struggle. Not only do they have much higher demand when the market is hot, but it actually makes their job much more difficult.

Appraisers are often using values of recently sold homes as a point of comparison. While this is not the only tool appraisers have at their disposal, it’s a major one, and its efficacy is called into question in the current market. Houses are selling very quickly, and prices are rising rapidly. Adjusting the formulas to account for a sudden burst of competition isn’t easy. In addition, an appraiser’s job isn’t to predict the future. Even if we can see that the market is unstable, or heading in a particular direction quickly, an appraiser reports the current value of a property, not what its value may or may not be in the near future. These factors all result in undervaluation of properties, which we can see sellers or their agents are also doing as many properties are selling well over the asking price.

Photo by Júnior Ferreira on Unsplash

More: https://journal.firsttuesday.us/appraisers-struggle-to-keep-up-with-2021s-hot-market/77767/

Steps to Take Before Buying a Home

Buying a home can be a stressful process, especially if it’s your first time. But there are several things you should consider beforehand to make sure you know what you’re getting into. If you come up with a solid plan, you won’t be as nervous when it comes time to make an offer.

The first thing you should do is check your credit score. If your credit score is below 620, private loans may be more difficult to acquire or come with high interest rates. Having poor credit may not be a good thing, but at least by knowing your credit score, you know you’ll be looking at a government-backed loan. If your credit score is good, you’ll have more options.

Examine your long-term budget closely. Keep records of income and expenses, and gather together your financial documents, such as pay stubs and tax returns. Not only will this help you personally understand your budget, some of these documents are used by lenders for prequalification or preapproval. Prequalifications estimate your ability to pay to give a solid idea of what range of prices you can probably afford. Preapproval is the next step, after you’re more sure of an area and timeframe in which you want to buy. Once you know what your options are, you need to research all of them. If you can, go to multiple lenders and shop around for the best interest rates. Be sure to ask questions.

Even if you get a preapproval, that doesn’t mean you can immediately breathe a sigh of relief. Preapproval is based on your current levels of income and expenditure. Lenders will be consistently re-checking these until the loan closes. If you make any sudden financial moves, they will know, and your credit score will suffer. Not to mention you may not actually be able to afford the house you plan to buy if you suddenly lose your income due to quitting your job, or drop a bunch of money on new furniture. If you are considering something major, call your lender and discuss it with them, before you decide to do it.

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How To Improve Your Credit Score

If you’re looking to buy a house, unless you intend to pay cash, you’re going to need to get a loan. One obstacle to getting a loan is having a low credit score — if lenders don’t trust that you’ll be able to pay them back, they won’t want to give you a loan. Even if they are willing to lend you money, they will do so at a higher interest rate. Your credit score ranges from 300 to 850, with 800 or above being considered excellent credit, though most people have a credit score between 600 and 750. If you want to know your credit score, or check for errors or fraud, you are entitled to one free annual credit report on AnnualCreditReport.com from each of Equifax, Experian, and TransUnion.

The easiest way to ensure that your credit score doesn’t drop is to make bill payments on time. You may think that as long as the payment gets made, it doesn’t matter if it took a bit longer to get the money to them. That’s not the case, as payments made 30 days late or more can stay on your credit report for up to 7 years. If you are allowed a minimum payment, such as on credit card bills, even making the minimum payment on time is better than waiting until you have the full amount. If you do find yourself in debt, paying down existing debt will also increase your credit score. One thing that you may not realize affects your credit score is the timing of applying for cards. If you apply for several credit cards in a short time period, it looks like you’re wanting a large amount of cash very soon, and may not have the money to pay back loans.

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More: https://www.usatoday.com/story/money/at-home/2021/05/05/homes-near-me-how-to-improve-credit-score-buying-house/4943218001/

Struggling Landlords Need Assistance, Not Eviction Powers

The National Association of Realtors (NAR) has been pushing for an end to the eviction moratoriums, citing the struggles of landlords who are losing profits without either getting payments or having any occupancies to fill. This isn’t an unexpected position, since 38% of NAR members are landlords, but it’s clearly in their personal interest and not the interest of the majority. Beyond this, only 1.8% of landlords are actually delinquent in their mortgage payments, so the majority of them aren’t truly struggling too much. Furthermore, there’s actually a better solution even for the small percentage of landlords that are having issues.

Ending the eviction moratorium is not going to do anything to enable people to afford rent payments. It could help landlords slightly by reducing their upkeep costs, but it’s not likely to bring in new renters. Most units would remain vacant, merely exacerbating the homelessness issue in the US and weakening efforts to curb the ongoing pandemic. California’s SB 91 is a good example of a better solution: It keeps tenant protections in place while still giving landlords 80% of the rent payments they would receive, in exchange for waiving 20% of the payment. This is a better deal for the landlords than evicting their tenants if the unit is simply going to remain vacant. More efforts like this one are going to be the solution to this crisis, not ending eviction moratoriums.

Photo by Viktor Talashuk on Unsplash

More: https://journal.firsttuesday.us/nar-pushes-for-a-quick-end-to-the-eviction-moratorium/77535/

Licensed Vs. Unlicensed Property Management

Contrary to popular belief, there is no governmental license designated as a “property management” license. The Institute of Real Estate Management (IREM) does have a Certified Property Manager (CPM) designation; however, the IREM is a private company and not a regulatory organization. There are also other third party certifications. It may be useful to have these certifications, because it could increase your credibility, but it’s not a legal requirement. That said, there is a government license that is required for some activities of a property manager: a real estate broker’s license.

Not all of a property manager’s activities require a broker’s license, and not all activities requiring a license are performed by all property managers, even if they are licensed. Two common property management services that do require a license are managing the operations of income property and collecting rent. Other things requiring a license are less commonly done by property managers: listing and marketing the property for lease or rent, locating income property, listing prospective tenants, and trading in leasehold interests. A property manager with a broker’s license could also designate an employee to perform these tasks, but the employee must have a brokers-associate license or a sales agent license.

There are still some things you can do as an unlicensed property manager, if you are managing an apartment or vacation rental. You can show available units and facilities, provide information about listed rates and provisions, provide application forms and answer questions about them, and accept screening fees, signed agreements, and rent and security deposits. Note that while a license is required to collect rent for an income property, it is not required to collect rent on apartments or vacation rentals. In addition, no license is required to act as a property manager if the income property owner has given you “attorney in fact” under a power of attorney as a result of temporary inability.

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More: https://journal.firsttuesday.us/brokerage-reminder-property-management-licensing-keeping-employees-compliant/53718/

Proposed Tax Law Changes for 2022

President Biden is due to release his 2022 budget plan in the fall of this year. Though nothing is set in stone yet, we have some ideas about proposed changes Biden plans to make to federal income taxes as well as estate and gift taxes. If any of these come true, it’s likely that the effective date will be January 1st, 2022, though it could be earlier. Here are some of the key proposals that may significantly shake up tax laws.

There are proposed increases to individual income tax rates, capital gains rates, and corporate income tax rates. Under these changes, the maximum individual income tax rate and maximum capital gains rate would likely become equal, both at 39.6%. A major change expected is the repeal of 1031 exchanges, which allow property owners to defer, sometimes perpetually, taxes on property sales when the proceeds are reinvested into real estate. There will probably also be changes to state and local income tax deductions. In the realm of estate and gift taxes, Biden is expected to drastically reduce the exemption amount and increase the tax rate.

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How to Establish a Living Trust

Many people may say that a particular property is owned by a trust, or in the name of a trust. Such statements may be pragmatically useful for conveying the idea, but it can lead to confusions. Not everyone is aware that trusts can’t actually own property. Instead, property is in the name of a trustee of a trust, and is held in trust, not by a trust. In addition, trusts for which the grantor is sole trustee are not separate taxable entities. When a property held in trust being titled, the titling should include the name of the trustee plus “trustee” or “as trustee,” as well as the name and date of the trust.

When establishing a trust, your Declaration of Trust is called a trust instrument. The name of your trust instrument must provide the name of the trust in addition to the instrument. Information about the property should be provided in the form of a separate Property Schedule attached to the trust instrument. When providing copies of your trust instrument, such as to banks, many will have their own certification of trust forms for you to fill out instead of copying the entire document. If they don’t, your state may be able to provide such a form. If you can’t find such a form, the relevant pages banks need is generally a page with the grantor’s name, a page appointing the trustee, a page listing the trustee’s powers, and signature pages.

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More: https://www.livingtrustnetwork.com/estate-planning-center/revocable-living-trust/how-to-fund-a-living-trust/titling-property-in-a-living-trust.html

Selling Over Asking Is A Likely Scenario

If you’re wanting to sell but don’t think you can get as much as you want for your property, you may want to reconsider. The current market climate heavily favors sellers, as demand is quite high and inventory is low. Cutthroat competition means many prospective buyers are willing to pay significantly more to secure a purchase amid the limited supply.

This is especially true in 11 states, where half or more of sales are for over the asking price. In California and Colorado, a full 60% of properties sell for over the asking price. Only one state, Louisiana, had a percentage of sales over asking below 20%, at 19%. Unfortunately, there is no data available for Idaho, Alaska, or Hawaii.

Though buyers are at a disadvantage in today’s market, you can still use this knowledge to your advantage if you are looking to buy. Expect to pay more than the price range you’re looking for, which means get pre-approval for a higher amount. Be aggressive in your offers, and round numbers up, not down. While there’s always a chance sellers will accept low offers after some time on the market, properties aren’t staying on the market. If you’re not able to afford a solid offer, move on and look elsewhere.

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More: https://www.bankrate.com/mortgages/states-where-most-homes-sell-for-more-than-list-price/

Housing Market Optimism is Trending Upwards

The Home Purchase Sentiment Index (HPSI) is a 100 point scaled measurement of housing consumer optimism based on Fannie Mae’s National Housing Survey (NHS). The HPSI is an aggregate of several categories within the NHS. Only one category decreased in March from February, which is mortgage rate outlook. Overall, the HPSI increased 5.2 points in March, up to 81.7, and the year-over-year increase was 0.9 points.

Multiple factors have contributed to this increase. More people are being vaccinated against COVID. Stimulus checks had just been sent out. The spring season also naturally brings more homebuyers, and in this case, even more than usual as buyers had pent up demand from being unable to purchase the prior March due to lockdowns. The statistics generally point to a seller’s market, so prospective sellers should be even more optimistic.

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More: https://www.fanniemae.com/research-and-insights/surveys/national-housing-survey

Tax Deduction Changes Aimed at Helping Restaurants Through Pandemic

Part of the COVID relief package included a change to tax deductions for business meals. Until December 31, 2022, businesses can write off 100% of their food and beverage spending at restaurants. This provision does not include grocery stores, office cafeterias, or similar. It was designed to assist restaurants, which have been greatly affected by the pandemic, by encouraging business spending. It does include writeoffs by freelancers who are considered to own their own business.

There are some requirements. The business owner or an employee must be present, so it doesn’t apply to situations such as contactless pickup or delivery directly to a client. You need to keep your receipts and provide an explanation of when, where, why, and with whom the meal was shared. The meal must reasonably be considered business related, such as between coworkers or an agent and client, though it’s not necessary that the meeting be successful.

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More: https://blog.freelancersunion.org/2021/04/13/covid-era-business-meal-deductions-and-freelance-taxes-2021/

FHA Loans Are Losing Their Appeal

The FHA has its origins in the Great Depression, as a method for people down on their luck to secure a loan without much upfront cost. Given the current recession’s similar circumstances, it may be expected that FHA loans would increase in popularity around this time. That isn’t the case at all, because now there’s competition. FHFA loans — those backed by Fannie Mae or Freddie Mac — are currently a better deal.

The normally low upfront cost of FHA loans is countered by the fact that they have mortgage insurance premiums (MIPs), part of which is an upfront cost. This means that you are spending more over the life of the loan than with a conventional loan even with an equal interest rate. This MIP can be cancelled after 11 years if the down payment was at least 10%. However, the appeal of an FHA loan was the minimum down payment of only 3.5%, so this circumstance rarely came up.

But now, 3.5% isn’t even the lowest minimum down payment. FHFA loans have adopted a 3% minimum. What’s more, their upfront costs are actually lower, with no upfront mortgage premium. The MIP cancellation criteria are also different: The down payment amount and loan length don’t matter, and it can instead be cancelled whenever the home equity reaches 80%. Given that it’s rare for a house to be owned for 11 years, especially for first-time buyers who benefit the most from low down payment minimums, this flexibility is highly attractive.

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More: https://journal.firsttuesday.us/are-fha-insured-mortgages-declining-in-popularity/77177/

Amending Your Tax Return This Year May Give You a Bigger Break

Under normal circumstances, unemployment benefits are considered taxable income. However, the current circumstances aren’t normal. The American Rescue Plan brought with it a provision that the first $10,200 — or $20,400 if married and filing jointly — of your unemployment payments will not be taxed for 2020. The estimated tax break is around $1000 to $2000.

While the IRS will automatically adjust your tax refund amount, it may be helpful to send in an amended return, because tax credits are not automatically adjusted. The Earned Income Tax Credit (EITC) is a frequently unclaimed tax credit that can net you up to $6600 in additional credits, based on filing status, income, and number of children. Because a large portion of your unemployment benefits can be dropped off your income amount, it may cause you to become eligible for EITC if you were not already. Given how frequently it’s unclaimed, it’s also entirely possible that you were already eligible and didn’t bother to claim it, and you can still do so in an amended return. However, be aware that filing an amended return can cost money, and may not actually benefit you depending on the amount of additional tax credits you are eligible for.

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More: https://www.marketwatch.com/story/expecting-another-refund-after-the-irs-calculates-the-10-200-unemployment-tax-break-why-you-might-want-to-do-more-than-just-wait-11617794140

More Measures Needed to Protect Jobs During Eviction Moratorium

The eviction moratorium has received multiple extensions, buying tenants some time to gather necessary funds. Unfortunately, buying them time doesn’t actually aid them in getting funds, and all the while, landlords are also missing a portion of their income. There is no plan for loss mitigation. SB-91 may help somewhat — it allows landlords to acquire 80% of their rent payments via federal funds by waiving the remaining balance. However, this law exists only in California, and doesn’t apply to all rental situations.

Landlords do have another way to mitigate their losses, but it’s not a good option. Landlords who are close enough to do the job themselves could reduce their costs by laying off their property managers and maintenance staff. This doesn’t help anyone, though, and results in increased job losses. While landlords definitely do take a risk in getting a mortgage on a rental property, currently their best recourse to offload that risk is in ways that do nothing to aid a recovery and instead exacerbate job losses. It may be tempting to let risky investments fail, but at the same time, it could be worthwhile to also give landlords as well as tenants some breathing room to avoid worsening the issue.

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More: https://journal.firsttuesday.us/the-eviction-moratorium-extension-a-band-aid-solution-for-a-gunshot-wound/77162/

US Death Rates Far Exceed European Averages

Death rate is a regularly documented figure within most countries in the world. Less common is calculating the excess death rate — the number of deaths in one country in excess of a control rate. An international study used the average rate in western Europe as a baseline and compared 18 individual countries to that rate. The US ranked among the worst for individuals under age 75.

This isn’t even about COVID — the study examines the years from 2000, 2010, and 2017, well before COVID was a thing. In 2017 alone, Americans between the ages of 30 and 34 were three times as likely to die as those in Europe. This is mostly attributed to drug overdoses and gun violence. The US has much laxer gun laws than many other countries, and drug abuse is usually not medically treated. Structural inequality is also a large factor, including in access to health care.

The category in which the US actually fared better than Europe was those over age 85. There were 97,788 fewer deaths than expected based on the control rate in 2017. The reason is not entirely known, but one suggestion is the fact that US medical care places higher emphasis on end-of-life care. Another possibility goes back to the inequality in access to health care. Access is higher for senior citizens; in addition, those with good health care are more likely to have reached age 85.

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More: https://www.theguardian.com/us-news/2021/apr/12/us-death-rate-mortality-europe

Common Interest Developments Subject to Rental Laws

Common interest development (CID) is a broad term referring to condominiums, community apartments, planned developments, and stock cooperatives. CIDs often have a homeowner’s association (HOA), which has been the governing force for how units within the CID are rented out, as CIDs have not been subject to government rental laws. California changed this in January, requiring CIDs to allow at least 25% of the owners to rent out the units. They also may not prohibit rentals of accessory dwelling units (ADUs). CIDs can still prohibit short-term rentals.

The law came into effect on January 1st, 2021. CID documents may not immediately reflect this change, but they still must abide the new law and are required to amend their documents by December 31st, 2021. Violation can result in a fine of up to $1000.

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Homestead Exemption Increased Earlier This Year

Assembly Bill 1885 went into effect January 1st of this year, increasing the debt exemption amount on a property when the owner’s spouse dies. Prior law set the amount at either $75,000, $100,000, or $175,000 depending on factors related to the residents. New law instead bases the amount on the countywide median sales price. The exemption amount is equal to this amount if the countywide median sales price is greater than $300,000, up to a maximum exemption of $600,000. Otherwise, the exemption amount is the minimum of $300,000.

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