The original BeachChatter discusses the housing market in the coastal communities south of the city of Los Angeles. Some articles are peculiar to a single city. Some discuss the region as a whole. The focus is on privately owned housing.
Unlike office spaces, the industrial sector wasn’t particularly negatively affected by the pandemic. People still needed warehouses and manufacturing sites, perhaps even more than before. Indeed, the vacancy rate actually started dropping since the lockdowns, the beginning of which was the peak point in recent years. In most areas of Southern California, the vacancy rate for industrial leases reached its lowest point in the first half of this year. Since then, vacancy rates are starting to edge back up, but are still far below the pre-pandemic peak.
In San Diego County, the industrial vacancy rate increased from 2.00% to 2.56% between Q2 of 2022 and Q3 of 2022. The peak was just above 5% in Q2 2020. In Los Angeles County, the increase was from 1.11% to 1.68%, with a peak of 3.17% at the start of the pandemic. Despite the Inland Empire’s very low vacancy rate of 0.88%, it’s actually higher than the Q1 and Q2 numbers. But it’s nothing compared to the pre-pandemic vacancy rate of 3.92%. Orange County is an exception — the industrial vacancy rate has actually continued to decrease, from 1.23% in Q2 2022 to 1.05% in Q3 2022. Its peak was also later, in Q3 2020, at which point it was 3.1%.
The answer to this question may seem obvious. Of course a first-time homebuyer is just anyone who is buying a home for the first time, right? Well, not exactly. What the phrase is actually referring to is someone who is eligible for a given first-time homebuyer program, usually a lender’s loan program. The lender doesn’t care whether it’s your first time buying or not, only whether or not you are eligible for the loan.
It’s not entirely misleading, though. At least for the criterion related to homeownership, those buying for the first time would qualify. But even that criterion is slightly different; it commonly only requires that you not have owned a home within the prior three years. Moreover, there are multiple other qualification criteria for first-time homebuyer loans. They usually include requirements for down payment, credit score, proof of income, employment history, and a maximum debt-to-income (DTI) ratio. Typically, the down payment requirement is between 3% and 20%, the minimum credit score is 500 for FHA loans or 620 for conventional loans, two or more years of employment are required, and the DTI ratio must be no more than 43%. These numbers, as well as the specific criteria, could vary, both by region and by lender.
The country’s longest-lasting eviction protections are due to end February 1, 2023, at least in Los Angeles, as confirmed by the City Council. The protections have been in place since March 2020, as a response to COVID-19. Despite federal and many local protections ending much earlier, the city’s tenant protections have remained in place the entire time.
The eviction moratorium was certainly financially beneficial for many people who were unable to work during lockdowns, but might otherwise have been expected to continue to pay rent. However, the actual reason for that particular moratorium was fear of the spread of the virus. The economically-motivated tenant protection is currently slated to remain in place until February 2024. This is the prohibition on raising rent for rent-controlled units, of which there are over 650,000 in Los Angeles. Some things are still in a bit of a limbo, though. There are still eviction proceedings going on as tenants are, in fact, still expected to pay at least a portion of their rent, despite the eviction moratorium. Some landlords don’t even want tenants anymore, but can’t find a legal reason to evict them, as their tenants haven’t done anything wrong. The end of the moratorium will erase some confusion. Some City Councilmembers are looking to re-implement some specific protections, but haven’t come to a consensus.
With the current economic climate affecting tenants’ ability to pay rent on time, as well as increasing rent prices pushing away some prospective tenants, some landlords may want to accept partial rent payments in order to retain their tenant rather than risk vacancy. This is, in fact, something landlords are allowed to do, and there are specific laws around it. If the regulations are followed, it doesn’t need to cause a legal mess down the line when the landlord wants to recover the unpaid portion of the rent.
The mere act of accepting partial rent doesn’t actually require a form at all. Since it benefits the tenant and it’s the landlord that must agree to it, it’s not a conflict unless the landlord wants to recover the rest of it. If the landlord is feeling generous, or desperately wants to keep their tenant, they could simply accept partial rent and take no further action. But there certainly are legal avenues for the landlord to recover it. The landlord could issue a partial payment agreement which states the amount received, balance due, due date of deferred balance, the tenant’s promise to pay the deferred amount, and an explanation of the consequences of nonpayment.
If the landlord doesn’t want to use this form, the rules for any nonpayment can apply. The rules vary by property type, but regardless of property type, the landlord would issue a three-day notice. This could be a notice to pay, a notice to perform followed by a notice to quit, or a notice to pay or quit, depending on the type of property. It’s also important to note that in the case of partial payment for residential property, the landlord cannot reclaim repeated partial payments if they are using the three-day notice. If the landlord has already accepted a partial payment, then accepts another partial payment for the same rent period during the notice period, the notice is no longer valid.
November saw the number of homes sold in the South Bay fall 12% from October totals. Sales volume has declined in seven of the eleven months on a month to month basis since the beginning of the year. Sales tipped up a modest 2% on Palos Verdes peninsula, while volume dropped 7% at the Harbor, 18% at the Beach and 24% in the Inland area.
Year over year sales look even more depressed with a 45% drop from 2021 sales across the South Bay. The Beach Cities led the plunge with a 50% fall, followed by the Harbor area at 46%. Palos Verdes and the Inland area brought up the rear with 35% and 41% respectively. The falloff in sales began with a 17% drop in January and has been increasingly negative since.
Because 2020 and 2021 were both significantly impacted by the coronavirus pandemic and the governmental response to it, 2019 is the most recent year with a normal business pattern. Comparing 2022 sales volume with 2019 provides the truest measure of the current recession. Overall, for the first 11 months of the year, the South Bay has experienced a 9% decline in sales compared to 2019.
Through the month of November, sales on the PV Hill have fared the best, showing a modest drop of 3% compared to the same time period in 2019. The Harbor and Inland areas which generally are entry level for the South Bay both fell back 8% for the same period. So far this year the Beach Area has suffered the largest declines with an 18% drop in number of sales versus 2019.
Annual Sales Dollars Off By $3.2 Billion
Comparing year-to-date sales of homes in the Los Angeles South Bay shows a drop in dollar value from 2021 to 2022 of over $3.2 billion. That represents an over-all decline of 22% in total dollars sold from the same 11-month period last year.
The Beach area has been the hardest hit so far with a drop of 34%. The PV Hill has dropped 29%, while the Harbor area has fallen 22%. The Inland area fared the best, only down 19% for the same 11 months.
On a month to month basis, the decline in sales accelerated from 7% in October to 18% in November. The Inland area which had flipped to a positive gain in October plummeted by 30% in November. Similarly the Beach which had been up 7% in October fell 25% in November. The Harbor and Hill areas were off by 8% and 11% respectively.
At this point year to date South Bay sales dollars for 2022 still exceed the total for 2019 by 22%. We expect the end of year numbers to be positive. However, with monthly sales figures shrinking by 30%-40%, we project 2023 to fall below 2019.
Median Price Shows Mixed Results
Statistically speaking, the Beach cities median price fell 8% from October to November. The reality is that the median in October was unusually high. Multiple sales of Strand property drove the median up 14% that month. The blue line on the chart below shows the one month blip and median prices dropping back to a steeper downward pace in November.
Palos Verdes was flat compared to the previous month. This is a rare event as one can see by the erratic yellow line on the chart. Because the physical area is smaller than the other geographical areas, the number of sales is smaller, and mathematically the sample size is smaller. Thus one or two outlier sales can create wide swings in the chart.
Similar to the Beach area, the median price dropped 7% in the Inland area. This decline follows two months of no change, preceded by three months of month over month negative median prices.
At the same time the Harbor area experienced a month to month increase of 2% in the median price. Researching this anomaly we discovered 11 new construction sales in Carson had been accumulated and posted simultaneously by the developer. It’s worth noting that Harbor area median prices have also been elevated to some extent by the new construction on Western Avenue in San Pedro.
From a year over year perspective, November median prices continued to fall in comparison to those of November 2021. The Harbor and PV Hill areas were down 5% and 2%, respectively. Median price in the Inland area dropped from positive 6% in October to negative .05% in November. The Beach cities remained positive with growth of 1% in November. That being in contrast to an unexpected growth of 20% last month caused by the sale of multiple Strand properties in Manhattan Beach.
Despite increasingly deep reductions in sales volume and in median price throughout this year, the median is still higher than it was in 2019. Palos Verdes home owners have fared the best with the current median price 40% above the November 2019 median. The Harbor area is still 34% higher and the Beach cities still maintain a 31% advantage. The Inland area has proven to be relatively stable throughout the pandemic and currently the median price is 27% above that of 2019 for the same 11 month period.
Year End Projection Updated
We’ve been comparing 2022 to 2019 all year because real estate sales during the height of the pandemic were so out of the ordinary, regular year over year comparisons yielded untenable results. The chart below depicts the current year total sales for the South Bay compared to sales from 2019.
Tracking the blue line, one can see where sales dropped below 2019 values in August, recovered in September, then slipped below again in October and November. Assuming the decline continues at the same rate, we are forecasting the December sales to drop another $75 million, or so.
The end of the year would then reflect accumulated sales of approximately $9.4 billion. That would mean 2022 total dollar sales come in at $1.4 billion above the $8 billion total dollar value sold in 2019. Across the South Bay that would be approximately an 18% increase.
Broken out by community, we forecast total dollars sold in the Beach cities to be 6% above 2019, followed by the Inland area with a 20% increase. Harbor comes in next with a 21% increase and the PV Hill with a 35% increase.
At a Glance
As 2022 draws to a close we find the final numbers for both sales volume and median price show the year to be rapidly declining from the final figures for 2021. However, the totals all remain positive. We expect December to continue the trend downward, though the year should end on a positive note.
With the number of units sold decreasing every month by 35% to 50%, and the median price now falling, 2023 should be firmly in the grip of the recession by mid-year.
Disclosures:
The areas are: Beach: comprises the cities of El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach; PV Hill: comprises the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates; Harbor: comprises the cities of San Pedro, Long Beach, Wilmington, Harbor City and Carson; Inland: comprises the cities of Torrance, Gardena and Lomita.
Especially if you’ve never done it before, finding tenants for your rental property can cause a lot of anxiety. Plenty of things can go wrong — maybe your tenant doesn’t pay the rent; maybe the place gets trashed or your items are stolen; maybe you don’t find a tenant at all and it’s left vacant. Thankfully, there are some things you can do to make sure you find both more and better applicants.
The first step is to make tenants want to live there. Depending on the neighborhood, it may be true that many tenants don’t actually care what the property looks like and just want a roof over their head. But you’ll get those applicants regardless, so you should focus on making your property look and sound good to tenants who are truly looking for a place to call home. Proofread your listing and include attractive photos. Step two is formalizing the application process. There are several good questions to include on the application. You’ll want to have contact information, including full name, address, and contact information for supervisors, emergency contacts, and previous landlords. You also want to verify their identification and make sure their income is high enough to pay the rent. The third step is very important: You need to actually use that information. Call their supervisor and ask about their work reliability, and talk to their previous landlords about any specific concerns you may have. The last step is to meet the prospective tenant in person. You can get a good idea of what a person is like with just a single meeting, but it’s a lot harder if all your communication was by phone or email. If something feels off, you should trust your gut and find a different tenant, even if it’s only to spare you some nervousness.
Accidents can always happen, but that doesn’t mean you shouldn’t minimize the risk. This is especially true if you have elderly or disabled people in your home, but homes have safety hazards even if you don’t. Fortunately, it doesn’t take much to reduce the risk significantly.
One solution that can actually also save you money is to upgrade your lights. Some older homes may still have incandescent lightbulbs. These are generally dimmer than LEDs and also use more energy. Upgrading to LEDs can decrease the risk of bumping into things in the dark while also reducing your energy costs. Most people are aware of the risks of slipping on wet floors in the bathroom, but many don’t have a proper solution for it. It’s easy to install grab bars on the wall or in the shower to help stabilize you. Speaking of slipping, it’s important to minimize tripping hazards. These can be obvious ones like cables running across the floor, or they can be things you don’t normally think of like tassels on rugs. Cables can be rearranged or taped down, and you can either fold tassels under the rug or purchase a new rug without tassels.
When you’re trying to sell your home, trying to work in open houses around your schedule can be frustrating. That’s true regardless of whether you want to be there or not. But is one better than the other? Should you schedule them for times when you will be there, or when you won’t be there?
Ultimately, it’s up to you. In general, though, if you choose to be there, it should be because you want to be there. Buyers actually don’t tend to want to talk to the seller so much as the agent, since the agent is usually the one who can answer any questions they might have. Of course, if you’re an outgoing sort of person, you may feel excited to welcome them. If not, though, it’s best to leave, otherwise things can get awkward for everyone involved. Buyers want to be able to imagine themselves living there, and that gets more difficult when it’s obvious that you live there. There is one practical benefit to staying, though — if any problems arise, you will already be there to sort them out.
No matter where you live, there is a risk of natural disaster. The likelihood may be higher or lower, especially when comparing different types of disasters in different areas, but the possibility is always there. Since Realtor.com started displaying flood and wildfire risk data two years ago, they’ve been analyzing how prospective buyers use the information to make their homebuying decisions and how it affects prices.
Unsurprisingly, homes with lower risk of natural disaster tend to appreciate faster. Areas with low flood risk appreciate about 1.7% more quickly than areas with high flood risk, and this increased from 1.5% in the wake of flood disasters occurring in July-September 2021. Homebuyers also tend to have a preference for lower risk areas, despite the higher prices, showing awareness of natural disaster risk. The difference is even greater for wildfire risk at 3.7%, but there have been no significant shifts recorded in this value. However, buyers don’t show the same preference for areas with lower wildfire risk as they do for areas with lower flood risk. This could be because they’re more concerned about higher prices, possibility due to the difference being greater. However, there also isn’t a clear preference for cheaper, higher risk areas in some of the most wildfire prone states, such as California. It’s possible this is because homebuyers feel the risk is relatively high regardless of where they are living in California, or because risk and price point are both of relatively equal concern.
The Trust for Public Land has released their 2022 Parkscore Index, which compiles data regarding public outdoor spaces for the 100 largest US cities. It also includes some private parks and playgrounds if they have a joint-use agreement with the city. The criteria also don’t exclude public spaces that may not necessarily be strictly parks, such as trails or other open spaces. However, it does only count the 100 cities with the highest population — there are over 100,000 cities in the US, so it’s a small minority.
Portland Real Estate has taken this data and provided a list of the top 11 cities for public outdoor space, sorted by overall score. The categories include median park size, percent of city that is parkland, and percent of residents within a 10-minute walk to a park, among other factors. Of course, Portland Real Estate couldn’t have made it a top 10 list since they had to include their own city, Portland, OR, which is #11 on the list with a score of 74.5 out of 100. The highest score belongs to Washington, D.C. at 84.9. In order from #2 to #10 are St. Paul, MN; Arlington, VA; Cincinnati, OH; Minneapolis, MN; Chicago, IL; San Francisco, CA; Irvine, CA; Seattle, WA; and New York, NY.
Buying a home is a major life decision. Because of this, it’s important that prospective homebuyers take the time to research the best option for them. Unfortunately, that tends not to happen with mortgage loans. Only about 13% of prospective buyers spend at least a month researching lenders. By contrast, 28% spend just as much time researching cars, and 23% vacation options.
One major reason is that they’re simply not well informed. 30% of prospective buyers believe that their credit score will take a major hit if they shop around, the most common reason cited for not shopping around. This is not accurate, as it’s only getting a pre-approval that reduces your credit score, not consulting with lenders. You can submit as many applications as you want within a 45 day period and your credit score will only drop once. 15% also believe that all lenders use the exact same rate, so there’s no reason to get a second quote, which is definitely not the case.
It may be odd to think of getting a discount on a home. It’s not as though they have flash sales or seasonal specials, like you might find in a department store or supermarket. But price cuts do happen, and that’s kind of like a discount. And they’re actually not all that difficult to predict — there are fairly regular patterns as to when price cuts occur.
Most notably, home sales actually do have something a bit like seasonal specials. Price cuts are most common between the months of July and September, which roughly corresponds to the latter half of summer. By contrast, price cuts are significantly less common during the winter. You probably won’t see a price cut within the first three to four weeks of listing, either. It’s possible to fine-tune your timing some more, though. Price cuts are rare during the weekends, particularly Saturday, and are less common on Friday than other weekdays. Nationwide, the top day for price cuts is Thursday, though it’s not that much different from Monday, Tuesday, or Wednesday, and it definitely varies by region. The question remains, how much of a discount can you actually get? Currently, around 3%, but it has varied between 2.6% and 3.8% in the past few years.
Many people have delayed their homebuying search, and those that remain are looking for something cheaper. That often means looking outside their current metro, especially for those living in expensive areas, such as San Francisco and Los Angeles.
But expensive areas frequently have at least one thing in common — sunny weather. Those that are used to this type of weather are often reluctant to compromise, so they’re looking for equally sunny but much less expensive areas. The number one match is Sacramento. It’s within sunny California, but not near the coast and has much less suburban sprawl than Los Angeles, both making it a cheaper area. San Diego is also a common destination for Californians.
But the state with the greatest number of matching metros is not California, but Florida. Miami, Tampa, Cape Coral, and North Port-Sarasota are all in the top 10 destinations to move to. The remaining cities in the top 10 are Las Vegas, Nevada; Phoenix, Arizona; Dallas, Texas; and Portland, Maine.
Primarily due to financial concerns, homebuyers have been delaying attempting to purchase their first home, with 89% of homebuyers waiting for a better time. That started to change at the beginning of this fall. On average, first-time homebuyers submitted about 12 offers on properties in late September. This is up from 10 last year.
Not only are they submitting more offers, they’re actually looking at more properties, as well. In 2021, prospective buyers looked at an average of 15 properties before deciding if and where they would submit offers. That number jumped up to 24 this year. Combined with the average number of offers submitted, it means they’re submitting offers on 50% of properties viewed, versus 67% in 2021. While the reasons for this could certainly vary from person to person, being more selective in their choices probably means either there are more options within their budget, or they’re more comfortable being patient and don’t feel rushed. The latter is a real possibility, since high prices are indicative of lower demand and therefore less competition.
The terms of mortgage loans have a lot more variance than one might expect. It’s well known that the average interest rate is just that, an average, but there would be no competition if that were the sole factor. Be sure to get lots of estimates, comparing both different types of loans at the same institution as well as the same type of loan at different institutions.
Make sure you understand the terms clearly, especially because some loans have hidden costs. These can include fees for printing documents or prepayment penalties, among others. Not all lenders have these, nor necessarily for all loans, so shop around. It’s also important to know the rate lock period, so you can be sure that the rate will still be valid by the time you finalize getting the loan. Some costs may even be negotiable, such as loan closing fees and interest rate.
The goal of the Fed’s decision to increase the benchmark rate was to ultimately lower prices. That is now beginning to happen, but many other things have been affected in the meantime. One is builder confidence. As can be expected, rising interest rates are causing lower demand for buyers, including new construction buyers. That means builders are getting less business. This is not a good sign in an environment that many believe is best solved through increased construction.
The Fed’s decision may be starting to solve one issue, but is it actually the optimal solution? Could something else have been done? Maybe, maybe not. According to the National Association of Home Builders (NAHB), the Housing Market Index (HMI), of which builder confidence is one component, was actually already below 50, which is the midpoint indicating neutral confidence. This is despite multiple laws making construction easier, especially for affordable housing. HMI dropped 5 points from 38 to 33 between October and November. Back in November of 2021, it was at 83. The builder confidence score in particular dropped six points from 45 in October to 39 in November. Though the problem is national, with decreases in every region, different regions have different levels of builder sentiment. The South dropped the most, by seven points, but still has the highest builder sentiment of any region at 42. Builder sentiment is by far the lowest in the West, at 29, despite only dropping five points. The smallest change was in the Midwest, dropping merely two points from 40 to 38.
Six new laws affecting real estate are coming next year, and two more in 2024. The six coming next year go into effect January 1, 2023. SB 1495, going into effect January 1, 2024, modifies real estate licensing requirements. AB 2503, with a compliance date of December 31, 2024, requires a revision of the terminology used in real estate contract law to ensure consistency. In addition, SB 1005 and SB 1017 both clarify existing law, SB 1005 regarding probate code and SB 1017 regarding tenant protections against domestic violence.
AB 1410 requires homeowner’s associations (HOAs) to allow members and residents to discuss their common interest development (CID) on social media, as well as allow them to rent out a portion of owner-occupied space. HOAs also may not pursue enforcement for violations during an emergency if it is unsafe to fix it. AB 1837 and AB 2170 both modify existing laws regarding eligible bidders for foreclosed properties, making it easier for tenants, owner occupants, nonprofits, and governmental organizations to win a bid. AB 2559 defines a reusable tenant screening report, which landlords may choose to use, and which they must allow tenants free access to if they choose to use it. AB 2745 requires that experience used for a real estate broker exam be within the prior five years. AB 2960 states that disclosure requirements are set at the date of the contract, even if disclosure requirements change.
Although it was undeclared, we’ve been in a recession, which is usually indicated by two consecutive quarters of gross domestic product (GDP) loss. GDP has been going down, but now suddenly GDP is going back up. So does that mean we are out of the recession? Well, if it had ever been declared, it would be declared over — but that doesn’t mean it actually is, especially since it was never declared to begin with.
GDP is ultimately based on consumer spending. When consumers spend more, GDP goes up. This is indeed what happened. However, that isn’t necessarily a good thing. You may have read one of my posts from a few days ago about plummeting savings rates. As stated in that post, savings rates have recently dropped dramatically, which is normally an indicator of consumer confidence, but in this situation is actually a result of necessity due to increasing costs of living. In other words, inflation occurs, consumers must spend more to buy the products they need, therefore GDP goes up. We tend to think of GDP increases as good, but the reality is that it’s simply a mathematical value that can shift as a result of a variety of different factors, both positive and negative.
Landlords tend to have a lot of leeway in determining what kinds of pets their tenants can have. Many don’t allow pets at all, and those that do often have breed restrictions and/or additional fees. This has led many pet-owning low-income earners to give up their pets in order to secure housing. In order to combat this issue, California has decided to standardize some pet restrictions for low-income rentals.
What landlords will no longer be able to do is ban pets outright, prohibit certain breeds, impose pet weight limitations, or collect additional monthly fees for pets. Landlords can still require a security deposit for pet owners or ban specific individual pets that are vicious or dangerous. The new law also sets forth a list of some reasonable restrictions. These include policies regarding nuisance behavior, leashing, liability insurance, and number of pets. The latter should be based on the unit’s size and not personal factors.
The personal savings rate tends to hover around 8-10% during normal economic conditions, though it fluctuates constantly. These fluctuations tend to be inversely proportional to consumer confidence. If people think they can buy, they will. If they are hesitant, they will save their money instead. Across the last several decades, the record low was 2%, at the height of the Millennium Boom in 2005 when consumers felt they were in a stable economic position. By contrast, it hit a whopping 34% in April of 2020, just after pandemic stimulus payments began, most of which went directly to savings.
Now, the rate has dropped precipitously down to 3.8%. Unfortunately, that can’t be attributed to the inverse relationship with consumer confidence. Instead, the rate has dropped purely out of necessity. People aren’t saving money because they simply aren’t able to. The cost of living, proportional to wages, is incredibly high. Home and rent prices as well have accelerated at a rate far exceeding wage growth. The widening of the gap between cost of living increase and wage growth has been going on steadily for quite some time, but it’s more noticeable now with recent sharp increases in home and rent prices.
