Category: BeachChatter

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.

Home Prices Are Nearly 200% The Historical Norm

Despite all the uncertainty and chaos of fluctuating home prices, it’s possible to establish some trends. One such trend is the historical norm, which is the mean value of homes in a normal economy. It’s important to note that the historical norm is not a single value but rather a steadily increasing trendline, and is not a prediction itself, but can be used to form predictions. But it’s not increasing because home prices have been increasing — it’s actually based on homebuyer annual income, in other words, the annual earnings of people who are able and willing to purchase a home.

Boom and bust cycles affect the prices of homes, but not their long-term value according to the historical norm. This makes it significantly easier to tell when home prices seem too high or too low, and can be used to predict major economic events. The historical norm does suggest that home prices will continually increase, but what a 200% price-to-value ratio means is that prices are 200% of what they should be, even after accounting for this upward trend. It does not mean they have doubled from some prior value, rather from a hypothetical expected value. The last time the price-to-value ratio reached these numbers is in the mid-2000s, shortly before the crash of 2008-2009.

Photo by Angie J on Unsplash

More: https://journal.firsttuesday.us/discover-the-value-versus-price-for-a-california-home/86650/

Income Tax Adjustments Give a Break in Light of High Inflation

The Internal Revenue Service (IRS) has announced its new income tax brackets for 2023. There are some shifts designed to address the issue of bracket creep, which is when people move into a higher tax bracket despite no increase in income after accounting for inflation. The new tax brackets won’t completely solve the problem, and don’t address root causes of heavy inflation, but can provide some relief.

The IRS has done away with the 37% bracket entirely, so the most you’ll pay is 35%. For that, you’ll need a joint income of over $462,500, which is about 6.5 times the median household income in the US. Not only that, the minimum threshold has increased for every bracket, except the lowest 10% bracket which always has a minimum of $0.

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For the new tax brackets plus additional information, see here: https://journal.firsttuesday.us/will-high-inflation-help-you-pay-less-tax-for-2023/
You can also compare to 2022’s tax brackets here: https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets

Some Areas Now Classify Mobile Homes As Permanent Dwellings

Because of rising housing costs, even starter homes are becoming more and more inaccessible. Recent legislation aimed at streamlining processes for accessory dwelling units (ADUs) has turned ADUs into the new starter home. ADUs typically need to be permanent structures to qualify. Some cities and counties are trying to change that.

Mobile homes are often put into the category of tiny homes rather than ADUs. There is no restriction on whether or not tiny homes need to be permanent, or whether anything else needs to be on the lot. They just need to be 400 square feet or less. However, the definition of a tiny home varies, so they can be considered ADUs in some jurisdictions. And now, seven cities and three counties have decided that any tiny home that is on wheels is considered a permanent dwelling, and therefore can also qualify as an ADU. These seven cities are Fresno, San Luis Obispo, California City, Los Angeles, Richmond, San Diego, and San Jose. The three counties are Placer County, Humboldt County, and Santa Clara County.

Photo by Michal Balog on Unsplash

More: https://journal.firsttuesday.us/tiny-homes-join-adus-in-the-housing-shortage-fight/

Expenses Involved in Selling Your Home

There are a few different categories of costs involved in selling a house, some more expensive than others. Certain expenses may not apply to every sale, but you should still be aware of them in case they do come up. If you account for every possible situation in your budget, you may even end up with more profit than expected, since they aren’t likely to all occur in a single sale. These costs could come up at any time during the process, so be ready.

Before even deciding to sell, take a look at whether you need to repair or make any upgrades. Houses do sometimes sell as-is, but remodels can be more valuable than their cost, and major repairs may be necessary to sell for anything beyond the value of the bare plot of land. You may want to get a home inspection, though there’s a possibility you could get a buyer to pay for this later. Once your home is listed, you’ll want to help buyers feel welcomed. There could be costs involved with getting the home ready for open houses, though your agent may be responsible for some of these costs. When it comes time to complete the sale, there could be any number of costs, such as taxes, commissions, paying off mortgage, or other fees. And don’t forget about costs that occur after the sale. Many sellers are selling their primary residence and are also moving. That incurs moving expenses, which can get expensive for large, bulky furniture items or traveling long distances.

Photo by Michal Balog on Unsplash

Closing Costs During a Cash Sale

Some of the most significant closing costs are related to loans. During a cash sale, loans aren’t a factor, so you may be thinking closing costs are no longer relevant. However, there are certainly closing costs unrelated to loans. And the rules for who pays don’t change; it’s still negotiated between the buyer and seller.

The costs related to loans include origination fees, processing fees, and credit checks. These are all generally paid by the buyer, but you don’t have to worry about these at all for a cash sale. That doesn’t mean everything else is automatically paid by the seller. Closing costs also include earnest money, property inspections, appraisals, title insurance, and a title search. It may also include attorney’s fees, notary expenses, and some escrow fees, if applicable. Earnest money is always paid by the buyer, and in most cases, all or nearly all closing costs are. However, there’s always room to negotiate. Particularly in the case of a cash buyer, the buyer may have more negotiating power because the seller is less likely to want to lose a cash buyer.

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Los Angeles Regulations Under the Rent Stabilization Ordinance

The Rent Stabilization Ordinance (RSO) is a section of the municipal code for the City of Los Angeles and regulates a few different aspects of renting out properties. In addition to setting the maximum allowable rent increase per year, it also requires landlords to submit proper documentation to collect rent, provides just cause evictions, and provides relocation assistance for no-fault evictions. RSO doesn’t apply to all properties. The property must have been built prior to 10/1/1978, or 7/16/2007 if it’s a replacement under the Ellis Act. If you don’t know for sure, you can enter the property’s address at www.zimas.lacity.org. There will be an RSO field under the Housing tab, which will say Yes or No. You can also text “RSO” to 855-880-7368.

Note that RSO applies exclusively to the City of Los Angeles and does not apply to commercial properties. There are a couple easy ways to tell if your property is legally within the City of Los Angeles. If your water and power company is the Los Angeles Department of Water & Power (LADWP), you are in the City of Los Angeles. If it’s a different company, you are not. If your area is served by the Los Angeles Police Department (LAPD), you are in the City of Los Angeles. If you’re still unsure, you can look up the property at neighborhoodinfo.lacity.org. If your property is not found, it’s not in the City of Los Angeles. For properties not in the City of Los Angeles but in Los Angeles County, you can visit rent.lacounty.gov, email rent@dcba.lacounty.gov, or call 833-233-RENT.

Once you’ve confirmed that your property falls under RSO, your regulations are currently governed by Covid-19 protections, until February 1, 2024. Rent increases are not allowed until that date for RSO units, nor are retroactive rent increases allowed. If your tenant was negatively impacted by Covid-19, you also can’t charge interest or late fees on missed payments. After this date, the allowable increase is expected to be 7%, but this could change. In order to collect rent, you will need to complete a Rent Registry Form and pay your Annual Bill. The form is sent out in January of each year and is due by February 28th. Your Annual Bill consists of an RSO fee of $38.75 per unit and and a SCEP fee of $67.94 per unit. Part of this cost can be surcharged to your tenants, at a rate of $1.61 per month for the RSO fee and $2.83 per month for the SCEP fee. This comes out to 50% of the annual cost of each fee over 12 months.

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Qualified Vs Non-Qualified Mortgage Loans

Before you get a mortgage loan, ask yourself whether you want a qualified mortgage (QM) or non-qualified mortgage (Non-QM). You may be wondering under what circumstances you’d want your mortgage to not be qualified. Well, there are advantages and disadvantages to both. Non-QMs don’t conform to the regulations set forth by the Consumer Financial Protection Bureau (CFPB), but they’re actually entirely legal — the government simply can’t guarantee consumer protections.

So what are these protections, and why might you want to risk going without them? A QM loan cannot last longer than 30 years, cannot have prepayment penalties, cannot be a balloon loan, and should not have negative amortization. It requires a process for verifying several sources of information, including but not limited to bank statements and income. Because of this, it’s often more difficult to qualify for a QM loan. Therefore, someone who can’t qualify for a QM, such as many gig workers, may risk a non-QM loan. Investors, especially foreign investors, also frequently opt for non-QM loans that only require payments on interest. It’s also possible that you want to go for a longer-term loan, which would come with smaller payments, albeit a higher total amount paid once the loan is fully paid off. In any case, you probably want to ask a professional to explain the terms and risks of any loan you are considering taking, whether qualified or not.

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Newsom Signed Two More Housing Bills in September

Two more bills aimed at increasing multi-family construction go into effect July 1, 2023 after Governor Newsom signed them into law in September. These are AB 2011, called the Affordable Housing and High Road Jobs Act of 2022, and SB 6, the Middle Class Housing Act of 2022. Both laws sunset nine and a half years later, on January 1, 2033.

AB 2011 adds a secondary review pathway for some multi-family construction projects. If the project meets affordability standards and site criteria, the review will not take into account conditional use permits or environmental impact reports. The site must be primarily commercial, and unless it’s a commercial corridor, 100% of the units must be below market rate. Even if it is on a commercial corridor, 15% of the units must be below market rate. AB 2011 also includes provisions for fair pay and additional training for construction workers. SB 6 expands the types of buildings that can be constructed in areas zoned for office, retail or parking. These buildings may be residential if they meet certain other criteria, many of which are similar to the requirements set forth in AB 2011.

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More: https://journal.firsttuesday.us/governor-newsom-opens-up-commercial-zoning-for-residential-use/86680/

California Cities Scramble to Avoid “Builder’s Remedy”

The State of California sets housing goals for every city in the state. Many cities, particularly more affluent ones, frequently decide to simply not meet these goals, as it doesn’t really benefit them to do so. Their only incentive to follow through has been what is termed the “builder’s remedy, ” which requires cities with no plan submitted, or that fail to meet their goal, to permit any and all housing as long as at least 20% of it is affordable housing.

This law has actually been in place for about a decade, but it hasn’t been easily enforceable. Recent changes have made it more enforceable, so now cities have to start thinking about it. Not all cities have the same deadline for submitting plans, but there are already 124 cities in Southern California that are out of compliance. Northern California has until January to submit plans.

Photo by SOHAM BANERJEE on Unsplash

More: https://calmatters.org/newsletters/whatmatters/2022/10/california-housing-crisis-nimby/

Opendoor Owes $62 Million For Unsubstantiated Claims

Opendoor is an online real estate business based in Arizona that buys directly from sellers instead of going through the market process. While nothing about skipping the open market is illegal, the problem comes from Opendoor’s claim that its service saves sellers money. As it turns out, this claim is entirely false.

Opendoor claimed that those who use their service save money because they will be selling at market value with reduced transaction costs. There’s no evidence whatsoever that these claims are true. In fact, there is evidence that many sellers who go through Opendoor actually net thousands of dollars less than they would on the open market, despite cutting out the middleman. As such, the Federal Trade Commission voted unanimously, 4-0, to approve a final order against Opendoor. The final order requires Opendoor to pay $62 million in consumer redress, prohibits them from making deceptive, false, or unsubstantiated claims, and requires them to provide evidence of their claims.

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More: https://www.ftc.gov/news-events/news/press-releases/2022/10/ftc-approves-final-order-against-opendoor-labs-preventing-company-misleading-consumers-about-cost

Rental Construction at 50-Year High, But It’s Not Enough

Construction has had multiple ups and downs in recent years as a result of the pandemic and surrounding economic factors. Throughout it all, multi-family construction has actually done pretty well. In fact, it’s currently at its highest rate in the last fifty years in terms of total number of new multi-family constructions. Unfortunately, that doesn’t mean it’s high — construction has been in a slump for the past thirty years, and meanwhile the population has been increasing.

Los Angeles has it the worst of any US metro, underproducing by about 400,000 homes. This is despite the fact that it’s also one of the top metros for multi-family construction. In large part, this can be attributed to the fact that it is the second most populated metro in the US. But the real issue is restrictive zoning laws, which are only recently being changed in California. The vast majority of homes in the Los Angeles metro are single-family residences because that’s what the lot’s zoning allows.

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More: https://journal.firsttuesday.us/apartment-construction-soars-in-los-angeles-but-is-it-enough/86562/

Evidence Points to Shift to Hybrid Work Model

After the pandemic forced many employees to work remotely, it was initially unclear how long the remote work trend would last. Some thought everyone would return to the office after the pandemic was over. Some saw that remote work was actually working surprisingly well, and expected fully remote jobs to rise in popularity. The latter has definitely happened, however, employers’ attempts at a gradual return to office work have caused another trend to emerge: the hybrid work model.

It turns out an office has benefits and so does remote work. And this is true regardless of an individual’s preference, if they had to choose just one. So why not get the best of both worlds, and just go into the office sometimes? This will be great for workers — though not for owners of office buildings. Those who held onto the office space they owned may have expected a full return to office work, which would result in a return to normalcy for the office building market. What is happening in reality is a gradual reduction in office space. Office space isn’t being eliminated completely, since it’s required for a hybrid work model. But companies won’t need nearly as much office space, and are already making plans to repurpose the space they already have.

Photo by Yolk CoWorking – Krakow on Unsplash

More: https://journal.firsttuesday.us/office-hybrid-or-remote/86610/

Benefits of a VA Home Loan

One of the offerings of the Department of Veterans Affairs is mortgage loans. Of course, this is limited to current or past members of the US military. With this restriction comes a few significant benefits if you qualify. VA loans have perks for both low-income and high-income homebuyers.

If you have the money to buy a more expensive home as long as you can get a loan, VA loans may have you covered. There are jumbo loans available which can even exceed $1 million. This may be a good bet even if you are not currently a high-income earner, as long as you are purchasing investment property. This is because there is no minimum down payment for VA loans; you can borrow up to 100% of the home’s value. You don’t even need to worry about private mortgage insurance (PMI), which is required for conventional loans with a down payment under 20%, but not for VA loans regardless of your down payment amount. If your investments pay off, or you start earning more money, you can also pay off the loan faster. VA loans have no penalty for accelerating payments.

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Flood Insurance FAQs

Insuring your home against natural disasters can save you quite a bit of money in the event such a disaster occurs. Frequency of different types of natural disasters varies by region. While this is also true of floods, floods can occur pretty much anywhere, so flood insurance may be worthwhile regardless of whether you are in a flood zone or not. So what do you need to know about flood insurance?

Flood insurance is not legally required. However, some mortgage lenders may require it, especially if the property is in a flood zone. As can be expected, flood insurance premiums are higher in flood zones, since there is more risk. That also means it can be relatively inexpensive if your area is not flood-prone. Since floods still occur at a significant rate in such areas, it’s probably a good deal even if the lender doesn’t require it. If you do get flood insurance, whether you chose to or your lender asked for it, make sure to compare plans. Premiums vary by company, and most companies have more than one insurance policy. Most policies cover damage to both the building and the contents of the home, but you should check to make sure. Some plans also include replacement expenses.

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Be Ready For These Odd Questions From Buyers

If you’re selling your home, or getting ready to do so, you may have thought about some of your prospective buyers’ potential questions and what the answers would be. Many of these probably relate to the home itself or the neighborhood, and can be expected questions. However, some not so uncommon buyer questions are decidedly more bizarre.

Perhaps not entirely unexpected is the question of whether or not there have been infestations, and it’s a common one. This would obviously be a major concern for a buyers, but be prepared for buyers to be overly concerned about certain unlikely infestations. Buyers may ask about pests that don’t even live in your area. Another very common question that may seem a bit silly to some people is whether or not someone has died in the home. Certain superstitious buyers may think this means the home could be haunted, which would be a major turn off. You may not even know yourself whether someone died there or not if it happened a long time ago, but buyers like this will still want to know. A less common death-related question, though perhaps one grounded more in observable reality, is whether anything was buried in the home’s yard. It’s not uncommon for people to bury their pets in the backyard, but buyers or their own pets may not want to unearth something like that.

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20% Down Payment is Actually a Rarity

It’s long been suggested that one should put down at least 20% of the purchase price as down payment. While this is probably a good idea if you can afford it, many people have taken this advice a bit too much to heart, and are reluctant to try to buy with a lower down payment amount. A third of homebuyers even think it’s a requirement to get a loan.

In reality, most loans have a much lower minimum down payment, with one of the most common types — FHA loans — having a minimum of just 3.5%. Some even have no minimum. In addition, the median down payment is significantly less than 20% for first-time homebuyers at 7%. It’s higher for repeat buyers at 17%, but that’s still under 20%. What’s more, there’s a good chance you can get homebuyer assistance to help cover the down payment. While a majority of homebuyer assistance programs are specific to first-time homebuyers, over a third of the approximately two thousand programs do not have this restriction.

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More: https://themlsblog.com/2022/10/10/saving-for-a-down-payment-heres-what-you-should-know/

Hold Off on Investments in the Near Future

Investors are frequently asking whether the current investment market is better for stocks or real estate. Usually, there’s a correct answer. Right now, the best answer is probably not to invest at all. When this happens, it’s called a hold phase. Real estate being both a less volatile and more long-term investment makes it a slightly better method of investment during a hold phase, but it’s still likely better to hold off until home prices reach a bottom, which is likely to be around 2025.

Stock price movement is a bit harder to generalize since it changes so much more frequently than real estate prices. This is mostly because stock trades can be initiated and completed near instantaneously, while home sales typically take a few weeks between listing and accepting an offer. That said, it’s clearly evident that stock prices are on a downward trend right now, with an annual change of -17%. Until this bottoms out, it may be too risky to invest. Home prices, on the other hand, increased 12% in the past year. Normally this would make it an absolutely terrible time to invest in real estate, and it’s certainly not a good time to do so, but home prices are now decreasing. Better investment opportunities in real estate will crop up in a few years.

Photo by Giovanni Gagliardi on Unsplash

More: https://journal.firsttuesday.us/investing-stocks-or-real-estate/43709/

Unlawful Evictions on the Rise

Much of the danger to tenants is being unable to pay rent, as both rental prices and cost of living continue to increase while the job market is still in recovery. However, that isn’t the only way tenants can get evicted. There are even a few ways landlords can legally evict tenants that haven’t done anything wrong. That isn’t enough for some landlords though, who are actually resorting to illegal methods of eviction instead of notifying the tenant and potentially going through the court process.

Though both are legal, the court process distinguishes at-fault and no-fault evictions. At-fault evictions are the category where failure to pay rent lies, and this category also includes various contract violations and criminal activity while on the premises. The no-fault category includes landlord’s intent to occupy the property, withdrawal from the rental market, property being deemed unfit for habitation, or landlord’s intent to demolish or substantially renovate the property. Some of these can be used misleadingly as the landlord can simply change their mind later, but the real problem is unlawful evictions. The Office of the Attorney General (OAG) is particularly concerned with the type known as self-help evictions. This includes the landlord shutting off utilities, changing locks, or removing the tenant’s personal belongings in order to force them out of the property. Landlords initiating a self-help eviction can get charged with a misdemeanor, and the sentence is either a fine or a jail term of a maximum of one year.

Photo by Mitchel Lensink on Unsplash

More: https://journal.firsttuesday.us/self-help-evictions-the-new-forbidden-fruit-for-california-landlords/86458/

Cost Effective Home Staging

Home staging is one of the best ways to garner interest in your home. Your home should look like someone lives there, otherwise buyers won’t be able to imagine themselves living there. At the same time, it shouldn’t be too personalized, otherwise it will look like a home for you rather than a home for them. Fortunately, some of the most cost effective methods of home staging are also impersonal.

While it’s certainly more cost effective if done for you rather than a buyer, updating your lighting to more energy-efficient models is sure to relieve some stress from buyers. Purchasing new furniture is expensive, but a similar effect can be achieved at much lower cost with new slipcovers and bedsheets. Even if you plan to keep them yourself, or just use them for staging, a few plants can add vibrancy to your home, particularly if they are in bloom. An important step that costs next to nothing in money, albeit a significant amount of time, is giving your entire home a thorough cleaning.

Photo by Minh Pham on Unsplash

ARM Rate Will Exceed FRM Rate by 2023

Due to the Fed increasing benchmark rates, the rates of fixed-rate mortgages (FRMs) and adjustable-rate mortgages (ARMs) are both continuing to increase at a rapid rate. The current average 30-year FRM rate is 6.70%, and it’s 5.96% for ARMs, as of Sept 30th.

It’s normal for FRM rates to be higher than ARM rates, but that may not be the case soon, because of the reasons for the rapidly increasing rates. The ARM rates are directly tied to the benchmark rates — as the benchmark rates increase, the ARM rates will also increase proportionally. While FRM rates are also increasing, it’s not directly because of the increasing benchmark rate. FRM rates are actually tied to bond market rates. However, since the FRM rates are already increasing much faster than bond market rates, they can’t sustainably go much higher, while ARM rates don’t have that restriction and are quickly catching up.

Photo by Sasun Bughdaryan on Unsplash

More: https://journal.firsttuesday.us/current-market-rates/3832/