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.
A 2015 Department of Housing and Urban Development (HUD) rule, called Affirmatively Further Fair Housing (AFFH), had presented guidelines for what constitutes barriers to fair housing and required recipients of HUD funding to reduce or eliminate these barriers. This rule was deemed to be an overstep of federal bounds, as matters of this nature should be determined at a local level. The HUD’s new rule, called Preserving Community and Neighborhood Choice, still requires funding recipients to affirm that they’ve furthered fair housing, but no longer offers any guidelines for what that means.
Of course, this is no longer federal overreach, but that’s because it doesn’t actually do anything. Barring any state or local laws, the definition of fair housing is now entirely up to the individual receiving the funds. With no need to report any plans or data, the recipient can simply affirm that they did further fair housing, without needing to change anything or provide any proof. In essence, the HUD has simply eliminated the AFFH while pretending it was a partial rollback.
The traditional dinner salad is most often an unexciting food. Ditch that classic iceberg lettuce studded with cherry tomatoes in favor of this taste treat. These flavors will burst in your mouth from the first bite to the last. Whether you serve it in the heat of summer, or as a year-round starter, this dish is a treat for the eyes and the taste buds.
Serves 6
Ingredients
2 (6-oz.) bags baby spinach 1 (16-oz.) container strawberries, quartered 1 (4-oz.) package crumbled blue cheese, feta cheese, or goat cheese 1/4 medium red onion, thinly sliced 1/2 cup sliced toasted almonds or halved candied pecans Balsamic vinaigrette (recipe follows or use bottled vinaigrette)*
Directions
Toss all the salad ingredients together and drizzle with dressing.
*Easy Balsamic Vinaigrette
1/4 cup balsamic vinegar 1 tsp prepared mustard 1/2 tsp salt 1/2 tsp freshly ground black pepper 3/4 cup olive oil
Directions
Place the vinegar and seasonings in a bowl and whisk to combine. Slowly add the olive oil and whisk until the dressing is emulsified.
It’s October 1, so it’s time to look at the changes in the local real estate market, both for the month and for the third quarter.
2020 has been a year for making and breaking records. Most of them have been records we truly didn’t want to even consider, like the number of pandemic deaths, and the number of unemployed. Until now, we had little reason to believe the real estate market might bring better news.
Through the first half of the year, the number of homes available on the market just kept climbing. At the same time, the number of homes selling remained stubbornly flat. Despite interest rates hovering just above zero, it seemed buyers had other things on their mind. Then in July the number of closed sales jumped 41%, while available inventory came up a tiny 7%.
Sales continued to climb in August and September, though nothing as dramatic as July. Overall, for the third quarter, unit sales were nearly double those of both, the first quarter of the year (+79%) and the second quarter (+76%).
For the first time this year, the inventory has dropped appreciably.
Comparing to last year, that huge spike in sales brought September in at 47% more sales than in September of 2019. On a quarter over quarter basis, Sales are up 23% over 2019. The red bars in the “Sold vs Available” chart above shows the climbing number of sales, with the blue bars showing the sudden drop of available inventory in September.
Not only were the number of sales climbing, but prices have continued to escalate year over year. September of 2020 showed median prices had increased 23% over September of 2019. Median prices rose 15% for the third quarter of 2020 versus the same time period in 2019.
Combined, the impact of the increased sales and increased prices brought the total dollar value of sales for September 2020 up 89% over that of September 2019. Quarter to quarter, the annual increase was 40%.
“South Bay residential sales for the third quarter of 2020 exceeded two billion dollars.”
How do we explain record sales and prices during a pandemic, with sky-high unemployment, and the threat of a recession coming from behind? It’ll be weeks before the pundits have sorted it all out. In the meantime, here are a couple of possible explanations.
Third quarter sales range from $285K to $10.5, so we know some of these have been entry level homes. Folks who have been priced out of the area, and because of the lower interest rate could suddenly qualify to purchase here, have jumped at it. Sales under $1M comprise 42% of the total.
At the opposite end, sales over $3M made up 9%. Once again, the interest rate makes it possible to leverage a mansion at a relatively affordable monthly payment. A lot has been said about the future worth of property compared to today’s dollar. Investing at a reduced interest rate usually contributes to a sizable profit at some future sale date.
In between, from $1M to $3M, we have 49% of the third quarter sales. That’s roughly the number of people we would expect to sell for one or another of the typical reasons people move. In fact it corresponds nicely with the rate of market activity for the first half of the year.
In summary, if the thought of making a move in the near future has crossed your mind, this may be the best moment to do so. Call and we’ll put together some numbers specific to your property and your situation. No problem–no obligation!
California, in partnership with Long Beach and LA County, has begun the process for Project Homekey, a project to convert two hotel properties into homeless properties. One will be a 100 unit project and the other approximately 50 units. While it’s not yet announced which properties have been chosen, the decision has already been made, and these criteria narrow it down significantly. Only one property fits for the 100 unit structure — the Best Western of Long Beach. There are a few different options for the 50 unit project.
The converted units aren’t going to be ready immediately. The properties have not yet been purchased, and the deadline to do so is December 30, so it could be up to two months before the conversion even begins. The contract for funding the conversion process is expected to last several years, though the conversion could already be complete before the contract expires.
The port of Long Beach will open its eagerly awaited new bridge on Oct. 5 after seven years of construction. The long wait was due in part to COVID-19 restrictions and was also intentionally delayed for careful attention to earthquake safety. The bridge currently has no name, but will be replacing the Gerald Desmond Bridge.
This new bridge will have three lanes in each direction across its two mile length to reduce traffic congestion. It will have connections to the 710 Freeway, Terminal Island, and Downtown Long Beach. In addition, larger container ships will be able to pass under the bridge, as it is taller than the Gerald Desmond Bridge.
The Federal Reserve is now looking to the future to figure out their plan for once the economy has recovered. The Fed doesn’t intend to make changes until a solid recovery has occurred, which they anticipate will be at least three years from now. Their new goals will be to maintain stable prices, maximum employment, and moderate long-term interest rates.
How do they plan to enact this? Well, not directly. The Fed’s plan is to maintain a 2% average annual inflation rate, which actually means increasing it above 2% in the years following a recession when inflation rates are low. Their expectation is that higher prices will boost the job market. The Fed can’t increase the annual inflation rate directly, though. They will have to put money into the hands of investors and lenders, and simply hope that they spend it.
This is only one pitfall of the Fed’s plan. It also promises nothing for the housing market, as prices are already high, not low as they are normally during a recession. The housing market needs the job market to stabilize before it can even begin to recover. Additionally, the Fed’s reasoning that higher prices will increase employment is flawed. Most people don’t choose to remain unemployed, unless they’re abusing the unemployment welfare system, which is extremely rare and what few cases there are would be better resolved by reforming the welfare system. Forcing already unemployed people to pay higher prices is not suddenly going to give them a job.
Reports demonstrate record job gains in California in the last few months, nearly 700,000. But that doesn’t mean we’re actually making new jobs. It means that we lost so many jobs this year that even recovering a small percentage of them is going to look like a large number. There were actually over 2.7 million jobs lost in California between December 2019 and April 2020, significantly more than were lost in two years during the 2008 recession. So we’re still a long way off from returning to the December 2019 peak, let alone generating new jobs.
Federal assistance has been necessary to keep the economy floating, but it’s also been inadequate. We’re going to need a lot more help. A COVID-19 vaccine is a solid step, allowing more people to return to work. It’s not going to be enough, though, since the economy was already on a downward trend before COVID-19 — recall that the peak was December 2019, three months before the lockdowns. The recovery is expected to be W-shaped, with some unstable gains from now through 2021, and no clear upward trend until 2022 or 2023. Even then, job recovery will have just started, and the real estate market is going to need even more time after jobs start back up.
Companion robots, whether for practical or sentimental purposes, have been around for a while. But this pandemic presents an opportunity for their popularity to grow. With many people isolating themselves, they’ve grown lonely or are lacking in vital assistance. Some things robots are able to do are provide comfort, tell jokes, recite Bible passages, play music, or, for those with more physical needs, feed you, bathe you, or lift you up out of bed. Benefits of robotic companions are that they are always available and never get angry at you, won’t forget important dates or times, and won’t be abusive or fraudulent.
There’s fairly solid consensus that robot companions are useful during a pandemic. Some worry, though, what may happen to human companionship or caregiving if robots catch on beyond their use during a pandemic. As much as social robots can try to fill the void for people who are truly isolated, humans still require interaction with other humans for their mental health. Family members may feel their elderly relatives are completely fine because they aren’t totally on their own, but that would be a mistake. And there are also concerns with the robots themselves — some of them have built-in cameras to monitor when they are needed, which, while they are intended as a safety feature, may be a privacy concern for many people. It’s also inevitable that some caregivers would lose their jobs to robots.
Throughout California, homes are selling quickly. 46% of homes are on the market less than two weeks. Using data from Redfin, 54% of offers were contested. The breakdown by region is 67% in the San Francisco/San Jose area, 65% in San Diego, 58% in Los Angeles, and 47% in Sacramento. However, don’t mistake this for a healthy market — we’re still in a transition period.
The actual reason for low days-on-market is a combination of high buyer demand, due to low interest rates, and low inventory. Those who are able to buy correctly recognize this as a great time to do so if you are able to afford it, and are scrambling to get at what few properties are available for sale. Even the high demand, though, is merely high relative to inventory — there still aren’t very many people who are able to afford a purchase right now. Whether or not we get a COVID-19 vaccine before then, the housing market won’t properly right itself until the job market stabilizes. The expectation is that this won’t happen until 2022 or 2023.
AB 3088 was signed into law, extending eviction moratoriums to January 31, 2021, under certain conditions. While tenants will still be responsible for unpaid amounts after this date, they cannot be evicted for missing payments between March 4 and August 31. For rent due between September 1 and January 31, tenants will be required to pay at least 25% of the amount owed each month to be immune to eviction. Tenants also are not immune to eviction for causes unrelated to missing payments.
In order to be eligible for these protections, tenants will also need to declare financial distress as a result of the COVID-19 pandemic. This could be in the form of loss of income, increased expenses related to performing essential work or to health care, child care, elderly care, disability, or sickness, or some other category, but must be a result of the pandemic. This declaration also applies to 15-day eviction notices the tenant may receive. If no response is provided, the tenant may still be evicted.
The increasing number of people working from home was initially supposed to be a temporary response to COVID-19 lockdowns. Companies also took it as an opportunity to experiment with the work-from-home model. And for the most part, it seems to work. It’s expected that there will be many more permanent work-from-home positions even after vaccines are distributed.
This has had and will continue to have implications for spending patterns and stock values. Traditional work clothes aren’t necessary for many people, nor is spending on commutes, work lunches, and coffee breaks. Most shopping is going to be done for the home — and also at home, signaling a boon for e-commerce. In the real estate sector, commercial construction is expected to drop as fewer companies require as much office space. A major advantage of the work-from-home model is that more people are able to enter the workforce, since it opens the doors to people unable to commute, such as those who are disabled, can’t afford reliable transportation, or have children at home.
As of July, over half of adults under 30, 52%, are now living with one or both parents. The previous recorded high was 48% in 1940, eight decades ago. No data is available for the period including the Great Depression, but it’s likely the number was higher during that period. The majority of this increase comes from those in the 18 to 24 age range, with particularly large spike in April.
In some instances this could be a conscious choice, at least initially, as people moved in with their parents during lockdowns so they could isolate with family members instead of alone while working from home. Even for those for whom this was the plan, their stay has been extended longer than expected. For most people, though, it’s because they aren’t working from anywhere — it correlates strongly with rising unemployment numbers. Unemployed young adults aren’t financially stable enough to become independent homeowners. Increasing student loan debt is also a significant factor.
As a result of home sales volume dropping by 30% in Quarter 2 of 2020 from 2019, loan origination has also dropped considerably. The effect was somewhat lessened by low interest rates, which resulted in more refinances. The commercial sector, however, didn’t have that luxury. The Mortgage Bankers Association (MBA) forecasts a 59% decrease from 2019 in total commercial loan amount, from $601 billion to $248 billion. The majority of this will be from the multi-family sector, which was at a record high of $364 billion in 2019 but is only expected to reach $213 billion this year.
Lenders are optimistic, though, as long as governments can continue to keep people housed. Vacancies aren’t great for lenders, as they reduce the prospects of landlords, and recently evicted people certainly won’t be looking to originate new home loans any time soon. The MBA expects 2021 to bring the number up to $390 billion for commercial loans. The catch is that commercial landlords aren’t protected by the recently extended foreclosure moratorium. If multi-family homeowners are hit with a foreclosure, all their tenants will be affected as well. Commercial property owners as well as lenders are looking for new methods of loan accommodations.
There are two types of mortgage loan insurance, and it’s also possible to avoid needing insurance. Mortgage insurance premiums (MIP) are the type of insurance required by the Federal Housing Authority (FHA). The other type is private mortgage insurance, or PMI. It’s easier to qualify for FHA loans, but private loans come with some additional benefits if you do qualify. Most notably, it’s only PMI that you can avoid; if you only qualify for an FHA loan and not a private loan, MIP can’t be ignored.
Private lenders generally have stricter credit score requirements than the FHA. In return, the higher your down payment, the lower your premium amount. Furthermore, if your down payment is at least 20%, you aren’t required to get loan insurance, so you avoid paying PMI. If you’re getting an FHA loan, you’re stuck with MIP for at least 11 years. On the bright side, the down payment amount to qualify for a reduction to 11 year MIP is 10%, not 20%.
Generally, the greater you can make your down payment, the better. Of course, paying all cash to avoid a loan at all is ideal, but not everyone can afford to do that, so keep in mind the important breakpoints. If you qualify for a private loan, putting at least 20% down is probably your best bet. Even if you only qualify for an FHA loan, be sure to put at least 10% down so that you aren’t stuck with MIP for the entire duration of the loan.
Sales volume and home prices tend to correlate, albeit on a delay of about a year. It’s usually helpful to look at changes in one to predict changes in the other. But sometimes that’s not the case — most notably, at the start of an economic recovery. Looking only to sales volume to forecast a recovery can result in some false starts.
This happened in 2008, and may be about to happen now. Home sales volume shot up between 2008 and 2009, but crashed back down the next year. This is because economic stimulus resulted in temporary buyer demand, which fell off as soon as the stimulus was used up. Now, in 2020, despite actual buyer demand, sales volume is low as a result of low inventory. Low inventory doesn’t decrease home prices, though, so they’re still going up. Pent-up demand means that as soon as the economy recovers, inventory may be snatched up quickly, resulting in another sudden burst of activity that will rapidly fall off.
So what does need to happen for an economic recovery? The answer is jobs. While sales volume may predict short-term direction of change, the job market is an excellent reflection of the housing market stability, since both homeowners and renters require income in order to make payments. Job numbers aren’t going to be stable for a while either. A full recovery of the job market isn’t expected until 2022 at the earliest, at which point we can start to see the regular patterns emerge again in home sales volume and home prices.
It’s September already! That means it’s time to look at a summary of real estate activity for LA’s South Bay neighborhoods over the past month. Our data is ultra-local which means you get to see the market conditions almost immediately after the month ends.
This summer we’ve been enjoying a relatively busy real estate market with a big jump in sales and mixed results in prices. August 2020 weighed in with the median price nearly 6.8% higher than August of 2019. However, it wasn’t enough to beat the median for this July. August median prices were down by 1.8% from last month. In the first eight months of the year, we’ve seen two months where the median increased, versus six months when it decreased.
Median Prices
August
July
2020
$1.10M
$1.12M
2019
$1.03M
—
We saw 450 homes sold in August, up by 10% from July of this year. Compared to August of 2019, sales this year were up 13%. July and August were exceptional sales months compared to January through June. Both months had sales in excess of 400 units, while the first six months of the year were less than 300. March of 2020 made it all the way to 291 sales despite pandemic activity kicking into high gear that month.
Closed Sales
August
July
2020
450
408
2019
398
—
July & August sales were up nearly double the sales numbers from the first half of the year. Why the jump in summer? Anecdotally, we’re hearing interest rates being at or below 3% brought those buyers not financially impacted by Covid-19 to the table. That huge savings in interest helped drive prices, as well. To buy now and take advantage of the interest rates, many buyers have been willing to offer slightly above asking price, to lock the deal in.
August brought a significant increase in the number of homes available for sale. At the end of August total available counts stood at 3.68 months of inventory, compared to 2.17 months at the end of July. In raw numbers, that’s an 18% increase in homes available for sale. More sellers put their homes on the market, and there weren’t enough buyers to absorb the increase. As Covid-19 moves to a back burner, we expect the inventory to return to higher numbers comparable to the beginning of the year.
A rising inventory indicates downward pressure on prices.
With subsidies and protective government programs closing, we anticipate fewer buyers will be able to purchase. At the same time, we expect the continuing stress will create more defaults and short sales. Forced sales, also known as ‘distress sales’ tend to push prices down.
Combined, a growing inventory and economic stress are precursors of a shift to a buyers’ market. Several noted commentators are predicting a recessionary market lasting through 2021 and possibly into 2022. Like so many things in today’s world, no one is sure of where we’ll end up. But it’s pretty much guaranteed to be different than we had planned.
The Federal Housing Finance Agency (FHFA) announced in August that it would be charging an additional refinancing fee to offset losses due to COVID-19. The new fee was expected to come into effect yesterday, September 1st, but at the last minute, the FHFA rescheduled it to December 1st. We’re still in the midst of a recession, so the FHFA doesn’t want to make too many changes too early.
The new fee exempts refinance loans with balances below $125,000, affordable refinance products, Home Ready, and Home Possible. Applicable loans, which are cash-out and limited cash-out refinance loans, will have 0.5% added to each transaction. While this fee applies directly to lenders, it also indirectly affects borrowers in the form of higher interest rates. While the FHFA certainly wants to recoup their projected $6 billion in losses, they’ve agreed that now is not the time; the economy still needs to recover first.
Long Beach just started the planning process for a basic income pilot program. It’s very early in the process, so not much is known, but the City Council just had their vote today, September 1st, and unanimously approved the program, which means it’s sure to happen in some capacity. This pilot program will be privately funded, so it’s not going to be a tax burden.
The decision arrived after witnessing the success of a similar program in Stockton. The Stockton program tested a $500 basic income for 18 months, given to 125 randomly selected residents. The spending breakdown was 40% on food, 25% on merchandise, and about 12% on utilities. It’s unclear what happened with the other 23% — it’s possible it was saved, or maybe it was spent on other categories not listed. Now the mayors of 15 other cities across multiple states want to try it, including Oakland, Long Beach, and Los Angeles in California, Newark in New Jersey, and Columbia in South Carolina.
It may seem intuitive to look at past recessions, such as the one in 2008, to predict the market during the current recession. But that doesn’t always work, since the circumstances surrounding the downturn may be different. In 2008, what caused home prices to drop was reduced buyer demand and increased foreclosures and short sales. Now in 2020, that’s not happening.
Buyer demand is actually relatively high right now, as a result of interest rates being low. The Fed decreased interest rates in 2019 in expectation of a recession. They were right, of course, but couldn’t have predicted the exacerbating effect that COVID-19 would have. Interest rates can’t get much lower without the Fed going negative, so the market doesn’t have anywhere to go. Foreclosures may be on the horizon if federal and state governments don’t maintain protections. But for the time being, there’s a moratorium on most foreclosures, so there’s no need to drop home prices. Another factor is the lack of construction. With fewer homes being built, especially in the form of affordable housing, low inventory means there’s no competitive pressure on sellers to reduce prices.
The CARES Act, signed into law in March, provides multiple benefits to those impacted by the COVID-19 pandemic, including a moratorium on most foreclosures. On August 24, real estate journal First Tuesday pondered what may happen beginning August 31, when the CARES Act was set to expire. However, it was announced August 27 that the moratorium has been extended through December 31.
Even had the moratorium not been extended, First Tuesday said not to panic. The foreclosure process would have to start from the beginning, and it takes time, so homeowners would not be evicted overnight. That said, it’s important that state legislators make efforts to soften the blow even after the federal moratorium ends. Just like foreclosures won’t happen overnight, nor will affected parties recover overnight. Fortunately, there is a statewide bill for California, AB 2501, that seeks to extend it for another 12 months as well as offer forbearance.
