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.
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
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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
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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.
Under Proposition 13, a property’s assessed value doesn’t change very much from year to year, unless the home is sold, in which case its value may or may not be reassessed. But under what conditions is the value not reassessed? Here’s an explanation.
Several types of transfers don’t trigger reassessment. This includes transfers between spouses or domestic partners, from parents to children, or in some cases from grandparents to grandchildren, though it does not include transfers between siblings. Changes recorded without transfer of ownership also do not trigger reassessment. In some cases, replacing a property may also not trigger a reassessment for disabled persons or seniors. Joint tenancy and co-ownership are also factors in determining whether reassessment applies.
With their most recent update to home sales volume data for California, First Tuesday has the some of the numbers up to June of 2020. While parts of their analysis have not been updated, we do have data comparing month-to-month sales in June 2020 to both May of 2020 and June of 2019, as well as data for year-over-year sales for June of 2020, 2019, and 2018. We’ve also compiled data exclusively for the South Bay, which demonstrates a much more significant difference.
In June of 2020, the month-to-month sales for all of California were 35,300, with a nearly even split between Northern and Southern California. This is a decrease from the June 2019 number of 39,900, but the numbers are up from May of 2020 at 24,000. Looking at only the South Bay, the trend direction is the same, but the differences are much more stark. There were only 75 sales in May 2020 and 95 in June 2020, compared to 376 in June 2019.
This pattern continues to hold for year-over year sales through June. The total for California was 177,500 in 2020, down from 206,300 in 2019 and 223,800 in 2018. Again, the difference is much more obvious in the South Bay. Following 1692 sales through June in 2018 and 1245 in 2019, there were just 433 in 2020.
The real estate journal First Tuesday asked readers in July how they felt the 2020 recession would impact for-sale inventory. The votes are now in.
A plurality of respondents, 45%, felt inventory would go down. This would likely be a result of both anxiety from sellers and not enough construction. However, the number who instead felt construction would increase and there would be rental vacancies, leading to more listings, was 39%, not too far off from the plurality. The third and final category, those who felt there would be little to no impact, totalled 16%.
But that was July. It’s now August, and there certainly has been an impact. It turns out the 45% were right. Inventory has declined steeply, and construction companies are even more wary about building than they already were before the pandemic. Fortunately, declining rental vacancies points to an increase in inventory as soon as construction starts back up. Changes to California zoning laws also hope to speed up construction.
California is seeing a rise in heat waves. It’s important to know how to keep safe in extreme weather conditions. Here are some suggested precautions from Senator Steven Bradford.
Avoid the sun– stay indoors from 10 a.m. to 3 p.m. when the burning rays are strongest.
Drink plenty of fluids– 2 to 4 glasses of water every hour during times of extreme heat.
Replace salt and minerals– sweating removes salt and minerals from your body, so replenish these nutrients with low sugar fruit juices or sports drinks during exercise or when working outside.
Avoid alcohol.
Pace yourself– reduce physical activity and avoid exercising outdoors during peak heat hours.
Wear appropriate clothing– wear a wide-brimmed hat and light-colored lightweight, loose-fitting clothes when you are outdoors.
Stay cool indoors during peak hours – set your air conditioner between 75° to 80°. If you don’t have air conditioning, take a cool shower twice a day and/or visit a County Emergency Cooling Center. Find a local emergency cooling center at lacounty.gov/heat.
Monitor those at high risk– check on elderly neighbors, family members and friends who do not have air conditioning. Infants and children up to 4 years old, people who overexert during work (e.g. construction workers) and people 65 years and older are at the highest risk of heat-related illnesses.
Use sunscreen – with a sun protection factor (SPF) of at least 15 if you need to be in the sun.
Keep pets indoors– heat also affects your pets, so please keep them indoors. If they will be outside, make sure they have plenty of water and a shaded area to help them keep cool.
It is also recommended to reduce electricity usage to avoid shortages and service interruptions. If you are experiencing difficulties from extreme heat, Los Angeles County has designated Cooling Centers with air conditioning. A list of the Cooling Centers can be found in the full article.
We’re all well aware that California has been facing a shortage of affordable housing. Affordable housing is also an important step in recovering from the current recession. So, why hasn’t it happened yet? There are a couple of reasons.
It’s true that not enough homes are being built, but it’s more complicated than that. Not enough affordable housing is being built — because it’s actually more expensive to build than high-tier homes. Whenever housing is developed, it’s subject to a development fee, the rules for which are set at the city level, so they’re hard to standardize. The development fee can range from 6-18%, reaching upwards of $150,000 in some cities. The big issue is that this fee is charged per unit, which means that affordable housing developments, which invariably consist of multiple, smaller units, are subject to multiple development fees. This makes it difficult for developers to turn a profit from affordable housing projects.
The other reason is also the same reason it’s so important to our recovery — the job loss from COVID-19 and the recession itself. These factors have reduced purchasing power, increased homelessness, and increased the demand for lower-tier housing. Construction companies can’t keep with the ever-increasing demand for their most expensive, lowest return-on-investment projects.
As a result of COVID-19, restaurants are looking for ways to reduce the interaction between workers and customers. One solution? Robots. Robot chefs have been around for a while, but weren’t always successful. They’re now gaining more traction as restaurants see them as becoming a necessity.
New plans include a burger-flipping robot named Flippy at White Castle and a smoothie-making robot called Blendid, which is expected to have more widespread availability. Chowbotics reports 60% increased demand for Sally, a salad-making robot, and Wilkinson Baking Co. said they have also been getting more inquiries about their BreadBot.
Some are skeptical, though. Max Elder of Food Futures Lab warns that automation can’t solve all the problems within the food industry, and that offering it as a solution may take attention away from issues that were already in existence before the pandemic began. Elder also says the human factor is important — “Food is so personal, and it needs to involve humans,” according to him. Automated food companies insist they aren’t trying to replace human workers, only streamline the process so that workers can be more efficient, but nevertheless automation does reduce the demand for labor.
Of course, no one who was laid off during the lockdowns was happy to lose their job. But at least initially, the expectation for most was that they would be returning to their job once the lockdown was over. In most cases, that hasn’t happened, both because COVID-19 has not yet been contained and because many of those positions simply don’t exist anymore.
The economic recession has been difficult on small businesses with tight budgets that are not getting as many customers, but still have the same costs without laying off workers and often even closing down facilities entirely. This means that the same businesses won’t have the extra income to rehire the workers they laid off. Businesses that are transitioning online rather than closing down may be hiring people again once a vaccine is widely available, but probably not the same people — they’re going to need a different skillset. People nearing retirement may be forced to retire early, as most businesses won’t want to hire someone who will only be working there a few years before retiring. All in all, a currently estimated 50% of jobs lost during COVID-19 will not be recovered, despite the estimate being 17% in April.
We monitor local South Bay real estate activity daily. The data is charted to show the direction of the market in terms of tendency to favor Sellers versus Buyers. Ideal market conditions are in the the center band where both have roughly equal market strength. As you can see, South Bay activity was right down the middle for July. The daily market trend has been more or less level since the beginning of the year, with only a slight upward movement each month.
Cumulatively, since the beginning of the year, the market has shifted from almost being a Buyers’ Market to being almost dead center on the chart. What that means in terms of value can be seen by looking at the most recent three months sales. The list below represents only houses, and only those sold in two neighborhoods. If you’re interested in real time information about homes like yours, or near yours, call and ask about our Neighborhood Notice service.
These sales are for a select period and a select area. If you have interest in similar data for your neighborhood, we can provide you with our instant Neighborhood Notice. Call us for details.
If you’re worried about listing your home during the pandemic, or if you want to take advantage of the increased inventory and buy a new home, there is a protocol for doing so safely, even in heavily impacted areas of California.
You should discuss with your agent the things that can be done to curb the spread of COVID-19. Some things you can do while others your agent will be better able to do. You can leave interior doors open prior to a showing to ensure visitors don’t need to open doors. Also, you can open windows before and after showings to let in fresh air.
In addition to opening windows for a showing, use disinfecting wipes or spray to clean surfaces that you expect may have been touched frequently, such as countertops, cabinets, light switches, and door knobs.
You and your visitors should wash hands or use hand sanitizer, wear masks or other protective face covering, and practice social distancing. Any disposable protective gear should be discarded when leaving.
The listing agent can discuss the precautions with the buyer and/or buyers’ agent. They can discuss taking care to avoid touching surfaces as much as possible and other safety measures, as well as check to make sure everyone is symptom-free.
The California Association of Realtors (CAR) provides a poster guiding the actions of visitors to minimize risk, which should be posted near the entry. CAR also provides a form called the Coronavirus Property Entry Advisory and Declaration (PEAD) which requires all involved to certify that they are aware of the safety requirements. That form should be signed by the agents, seller, and any visitors.
Be sure to call or email us for more information about safely showing property during the pandemic or regarding other aspects of buying and selling in difficult times. We each have over 25 years of experience in good times and in bad.
It’s no secret that California has exorbitantly high home and rental prices as well as increasing homelessness. What may be less obvious is that the issue lies in housing construction. There simply aren’t enough affordable units being built.
That’s why California’s Department of Housing and Community Development (DHCD) has established ambitious housing goals for the next decade. In order to be eligible for DHCD funding, a county such as Alameda County would need to plan to build 441,000 more housing units between 2022 and 2030. If that sounds unachievable already, take note that Alameda County is still behind by 188,000 units on its 2022 goal. As far as affordability, Alameda County has similar goals as other large metros for income distribution: about 45% to above-moderate income households, about 15% to moderate- and low-income respectively, and about 25% to very-low-income households. Local jurisdictions are also going to need to adjust their zoning laws to accommodate the new goals.
Co-living and co-housing are two types of housing arrangements that may be confused. Both are types of “intentional communities” — that is, communities in which the residents share some or all of the space. There are important distinctions in how that space is shared, though, outlined in July/August 2020 edition of NAR’s SRES newsletter.
In a co-living arrangement, all residents share a single dwelling, and the residents are not relatives. Each resident will normally have a private bedroom and possibly a private bathroom. The rest of the rooms are communal, including the kitchen, dining room, living room, and laundry area. This will be familiar to college students living in dorms, but it’s also a potentially beneficial housing arrangement of seniors who may not be able to afford their own housing space or may need assistance.
Co-housing communities, on the other hand, are more private, and likely more expensive. Each party in a co-housing situation may or may not be a single individual; they could be couples or families as well. In any case, the living unit is not shared with other parties, and no room inside the dwelling is communal. Instead, the communal space all exists outside the dwelling, in the form of activity rooms, pools, meeting rooms, or similar such areas.
