For people who don’t necessarily have a lot of cash on hand but are willing to invest over longer periods, buying a home in need of repairs is often what they look to. This may be in to live in or to resell the home later, but in either case, you may need to finance the repairs, the purchase itself, or even both if you’re low on ready cash. Fortunately, there are loans that are designed specifically for this situation. One such loan is the FHA 203(k) rehab loan.
The FHA 203(k) rehab loan can be used to finance both a purchase and repairs simultaneously, preventing the need for multiple loans, credit usage, or a line of credit. This can definitely save you money in the long run, especially if you are able to qualify for a low interest rate. There are two types of FHA 203(k) rehab loans: a standard loan and a streamline loan. The standard loan is designed for long-term, larger projects, such as renovating entire rooms. This type has no limit on the portion of the loan used for repairs, unlike the streamline loan, which has a limit of $35,000. It’s quicker and easier to access funds from a streamline loan, which makes it more suitable for smaller projects, like installing an HVAC or repairing plumbing.
With how much discussions of real estate tend to pit buyers and sellers against each other, it’s easy to forget they’re often actually the same people. Many sellers are also buyers, either planning to buy to replace the home they’re selling, or already bought another home. This isn’t always the case, of course — it’s entirely possible that someone could have never purchased anything, inherited two homes, and sold one of them. But this isn’t most sellers. What this means is that market conditions that are generally considered to primarily affect buyers will also affect sellers.
Such as right now, where it appears that the high interest rates that are holding buyers back are also making sellers hesitate. The majority of homeowners now have an interest rate lower than the current rates, especially if they took advantage of ultra-low rates such as the rates during the pandemic. If these homeowners were to sell and buy a new home, they would be losing their low interest rate and gaining a high interest rate. For 82% of them, that may not be worth it. Over half of those considering selling right now are deciding to wait until interest rates drop.
Transitioning from renting to buying a home can be exciting. However, make sure not to get too excited too early before you’ve terminated the lease. It’s not at all uncommon for a renter to not want to deal with their landlord any longer than they have to, and simply leave. But that could actually be costing you money or leaving you open for a lawsuit.
Lease agreements will always have an early termination policy. It may look like ignoring the policy and ditching is just a way to skip the fees, but it’s actually not. You’re still on the hook for rent payments until the lease is actually terminated, and the early termination fee could be significantly lower. There may not even be a termination fee — the rules vary widely by region and by property manager. Don’t be afraid to talk to your landlord, either. They’re much more likely to be sympathetic to your situation if they’re aware of it. If you tell your landlord you’re terminating the lease early, the worst they can legally do is charge a termination fee.
There was a time that smaller homes and multi-family living were common in Long Beach. Over the decades, that has transitioned to condos and then to single-family residences. But in 2020, Long Beach municipal codes were revised, reducing the minimum square footage requirement to just 220 square feet. The original aim was probably not co-living, which wasn’t on the radar given that it occurred around the start of the pandemic. Nevertheless, builders now are seeing the opportunity to build apartment buildings consisting of small units with shared common area.
Derek Burnham is a former Long Beach city planner and now works at a development firm, and is excited about the idea. Burnham has already planned about 48 units, which are going to be roughly the same size as hotel rooms, around 350 to 500 square feet. The target audience for this project is people who want to be near jobs and transportation, but can’t afford the typical apartment or condo unit. But builders don’t yet know how receptive people will be to it — after all, the transition away from shared living towards single-family residences was cultural and not pragmatic. Because of this, the plans are flexible, allowing anything from private units to shared units to miniature family units.
Two measures went into effect this spring, Measure GS in Santa Monica on March 1st and Measure ULA in Los Angeles on April 1st, both of which enact an additional transfer tax on the sale of very expensive homes, dubbed the Mansion Tax. Measure GS affects properties sold at over $8 million and Measure ULA has two tiers, one affecting properties sold at over $5 million and another affecting properties sold at over $10 million.
Prior to these measures, the transfer tax in both cities was a small dollar value per $1000 of purchase price regardless of property value. Including county taxes, this value is $5.60 in Los Angeles, and Santa Monica has two tiers, one at $4.10 per $1000 and another at $7.10 per $1000. Measure GS added a third tier to the Santa Monica system, which is a significantly higher $56 per $1000 value for homes over $8 million. Los Angeles still only has one base value of $5.60 per $1000, but with an additional tax of 4% for homes between $5 million and $10 million, and 5.5% for homes over $10 million.
Spring is already halfway over, so if you’re planning to sell your home this season, you should get on it quickly. Especially since you may need to do some sprucing up to get a good deal. If you bought your home during or shortly before the pandemic, this may be your last chance to benefit from the spike in prices. But buyers aren’t simply snatching up any home they see, like they were during the pandemic. They’re being more deliberate, so you need your home to be appealing.
This means all the standard procedures for increasing your home’s appeal apply. These include things such as repairs, upgrades, repainting, curb appeal, and staging. In some markets, you can get away with not doing these things, or only doing some of them, because the buyers are happy to purchase a cheaper home and perform the upgrades themselves. Not the case this spring. The seller will have to make the investment, which hopefully translates to a higher price as well.
Having a 20% down payment used to be a requirement for nearly all loans. That hasn’t been the case for quite some time, but it’s still touted as the conventional wisdom. In many cases, that may be true, but it’s not always the best idea. There are both advantages and disadvantages to putting 20% down.
If you have the money available already, it’s quite likely that the benefits heavily outweigh the drawbacks. Even though 20% down is no longer a requirement to get a loan, it is still a requirement to avoid mortgage insurance fees. Putting 19% down, for example, simply makes no financial sense at all, regardless of your financial situation. It’s also good to put down as much as you feasibly can in order to reduce the loan amount, thereby reducing your payments. The 20% mark is important if you can reach it.
If you still need to save money in order to achieve a 20% down payment, you’re going to need to crunch some numbers and also make some predictions in order to arrive at the correct solution. If you’re close to being able to put down 20%, it may be in your best interest to continue saving up to avoid mortgage insurance fees. But if you aren’t close, it may be best to simply forget about it. Even if you are definitely able to save money, by the time you get to the point that you can put down whatever 20% is now, home prices are likely to be significantly higher. In that case, it may be better not to wait. You also need to consider other costs and where you’re getting the money. If you need to take out a loan or draw on investments to reach 20%, this is probably not a good investment, unless it’s the only way you can viably make a home purchase.
If you’re planning to renovate your home, whether you intend to continue to live in it or to sell it at a profit, you need to think about how to pay for the renovations. Of course, it’s possible you have the cash on hand, which is great. But if not, there are a few financing options you can look into. It’s common to get a home equity line of credit (HELOC) or simply take out an additional loan. However, another option you may not be aware of is cash-out refinancing. It works by refinancing to a loan amount higher than your current loan balance, and taking the difference as cash.
The most important thing to consider when determining if you should get a cash-out refinance loan is the interest rate. It very likely won’t be the same as your current interest rate. If the rate is higher or even the same, it’s probably financially negative in the long run unless you can increase your home’s value significantly with the renovations. That’s why it’s a good option specifically for renovations. On the other hand, it’s entirely possible the rate is lower, or simply lower than traditional loans or HELOCs, in which case it’s a good financing option for any purpose. However, you may not want to use cash-out refinancing for large projects. Since you don’t receive the entire value of the new loan, but only the difference between the new loan balance and old loan balance, you’d need to increase the principal significantly to finance large projects. This could increase your interest payments by quite a bit even if the rate is lower.
The business lobby in California, and in particular the California Chamber of Commerce, has had quite a lot of success taking down bills that they deem “job killers.” Many of these bills are not at all designed to kill jobs, but rather to improve conditions for employees. To the business lobby, these are the same thing, but these are often the types of bills that the majority of the populace in California would tend to support.
One of the bills the California Chamber of Commerce is targeting is a bill to tax total wealth on individuals with a net worth of $50 million or more. Introduced by Milpitas Democratic Assemblymember Alex Lee, the bill would be the first of its kind if it passes. Obviously, there have been taxes on income, but so far, none on net worth. Lee’s argument is that the stocks and properties owned by the ultra-wealthy allow them to legally borrow and transfer funds in a way that avoids a significant percentage of income taxes. According to the chamber, this would simply convince the ultra-wealthy to leave California, rather than increase tax revenues.
The second bill was proposed by Los Angeles Democratic Senator María Elena Durazo. The bill would increase the minimum wage for health care workers to $25 per hour. According to Durazo, health care workers — especially whose who are women or people of color — frequently take home poverty wages, despite working multiple shifts due to being understaffed. The chamber argues that increased payroll costs for health care facilities would simply be passed onto patients, reducing health care affordability.
The chamber has a similar argument against the proposal to increase the required minimum paid sick days offered per year from three to seven, claiming that either the costs will be passed to consumers or the employers will cut benefits or lay off workers. Long Beach Democratic Senator Lena Gonzalez, who introduced the bill, says that the current sick leave is not adequate and forces employees to either forego pay to stay home or risk infecting coworkers.
For the past couple of years, house prices had been rising dramatically across the country. Here in California, we’re now starting to see prices drop since the start of this year. Prices are now falling in all 12 major housing regions west of Texas, as well as in Austin, TX. The same can’t be said everywhere, though. In the 37 largest metros east of Colorado, excluding Austin, TX, prices are still rising. Of course, markets can differ drastically by state, but such a clear divide between eastern and western US may be unprecedented.
Falling home prices was the expected result of the federal benchmark rate hikes. It seems to be working in the western US, as prices become too unsustainable to continue to increase. The regions with the most significant price drops are the ones that were rather expensive. But there are still other factors at play in the eastern US, driving prices still upward. Some areas, such as Hartford, CT and Buffalo, NY, never reached unsustainable home prices and remain rather affordable. They also have rather low inventory. These factors combined are keeping prices from dropping, leading to an 8% increase in prices in January. Florida is attracting many new employees with multiple financial companies relocating to Miami in 2021 and 2022. Prices are expected to eventually start falling even in the east, but don’t expect anything drastic. Low inventory across the country is preventing any sudden market collapse.
Short sale is the term for the sale of a property when the seller owes more on their mortgage than the listing price. The extra regulations that apply to a short sale typically apply to the seller, but that doesn’t mean the buyer doesn’t need to do their research as well. Much of the homework that goes into buying a short sale property is best done ahead of time, so these types of transactions work most smoothly when the buyer is specifically looking for short sale properties.
If you know you’re looking for a short sale property to buy, make sure to find an agent that specializes in short sales, or at least has a large amount of experience with them. Expert short sale agents will have the best idea of a reasonable purchase price and what types of offers will be most attractive to the seller. You may have heard the common advice to get a pre-approval for your mortgage. In the case of a short sale, it’s best to go a step further and get a full approval. Nearly everyone who offers on a short sale will be pre-approved, so that alone won’t make you stand out, but a full approval will. And whether you’ve planned on purchasing a short sale property ahead of time or not, it’s important to be patient. Short sales typically take longer than traditional home sales. In fact, buyers often drop out of short sale negotiations because they simply don’t have the time, leaving you with less competition if you’re patient.
SB 9, also called the HOME Act of 2021, is a California law requiring cities to allow homeowners to subdivide lots into potentially up to 4 units. This law makes it significantly easier to built accessory dwelling units (ADUs). Huntington Beach has decided it doesn’t like this, and is willfully ignoring the law, stating that they won’t process ADU applications. The City Council has even gone as far as to enact an ordinance declaring that they are exempt from some of the requirements of the Housing Accountability Act (HAA). The HAA streamlines the approval process for low- and moderate-income housing. Huntington Beach is not compliant with HAA requirements, and so the city is attempting to declare that the regulations simply don’t apply to them.
This is entirely illegal on the part of Huntington Beach, and so naturally, it hasn’t gone over well. The city has received letters from the Department of Housing and Community Development (HCD) and has been sued by the California Office of the Attorney General (OAG). Knowing that the state does have authority in this regard, the Huntington Beach City Council is starting to backpedal. But this probably isn’t the end, nor was it the beginning. Huntington Beach has already been sued previously by the state for housing law violations, settling in 2020 and losing millions of dollars in state funding.
Most buyers are aware that homeownership has some extra costs associated with it. You can’t just pay the purchase price and be done. But it seems the vast majority aren’t prepared for just how high those costs can be. A whopping 90% of homebuyers in the past three years underestimated the hidden costs of homeownership, and 73% regretted some aspect of their purchase.
For a third of them, the culprit was property taxes. Even if you have purchased before, buying a new home in a high-priced market will probably drastically change your property tax values. A quarter or slightly over a quarter of respondents didn’t think roof work, renovations, or utilities would be so expensive. Annual expenses among respondents average $17,459 on top of mortgage payments. In hindsight, 57% of buyers know what they would have done differently. Among this subgroup, 42% would have purchased a home that didn’t require quite so much maintenance. It may cost more up front, but the annual costs could be significantly lower. 33% think they just needed to negotiate a lower price, and 29% would have gone for a lower-priced home to begin with. 27% believe it was simply the wrong time to buy, and they would have waited for a better deal.
The California Housing Finance Agency (CalHFA) recently launched the Dream For All Shared Appreciation Loan, a secondary loan to be used in conjunction with CalHFA’s Dream For All Conventional first mortgage. This secondary loan carries its own set of requirements, which may or may not differ from the initial Dream For All Conventional first mortgage. The requirements of the secondary loan are provided here, but you should consult with CalHFA to be sure that you meet all requirements. The requirements are provided for two categories, both for the borrower and for the property.
The borrower must be a first-time homebuyer, which CalHFA defines as not having owned and occupied a home in the past three years. The borrower must also occupy the property as their primary residence and meet income limits for the program. In addition, the borrower, or at least one of the co-borrowers if there is more than one, for any CalHFA first-time homebuyer loan must take a CalHFA approved Homebuyer Education and Counseling course. This course does have a fee, which varies by method and agency, and can be done online or in-person. The Dream For All program also has its own additional course. Fortunately, this course is free, but it is only accessible online.
The property requirements are simple for single-family residences and manufactured homes, which are both allowed, but may be more complex for other types of properties. Condominiums must also meet the guidelines for whichever initial mortgage you choose. Guest houses, granny units, and in-law quarters may be eligible, but would not be eligible in addition to the main residence, since the property must be only one unit.
Wrap-around mortgages are not very common, but it’s still a good concept to know in case you find it difficult to get a more traditional mortgage loan. A sale with a wrap-around mortgage has two important components distinguishing it from a regular sale: First, the seller retains the current mortgage on the property being sold. This differs from standard sales in which the seller normally pays off the remaining mortgage as part of the sale process. Second, the loan is not issued by a lender but rather by the seller. In this way, the seller is most likely planning to pay their mortgage using the money gained from payments the buyer makes to the seller on their new mortgage.
Wrap-around mortgages have both advantages and disadvantages. The primary reason to get a wrap-around mortgage is that they don’t have any standardized qualification requirements. This mostly benefits the buyer, but can also be useful to the seller if they’re having difficulty finding buyers. The primary drawback is that the buyer and seller must write up the contract themselves, since there is no lender involved. That means both parties need to be legally and financially savvy. It’s also impossible to wrap around a mortgage that doesn’t exist, so the seller needs to have a mortgage. There are also cons specific to the seller and buyer. The seller in this instance incurs the same financial risk that a lender would normally. The buyer is very likely paying a higher interest rate, since the arrangement is not worth the risk to the seller unless they are profiting.
A common reason to purchase a new home is needing more space because you are expecting kids. But just having more space isn’t going to prepare your home for all the trouble a baby can get into. By the time your kid is able to crawl, you’ll want to have finished baby-proofing your home.
Some things are probably pretty obvious, like using baby gates, locking drawers, keeping hazardous substances away, and covering up sharp edges. But some safety precautions are things you may not think about. While it’s true that babies often like soft and fluffy blankets, leaving them around loose can be a suffocation risk. When you’re in the kitchen, you’re probably used to having pot and pan handles turned towards you for ease of access. But once your kid can walk, there’s a good chance they can reach up there. Make sure to turn the handles inward. You should also acquire a latch for the oven. Bathrooms can be dangerous for both kids and adults, so you may already have taken precautions such as non-slip mats for your bathroom. But if not, make sure to get some. You may also want to get soft covers for the knobs and spouts.
Some of the questions on a mortgage application may seem unnecessary, but they’re all there for a reason. Certain omissions can lower your interest rate and make your offer seem more appealing. But even if you haven’t done anything wrong — especially if you haven’t done anything wrong — you should always disclose all relevant information.
Money changes hands all the time, and the transfer doesn’t always leave a paper trail. But lenders will still find it odd for you to suddenly have additional money or fewer debts. It’s perfectly legal to ask a friend or family member for some cash to help you buy a home or pay off a debt. That money came from somewhere, though, and if you don’t list it, your lender could assume you are hiding something and deny your application.
A common lie that seems more innocuous but can actually have even more drastic consequences is stating that you plan to live in the home when you actually don’t. People do this because interest rate is lower on loans for primary residences, and they figure it’s fine because of course they can always change their mind. However, this is actually a crime. It’s considered a form of mortgage fraud.
Project Barley serves excellent Food (Gourmet Pizza, gluten free/vegan options, wings, sandwiches, salads), wine, and award winning beer. Food served till 8:30pm. No reservations so arrive early to get a table. 2308 E Pacific Coast Hwy, Lomita, CA 90717 https://projectbarley.com/
FRIDAY, MAR. 24TH AT OUR LIVESTREAM SHOW THIS FRIDAY!!!!
DYLANFEST SUPER EARLY BIRD TICKETS ON SALE NOW-TIL APRIL 1st!
Hello everyone!
Hope all is well!
Lots of other Great gigs coming up….Hope to see you!
Celebrate Andy’s Birthday at our Livestream, Friday, March 24th. Just RSVP to this email to reserve your spot!
We will also be up in Auburn, CA the last weekend of March and Dallas, TX in April…Go to www.andyandrenee.com for more info.
Exciting news….Super Early Bird Dylanfest 33 tickets are ON SALE NOW! Save $10 off the price at the door til April 1st! Go to https://andyandrenee.com/tickets-tips-merch to get yours now!
Every WED @ 8:30PM — 11:30PM Fairmont Century Plaza, 2025 Avenue of the Stars, Los Angeles, CA
Andy & Renee-Livestream #206
Celebrate Andy’s Birthday a day early!!
Friday, Mar. 24th 6pm PST
Home of Andy Hill 17411 Delia Ave., Torrance, CA 90277
Watch live, or anytime at https://youtube.com/live/BpWWfg1d_Hc?feature=share. Come watch the show in person! LIMITED SEATING, so RSVP to reneesafier@hotmail.com ASAP. The Livestream shows are free to watch, but the option to contribute is there for those who are in a position to do so. You can see our song list to make requests and contribute at https://andyandrenee.com/tickets-tips-merch, PayPal (paypal.me/andyandrenee) or Venmo, (www.venmo.com/Renee-Safier). A portion of the proceeds will go to the Los Angeles Midnight Mission. We are sustained by the generosity and support of the fans who love the music, and who donate as they are able. If you use funds from your bank vs. your credit card, we aren’t charged a service fee, but either way, we appreciate your support!
Last year ended with sales volume off, median prices coming down and revenue dropping fast. January showed little change. February of this year shows sales volume up from January by as much as 50%. The reason why is obvious–the median price is simultaneously dropping by percentages as high as 18%.
Comparing February activity to February a year ago shows significant declines in both sales volume and in median price. At that point in 2022 the market was just beginning to dip a toe in the recessionary waters. Now we’re wading into it.
The first week of March Fed Chairman Jerome Powell told Congress, “…the ultimate level of interest rates is likely to be higher than previously anticipated.” Powell’s pointed remark clearly tells us the most recent pause in interest rate hikes is momentary. The lowest local mortgage rates we could find at the time was 6.75%. As such, we anticipate rates in excess of 7% by summer.
February Sales Volume Climbs
About the second week of January mortgage lenders began loosening the interest rates in anticipation of a relaxation by the Federal Reserve. For the most part, local rates stayed below 6% until late in February when the Fed began dropping hints that inflation was still raging.
After a “soft” January, sellers in the market were dropping prices and buyers responding positively by making offers. Now that mortgage rates have resumed climbing, sellers will have to drop prices some more to remain attractive to buyers.
With only two months behind us this year, there are indications lenders will “see-saw” the rates throughout the year. Already this year we have seen retail mortgage rates moving up and moving down without influence from the Fed. It seems to be an effort to induce buyers to accept high interest rates based on the theory they were higher last week so this temporary reduction is a good deal.
RevenueClimbs From January Depth
On a month-to-month basis, revenue across the South Bay is up 21% from January of this year. Don’t get excited—it’s only one month. January was one of the lowest performing months we’ve seen recently.
On a year-over-year basis, revenue is down 34% from last February! January was 38% lower than January of 2022. Year to date through February, revenue in the South Bay is down 36% and is expected to continue falling.
One of the more important statistics to note is how 2023 activity compares to 2019, which was the most recent “normal” year of real estate business. Across the South Bay real estate revenue for the first two months of 2023 is 7% below the same period in 2019. Restated, the South Bay has already lost over four years of gain in real estate revenue.
Median Price Slips, Volume Rises
More units of housing were sold in February than January, and the median price was lower in February. The Beach Cities saw a drop of 18% from January while the PV Hill held the decline to 3%. The Harbor area fell 4% and the Inland area dropped 14%.
Comparing February of this year to February of 2022 brought a harsher focus to the picture. All four areas have fallen from last years median price. The Beach is down 17%, the Harbor down 11%, the Hill is off 29% and the Inland cities down just 3%.
2023 Versus 2019 Shows a Sinking Market
The summary numbers comparing the first two months of 2023 to the most recent “normal” year of 2019 are not encouraging. Overall, sales revenue has fallen 7% below revenue figures for the same period in 2019. The Harbor area has fared the best, showing a 9% increase in revenue over January and February activity in 2019. Of course, that was four years ago and classic inflation would give that type of gain. It’s clear the “inflation on steriods” we’ve been experiencing is gone from the real estate industry.
The Beach cities provide an excellent indication of where the real estate economy is going. The first two months of revenue for 2023 is down 32%. Palos Verdes is down 2%, while the Inland area is up be a mere 1%. After four years of pandemic, recession, inflation and Federal Reserve manipulation the real estate market is tanking.
Disclosures:
The areas are: Beach: includes the cities of El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach; PV Hill: includes the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates; Harbor: includes the cities of San Pedro, Long Beach, Wilmington, Harbor City and Carson; Inland: includes the cities of Torrance, Gardena and Lomita.
This coming Tuesday night will feature some of LA’s best songwriters! Ted Russell Kamp, Abby Posner, Mary Scholz and me~
