State of the Market - Crash Looming?

We're half way through the year, pandemic still going, stocks are up, real estate is still buoyant, cost of goods increasing every day. These are chaotic and unstable things going on, but one fact remains, which is that people need places to live. And as the job market continues to pick up, people are moving around, upsizing, downsizing, and changing their surroundings. 

So the big questions:

1. Is there a bubble? - YES. Of course this is a bubble. Multiple offers. Love letters to sellers. As-is. All cash. 

2. Will there be a crash? - PROBABLY. But most likely, it will be a small correction rather than a crash, and it might be a miniscule. WHEN? Likely in 2-3 years. Once all the buyers who accelerated their buying timelines have gone, those who come out to sell will find that there's less demand out there. This will result in some price corrections. But again, I don't see it being big enough to matter in a place like LA. 

3. Hold or sell? - Hold if you've got 5-8 years to hold on. Sell if you're needing to unleash in the next 1-2 years. 

4.  Buy or wait? - If you have a downpayment, buy. Inflation is killing your savings and interest rates are so low, it's practically free money. Only wait if you don't have enough down or you're not prequalified. Otherwise, diversify your investments with stocks, a property, and maybe some crypto if you're risk tolerant.

DTLA Prices Starting to Bounce Back + Going Back to the Office

You always have to be cautious in unprecedented times, but there's no doubt been signs of some recovery in LA and especially DTLA. 

Single family homes are still super hot, with no signs of slowdown in 2021. Low inventory is fueling high prices because we're at that point again where owners are holding on since they can't buy any cheaper even if they sell and gain nice equity profits. Plus too many buyers and low interest rates.  https://www.redfin.com/news/housing-market-update-39-pct-homes-sold-above-list-price/

The single family/suburban boom is also now lifting prices of for DTLA again from 2020's setback. Here in DTLA, we're seeing an influx of savvy east coasters and bay area buyers who are seeing the value in prime buildings, Mills Act properties, and the growing number of companies coming back to the office in DTLA. https://www.eastbaytimes.com/2021/03/04/covid-economy-bay-area-residents-exit-region-growing-numbers-jobs-tech/

And Bitcoin may become a regular currency for paying rents! https://www.yahoo.com/entertainment/first-tesla-now-rent-california-205817713.html

DTLA Already Showing Signs of Bouncing Back

While most dense urban centers took a backseat to the suburbs during COVID, there's been signs of people moving back to city centers, particularly in DTLA. Whenever there's a shake up and prices get depressed, those with long term holding plans always come out of the woodwork and buy. 

Investors, city dwellers from NYC, SF, Chicago, Seattle, and other metro areas have been moving into DTLA according to recent sales and leases from other DTLA realtors. There's been a noticeable number of people from out of state moving to DTLA due it's dense city environment and of course the weather. With outdoor dining returning, and indoor dining at minimal capacity, the ability to walk outside in winter to 70-degree sunshine, a slew of activities within 1-2 hours of anywhere (skiing, hiking, lakes, wineries, mountains, beaches), there's a lot going for DTLA.

Sales activity has increased about 8-10% this year from last, and prices have ticked up about 3% from last year. DTLA is still down overall about 7% in prices from pre-COVID times.

Leases are up now too, with more people feeling safer in general and rather than moving out of a walkable area, there are lots of people who are moving within DTLA and trying out new buildings and neighborhoods. 

Entering Spring and Summer, the hope is that with more people vaccinated, the worst is behind us and can move forward to heal, resume business activities, and do our part to help keep the smallest businesses afloat. 

What 2021 Will Likely Bring for Real Estate in LA

 LA real estate is very complicated. You have so many types of housing, so many different neighborhoods, so many different hubs of commerce, and so much different geography, all within 30-45 minutes of drive time. This is why there's not a blanket answer that represents exacty what went on, and what's going on in LA RE. 

We know commercial real estate was killed last year. What do you expect when governments lock down offices, and companies scramble to begin the work from home phase? While most of the mid-to-small commercial buildings were destroyed, some of the high profile buildings in central locations like Culver City, DTLA, and Burbank, were snapped up for pennies by developers who have grand plans, like updated office space for hybrid office/home workers. 

One of the industries that killed it in 2020 was residential real estate--mainly for single family homes. We all know the story, everyone fleeing smaller apartments and condos to buy and rent houses with yards and space to work, exercise, etc. I wonder what will happen once gyms and shops are safe to open up, will people get sick of doing everything at home and venture out? For now, we're still riding the single family home wave and prices are slated to go up another 4% from last year.

Condos took a big first hit when the pandemic started, as people left their high rises for sprawl. However, there's also been an influx of people who don't want a huge house to maintain, don't want to live in sprawling neighborhoods in the valley, who want to be closer to the city centers. These folks are buying condos, and that's helped the slower market. 

Relocation companies killing it. Another sign of the times. Relocation companies are busy transplanting people to different cities, and this is propping up the rental market as people "try out" areas. So the rental market should be great in 2021, right? Depends on the stock. If you're a single family residence in a great location, the rental should fly off the shelf. If you're a condo in DTLA, you need to up the game because there's lots of competition. Updated appliances, kitchens, bathrooms, interesting amenities--all things that will help in a slower market.

June 2020 Recap + Changing Times

QUICK HOUSING NEWS, OPINIONS, STATS: 

- Things are sitting on the market longer. (Average is about 45+ days). The beginning of June wasn't great with the aftermath of the looting and riots, this hurt momentum, but the end of June saw some mild recovery in prices and activity.

 

- Signs of change. Never has the knock-on effect of events been so apparent until this pandemic. The lockdowns ended up causing a slew of businesses to stop cold turkey. This caused unprecedented unemployment in the US. As lockdowns eased, unemployment claims eased. This points to companies stabilizing (maybe the CARES Act helped?), and some are even rehiring. June 2020 stats showed the 4.8 millions jobs were added, though unemployment still remains high. See NYTimes article here: 

https://www.nytimes.com/2020/07/02/business/stock-market-today-coronavirus.html#link-5f5a419 

and

https://www.marketwatch.com/story/dow-futures-surge-400-points-after-jobs-report-for-june-shows-48-million-jobs-added-unemployment-falls-2020-07-02  

 

- Possible V-shape recovery in housing. Real estate has been "open" for 3 months now. April was the worst month so far, with COVID lockdowns fresh in people's minds. As lockdowns eased in May, real estate started to bounce back and May was great in terms of activity, and most importantly, prices. June was about the same as May, if not slightly better as pent up demand and low interest rates drove some buyers out there. See some optimistic housing news here from Business Insider:

https://www.businessinsider.com/housing-market-v-shaped-rebound-us-could-start-economic-recovery-2020-6  

- Possible plateau or dip in housing early next year. Three big unknowns that could rock the boat in the coming months. FIRST, if there's no vaccine anytime soon. SECOND, Interest rates rise, shutting out a lot of potential buyers. THIRD, unemployment remains high and stunts consumer activity.

- Less foreign buyers, more domestic buyers. Those who've been priced out are becoming more able to buy due to less competition from foreign money. 

https://www.wsj.com/articles/foreign-home-buying-dries-up-easing-the-way-for-domestic-buyers-11593682201  

- Mortgage applications fell since May. In June, super low interest rates helped the housing market, A LOT. This is seriously the single biggest thing helping buying activity right now. However, the number of mortgage applications fell, and this could because taxes are due on July 15, continued uncertainty in the market,  job insecurity. 

- There will likely be an influx of renters in the next 3-12 months. We know that with job instability and unemployment, there is a percentage of the population who will continue to rent, or sell and decide to rent. Rent prices have dropped as well, but minimally. About 1-2% on average.

 

- Inventory is still low. I mentioned this before, and this, along with low interest rates, is what's keeping prices afloat. People aren't selling because many don't have to. The majority of people who own now are special in that many have equity in their homes, unlike back in 2008, when no one had equity and the tiniest shift in the market caused people to be upside down on their mortgages. That was ugly.  

  - Real estate as a good bet against inflation. It's hard to know where to park cash these days, and with inflation and interest rates so low, keeping it in a savings account isn't ideal. But buying a house is looking like a safer bet against the falling dollar. 

https://www.forbes.com/sites/davidkudla/2020/06/30/inflation-will-come-here-are-five-ways-to-combat-it/#59cc16dd6deb

 

  - Virtual home shopping on the rise. Lockdowns have forced people to pivot, and now more people are touring homes via virtual tours, videos, and photos. According to Zillow, virtual tours for buyers has increased by 600% in the past couple of months. 

 

- Working and playing from home is the new norm.  It's not just a tech industry thing anymore. Every large company is rethinking their work culture and it's predicted that the majority of white collar jobs will become remote in the near future. Same goes with some of the non-work related stuff. Interesting article about virtual activities partnering with online retail.  And it makes sense. 

https://www.marketwatch.com/story/lululemon-acquisition-mirror-could-generate-700-million-and-reach-600000-subscribers-by-2023-bank-of-america-2020-07-01?mod=home-page

- Brace yourselves for the long haul.  The days of 15-30% ROI within a year or two of holding real estate are gone for now. You have to think conservatively, like 2-3% gains per year, with micro fluctuations in between.  Too many factors that affect housing are keeping growth at slower pace, but hey, I'm grateful that there is growth at all in these times.

 

- Malls may become the new housing solution. Interesting article on how malls may become housing, since as we know, the shopping mall is definitely going the way of the dinosaur. This could solve the housing shortag,e maybe?

https://www.bloomberg.com/news/articles/2020-06-30/a-case-for-turning-empty-malls-into-housing?srnd=premium

May 2020 Recap in the Local Real Estate Market

In May 2020, the market didn't crash like people thought it would. We're more than 2.5 months into the city lockdown, and while March was terrible for real estate in terms of activity, April was not as bad, and in some cases, just as good as pre-pandemic levels. In May, things were slightly better than April. Not saying that things are back to normal or will be anytime soon, but the housing market isn't freefalling. We are all hoping this is an indicator that the housing market will maintain value.

QUICK HOUSING STATS AND FACTS:

- Tiny price drops are happening. So tiny that it's almost negligible. It's mainly for homes that have been sitting on the market longer. The larger drop has been within the luxury market, and for the entry level market and generally high demand cities like L.A., prices are actually up around 2-3% from last year's prices.

- Huge increase in people searching online. Companies like Target have had 140% increases in online sales vs in-store sales, and Peloton has nearly doubled their revenue since people can't go to their gym. This isn't because technology suddenly got amazing--it's the lockdowns and general hassle of in-person shopping. To view homes, it can be a pain, with no open houses allowed yet, and all visitors home must wear masks and gloves and sign an advisory. Yeah, most people will want to do at least some narrowing down online first.

- People are looking for larger spaces. With office work culture changed overnight, the huge number of people now able to work from home is changing the way we live. People are wanting and needing home offices. This generally mean upsizing to a larger space or reconfiguring the current space. California has a lot of tech and office jobs that allow for home-working--this is going to affect real estate in a good way.

- People want to live with less people. The whole roommate thing is not, how do you say, ideal anymore--at least in the short term. People who can afford to go solo, will now opt to do so, even if it means paying a bit more. That means that smaller, affordable spaces will still be in demand.

- Single family home searches are up. You have homeowners wanting to upgrade, renters potentially thinking of buying, and apartment dwellers wanting a detached house. This is all contributing to increased search activity. Within this search for single family homes, searches for swimming pools, outdoor spaces, and extra rooms, has increased. 

  - Very few foreclosures, for now. The foreclosure discussion is being had right now because of the number of unemployed people. This is something to monitor because if these unemployed people don't find employment by the end of the year, then you'll likely see the fall-out of this in the form of foreclosures. However, if the unemployed start becoming employed in the next few months, we can avoid some foreclosures. The HUGE different between the foreclosures of the Recession of 2008 was because no one had any equity. The issue is, while sellers have tons of equity right now, but if they're unemployed, they're going to be forced to sell or foreclose.

- Low inventory is keeping prices afloat. The number of listings on the market is down 22% from the same time in 2019. A lot of sellers pulled their listings off the market, many decided not to list in the middle of a pandemic. Median home prices in the week ending May 16 were 3.1% higher than the same time in 2019. There is no doubt that this is due to very low inventory. Opportunity buyers (who want the low interest rates) are growing in number, but the inventory is just too low.

- Days on the market are longer. No surprise, things are sitting on the market longer, since everything, from showings to inspections to loan applications are taking longer.

- Mortgage rates are still super low.  This is keeping a chunk of buyers out there.

- Mortgage applications and rate locks are up. Buyers are taking advantage of low interest rates. Mortgage apps and rate locks are up 18% from the same time last year. 

- Los Angeles seems to be resilient for now. Some cities that are hugely affected by travel and tourism, such as Hawaii and Las Vegas, have had price impacts greater than L.A. Even NYC and Seattle have had some price hits. L.A. for now seems to be doing ok in terms of prices. Interesting piece in LA Times about how our urban sprawl in LA has likely led to fewer COVID cases. https://www.latimes.com/opinion/story/2020-04-26/coronavirus-cities-density-los-angeles-transit

- Sellers still need to up their game. Buyers want a deal, and if they see a place is not up to par aesthetically and in need of repair, then they are lowballing. Updating is key, even if it means just replacing a kitchen countertop or bathroom hardware.  If nothing else, please declutter and stage the place.

- Rent prices about 1% less than same time last year. No doubt the pandemic and unrest has caused rental properties to sit longer. And people are afraid to move. This is the immediate short term effect. However, the future is going to be more renters than buyers, which is often the result of recessions. 

- Violence and Unrest + Election Year. With every step forward, there seems to be another disruption. June 2020 is looking like a strange one, with the protests and the violence that has also surfaced in big cities. We know that cities can be resilient, and this is the hope that the current administration and city officials will do what's best to calm things down. Like I said, we need to take things week by week, as 2020 is already proving to be a crazy and unpredictable year.
 

Housing + Necessity Spending = The New Normal

One thing's certain, and that is the future is uncertain. For most of us, there's no frame of reference for what is happening. Even the folks who grew up during the Great Depression know this is different, because the economy wasn't global back then. 

For housing, what does this mean? No doubt housing is taking a hit in terms of lowered activity, price plateaus, etc, but the fact remains, housing is a necessity.

What studies are showing is that on average, many Americans who are in a position to save even a little bit, are saving like never before. They are spending less on unnecessary items, and spending conservatively on food and housing. If there's any silver lining in all of this, it's that people have become more conscious of the value of money, and how having even a small amount of savings will be absolutely necessary. This is the new normal. Until there's a vaccine, of course.

Culture is also changing. Working from home is going to be the new norm for sure. Twitter just said that their employees can work from home forever. More companies will follow, I'm sure of it. And why not? The companies won't have to own or lease out expensive office space, and have all the crazy overhead. But of course, employees will be making their own overhead in their homes. They'll need a office corner, or if the space permits, an entire room for a home office. No doubt some people will upgrade their homes for a larger space to accommodate working remotely. 

At least until there's a vaccine, the way we socialize will be changed too. In the short term, people will travel less abroad, and more people will have local outings. Some city dwellers will want a yard--I have clients who've said this experience has made them want to have a little piece of the outside for themselves. I also have a few clients who have said that the isolation of living in a suburb is making them go insane, and they want to move where there's some amount of social interaction where there is more life and walkability. At least for the time being, this is helping move real estate in an unprecedented time. 

April Real Estate Lockdown Debrief - DTLA and Surrounding areas

April 2020 is behind us. As depressing, catastrophic and upending as this is, it will pass. The world might be a little different, but it will pass. If you think about it, events like the 1918 Flu, the Great Depression, the Vietnam War, 9/11, the Great Recession...the world changed afterwards, but these events did pass. 

And because I'm in real estate 24/7, that's what I focus on when the day's activities are done, and how real estate is affected by these events. March 2020 was weird. The early part of month was okay, some fears setting in, watching Italy closely, but seemed like it wasnt a big problem yet here in the U.S., aside from toilet paper. Properties were hitting the market, selling steadily if they were nice and priced right. Then the city-mandated lockdowns hit, things started grinding to a halt, and then on April 1, 2020, the city deemed real estate a non-essential business. 

April 2020 marks a full month of lockdown in L.A. For real estate, this was not good. On April 1, there were to be no open houses and in-person showings, no inspections and appraisals. Sellers pulled their listings, buyers backed out, escrows fell out, though some managed to push through and close. Then on April 13, 2020, real estate was considered essential, but with major restrictions on showings, etc. Amidst this roller coaster, the activity in April wasn't as terrible as you'd think. Even I was surprised. May 2020 should be interesting. 

Quick stats for April 2020 - Single  Family Homes

1. The number of listings to come on the market fell about 20% from the year before. This is significant in that April-May is the BUSIEST time for real estate. However, considering a pandemic, it's amazing inventory fell only 20%.

2. Average # of new listings on the market: 358

3. Average Days on the market: 63

4. Average sold Price/SF: $691/SF

5. Average price drop from original listing price to actual sold price: 9%

Quick stats for April 2020 - Condos

1. The number of listings to come on the market fell about 40% from the year before. This is significant in that April-May is the BUSIEST time for real estate. 

2. Average # of new listings on the market: 21

3. Average Days on the market: 70

4. Average sold Price/SF: $645/SF

5. Average price drop from original listing price to actual sold price: 3%

Coronavirus/COVID-19 & Impact on Real Estate

From the California Association of Realtors, see below. I personally haven't seen a huge drop off in activity. It has slowed down for sure in the past month, but mainly in sales coming on the market. There are some buyers who are taking advantage of this short term downturn and still buying. 

--

The rapid growth of COVID-19 (“Coronavirus”) cases continues to create turbulence in the global economy and in domestic financial markets. However, C.A.R. is not revising its current 2020 housing market forecast, but will continue to monitor the market for negative macroeconomic impacts on the demand for housing as well as the supply chain impacts that could adversely affect the cost of new home construction in the coming months and quarters. C.A.R. has created a list of the Top 10 potential impacts that could elicit questions from buyers and sellers over the near term.

1. Forecasts Have Been Downgraded, But Few Economists are Calling for Recession Yet: Last week, the International Monetary Fund (IMF) cut its forecast for global economic growth by 0.1%, but is still calling for an expansion in 2020, albeit at a slower pace. Similar orders of magnitude have been forecast for the domestic economy, with groups like Wells Fargo and others expecting GDP to grow by 10-20 basis points slower than their pre-Coronavirus forecast. Growth is expected to be slower, but the economy is still expected to grow.
2. Mortgage Rates Will Likely Remain Low, Or Even Fall Further As A Result of Coronavirus: The Federal Reserve issued an emergency 50 basis point cut to their target interest rates, and guidance suggests that the Fed may be open to future reductions in order to counteract the negative impacts to financial markets. This should help to reduce the cost of borrowing and make housing more affordable over the near term, which should help to offset some of the negative impacts to housing demand associated with rising uncertainty.
3. Domestic Buyers May Be Discouraged By Rising Uncertainty and Recession Risk, But Is It Still a Good Time to Buy?: This week, mortgage rates fell to an all-time low level of just 3.13%. That is down from 3.80% at the start of the year and represents significant cost savings over the life of a 30-year loan. For buyers who can afford their monthly payments, the economic uncertainty that is driving rates lower provides an opportunity to capitalize on significantly reduced borrowing costs that they will enjoy for years to come. Short-run risks to the economy exist but are arguably offset by long-run benefits of lower rates at the individual level.
4. Financial Market Volatility Could Reduce Demand For Luxury Homes, But Also Create Potential Opportunities for Luxury Home Buyers: The recent turbulence in financial markets has already impacted household wealth. This could reduce demand for luxury homes in California in particular. However, with less luxury buyers, there could be opportunities for price discounts for buyers who choose to remain in the market for high-end properties. Real estate may also act as a buffer against potentially larger declines in the financial markets.
5. Demand From Foreign Home Buyers Could Be Curtailed Over the Near Term: Reduced economic growth in China, specifically, could stifle demand for California real estate this year. However, foreign buyers represented just 3.9% of California’s home sales last year, so the impacts statewide will be muted compared to 6 years ago, when foreign buyers represented 8.0% of the market. In addition, because domestic buyers typically finance their homes in much larger proportions to their foreign counterparts, low rates could stimulate more domestic demand that would help to offset the impact to foreign buyer demand.
6. Foreign Home Sellers May Face Closing Delays: Because the Embassy and many consulates are closed or may have limited hours in China, and elsewhere, there may be difficulty in providing a properly notarized deed to the property that escrow will accept and title will insure.Advise sellers to make efforts to obtain the deed early in the transaction. If sellers are currently in the U.S., make efforts to comply before returning to their foreign home country. If contract has not been accepted, foreign sellers might want to consider a contingency allowing a seller to cancel if they are unable to obtain notarized deed.
7. New Home Construction in California Could Slow Further, Exacerbating Already-Tight Supply: Many of the inputs to California’s Building Industry are sourced from Asian countries including China. As the Coronavirus disrupts these supply chains, the cost of those materials may increase over the short run or become limited, which will increase the cost of construction and potentially reduce the pace of new residential development below its already-lackluster pace in 2020.
8. Low Rates and Fewer New Homes Constructed Should Place Upward Pressure on Home Prices: Improved affordability stemming from lower rates combined with fewer new homes being constructed as the construction supply chain is impacted could lead to more upward pressure on home prices in California. Unsold inventory is already at low levels, and reduced construction activity means that is likely to continue—especially if buyers respond to lower rates.
9. Offsetting Effects Leave C.A.R.’s Housing Market Outlook Unchanged, For Now: The situation remains fluid, and conditions could deteriorate beyond what is currently envisioned depending on the severity and duration of the outbreak, but if current economic forecasts of modest declines in GDP growth are realized, the effects of lower rates should help to offset the effects of a slower economy and increased economic uncertainty such that California would still achieve a modest improvement in both home sales and prices this year.
10. Eventual Rebound Will Take Longer Than It Did With SARS in 2000: At the turn of the century, the negative impact of the SARS virus began to fade within 6 months of the outbreak coming under control. However, unlike with the Coronavirus, SARS did not have significant impacts on either consumer spending or domestic financial markets. The size of the impacted population and the death toll is also much larger with Coronavirus, which suggests that the eventual recovery will play out over a longer period of time.

It’s clear that the Coronavirus will have an impact on the economy and the housing market in 2020, but it is also clear that it is not time to panic. The effect of lower rates will help to offset some of the headwinds in the housing market, and forecasts of economic growth by C.A.R. and others have been revised down, but only by 10s of basis points—not hundreds. The situation remains fluid and the California Association of REALTORS® will be monitoring this situation closely and providing updates as information comes to the fore.

Interest Rates Still Amazing for Buyers

While prices are high, they are plateauing in some areas and combine that with low interest rates, it's still better to buy than rent. At least you can build equity over time. At least you can rent out the place if you need to, and rents in LA are high. At least you can write off some of the property expenses. At least you can have stability from rising rents and unpredictable Landlords.

Areas that are exciting because of changes, new development, public transportation access, and overall a range in prices:

1. DTLA of course! Still one of the most desirable areas because of the FWY access, public transportation is growing in the area, and many companies are relocating to DTLA:

2. West Adams is a huge Transportation Priority Zone. Tons of development happening along Adams Blvd, and spillover from Culver City and Mid City plus some beautiful Craftsman & Spanish gems are making this neighborhood a good buy.

3. Highland Park has been happening for a while. And it's still going strong because of the amazing stock of homes (many that still need polishing, which means there's still room for growth and value), a very small amount of apartment housing (most are SFRS), hillside views and interesting topography, access to Goldline, and the fact that it's sandwiched between the best of the eastside areas like Pasadena, DTLA, Eagle Rock, Frogtown.

Plateau of Prices Continues

Prices began to plateau in DTLA (and most of LA in general) this year. But this isn't too surprising--prices have been steadily going up every year since the crash, and it was due to level off at some point. That point is now.

Translation: Great time for buyers to get in while prices are softening and interest rates are still very low.

Savvy sellers are still getting top dollar though, if the home is remodeled. Nicely updated properties are still going over asking and with multiple offers. The fact is, inventory is low, but even lower for good homes.

Good updates for condos and loft spaces & resale value:
1. Modern kitchen with no moldings and fussy details
2. Do with less upper cabinets and instead opt for a kitchen island with storage to make up for it
3. Hardwood or Concrete floors all the way. No one wants carpet these days!
4. Do not paint crazy accent wall colors. Use a muted or neutra like gray or taupe for accent walls.
5. Add window shades but not curtains
6. Go easy on the Carrara Marble--the look can get played out very fast if you have too much of it
7. When in doubt, paint the entire interior white and use pops of art and color to add to walls.
8. Add plants--always trending are Fiddle Leafs, as well as Monsteras, Draconias and Money Plants
9. Dark kitchens are making a comeback--but only if done well with the right blacks and grays and dark blues. Otherwise, keep it light.
10. Plywood in lofts is getting played out. Unless it's in closet built-ins, don't use it in kitchens and bathrooms.

Market is Shifting, What to Do, What to Do? + Good DTLA Buys

I'm seeing this more and more--price drops. Some were way overpriced to begin with (some Sellers are still stuck in 2018) and some are just delusional thinking that Buyers don't know what's going on.

But does this mean that Sellers should jump ship? Well, that depends. Prices are still pretty high overall. If you wanted to sell in 2018 but didn't, maybe 2019 is the time to sell. After all, inventory is still very low, and you can still fetch prices higher than any year before last.

Should Sellers hold? If the rental market in your neighborhood is still hot (meaning less than 60 days on the market), and you're able to make some cash or at least break even on your costs by renting out, why now? Let someone else pay for your mortgage and expenses while you move on to possibly buying another property.

Which brings me to the fact that we are in an interesting place in the market where prices are shifting and buyers have more leverage than they did even 6 months ago. Look for deals. Look for properties sitting on the market for more than 60-70 days. Look for negotiation opportunities. Interest rates dropped again recently so take advantage. This is what investors do when the market begins to shift. Because who knows how long this shift will last.

Some very good DTLA buys right now:

Mura
629 Traction Ave #224 - Arts District (Red Hot area)

DETAILS: 1240sf, 2 + 2 with rare townhouse style floorplan and bonus 180+sf loft space and 2 parkings spaces! $819k or $660/sf. Building has a pool, gym, 24/7 security, BBQ, outdoor lounge. Super low HOAs of approx $550/mo.

WITHIN 3 BLOCKS OF: Little Tokyo, Hauser Wirth, Grow, Pie Hole, Wurstkuche, Woori Market, Shinola, Salt & Straw, Aliso Village, Inko Nito, Nightshade, Sci Arc, Gold Line, MOCA, Arts District Brewery, Umami, Philip Lim, Woo, Garey Building, Hammer & Spear & so much more.


Library Court
630 W. 6th St - Financial District 

DETAILS: 1180sf, 2 + 2 with open style living/kitchen and 2 parkings spaces! $685k or $580/sf. Building has an outdoor deck, gym, 24/7 security. Super low HOAs of approx $690/mo.

WITHIN 5 BLOCKS OF: Nomad, The Bloc, Pershing Square, Metro Red Line, Fig & 7th, Bottega Louie, Little Sister, Whole Foods, Ralphs, Jewelry District, Wilshire Grand, Target, Nordstrom Rack, Equinox Gym, Philz, Tom George, Fundamental, and more!

Eastern Columbia
849 S. Broadway #M04 - Historic Core

DETAILS: 1500sf, open style bed/living/kitchen flex space, 1 bathroom and 1 parking space. $950k or $633/sf. Building has a rooftop pool, deck, gym, 24/7 security. Mills Act tax savings. HOAs approx $1058/mo.

WITHIN 3 BLOCKS OF: Ace Hotel, Museum Building, Upcoming Apple Store, Mykita, ACNE, Whole Foods, APC, Little Monster, West Elm, Proper Hotel, IL Cafe, Cliftons, Freehand Hotel, Shake Shack, La Tropezienne, Terroni, Wood Spoon, Lala's, Orpheum, United Artists Theater, DTLA Ramen, Shibumi, Soul Cycle & more.

Elleven
1111 S. Grand #404 - South Park

DETAILS: 1030sf, open style bed/living/kitchen flex space, 1 bathroom and 1 parking space. $583k or $566/sf. Building has a pool, deck, BBQ, gym, 24/7 security. HOAs approx $734/mo.

WITHIN 5 BLOCKS OF: Whole Foods, Staples Center, LA Live, Hotel Figueroa, The Bloc, Restaurant Row, Fig & 7th, Fashion District, Broken Spanish, Expo Line, Ralphs, Starbucks, Prank, Barcito, Cow Cafe, CVS, and more.

How Not to Give in to a Softening Housing Market

Been a while between posts because it's been busy. The buying and selling activity in most parts of LA has hardly softened. Yes, there are some price drops for properties that trying to gouge. For instance, if you're trying to price a house in Highland Park for $1000/sf, that's going to sit for a while. But price it around $750/sf, then you're right where things should be.

Tips for the new year:

1. If you want to buy a house that is hugely overpriced compared to comps, then go ahead and try a lowball offer. The outright rejection activity isn't happening as much, and you're likely to at least get countered.

2. If you want to sell for over the comps, go ahead, but prepare to do a few things before listing. Such as remodeling a few things. I just sold a house in West Adams for the highest price/sf because I had told the Seller to paint the house in trendy colors. It worked. It looked like a new house, which it wasn't, but it did the trick.

3. If you're budget isn't amazing, then considering a cosmetic fixer. Borrow less, and have more to spend on cosmetic fixes and increase the value.

4. If selling fast is your goal, then price it slightly under comps, and either paint the exterior or interior of the place or change out the bathroom sinks. These are generally inexpensive things that often get you triple your money back in sales price.

The Market is Softening, But Inventory is Still Low

Several things have happened in the past few months. It's odd because it's a good time to sell, but it's also weirdly a good time to buy. Some of my thoughts and feedback from clients:

1. Interest rates have gone up. This has affected prices a tad. And yes, I mean only a tad. We're talking 1-3% price shavings from the summer. Meaning, prices are still very good if you're in the market to sell.

2. It's still a Seller's market, mainly because prices are still high and inventory is still low. So is it a good time to sell? Heck yes if you have equity or are needing to unleash.

3. While interest rates are hitting up to 5% depending the lender, I dare say it's still relatively cheap to borrow compared to 20 years ago. Interest rates are slated to go up a bit more in 2019, so that means if you are planning to buy in the next 6-12 months, now is probably a good time.

4. Rents are higher than ever. I can't believe the gorgeous 2+2 unit in a duplex I used to rent in Hancock Park 15 years ago for $1200/mo, is now renting for $4200/mo. That's about a 400% increase. What I mean to say, sadly, is that it's really hard to rent these days with prices so high. If your budget is under 3k, and you don't have a decent downpayment (10-20%) saved up, it's ok to keep renting. If your budget is about 4k, then it's probably better to think of buying something small in an up and coming area and holding on for 3-5 years, and then cashing out on the 100k+ equity you'll gain. Seriously, I believe the market will go up in certain areas while other areas will plateau.

5. Will the market keep going up 5-10% each year like it has since 2010? Likely no for the next 2-3 years. However, 5 years from now, some areas will. These are areas that are in transition, like West Adams, Glassell Park, Montecito Heights, Lincoln Heights, and the Fashion District & Art District in DTLA. There's just room to grow in these areas.

6. At the end of the day, real estate is about security, equity, and leverage, so whether you're selling to make a profit and trade up, or buying to build equity and peace of mind, if it's the right time for you, then that's all that matters.

Are We In A Bubble?

What a crazy time in real estate--again. Prices are high, inventory is low, people with cash are buying left and right, open houses on good homes are a zoo and bidding wars are still happening.

What's the difference between now and 2007? A lot.

1. Inventory is very, very low. Sellers aren't selling. That's a lot of why good properties in good areas are mobbed by buyers who are ready to go.

2. Rents are super high. Unlike the last time, when rents were very low, right now, rents are super high. LA is having affordability issues. (Well, not compared to NY and SF). More renters are in the buying market because they are sick of paying skyrocketing rents.

3. Interest rates are still low, and while lending is getting more creative again, it's still hella conservative compared to the last time. I remember when I refinanced my place in 2006, and they basically didn't ask for any paperwork except a bank statement and property tax info. The appraiser didn't even come out to the property--they just did it using the MLS and google maps. Things have changed.

That said, it's important to know that the days of buying low and selling high within 1 or 2 years are pretty much gone. If you're buying now, the only way to gain substantial equity is to buy and hold for 5-7 years, or buy a fixer and do some rehabbing to add value. Example: My client just bought a Culver City adjacent dump for about 5k. Recent solds on the same street are $1Mill. With real estate, what you do and when you do it are very key.

Doom and Gloom News for Buyers in LA

I had to do a post about this because all this doom and gloom about not being able to buy if you're a prequalifed buyer is mostly BS. Of course if your budget is under 500k, then yes, you will have very slim pickings. But you can still buy, you just need to reset your expectations.

My advice? Sit down with a lender and see exactly how much you can borrow. You might be surprised. I had a client who ended up qualifying for 100k more in his purchase price because his lender told him that the he just needed to wait until his car was paid off in a couple of months.

Maybe you need to buy a condo instead of a house? Maybe instead of Silverlake near the reservoir, you need to look into Atwater? Maybe that 1600sf loft you want should in reality be more like a 1000sf loft? You can't expect to have the same stock available to you as 7 or 8 years ago. Prices are up and inventory is low.

And remember, your first home doesn't have to be the end all. My last client who downsized into a smaller house because that was all they could afford, ended up renting out this house and buying a larger forever home. One property became two!

"Let's See What Happens in the Market Before Doing Anything"

A lot of sellers and buyers say "Let's see what happens in the market before I pull the trigger."

Usually by then, it's too late.

I always ask myself these 4 questions:

1. Have I made a lot of equity in my property?

2. Are things starting to plateau?

3. How long should I hold on this property? So far, holding has worked out well if you bought within the last 7 years. At this point we all have to decide if it makes any more sense to hold. The gains we've seen in the past 7 years are slowing. It may be another 7 years before we see increases like those again.

4. At the same time, historically low interest rates are going up. Do I wait to buy because prices might come down, and, risk a higher interest rate?

It's harder to get clear cut answers these days. But if you've been thinking of selling for years, now is probably one of the best times because we've surpassed heights again.

If you're thinking of buying, you need to really consider the interest rate lock. Sure the rates might come down and you can refinance, but what if they continue to go up? 

Housing Shortage Causing High Prices to Remain Steady

Things should be slowing down on housing prices. It should be, but it's not. It's not that LA is invincible--we all know that a financial crisis can affect every city. But the fact is, that there is a housing shortage. And where there is a larger demand, prices will be high. A few years ago, I was very bullish about buying, but that's because prices and loan rates were at historic lows. Today, loan rates are still super low, but prices are high, and to add to the mix, there is a massive housing shortage. The laws of supply and demand say this should lead to ongoing high prices. Some are saying to buy now because the shortage will continue. Others are saying that a dip is imminent. It's hard to say who's right at this time.

This according to LA Times writer Steve Lopez:

 "Today, home ownership in California is the best investment any of us will ever make, thanks, in large part, to a scarcity of housing. The pace of construction has not kept up with population grown and demand, so those of us with houses own a staggering amount of equity wealth that grows even as those without homes pay a higher price for survival.” 

It's Been a Long Real Estate Wave in DTLA, and Still Going

Crazy to think that prices have been increasing in DTLA (and most of LA for that matter) for about 270 weeks straight. Prices went up exponentially between 2012-2014, then less exponentially from 2015-2017. But still, prices kept going up.

In downtown, even with all the construction of condos and the increase of apartments for rent, the fact remains, there's still not enough inventory to buy, causing demand to remain high. True, properties are sitting on the market longer, average about 60 days, mainly due to the higher prices and lending restrictions, but they do sell in the end.

DTLA has reached a critical mass where now I'm getting contacted by DTLA homeowners who want to buy a second property as an investment. People who already own in the area want to own another, and that's hugely telling. It's a desirable place to live, and the rents are even more desirable.

One key change from about 7 years ago: You'd buy an $900k property and expect to rent it out at $2000/mo. Now, you buy a $900k property and expect to rent it out for about $3500/mo.  The math pencils out much better.

Hence the influx of people from NYC, Chicago, SF buying either a second home or investment property because it's still affordable compared to those areas. And yet it's reminding them of Brooklyn, SF's Mission or Wicker Park in Chicago a few years ago. Heck, even Detroit...nuff said.

Why are Prices Still High?

Seriously, doesn't it seem like prices aren't stopping their climb? Because no one is selling. Inventory is super tight and as usual, there are too many buyers.

Here are some reasons why:

1. Believe it or not, some people are still underwater on their mortgages. From the height of 2007, there are a good number of homeowners who borrowed way over their limits and are just barely getting into the black now, but with the costs of selling (transfer taxes, escrow fees, etc), they will still be in the negative. That Echo Park home bought in 2007 for $750k is now worth 815k. After selling fees, you're netting about 0.

2. They can't afford anything else after the sale. Prices are high, and in a high market, unless you really downsize from a single family to a condo, or to Phoeniz AZ, you really aren't making a difference in your expenses. Plus rents are ridiculously high now. It's almost cheaper just to stay put, which is what so many are doing. You can sell your Miracle Mile house you bought in 2007 for 950k for 1.1MM. You've made 150k plus whatever down you put in. That's great, but cut 70k in selling fees. What are you going to upgrade to? Not much. You're going to have to either buy a small 80s style condo in West LA or a studio with a doorman in DTLA for about 600k.

3. Boomers and Empty Nesters, the ones with the homes with lots of equity, who should downsize, are not selling because their children (well into their 30s) are still living with them.

4. Rents are super high. Recession or not, rents have stayed strong in LA. When the housing market collapsed beginning in 2008, the amount of renters increased. To be a renter these days (unless you've lived in that 1940s RSO pad in Santa Monica since 1980 and are now paying $600/mo), is tough. More renters are trying to buy because they are realizing that just adding $200-$300 extra per month could get them a mortgage instead. Hence, more buyers to the market.