As Long as Inventory is Low, Prices High, and Yet People Are Still Buying

Interest rates are now up to 4.4% for a 30-year fixed--it was 3.95% just a few months ago. Normally, this causes some slowdown. But things aren't normal. Inventory is unusually low. And the increase in the interest rate wasn't enough to scare off buyers.

This means that prices are still high. So why are people still buying? Because homeownership can be pretty lucrative if you can wait out low cycles. The average home owner has a net worth of $195,400 while the average renter has an average net worth of $5,400.

Plus you aren't subject to the pains of having to deal with annual rent increases. Or awful landlords. And you can make changes to your property. You can AirBnB your place if it's a single family home. You can add roommates. And you can deduct your mortgage interest and property taxes. And best of all, if you've done a 30-year fixed loan, your monthly "rent" won't change for 30 years!

Homeowner Equity Gains 12.2% between 2016-2017

A lot of homeowners who bought in 2016 are now enjoying about 12.2% in average equity, according to CoreLogic's Home Equity Report. In downtown, 2018 is up about 3-5% (depending on the building) since 2017. So prices are still climbing, but at a slower pace. Inventory is just too low.

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. People Moving to LA. Prices Up.

There have been a few articles floating around about people moving out of L.A. due to the expensive housing market. This may be true, but does the city feel any emptier? Certainly not to me.

If anything, it feels way more crowded everywhere in the city than it did 5 years ago. More cars, more people, more crowds everywhere. And lately, half of my clients are from out of town. They are moving from places like NY, SF and the OC. Many are moving for jobs. Many are moving for a different pace of life. In my experience, more people are moving to LA than ever before.

And there is a housing shortage, and when there’s a shortage of anything, what happens to the price? It goes up.

Interest Rates Could Easily Rise to 5% in 2018

We knew the ultra low interest rates wouldn't last forever. But the time is coming for a nearly 5% 30-year fixed.

While still historically low, some surveys by C.A.R. are showing that a small portion of buyers will opt out if rates hit 5%.

Two comments:

1. Buyers who opt out are being very short sighted in my opinion. You're either going to get locked into still historic lows, or you can refinance if the interest rate ever drops again. No brainer.

2. Sellers can anticipate a slight softening of the market due to less buyers. 2019 is expected to have even higher interest rates. Meaning 2018 could be a very good time to sell.

The Art of Trading Up

A successful stock broker friend told me a long time ago that there's only one rule he lives by: "Buy low, sell high." It doesn't matter that you've bought low now and sold high a year from now, or 10 years from now, it only matters that you bought low and sold high.

This is also the key to real estate. If you do this, then you can really start to rake in that passive income.

But you can't just sell high and spend it all--you need to trade up. If you've made a killing on RE in the past 2-3 years like many of my clients did, nearly all of them ended up with either

1. Multiple properties
2. Multi-family properties
3. A wow factor trade up single family home

The ones that traded up to a larger pad in a better neighborhood will still make a killing because their neighborhood keeps getting better.

The ones that doubled their property portfolio or added multi-plexes into the mix, are now happily collecting passive income that increases every year (not to mention their prop values keep going up due to the LA housing market demand) They've basically turned their first profits into cash cows.

Congratulations to all my wonderful clients who are positioning themselves to retire a little earlier!

If Prices Are So High, Why Aren't People Selling?

Sure there's a lot of equity out there. Owners can make a killing. Then why are so few owners not selling?

Prices are too high to rent. If they sell, the rents are way higher than their current fixed mortgage.

Prices are too high to buy. If they sell, it's hard to upgrade these days unless you move to a different location. Most people might make a lateral move or even downsize, but it's hard to upgrade.

At the end of the day, it's better to own.

Condos and Lofts Selling Nicely in DTLA, Rentals Softening a Tad

According to The Real Deal, "As Los Angeles grapples with a severe affordable housing crisis, a new study shows condo and loft sales remain strong...Prices in DTLA continued to increase, rising almost 4.5 percent year-over-year to $697 per square foot. That’s a more modest jump than last year, which saw prices rise up by 11 percent."

Rentals, however, are showing a softening, but still not a dip in prices. Competition is fueling this. 

Bitcoin + Real Estate

No, Bitcoin is not a Federally recognized currency in the U.S. (a fail on their part).

Yes, Bitcoin is accepted to purchase real estate. The reason is because the cryptocurrency is transferred to the Seller from the Buyer, so as long as both parties agree, it's ok. However, there are certain fees in escrow (if using an escrow company) that must be paid by "legitimate" currency.

A Frank Lloyd Wright house in Berkeley is accepting Bitcoin.

Buying a condo in DTLA? A house in the Hollywood Hills? You can swing a Bitcoin deal as long as you have your ducks in a row in cold hard Bitcoin, or even if you're financing a portion of the deal with Bitcoin--you just need the right lender.