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Ehsan Torabi, The Real Estate Analyst, Licensed California Real Estate Broker, Buy, Sell Residential, commercial properties & Apartments in Greater Los Angeles Areas. Ehsan Torabi graduated with Math Diploma, got his Bachelor of Science degree in Physics, and got his Master of Science Degree in Computer Science specializing in Information Systems Technology and has been actively serving Los Angeles since April 24, 1977 Ehsan Torabi started his work in Real Estate by obtaining his California Real Estate License in November 19, 1992 and got his California Real Estate Broker License in May 13, 2002 Ehsan Torabi is working as Real Estate Analyst and Real Estate Broker focusing in Greater Los Angeles Areas serving special private clients such as you that planning to buy or selling property in Greater Los Angeles Areas. Now with all that in mind, it is obvious decisions that having Ehsan Torabi helping you in your Real Estate Transaction or just any available agent working for another Broker that you rarely see or directly speak to! Contact Ehsan Torabi using one of the methods displayed above without any hesitation Today.

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First Tuesday journal

High land prices to blame for California’s extreme home values

High land prices to blame for California’s extreme home values California may as well be synonymous with expensive. Our high cost of living is infamous, and most to blame are the state’s high home prices. Why are home values so high in California? With an envious climate and access to many high-paying and quality jobs, the Golden State is a nice place to live. But demand alone isn’t responsible for high home prices. More importantly, the price of land makes up an unequal share of home values across the state. Eight out of ten of the top U.S. metros where land costs make up the highest share of total home values are here in California, according to Redfin. The problem that arises when land prices are so high is that home prices are pushed up by necessity. In order to keep up and continue to profit, builders choose to construct homes only accessible to high-income earners. Thus, the situation now common in California ensues where low- and moderate-income households are left competing for an unsuitably small inventory of homes. Of note, while home prices are higher in, say, San Francisco than Los Angeles, the land cost share of total home value is higher in Los Angeles. Here, the price of land makes up 61% of the total home price, which averages $625,000, compared to 52% in San Francisco, where the average sale price is $1.5 million. Therefore, even though the price of land makes up a larger percentage of the total value in Los Angeles (equal to about $381,000), the price of land itself is higher in San Francisco (roughly $780,000). Either way you spin it, land is a significant investment across the state. Why is the cost of land so high in California? There are two factors that go into variations in land prices: homebuyer and renter demand, which tends to fluctuate based on how desirable the area is, including access to jobs and amenities; and government regulations over land usage, including zoning, permitting and environmental review processes. For example, Redfin finds that homes built in highly regulated areas can take three times as long to complete from start to finish compared to those in less regulated regions. This drawn-out process translates to higher costs for builders. Further, the availability of land can also impact demand and regulations. For example, consider San Francisco, hemmed in by water on three sides and more development to the south. What little new construction that occurs also needs to deal with the geographical challenges of building on the steep slopes the city is famous for. Add to that the excessive regulations which limit height and density, and the cost to build in San Francisco is enormous. Fix the zoning While some obstacles to growth are unavoidable — like San Francisco’s unique geographical constraints — regulations that hem in new construction and cause home values to rise out of the reach of most residents are completely unnecessary. In California, overly restrictive zoning laws have resulted in: reduced construction, especially in the low- and mid-tier; inflated prices of both new and resale homes; a diminished quality of life for homeowners and renters, as more of their income goes toward paying inflated housing costs; reduced home sales volume, as low inventory is unable to keep up with demand; and stunted homeownership rates. Add these obstacles up and the result is the housing crisis presently teeming across California. California’s legislature is well aware of the damage done by overly-restrictive regulations. Dozens of new laws have been passed in the past couple of years to combat the housing crisis, many of which can be found here. But efforts to increase the housing stock and bring homeownership back within reach of low- and moderate-income households don’t stop with lawmakers. Real estate professionals are uniquely positioned to make a difference by advocating for more housing. You can do this by: attending and becoming a voice at local city council meetings; showing support for progressive zoning reform; and staying informed about the ever-changing landscape of housing laws in California.

Posted by Carrie B. Reyes | Aug 12, 2019 | Bay Area, Home Sales, Real Estate News | Published in https://journal.firsttuesday.us

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Lower LTVs required for FHA, VA cash-out refinances

Lower LTVs required for FHA, VA cash-out refinances The Department of Housing and Urban Development (HUD) and Ginnie Mae are tightening loan-to-value (LTV) ratio requirements for cash-out refinances. A cash-out refinance allows a homeowner to replace their old mortgage with a new one, receiving part of the mortgage proceeds as cash to complete home improvements, pay for college or pursue other opportunities. The cash represents the home equity gained under the previous mortgage. It’s a nice idea, because the interest rate on a cash-out refinance is much lower than a personal loan. But it’s also very risky, because defaulting means foreclosure — the loss of the family home. The mortgages affected include cash-out refinances insured or guaranteed by the: Federal Housing Administration (FHA); and Veterans Administration (VA). The last time the FHA changed their equity rules was in 2009 when the minimum equity requirement was increased from 5% to 15%. Starting September 1, 2019, cash-out refinances on FHA mortgages will need a minimum of 20% equity. In other words, qualifying mortgages will have a maximum LTV of 80%. [See HUD Mortgagee Letter 2019-11] VA-guaranteed mortgages are also seeing stricter LTV standards. Beginning November 1, 2019, Ginnie Mae will set a maximum LTV limit of 90% for all VA-guaranteed cash-out refinance mortgages, except those for permanent construction loans. [See All Participant Memorandum 19-05] Refinances in 2019-2020 When the LTV requirements last changed in 2009, it was in reaction to the destabilizing housing market. It was noted at the time that mortgages secured by homes with cash-out refinances were more likely to default and reach foreclosure. The less skin in the game, the less likely the homeowner was to continue paying their mortgage when their home was underwater. In 2019, HUD claims the change is a preemptive measure, to “stay ahead of any potential future shift in the housing market.” Put another way, HUD officials see the signs that point to a housing slowdown and are making an effort to decrease the number of refinancers who have less skin in the game. Refinances become more common when interest rates drop, a situation we find ourselves in during 2019. In the first half of the year, the number of refinances rose as average mortgage interest rates decreased. Expect refinances to remain strong for the next one-to-two years as interest rates remain low. However, cash-out refinances will see a slightly different trend, as cash-out refinances remain popular only so long as home equity is high. With these stricter LTV requirements, homeowners will need even higher LTVs to access their equity. As California home prices turn down in 2019-2020, the number of negative equity homes will rise and removing more homes from qualifying at the stricter LTV standards. Real estate professionals with their clients’ best interests in mind will caution them from pursuing a cash-out refinance in 2019-2020. Declining home values in the coming months will put refinancers in poor positions, and they may very well find themselves underwater.

Posted by ft Editorial Staff | Aug 14, 2019 | Loan Products, Real Estate News || Published in https://journal.firsttuesday.us

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Legislative Gossip Updated August 14, 2019.

Multiple bills were amended or passed in July-August 2019, including: SB 763, which allows a discharge of principal residence indebtedness occurring between January 1, 2017 and January 1, 2019 due to the loss of a principal residence in a federally declared disaster area to be excluded from the homeowner’s gross income; AB 1482, which prohibits a landlord from terminating the lease without cause of a tenant who has occupied the property for at least 12 months; and AB 101, which allows the Attorney General to take action against a city or county, including levying fines, when its housing element does not follow laws to meet regional housing need. Here’s a list of bills for the 2019-2020 Legislative Session and DRE Regulations which may substantially affect how you do business as a real estate licensee. Reports on passed bills can be found on our New Laws page. Current real estate law is here. This list is updated every month. All recent updates are in red below. Status Legend: Introduced = Date the bill was originally introduced for consideration. Bill is still being considered, but not yet law. Amended = Date the bill was last amended. Bill is still being considered, but not yet law. Enrolled = Bill approved by both houses and pending the governor’s signature. Passed = Bill signed by the governor and passed into law. Flag= Bill is particularly relevant to real estate licensees. Search: Category Bill Status Status Date Description Taxation SB 763 Amended 7/3/19 This bill allows discharges of principal residence indebtedness occurring between January 1, 2017 and January 1, 2019 due to the loss of a principal residence in a federally declared disaster area to be excluded from the homeowner's gross income. Government SB 592 Amended 8/12/19 This bill prohibits a local agency from rejecting or conditioning a completed housing project and includes accessory dwelling units (ADUs) in the definition of housing development project for purposes of the Housing Accountability Act. Property Management AB 1482 Amended 7/11/19 This bill prohibits a landlord from terminating the lease without cause of a tenant who has occupied the property for at least 12 months, and for no-fault just cause terminations, requires the landlord to provide one month's rent to cover relocation costs. Read more Government AB 548 Amended 4/4/19 This bill requires the California Residential Mitigation Program to to provide outreach to low-income households to increase awareness of the Earthquake Brace and Bolt program and to set aside 10% of the funds available to the program each year to provide grants to low-income homeowners to retrofit their properties. Taxation AB 872 Amended 7/8/19 This bill excludes stock transfers from a deceased parent to child that results in a change in ownership of property from the definition of "change in ownership" for property tax purposes. Government AB 101 Passed 7/31/19 This bill allows the Attorney General to take action against a city or county, including levying fines, when its housing element does not follow laws to meet regional housing need. Property Management SB 13 Amended 7/1/19 This bill authorizes the creation of accessory dwelling units (ADUs) in areas zoned for single family residences or multi-family residences. It also broadens application, occupancy, parking and minimum square footage requirements. Finance AB 1384 Amended 5/28/19 This bill defines a "consumer credit transaction" as a loan made to or incurred by a natural person in which the money loaned, property or service delivered is primarily for personal, family or household purposes. Property Management AB 1110 Flag Amended 5/1/19 This bill requires a landlord increasing the rent of a month-to-month unit by 10% and no more than 15% to provide 90 days notice before the increase. Or, a landlord increasing the rent on a month-to-month unit by more than 15% needs to provide at least 120 days notice. Finance AB 699 Introduced 2/19/19 This bill changes the definition of an individual using the services of a credit services organization, substituting the word "buyer" with the word "consumer." It would also required a credit services organization to provide a customer with an itemized receipt for each service performed, and to complete services within 60 days of contracting for the services. Practice AB 1018 Amended 6/19/19 This bill adds to the legal descriptions of an appraisal an exclusion for an opinion offered by a home inspector, on top of currently existing exclusions for opinions offered by real estate licensees, engineers and land surveyors. Property Management AB 1399 Amended 7/11/19 This bill specifies that a landlord who pays a penalty under an Ellis Act eviction is not exempted from offering their unit to the prior tenant when it returns to the market. Taxation AB 1590 Amended 6/24/19 This bill creates a first-time homebuyer tax credit of up to 3% of the purchase price or $5,000, distributed over three years for low- and moderate-income homebuyers. Property Management SB 274 Amended 7/9/19 This bill makes several rule changes for mobilehome park tenancies, including requirements for the manager to notify a previous tenant of a park rebuilt after a disaster via mail, telephone and email; sellers of mobilehomes to notify the park manager before a sale closes and for the manager to provide the seller or purchaser with standards the manager will use to approve the new tenancy; and the manager to grant approval to a prospective mobilehome tenant/purchaser unless they reasonably determine the applicant does not meet the park rules, they don't have the financial ability to pay rent and other charges, or they committed fraud during the application process. Finance SB 306 Amended 6/26/19 This bills allows a mortgage trustee to resign their position as trustee in lieu of a substitution. Taxation SB 364 Amended 6/18/19 This bill removes the inflation factor for property taxes for veterans who were honorably discharged and are currently 65 years of age or older. Property Management SB 479 Amended 3/28/19 This bill requires a lease with a provision for an automatic renewal or extension to be included in a 12-point boldface type, rather than the current requirement of an 8-point boldface type. Property Management SB 652 Passed 7/30/19 This bill prohibits a landlord from prohibiting displays of religious items on an entry door or door frame into a dwelling. Property Management SB 529 Amended 5/17/19 This bill allows tenants to form and be members of tenant associations, and prohibits landlords from attending meetings of a tenant association unless invited. Landlords will be prohibited from evicting or refusing to renew the lease of a tenant who is a member of a tenant association unless they have cause, stated in writing. Members of a tenant association may withhold rent in response to grievances for up to one month. Taxation SB 562 Amended 6/19/19 This bill increases the property tax exemption for principal residences of disabled veterans. The portion exempted from property taxes is increased from $150,000 for disabled veterans whose income does not exceed $40,000 and $100,000 for other disabled veterans to $250,000 for disabled veterans with incomes not exceeding $65,000 and $200,000 for other disabled veterans. Taxation SB 364 Amended 6/18/19 This bill removes the inflation factor from a property's assessed value beginning in assessment year 2020 for veterans 65 years of age and older on the mortgage date. It would also exempt a disabled veteran from paying property taxes on the full value of their principal residence. Taxation AB 399 Amended 3/21/19 This bill increases the renter's tax credit to $240 for joint filers or heads of households with adjusted gross incomes under $100,000, and $120 for individuals with incomes under $50,000. Licensing AB 687 Flag Introduced 2/15/19 This bill allows a limited liability company (LLC) to be licensed as a real estate broker. Finance AB 1384 Amended 5/28/19 This bill increases the loan limit for construction or rehabilitation projects which withhold over $100,000 at the start of the project from $2.5 million to $4.5 million. Property Management AB 53 Amended 4/22/19 This bill prohibits a landlord from requiring a potential tenant to disclose any criminal history during the application process. Government AB 68 Amended 7/5/19 This bill shortens the permitting time for approving an accessory dwelling unit (ADU). Read more. Property Management AB 338 Amended 5/16/19 This bill requires mobilehomes to have smoke alarms installed in each room used for sleeping that are sold or rented beginning January 1, 2020. Government AB 430 Amended 6/20/19 This bill requires the County of Butte to establish a streamlined housing approval process to assist in rebuilding following the Camp Fire. Property Management AB 446 Amended 6/28/19 This bill prohibits landlords from discriminating against individuals based on their status as a victim of domestic assault. Taxation AB 1317 Flag Introduced 5/8/19 This bill excludes any money put into a homeownership savings account from taxpayer's gross income. Taxation AB 1734 Introduced 2/22/19 This bill extends a "welfare exemption" to qualifying property that provides rental housing for moderate-income residents. Property Management AB 705 Introduced 2/19/19 This bill increases the notice given to residents of a mobilehome park when an owner comes before a government body to seek to change the use of the property from 15 days to 60 days. It also requires the government body to determine whether changing the use would result in a housing shortage. Taxation AB 832 Amended 4/3/19 This bill gives a tax credit of up to 50% of the amount given to a developer to develop affordable housing, from 2020-2025. Government AB 881 Amended 4/11/19 This bill requires local agencies to loosen certain zoning laws to allow permitting of accessory dwelling units (ADUs). Among the changes are prohibiting agencies from requiring parking when the ADU is located within 1/2 mile of public transit and no longer allowing agencies to require ADUs to be on owner-occupied property. Government AB 1020 Flag Amended 3/25/19 This bill reorganizes various government agencies. Under the changes, the Department of Real Estate (DRE) would fall under the umbrella of the Housing Agency. Currently it is under direction of the Business, Consumer Services, and Housing Agency. Government AB 1074 Introduced 2/21/19 This bill establishes a bond program to provide financing to homeowners to construct accessory dwelling units (ADUs) on their property. Taxation AB 1206 Amended 4/10/19 This bill allows property owners a $500 tax credit for each property rented to tenants at below-market rent, up to $5,000. Taxation SB 5 Amended 7/3/19 This bill establishes a program to allocate property tax revenue to cities or counties which have established approved affordable housing authorities, transit village development districts or community revitalization and investment authorities, to then be resditributed back to the authority or district. Property Management SB 18 Passed 7/30/19 This bill requires the Department of Consumer Affairs to establish on their website a guide for state laws pertaining to landlords and the landlord-tenant relationship, and to survey and list links to California city websites with similar content. Taxation SB 294 Amended 7/1/19 This bill reduces the percentage of lower-income occupants in a development in order for the development to be eligible for the state's welfare exemption from 90% to a prorated level of 50%. Property Management SB 329 Amended 6/20/19 This bill redefines the term "source of income" in regards to housing discrimination laws to mean verifiable income paid directly to a tenant, or paid to a housing owner or landlord on behalf of a tenant, including federal, state, or local public assistance and housing subsidies Taxation SB 384 Flag Amended 3/25/19 This bill increases the principal residence profit exclusion for first-time homeowners in California from $250,000 per taxpayer or $500,000 for joint filers to $300,000 per taxpayer or $600,000 for joint filers. Government SB 725 Introduced 2/22/19 This bill requires the Department of Veterans Affairs to establish a rental housing assistance program to veterans seeking rental housing, and to develop a publication about the program.Showing 1 to 43 of 43 entries

Published in https://journal.firsttuesday.us

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May a property owner who uses neighboring property with the consent of their neighbor retain use of the area after the neighbor’s property is sold?

May a property owner who uses neighboring property with the consent of their neighbor retain use of the area after the neighbor’s property is sold? Shoen v. Zacarias Facts: A property owner renovates an area outside their property line. The owner’s neighbor, on discovering the encroachment, verbally gives the owner license to continue using the area for as long as the neighbor owns their property. The neighbor sells their property. Claim: The new neighbor seeks possession of the area occupied by the owner, claiming the owner is trespassing since the new neighbor is not bound by an agreement with the prior neighbor. Counterclaim: The owner seeks to retain the use of the disputed area, claiming they have an irrevocable license to use the area since the owner had extensively renovated the disputed area and continued to use it with the previous neighbor’s consent. Holding: A California appeals court holds the owner needs to vacate the disputed area since the owner did not renovate the area extensively enough to warrant an irrevocable license, and the new neighbor may not be bound by an agreement with the previous neighbor. [Shoen v. Zacarias (April 4, 2019)­_CA6th_] Read the case text. Editor’s note — The central question here is of how extensive the property owner’s renovations would have needed to be to justify the granting of an irrevocable license. While the court made no hard and fast determination on, say, a threshold dollar amount a property owner would have to spend on an encroachment to warrant an irrevocable license, the court’s ruling also rests on the fact that many of the owner’s expenses took place before their original neighbor gave the owner license to use the area, as well as the fact that the owner incorrectly calculated their ongoing expenses needed to maintain the disputed area. Although the court offered no broad ruling on what would have made the owner’s renovations extensive enough for an irrevocable license, it did take into consideration both the dollar amount spent on installation and maintenance of the renovations, as well as the period of time the owner had license from their neighbor for use of the property.

Posted by Benjamin J. Smith | Aug 12, 2019 | Latest Articles, Recent Case Decisions | Published in https://journal.firsttuesday.us

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Using the yield spread to forecast recessions and recoveries

The yield spread indicates the likelihood of a recession or recovery one year forward. The spread equals the difference between the short-term borrowing rate set by the Federal Reserve (the Fed) and interest rates on longer term treasury notes, determined by bond market activity. After over a decade of positive activity, the yield spread went negative in mid-2019, averaging -0.04 points in July 2019. Further, the yield spread continues its race to the bottom, sinking to -0.3 in the first week of August. This inversion follows a long downward trend that began in 2014. Today’s negative spread is the result of higher short-term interest rates stimulated by the Federal Reserve (the Fed) during 2018, and bond market investors seeing less future growth as the economy slows. When the yield spread figure goes negative, as it did in mid-2019, it forecasts a recession to arrive in 12 months. Therefore, real estate professionals can prepare for the next recession to arrive in mid-2020. In the meantime, sales volume and prices will continue to decrease. Agents and brokers seeking to survive the continued slowdown will make themselves more competitive by expanding their practice to make up for reduced sales. Updated August 7, 2019. Original copy released March 2010. [See current market rates] Chart update 08/07/19 Jul 2019 Jun 2019 Jul 2018 Yield Spread -0.04 -0.09 +0.93 Confidence about the year to come To you stalwart members of the real estate profession, a gift: the ability to forecast the probability of future recessions and rebounds, one year forward. This famed crystal ball is the yield curve spread, also simply called the yield spread. Don’t let the name yield spread put you off. It is not related to the deceptive yield spread premium (YSP) kickback mortgage lenders paid in times past. The yield spread reflects economic conditions as interpreted by bond market investors and Fed economists. To use the yield spread, all the layperson has to do is locate and understand what the current yield spread margin imports. That knowledge is provided to you in this article. The long-term market rate The yield spread figure is the difference between two key interest rates: the 10-year Treasury note (T-note) rate (or long-term rate) set by bond market investors; and the 3-month Treasury bill rate (or short-term rate) set by the Federal Reserve (the Fed). To make a profit on their long-term investments, bond market investors consider how the Fed’s monetary policy will impact future markets. These millions of private individual forecasts of future economic conditions are translated into a ready gauge for determining future market conditions – the wisdom of the crowd. Their considerations encompass two discrete elements: the perceived future rate of inflation, called the inflation risk premium, a figure built into the 10-year (T-note) rate; and the desired fixed rate of return on the investment in excess of the future rate of inflation, called the real rate of earnings. The short-term market rate The second piece of information needed to calculate the yield spread is the interest rate on the 3-month Treasury bill. This interest rate is managed by the Fed as the base price of short-term borrowing, their primary tool for keeping the U.S. economy balanced. The Fed has direct control over this short-term rate through its Federal Funds Rate. The Fed can: lower interest rates and stimulate economic growth to stave off deflation and economic stagnation; or raise interest rates and slow economic growth to fight inflation and excess demands for labor. Related article: Current market rates Collectively, the Fed’s use of short-term interest rates and other infusions and withdrawals of dollars to control the economy is known as monetary policy. Interplay between the treasury rates = the yield spread Calculating the yield spread is simply a matter of subtracting the 3-month T-bill rate from the 10-year T-note rate. Generally, a low or declining yield spread indicates a less vigorous economy one year forward. This declining yield spread is a result of bond market investors seeing less future growth resulting from the Fed’s short-term rate activity and other economic interruptions or stimulus – the global economy’s relationship to ours. On the flip-side of an economic cycle, a higher or rising yield spread indicates a more vigorous future economy. While good for bond market investors whose actions are full-speed-ahead for profit, a too-high yield spread (and its resulting boom) poses a danger for consumer inflation. When this occurs, the Fed acts to curtail the growth of future jobs and stabilize consumer prices by raising short-term rates. An over-correction can potentially send the yield spread into low or negative levels. When the yield spread goes negative, or inverts, a recession follows 12 months later. Most recessions are Fed instituted to correct for economic distortions. A yield spread inversion is the result of: the bond market forecasting a future downturn in the economy; and/or the Fed raising short-term interest rates to correct inflation or loose market conditions. Sometimes even a near-inversion is enough to signal a recession. That crossover moment gives the real estate broker and agent another signal to adjust their conduct. At the crossover, agents can expect a reduced volume in sales (which will already be slipping), lending and leasing one year forward. Then, in another 12 months, there will be a drop in prices, loan rates and rents, the delay resulting from the sticky price phenomenon brought about by money illusions of sellers and landlords. Reading the chart and current trends In the above chart: the red line tracks the yield spread from January 1955 through today. The yield spread dips below zero when the short-term rate rises above the long-term rate. This is the inversion point. +1.21 is the point for which the probability of recession begins, as assigned by Fed economists. Yield spreads smaller than 1.21% predict successively greater probabilities of recessions one year forward. In June 2019, the yield spread was -0.09, the first time the spread has been negative since the lead-up to the 2008 recession. The last time the yield spread was negative was in late 2006 when it -0.205%, a portent of the 2008 recession. The negative spread in late 2006 predicted a 40% chance of a recession to take hold one year forward, around the end of 2007. Then in December 2007, we formally entered the recession. Now we are well into the expansion period of the recovery with employment rising and a low unemployment rate. However, while all jobs lost during the recession have been recovered, not enough jobs have been added to make up for the increase in the working-age population since 2008. Each time since 1960 that the yield spread went negative we were in a recession approximately 12 months later. In 2019, the likelihood of a decline in general business and real estate activities over the next 12 months is high as the economic slowdown continues. As the spread dipped below zero, the next recession is imminent. The next recession is currently forecasted to take hold about 12 months following the inversion, in mid-2020. Fed efforts to prevent a recession The Fed closely watched the yield spread in 2015 and kept the short-term rate low (essentially at zero). Their objective was to create an environment ripe for wage increases and steady consumer price inflation. In late 2013, the Fed began to wind down its program of quantitative easing (QE3) in response to an improving job market, and finally ended QE3 in October 2014. Nonetheless, it vowed to keep short-term interest rates low until the job market has fully recovered. However, the Fed finally increased the short-term interest rate by 0.25% in December 2015 and has since amped up its rate of increase. As a result of the bond market rates and the Fed’s short-term rate increase, the yield spread then started to decline. Related article: The Fed to decrease interest rates… for now Real estate’s stake Real estate was a key player contributing to the excesses that brought about the 2008 Recession and the financial crisis. The yield spread was clearly decreasing in the years prior to the implosion of the real estate bubble. This condition does not now exist. The Fed’s concerted effort to raise short-term rates to lean against the excesses began mid-2004. However, it came too little too late, after allowing the market to go hog-wild for too long — an observation derived from hindsight. Now, the collective efforts of in-the-know real estate professionals will nurse the real estate market back to health. Going forward, more and more brokers and agents need to understand the workings of the yield spread as a gauge of the economy’s direction for the coming 12 months. Only then, with this insight, will the industry-wide frenzy to over-build, over-price and over-sell be tempered. Brokers and agents who track the yield spread will be given the foresight to shift their advice and spending routines before the changes in the market actually occur. In doing so they will seek out recession-proof niches of real estate (such as real estate owned (REO) sales, or property management) in which to weather the storm.

Posted by ft Editorial Staff | Aug 7, 2019 | Charts, Economic Factors, Market Watch | 25 Published in https://journal.firsttuesday.us

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Where in California new construction is keeping up with population growth

Where in California new construction is keeping up with population growth California’s housing crisis continues to worsen. With rents and home prices rising beyond the reach of median incomes, homelessness has increased significantly in the last few years. The main culprit of the crisis is a major housing shortage. The natural solution is more residential construction. How is the residential construction market faring across the state? Depending on where you’re looking in California, residential construction has increased almost every year since the housing market bottomed in 2009-2010. But at the same time, the state’s population has increased at a much higher rate. For example, in Los Angeles, 16,800 new residential permits were granted in 2017, including permits for single family residences (SFRs) and multi-family units. Also during 2017, the county’s population grew by 25,600 individuals. This roughly 9,000-unit deficit sounds bad, but only at first glance. Truthfully, not every new person needs their own place to live. A lot of this growth is due to new births, while only some of it is due to new household formations. Therefore, to get a better understanding of the need arising from population growth, we can divide this population increase of 25,600 individuals by the average household size, which is just below 3 persons per household in 2017. This leaves us with a household increase of roughly 8,600 in Los Angeles, actually less than the number of residential units started in that single year. Doing this math of residential construction starts compared to household growth in California’s various metro areas, we are left with this picture: Chart update 08/19/19 2017 Household Change 2017 Construction Starts Construction versus Household Formation Los Angeles 8,600 16,800 +8,100 Orange County 6,000 9,600 +3,500 Riverside 12,000 6,400 -5,600 Sacramento 5,500 2,300 -3,100 San Diego 6,700 8,200 +1,500 San Francisco 4,600 3,600 -900 Santa Clara 6,400 6,500 +200 In the chart above, three of California’s major metros saw positive construction numbers compared to household growth in 2017: Los Angeles; Orange County; San Diego; and Santa Clara. In contrast, other metros have remained in negative territory since the letdown from the 2008 recession, including: Riverside; Sacramento; and aside from a brief jump in 2016, San Francisco. Larger trends show bigger construction concerns While 2017 alone is mostly positive for the number of construction starts, this comes after several years of very low construction throughout the state. When the Millennium Boom’s housing bubble popped in 2007, builders exited the scene quickly. Statewide, residential construction fell in 2009 to a quarter of the 2005 peak. Since, then, construction has begun its recovery, but remains at just 40% of 2005 levels as of 2018. Today’s rising construction numbers are merely catching up with the losses experienced over much of the past decade. Zooming out even further, California’s total number of construction starts in 2018 was 31% below the historical average, calculated each year since 1960. Further, though the chart above doesn’t show price tiers, the majority of new construction built in recent years has been in the mid and high tiers. This, despite the fact that the state’s population increase hasn’t been limited to just the moderate- and high-income earners. As the supply-and-demand imbalance has grown for low-income households, where has the growing low-income population been moving to? Lower-income renters and homebuyers have been relegated to suburbs — when they can find housing at all. Those on the very bottom of the income ladder have simply been pushed off, evidenced by the growing homelessness crisis across the state. For construction to reach a full recovery, zoning limitations will need to lift in the state’s most desirable areas. Expect the next construction peak to occur around 2022-2023, coinciding with a demand convergence from first-time homebuyers and retiring Baby Boomers following the conclusion to the next recession.

Posted by Carrie B. Reyes | Aug 19, 2019 | Economic Factors, Feature Articles, Home Sales, Latest Articles | Published in https://journal.firsttuesday.us

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Infrastructure, climate risks are biggest issues facing real estate today

Infrastructure, climate risks are biggest issues facing real estate today Is the impending recession weighing on your mind? As a real estate professional, you can’t afford to be complacent about future conditions. But the sheer number of factors that go into forecasting and preparing for future real estate market trends may be overwhelming. You’re not alone in your concern for the future of real estate. What are others keeping in mind as they look toward the future of housing, commercial property and financing? The number one concern for housing is infrastructure, according to an annual survey by the Counselors of Real Estate, an international organization of vetted and experienced real estate professionals, including appraisers, investors, financial professionals, academics, developers and others. The organization polled its 1,000+ membership base to come up with the ten biggest issues facing real estate in 2019 and beyond: Top ten issues impacting real estate 1 Infrastructure An issue that often gets pushed to the back burner, dilapidated roads, bridges, power grids, levees and other necessary property elements are barriers to growth. U.S. infrastructure improvements are falling behind global competitors, making U.S. cities less desirable for places of business. Tax cuts make future investment in infrastructure less likely. 2 U.S. housing The U.S. housing market is in crisis due to a lack of building, lessened demand from young adults burdened by student debt, low income growth and rising levels of income inequality. Recognized by survey respondents as an urgent matter, the fall-out from the failures of the U.S. housing market is being felt across all real estate markets both here and abroad. 3 Weather and climate-related risks As damaging storms and weather extremes occur with greater frequency, the risks of climate change are weighing more heavily on property investors each year. 2017 was the most expensive year in history for property insurance losses and California’s losses in 2018 alone were over $12 billion, due primarily to wildfires. Insurance costs will continue rise for property owners, and strategies for safeguarding investments will need to be adapted in the years ahead. 4 The technology effect Technology has an oversized impact on real estate because its presence is felt everywhere and at every stage of a property’s life. Demand is rising for real estate that keeps up with technological advances, including cybersecurity, building operations, valuation, document management, lighting and wireless services (to name just a few). 5 End-of-cycle economics The economy — and real estate market — move in predictable cycles, punctuated by interest rate movements and job performance. Signs in 2019 point to an economic cycle past its zenith, meaning a downturn is quickly approaching. Real estate professionals and investors need to act now to avoid disaster when the next recession arrives. 6 Political division Political disagreement has led to many of the issues facing real estate to be pushed aside and ignored. Politicians fighting tooth and nail over political ideals can’t find the time to address necessary improvements, such as infrastructure, income inequality and climate change. Global trade is one major casualty of political division that has dire ramifications in the real estate market. 7 Capital market risk Acquiring and refinancing property and recapitalization of existing investments rely on liquidity from active capital markets participants. As transaction volume declines in 2019-2020, real estate professionals see their access to investment funds at risk. 8 Population migration Demographic shifts across the U.S. are having a major impact on commercial and residential real estate. For example, a disproportionate number of people seeking to move to California cities are upsetting the balance of homes available to newly formed households. 9 Volatility and confidence While confidence remains high in 2019, shifting economic conditions guarantee decreased confidence in the months to come. Construction starts are already down considerably and will continue to suffer with decreased confidence in future economic performance. 10 Public and private indebtedness In the U.S. property investment sphere, $3 of debt exists for every $1 of equity in 2019. Consumer debt is also at an all-time high. Future growth is therefore limited as consumers and investors alike become maxed out on their debt-to-income (DTI) ratios.

Posted by Carrie B. Reyes | Aug 19, 2019 | Economic Factors, Real Estate News, Your Practice | 0 Published in https://journal.firsttuesday.us

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The coming wave of California homebuyers is Generation Z

The coming wave of California homebuyers is Generation Z Millennials have, by many counts, barely begun their foray into homeownership. Just 35% of 25-34 year-olds own a home in California as of 2018, according to the U.S. Census. But make room for the next generation of homebuyers, because they are ready to jump in. Generation Z (Gen Z) consists of those born from 1995-2012. This U.S. demographic — which is larger than the Millennial population currently making up the bulk of first-time homebuyers — has some key differences compared to their predecessors. Perhaps the biggest difference is that, unlike Millennials, Gen Z did not come of age during the Great Recession. By the time even the oldest of this group was out on their own, the jobs market was well into its expansion from the 2008 recession and elongated recovery. Thus, this younger group does not have the same career setbacks and slow income growth that Millennials have contended with. A Homes.com survey of 1,000 Gen Z participants aged 18-24 years old found this generation is optimistic (maybe too optimistic), and ready to buy their first home. Survey results of Gen Z show: 87% believe they will be homeowners by the time they are 35; but 27% don’t know how much they will need to save for a down payment and 26% believe they need to save 20% or more. The misconception about down payments actually aligns with what other first-time homebuyers think, so these young adults aren’t extra naïve — just a regular amount of naïve, as far as first-time homebuyers go. Of course, a 20% down payment is preferred, as it eliminates the need for costly mortgage insurance. But this amount can be prohibitive for first-time homebuyers, and thus they ought to be aware of the ability to put as little as 3.5% down with a Federal Housing Administration (FHA)-insured mortgage or even zero down with a Veterans Affairs (VA) -guaranteed mortgage. Where will Gen Z be looking to settle down? The survey results showed: 58% value neighborhood diversity in their future home search; and 71% value living close to work. This is also in line with current trends which show young homebuyers gravitating toward urban areas of the state. No one wants to commute long distances to work, and since most jobs (and diverse communities) are located in city-centers, these neighborhoods are booming. However, one obstacle facing Gen Z will be a lack of residential construction in the areas they want to live. Not-in-my-backyard (NIMBY) advocates are vocal opponents of dense building in desirable areas. As NIMBYs have taken over the conversation, fewer units are built in these high-demand neighborhoods, causing prices to rise out of reach of first-time homebuyers. The good news is California legislatures have taken note of the shortage and are taking action to encourage more residential construction, especially of the low- and mid-tier units first-time homebuyers usually frequent. As the number of housing units constructed begins to rebound in the coming years, expect members of Gen Z to be the primary beneficiaries.

Posted by ft Editorial Staff | Aug 19, 2019 | Economic Factors, Real Estate News | Published in https://journal.firsttuesday.us

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