Saturday, September 24, 2016

Is It Time for a Resession?

Maybe I’m cranky. And it is a heated political season. But an economic reality check is needed. There’s a huge disconnect between the noteworthy upbeat economic data vs. dour sentiment so often heard around the region.
I’m not rooting for a recession, but here are six things we could learn from another downturn. Well, unless we want to do the hard work and to go the history books and learn – without living through another reversal for the business climate.

I can see a time – maybe in midrecession 2018 or 2019 – when somebody will reminisce about the good old days.
You know, “Remember 2015 or 2016 ...” I may have to be restrained from harming the person.
It’s been seven years since the Great Recession technically ended. The recovery in and around Southern California has not been perfect or even, but it’s been a noteworthy advance, especially considering the depth of the last downturn.
Times, relatively, are pretty good. Roads are jammed for a reason. Jobs are plentiful even if the pay isn’t always great. And home values have largely recovered. Please remember this strength.
Do we need another economic downturn to recall what real pain feels like?
We will have another economic downturn. It’s just a fact that the business climate has its ups and downs, and we’re due for a down.
But let’s remember a slowdown does not have to be an economic catastrophe.
In the past quarter-century, this region has seen a prolonged malaise (the early 1990s), a modest dip (after the turn of the century, the post dot-com bust and 9/11 attacks), and a huge disaster (Great Recession, technically 2007 to 2009.)
All hurt many people and businesses. Each happened for different reasons. Each left varied scars on the local business landscape.
But considering the relatively modest oomph of the current economic expansion and recovery marked by limited risk-taking, the next recession could be a mild one.
You know things are too good when people start complaining about how “busy” Orange County has become.
We again see the cyclical revival of local slow-growth movements in which those who benefited from the upswing start campaigning to shut the doors to further economic expansion.
The common target is new housing, which is desperately needed countywide but is unfairly tarred as the traffic problem. The truth is that local employers hire more people than can afford to live here, so new “affordable” housing would actually lower congestion.
Debate aside, there’s only one thing that quickly empties freeways: a job-killing recession! So, slow-growth fans, be careful what you wish for.
I know some of you think I’m crazy to think times are good.
It’s true not everyone has benefited from the recovery. And other folks think there’s a conspiracy among all data collectors – government, industry groups, private analysts and pundits – to cover up their view of a gloomy reality.
When the downturn arrives, we will see data that show slowing corporate and consumer activity. Unemployment will rise. So will bankruptcies and defaults. Maybe California will stop being the nation’s largest jobs creator.
The widely reported trend lines that rise today will drop when business sours. I will note the dip with the same vigor as today’s upward trends.
P.S. to my revival-denial friends: When the downturn comes, please don’t try to prove your point by quoting the same economic data you currently think are wrong or misleading or even cooked!
Who wishes they bought property or stocks right after the recession?
Downturns create opportunity for those who can see it.
Maybe certain assets have gotten a little too pricey in this recovery. (I’ll suggest commercial real estate.) One good thing about recessions is their cleansing nature: They often punish what’s become economically illogical.
Unfortunately, human nature makes it tough to want risky assets after markets tumble. Emotions make it especially tricky to decipher which bets are no longer viable vs. which investments have simply been heavily discounted.
I wish we didn’t need another downturn to re-teach “Buy low, sell high” ... but, sadly, that's what it takes.
When people forget business reality, recessions begin.
Severe risk-taking or overspending is often the last stage of an upswing as money seems too easy to get. Companies do it. Consumers, too!
When those bets no longer pay off, institutions and individuals pull back spending. The growth ends and the contraction beings.
What worries me today? The fancy food concepts that seem hot these days. I halfway understand pricey wine, but fancy micro-brewery beers or custom-mixed cocktails that can run $15 or more? Really?
And those beverages wash down your $12 (tiny) burger made with all-natural/grass-fed/free-range/humanely killed/hand-ground/brand-name protein with a (small) side of organic/locally sourced/hand-cut/fried-in-gourmet-oils vegetables.
Oh, yeah. Did I mention $100 tomahawk steaks?
But if stuffing tummies on overpriced dinners is this upswing’s worst offense, perhaps the reversal won’t hurt the wallet too much.

Monday, September 12, 2016

The San Francisco Housing Frenzy Shifts Now to Oakland

Stacey Smith and her husband looked at about three dozen homes in the San Francisco Bay area and lost a bidding war before finally purchasing a four-bedroom house in June for $1.5 million — 40 percent more than the asking price.
Their search wasn’t in Silicon Valley or San Francisco. It was just across the bay in Oakland, which has supplanted its pricier and better-known neighbors to become the region’s most heated real estate market.
“Something we had to wrap our head around really quickly was the fact that we were automatically going to bid at least 30 percent over asking,” said Smith, a 50-year-old strategy consultant who moved from San Francisco in search of more space for her family’s three kids. “It’s the new normal.”
Oakland’s housing market is still soaring even as growth cools in San Francisco, where million-dollar median home prices have left buyers searching for more affordable alternatives. The East Bay city had California’s highest annual appreciation of home values and the biggest rent growth of the 50 largest U.S. cities as of June, according to data compiled by Zillow.
Despite persistently high crime rates and political turmoil, Oakland is attracting residents for its relative affordability, vibrant cultural scene, diverse population and urban environment within commuting distance to San Francisco. Companies such as Uber Technologies Inc. are moving in — helping to fuel a 43 percent jump in office rents in two years — while big investors including Blackstone Group LP and Boston Properties Inc. are putting money into residential projects in the city.
“Oakland is the hottest residential real estate market in the Bay Area,” said Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley. “It’s still expensive, but it’s more affordable” than San Francisco.

Biggest gains
Oakland home values soared 16 percent in June from a year earlier to a median $616,300, the biggest gain of California’s major cities, according to Zillow. The median monthly rent jumped 15 percent, the most in the U.S., to $2,846 in the same period. That was almost triple the 5.5 percent growth in San Francisco, and more than five times the nationwide increase.
Houses are selling fast — and far above list prices. The average home in Oakland sold for 17 percent more than asking in the second quarter, according to data from Paragon Real Estate Group measuring properties that didn’t go through a price reduction first. That compared with 9 percent for San Francisco and 5 percent in Silicon Valley’s Santa Clara and San Mateo counties. Oakland homes were on the market an average of 20 days, fewer than the 34 days in San Francisco.
“Most markets would be pleased if they averaged asking price, or 1 or 2 percent over asking price,” said Patrick Carlisle, chief market analyst at Paragon. “To see things averaging 9 to 17 percent over asking price is virtually unheard of. It’s the highest I’ve ever seen.”
The median home price in Oakland has soared 178 percent since 2011, almost double the gain in San Francisco, Paragon data show.

Police scandal
Oakland is still struggling with a reputation for social and political unrest. Its police department is operating without a chief after three departed, one after another, in the span of about a week in June amid a sex scandal involving officers and a teenage prostitute. It’s also an epicenter of social protests, including those connected to the Black Lives Matter and Occupy Wall Street movements.
The troubles aren’t deterring newcomers, city officials say.
“It’s not slowing growth in the way that it used to five or 10 years ago,” said Marisa Raya, an economic analyst in Oakland’s office of economic and workforce development. “But we are certainly seeing a lot of political activism around the super-fast rent growth.”
Oakland voters will consider ballot measures in November to strengthen rent control and issue bonds for affordable housing.
Blackstone rarity
Blackstone has teamed with CityView, a property company started by former U.S. Housing and Urban Development Secretary Henry Cisneros, to build a 423-unit apartment complex in Oakland. The $175 million project at 3093 Broadway, due to be finished in 2018, is the first development in the city for the world’s largest alternative-asset manager.
Jon Gray, Blackstone’s billionaire head of real estate, said he thinks Oakland may become the next Brooklyn — a comparison that has frequently been evoked in recent years as the city comes into its own as a hot spot after previously being overshadowed by its glitzier neighbor.
“We very rarely do ground-up development, so this project reflects our strong confidence in the transformation under way in Oakland,” Gray said in an e-mail.
Boston Properties, the largest publicly traded U.S. office owner, signed a letter of intent to invest in a 25-story residential development in Oakland’s Temescal neighborhood, Chief Executive Officer Owen Thomas said on a July 27 earnings conference call.
“Given the high cost of multifamily product in the San Francisco market, we believe we can deliver high-quality units that are approximately at a 20 percent discount to San Francisco rents in a location that is a 16-minute transit ride from the Embarcadero BART Station in downtown San Francisco,” he said on the call. Arista Joyner, a spokeswoman for the company, declined to comment further.
Job growth
Oakland’s job growth also is showing signs of outpacing its neighbor, with listings up 16 percent since April, compared with a 1 percent decline in San Francisco, according to LinkUp, a job-search engine based in Minneapolis. Among the companies setting up shop is San Francisco-based Uber, which last year bought the old Sears building in the Oakland’s urban core and is renovating it, with plans to open in late 2017.
The city is home to consumer-products maker Clorox Co.; Kaiser Permanente, a nonprofit health insurer and hospital chain; and internet-radio service Pandora Media Inc.
The rate for top-quality office space in the city has grown 43 percent in the second quarter compared with two years earlier, while San Francisco’s rent is up 20 percent in that time, according to data from real estate brokerage CBRE Group Inc.
The influx of companies is helping to prop up housing prices. Even as the technology industry slows, there are still “many, many buyers” in Oakland, said Carla Buffington, a real estate broker at Pacific Union in the city.
“We’re seeing a majority of properties selling with multiple offers,” Buffington said. “Almost weekly, I am shocked by the price that a certain property will get.”

Tuesday, August 23, 2016

Top 7 Bay Area Zip Codes for Real Estate Investment

According to data released by RealtyTrac, 7 Bay Area Zip Codes rise to the top in terms of investment opportunities.

The Bay Area's most promising, up-and-coming neighborhoods are in the East Bay, according to an analysis by RealtyTrac.

That's not a coincidence, said Daren Blomquist, senior vice president at real estate research firm RealtyTrac. The East Bay still has neighborhoods that are on the mend but often overlooked by real estate investors and home buyers.

The East Bay's strong showing comes as little surprise as that part of the Bay Area finds itself increasingly in the national limelight. The New York Times told its readers that the East Bay is among the 52 places around the globe that they need to visit in 2016.

"While the Bay Area's identity is dominated by beautiful, booming San Francisco, its soul increasingly seems to reside in the East Bay," the New York Times said, noting "Alameda County's glorious inland climate, thriving arts scene and a vibrant culinary culture."

RealtyTrac looked at several factors in more than 3,500 zip codes nationally, including the number of construction loans, which finance both residential and commercial projects; the profitability of house flipping; the percentage of millennials in the neighborhood; and the quality of a neighborhood's best school. (In this case, the researchers focused on finding neighborhoods where the best school was ranked below the state average. Improving schools are often a lagging indicator of an improving neighborhood.)

"Real estate investors and first-time homebuyers are looking for the best up-and-coming neighborhoods that might be bad but are recovering," Blomquist told the San Francisco Business Times.

"Many down-and-out neighborhood housing markets across the country are on the rebound thanks to a confluence of market forces working in their favor," Blomquist said in a RealtyTrac blog. "Tight inventory of homes for sale combined with a dearth of new home building is convincing buyers and investors to reconsider buying in what they once might have considered 'bad' neighborhoods."
Investors and home buyers still need to determine for themselves whether a troubled neighborhood has what Blomquist calls the "it" factor.

"This is a starting point," Blomquist said, saying that it's still necessary to drive through neighborhoods, talk to people and assess the restaurants and other amenities a neighborhood offers.

Thursday, August 18, 2016

US Home Buyer Demand Showing First Sign of Weakness

In its July monthly survey of real estate agents from around the US – and regional analysis from 40 markets – shows that buyers are generally becoming tepid if not cautious amid historically low interest rates. After a June pull-back in home buyer traffic, July failed to provide a bounce as those actively looking to purchase a house dropped. There are numerous concerns – home prices are too high, for instance – but the real concern for some agents is how quickly demand disappeared.

Regionally, the report shows a mixed bag. The Pacific Northwest slowed, coming in-line with national averages, while certain regions inside Texas and the Southwest improved, but the Northeast, Midwest and California all worsened.

Macro real estate concerns across the country

In July seven of the 40 markets Credit Suisse real estate analysts Michael Dahl, Matthew Bouley and Anthony Trainor witnessed lighter than expected traffic.
“Incrementally, buyers seemed more resistant to higher home prices with some willing to move to the sidelines,” they noted, citing hesitation due to economic concerns. “Quite a few agents were surprised how quickly demand faded through the Summer, suggesting some payback following stronger Spring trends.”
The macro trends were not entirely negative. “Many agents noted that favorable mortgage rates continue to support demand, though still not much of an urgency factor.”
Trends were mixed in geography as well as among different demographic groups. Traffic trends among “high-end” properties, which had seen strong up markets during the periods of quantitative easing, are starting to slow. But traffic patterns point to “healthy demand” at lower price points.
Factors can vary greatly depending on regional differences as well

Regional pockets of strength and weakness in previously hot Portland, Seattle, New York and California
The super hot, hip markets of Portland, Seattle and New York experienced sharp traffic declines, the report noted. California also experienced declines in the southern part of the state.
In Portland home inventories rose with agents reporting comments such as “Seems like the whole city went on vacation as far as showings. Traffic is just beginning to pick up.”
Nearly 174 miles north in Seattle a lack of motivation is heard among buyers as “prices (are) too high,” the report said, noting “Buyers see no reason to hurry due to steady interest rates. Also unwilling to accept older homes that are not fully updated.”
Further south along the coast, California traffic was pulled lower by readings in Los Angeles and San Diego, while the northern part of the state in tech-heavy San Francisco moved higher.
In New York City and Northern New Jersey, the problems heard among real estate agents include “Lack of quality inventory,” or “Higher asking prices are causing buyer hesitation as inventory builds.”

Buyer weaker on Flordia coast than in Orlando, Las Vegas and Minneapolis

Within the “Lone Star” state, Austin, Texas traffic was down with Houston remaining “challenged.” These rough patches were offset by improvement in San Antonio and Dallas. “Tremendous demand. Low interest rates. Fantastic local economy,” was the buzz among San Antonio real estate agents.
Florida markets remain depressed, the report noted, led by weakness in key metropolitan areas such as Miami, Fort Meyers and Sarasota. Off the coast in Orlando demand held steady. “Sales activity is down partly due to time of year, many on vacation, and less inventory on the market,” the report noted, pointing to people currently selling homes “up north.”
Two notable winners include Las Vegas and Minneapolis, where real estate demand continues to power ahead.
In Las Vegas, a previously hot real estate market leading up the to the financial crisis, agents noted an air of urgency among buyers. “Low interest rates won’t last forever, and some are beginning to figure this out,” the report noted, pointing to an influx of buyers form California.
Likewise, Minneapolis saw surprising increases in buyer traffic with “serious buyers out looking” amid “still steady traffic.”

Wednesday, July 27, 2016

6 Trends Moving Real Estate in California This Summer

Here are a half-dozen things you should know about California’s housing market as the second half of 2016 starts ...
No. 1: Prices are still rising
The median selling price of a California home hit a nine-year high at $441,250, up 6.3 percent in a year, according to Property Radar. Gains are fairly widespread with prices in 18 of California’s 26 largest counties reaching similar heights. And for those who like pricey: San Mateo County hit $1.27 million, the highest median of any county in Property Radar records that date to 2001.
No. 2: Many buyers are still paying up
In June, 35 percent of sales sold at prices above the sellers’ asking price, says the California Association of Realtors. Those premium payments are down from May’s record 38 percent but above 33 percent in June 2015. That’s probably because 72 percent of the homes sold in June drew multiple offers in June vs. 65 percent a year earlier.
No. 3: Sales were down
Prices too high? The 41,291 California single-family homes and condominiums sold in June were down 4.5 percent in a year, Property Radar says. Year-to-date, sales are off 2.8 percent. Is it a shortage of shopper choices or are house hunters antsy about the economy?

No. 4: Even cash buyers are slowing down
Property Radar reports no-mortgage purchases were 19.7 percent of all June sales, but these all-cash deals were down 7.8 percent from June 2015. Purchases by shell companies, often investors using cash to buy, were down 2 percent from a year ago.
No. 5: All said, relatively solid
Freddie Mac has a curious index, the Mimi, that translates current real estate trends into a historical perspective measure where 100 equals “normal” and markets can be cool (well below) or overheated (well above.) For May, California's Mimi was 94, 3 percent better than a year earlier and “in range and improving.”
No. 6: The outlook is brighter
Look for higher levels of activity this summer. California Realtors’ Pending Home Sales Index for June was up 3.2 percent for the 12 months ended in June. This benchmark, based on signed deals going into escrow, is a good barometer of future closings.

Friday, July 22, 2016

What a GOP President Could Mean for Homeowners

The news coming out of the Republican National Convention in Cleveland has so far been dominated by whether Melania Trump intentionally ripped off a chunk of her speech from first lady Michelle Obama (blame the speechwriter), angry protests outside the event, and which celebrities and politicos showed up to support presidential nominee Donald Trump (and those who stayed away).
But here’s what the press hasn’t been focused on: what a Republican in the White House, especially a real estate mogul, would mean for the U.S. housing market. Surprised? After all, buying a home is the biggest purchase most Americans will make in their lifetime—and represents the kind of financial stability that many of Trump’s supporters say is impossible for them to achieve in the new economy. Trump has been pretty tight-lipped about what his potential presidency would mean for renters, buyers, and homeowners
But not anymore.
The Grand Old Party released its 66-page Republican Platform 2016 this week at the convention. And in it, finally, are at least some details of how the Republicans hope to define—and ultimately limit—the federal government’s role in the real estate market.
It’s still a bit vague—but hey, with the election just four short months away, it’s something.
“Homeownership expands personal liberty, builds communities, and helps Americans create wealth,” reads the platform. It later goes on, “We must scale back the federal role in the housing market, promote responsibility on the part of borrowers and lenders, and avoid future taxpayer bailouts.”
But real estate analysts were quick to point out that these reforms could, in some instances, potentially force buyers to plunk down larger down payments or pay higher interest rates.
“The heart of Republican support—blue-collar, middle-aged workers—are the people who will [be affected] the most,” says Bob Edelstein, co-chair of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley. “It may be harder to get mortgages, and those that will be available will be less advantageous.”

Bye-bye, Fannie Mae and Freddie Mac?
The language in the platform is unclear, but it appears the party wants to do away with—or substantially shrink—both Fannie Mae and Freddie Mac. The platform referred to the business models of the pair as “corrupt” and allowing “shareholders and executives [to] reap huge profits while the taxpayers cover all losses.”

But calling the current system broken is the easy part, says Christopher Palmer, a real estate professor at the University of California, Berkeley.
“The platform doesn’t propose any replacement for the current mortgage-market system that we have, with its reliance on Fannie and Freddie and [the Federal Housing Administration],” he says.
The Republicans would also stop the FHA from providing taxpayer-guaranteed mortgages to wealthy home buyers. The FHA typically insures loans for low-income, first-time, and other buyers who don’t have enough for a 20% down payment.
Currently, the largest FHA-backed loan that borrowers can receive is $625,500—but that’s only in the country’s most expensive areas. The average FHA-backed mortgage so far this year is just over $194,000.
The GOP platform also calls for an end to the government-mandated number of loans that Fannie, Freddie, and federally insured banks are encouraged, if not required, to set aside for “specific groups.”
“Discrimination should have no place in the mortgage industry,” reads the platform.
It’s unclear which groups the party is referring to, but Fannie and Freddie currently have goals for at least 24% of their single-family mortgages to go to low-income borrowers.

Less federal oversight of local housing markets

The party also appears to want to end the Affirmatively Furthering Fair Housing rule, although the platform doesn’t explicitly say so. The rule requires communities getting federal housing dollars to take steps to overcome segregation in their areas—or pay fines.
“While the federal government has a legitimate role in enforcing non-discrimination laws, this regulation has nothing to do with proven or alleged discrimination and everything to do with hostility to the self-government of citizens,” according to the platform.
But doing away with the rule and leaving these issues in the hands of local leaders is risky, warns urban policy professor Rachel Meltzer of the New School in New York.
“There’s a long history of local governments using zoning essentially to discriminate against lower-income residents,” she says.

Hit the road, Dodd-Frank?

The Republicans also seem to want to repeal—or at the very least, limit—the Dodd-Frank Wall Street Reform and Consumer Protection Act. Now this is something that has been talked about—a lot. The act provides more oversight of financial institutions in the wake of the housing bust that plunged the nation into a recession.
“From start-ups forgone to home loans not made, Dodd-Frank’s excessive regulation and burdensome requirements have helped contribute to the slow economy we all endure today,” reads the platform.
The party also wants to get rid of the Consumer Financial Protection Bureau (or subject it to congressional appropriation). The bureau, created through Dodd-Frank, is charged with protecting consumers against predatory financial services companies, including those providing mortgages.
Republicans allege that its “regulatory harassment of local and regional banks, the source of most home mortgages and small business loans, advantages big banks and makes it harder for Americans to buy a home” in the platform.
But Dodd-Frank and agencies such as the CFPB are key to ensuring financial markets are kept in check and act fairly, says Berkeley’s Edelstein.
“The financial system needs to be protected,” he says.