Ballot Initiative Could Help California's Real Estate Inventory

 

A proposed ballot initiative in California could encourage older homeowners with larger homes to downsize and move to other counties, freeing homes for younger families and potentially easing the state's chronic housing shortage. The real estate industry is leading the charge to qualify the measure for the Nov. 6 election ballot and has already raised about $6.7 million for the effort. Monday is the deadline for proponents of the measure to turn in signatures to qualify the measure for the November ballot. A state analysis of the proposed initiative, however, said the measure could end up costing local governments more than $2 billion annually in lost revenue and have a fiscal impact on the state itself.

The proposed voter measure would allow homeowners age 55 and older to sell their primary home in one county and move anywhere else in California without a significant property tax hit, assuming the new property is valued the same or less. If the replacement property is higher value, though, there are still incentives under the portability measure since it keeps property tax benefits under the citizen-led Proposition 13 tax rate rollback passed in the 1970s.

 

Eliminates 'disincentive' to sell "
Right now there's a disincentive for older Californians who may be in bigger houses than they need to move out because they've got that Prop 13 base," said Jon Coupal, president of the Howard Jarvis Taxpayers Association, one of the original groups that backed Prop 13 and now supports the portability tax measure. Under Prop 13, taxes on California homes are capped to 1 percent of the property's acquisition value and usually limited to just 2 percent annual increases, assuming the homeowner stays. The sale of a home triggers a reassessment on the property for the new owners. Previously, California voters approved allowing the tax break within counties or reciprocity agreements between counties to transfer the property tax burden. But fewer than a dozen of the state's 58 counties accept the so-called inter-county transfers so it leaves out a huge swath of the state. Coupal said passage of the measure could encourage older homeowners and empty nesters with larger homes to perhaps downsize and move to another county, thereby freeing up the house they're leaving to younger families with kids. He said it's not a panacea for the housing problem in the state but it can help.

Avoiding giant tax bite
"Many seniors live in homes that no longer fit their needs because their homes are now too big or too far away from their families," said Steve White, president of the California Association of Realtors, the group behind the proposal. "If they want to downsize or move closer to their children, they could face property tax increases of 100 percent, 200 percent or even 300 percent." The real estate industry has already raised just under $7 million for the initiative. Earlier reports suggested the industry is prepared to spend up to $50 million on the campaign. Proponents need at least 585,407 valid signatures to qualify for the ballot. As of Thursday, White claimed they were on track to reach nearly 1 million signatures. White said the Prop 13 tax portability initiative also could benefit older people in counties where recent natural disasters occurred, whether the wine country wildfires in Sonoma or Napa or mudslides in the Santa Barbara area, by freeing them of "a moving penalty if they choose to move outside of their disaster-torn county." The proposed tax portability initiative also is available to "severely disabled people," according to White.

Local government impacts
Meanwhile, some groups representing local governments have previously expressed reservations about such initiatives because they see tax breaks on property tax as reducing the increase in property tax revenues that would would normally come from the sale of a home. Indeed, the official fiscal analysis done by the state's Legislative Analyst's Office estimates there would be losses in property tax revenues. According to the nonpartisan office, the first few years could result in property tax losses for schools and local governments of about $150 million apiece annually. It estimates those losses could only grow over time, and result in schools and local governments each losing $1 billion or more annually. Also, it said there could be costs to the state for school and community college in some years due to the fiscal impacts at the local level and state laws that guarantee some public education funding levels. Eva Spiegel, a spokesperson for the League of California Cities, said the group has not taken a formal position on the measure but indicated in the past they "opposed similar legislative proposals." The league, a lobbying group representing cities around the state, estimated in March 2017 that about 78 percent of the counties in California had less property tax revenue than in 2008, when adjusting for the impact of inflation and population. On the other hand, proponents dispute the impact of lower property tax revenues from the measure and insist the reduction in property taxes could be offset somewhat by economic activity elsewhere.

For example, they say with neighborhoods repopulated with young families there could be more spending in the community on such things as household furnishings, renovations and other economic activity. And in the case of renovations, it can raise the home's value and result in a higher assessed value for property taxes. In recent years, 350,000 to 450,000 homes have sold in the California market annually, according to the Legislative Analyst's Office. It estimates that the proposed measure has the potential to increase that number "by as much as tens of thousands per year." Finally, the California Chamber of Commerce supports the voter measure and says the state has "a massive housing shortage and needs at least 100,000 additional new units a year to meet demand." It also believes the initiative "could help ease the shortage by freeing up modest-priced homes and move-up housing for young families.

Are California Home Prices Ready for a Correction?

 

California housing looks overvalued with overall price appreciation exceeding the market’s economic foundation, according to one new analysis.

But the chance that housing losses will occur in the state is minimal, says another industry report.

Credit-rating agency Fitch’s is far more antsy about the state’s housing values than what mortgage insurer Arch MI found in its recent housing-risk study. But both reviews, comparing house-price trends with underlying economic patterns, showed other parts of the nation with dicier real estate than California.

Fitch found the typical U.S. home was 3 percent overvalued in the fourth quarter with 17 percent of all housing 10 percent or more too pricey.

“Fast home-price growth in some regions — California, Florida and Texas — appears to be exceeding the supporting economic fundamentals,” Fitch wrote.

California is one of nine states with housing that’s overvalued by 5-9 percent. The others: Colorado, Florida, Louisiana, South Dakota, Utah, Washington, Wisconsin and Wyoming.

Yet four states are slightly more overvalued than California by 10-14 percent: Arizona, Hawaii, Oregon and Texas. And the most-overvalued states, with housing 15-19 percent too pricey, by Fitch’s calculations? Idaho, North Dakota and Nevada.

 

Arch MI, using third quarter 2017 data, sees California with only a “minimal” 3 percent risk of home prices falling in the next two years. These analysts found 18 state markets were more vulnerable with a 5 percent chance of nationwide depreciation.

Alaska, North Dakota and Wyoming had the biggest chances of price declines, between 31-37 percent. Six states were between 11-25 percent: Connecticut, Louisiana, New Mexico, Oklahoma, Texas and West Virginia. And another nine state had “minimal” but higher risks than California.

Regionally, Fitch studied 20 major U.S. markets and found the region of Los Angeles and Orange counties “overvalued” by 5-9 percent in the fourth quarter, unchanged vs. the end of 2016. Overvalued by 15-19 percent was Dallas-Fort Worth; Las Vegas and Portland. Overvalued by 10-14 percent was Phoenix.

Arch Mi found Orange County to be Southern California’s riskiest housing market but with only a “minimal” 8 percent chance of price declines in two years. Los Angeles County and the Inland Empire were rated as having a 2 percent chance of declines.

The riskiest market among the nation’s 50 largest tracked by Arch Mi was Houston with a 32 percent chance of price declines. Then came 20 markets with “low” risk, 11-25 percent chance of loss.

“It’s premature to worry about a housing bubble,” Arch MI analysts stated in their report. “The typical warning signs – excessive debt levels, poor-quality loans, exponentially increasing home prices, rising vacancy rates and/or poor affordability compared to the past, and a high number of internet searches on house flipping – are not present.”

Bay Area Rents on the Rise Again After Brief "Cooling Off" Period

 

A real estate analytics firm has some good news for Bay Area landlords — and bad news for tenants: Rents began rising again last year after a brief “cooling off period” in late 2016.

“The Bay Area region should register one of its best rent performances since at least mid-2016,” the Texas real estate analytics firm RealPage wrote in a new report for the real estate industry.

In a trend likely to fuel an already supercharged fight over rent control in California, landlords in San Jose, San Francisco and Oakland began raising asking prices again last spring and continued to increase rents in lease renewals for existing tenants. Monthly lease transaction data show “improved momentum” for apartment operators and investors, according to the report, echoing predictions of an upswing last month by the real estate data firm Yardi Matrix.

But for tenants unable to keep up with escalating rents, the conditions feel anything but improved.

 

“It’s totally backwards,” said Charitie Bolling-Tosuner, a third-generation San Franciscan whose family faces eviction from the two-bedroom Bayview area rental house they have lived in for more than a dozen years — and once hoped to buy — because they can’t afford the $5,700 rent. Bolling-Tosuner is a member of Alliance of Californians for Community Empowerment, one of the groups behind the rent control ballot initiative.

“For us, for people who actually work small-paying jobs and are trying to work here in the city, it’s hard for us,” she said.

San Jose is leading the nation in rent hikes, with a jaw-dropping 52.4 percent increase since 2010, according to the firm. Oakland and San Francisco were close behind, with increases of 51.1 percent and 48.6 percent, respectively, during that time period. The report found that the current uptick will be more modest than in previous years, but that low unemployment and continued job growth will keep rents high.

Rent for an average one-bedroom apartment costs $2,460 in the San Jose metropolitan area, $3,400 in San Francisco, and $2,100 in Oakland, according to a recent analysis by the real estate website Zumper.

 

California lawmakers and pro-housing activist groups have been pushing for more housing development as a way to shore up supply and lower the costs for renters. But the new inventory — while double the Bay Area’s average rate in recent years — is not expected to be great enough to have much of an effect on the market, RealPage concluded.

 

Meanwhile, rent-control proponents are gathering signatures for a November ballot initiative to repeal Costa Hawkins, a statewide law banning certain types of local rent control, such as price controls for condominiums, single-family rentals and apartments built after 1995, when the law was passed.

Democratic lawmakers have also proposed bills this year to expand renter protections, such as giving tenants more time to challenge evictions and creating a statewide law establishing a set of valid reasons that can be used to evict tenants.

 

 

 

Real Estate Trends in 2018 Begin to Take Shape

The evolution of the real estate market is unstoppable with new trends emerging every year.  As the economy shifts into an even higher gear, with more consumers making plans to own homes, there is a lot you can expect. Compared to 2017 and other past years, you can expect 2018 to take you on a long ride in real estate as highlighted by Realtor.com.

Some of the main housing and real estate trends include:

Supply meets demand:
From market analysis and after about three years of crushing shortages in homes for sale, especially homes within the consumers’ budgets, predictions for 2018 show that buyers will gain more control over the market as housing supply finally catches up with the buyers’ demands.

Most potential homeowners who have been frustrated over the past few years are most likely to find homes matching their budgets. Bullish construction is expected to rise, turning the ship around in favor of homeowners by bringing up new homes, therefore increasing opportunities for more people to trade up into new homes.

As a home buyer, you shouldn’t rush into buying early in the year – the upper tiers will get relief before the middle and the lower tiers. With the market easing up, you can expect the prices of homes to drop, slowing down to a 3.2 percent growth, annually. Unfortunately, this causes slow appreciation which leads to a price increase.

While you can expect an overall rise in property prices, you will also see more of low-priced homes. Keep this in mind; it will get worse before it gets better.

 

Tax reforms:
With the Republican Party’s proposition for changes to the taxation system, everything can change. However, the jury is still out on this since the House, and the State versions remain in limbo.

In case a version of the tax reforms passes on the provision affecting real estate, the number of homes on sale may decrease, and the home prices may drop. The tax reform may affect the high-tier homes more.

More Millennials expected to gain independence:
Over the years, the housing market has been challenging to millennials leaving more millennials stuck in their parents’ basements. Even though millennials will still have to deal with student loans, it may be easier for millennials to take out mortgages on homes in 2018 than in the previous years.

This is probably because of rising income and an overall stronger economy, and better career development.

Rise in Short-term Rentals:

2018 will see an increase short-term rental homes and a thriving market, which has created a boom in opportunities for the single family and the large property owners.

The rise in short-term rentals has been necessitated by the need to earn extra cash from vacation homes. Everyone is looking for an opportunity to earn money so; you can expect this trend to grow in 2018.

Tiny homes:
You’ve probably seen tiny homes trending in the past few months. Besides tiny homes, there also are mobile homes. Thanks to the versatility of small and mobile living, as well as the affordability, this is going to be an upward trend.

Community-driven spaces and co-living:
Community-driven resident spaces and co-living will be on the rise in 2018 because of the renter demands and rights. These unique housing services will heighten competition in the commercial real estate.

Livability and quality of life as the deciding factors for housing:
Despite the price ranges on projects, consumers will choose quality over the price. In 2018, you cannot expect homebuyers to compromise on convenience, safety, security, spacious homes, and parking space.

Even with increasing interest rates, 2018 will see more cautious but determined home buyers. Also, there will be more homes selling in high-tax states, a rise in micro units, on-demand access to renters, and further growth of the alternative and private real estate investors.

 

Advise for Bay Area Homebuyers: Think Fast

 

If you see a Bay Area home sale listing, don’t blink. You’ll miss it.

Limited housing supply is driving prices sky-high and forcing buyers to move ever more quickly. In Santa Clara County, the median time for an existing home on the market in December was 9 days — by far the shortest listing-to-sale in a major metro. Homes sales in the county moved twice as quickly as they did during the same period last year, according to a new report from the California Association of Realtors.

“Nine days is a very, very low number,” said Oscar Wei, senior economist for the California Association of Realtors. “It’s the lowest we’ve seen since at least going back to 2007.”

East Bay homes also moved at a brisk pace, according to the report. The median time on the market in December for an Alameda home was 13 days, down from 16 days the previous year. In Contra Costa County, the median time was 16 days.  Buyers also hurried to close deals in San Mateo County (12 days), and San Francisco (18 days). Agents say homes usually move from listing to escrow in about 30 days in less-frenzied markets.

 

To make matters more grim for prospective homeowners, the association’s survey found housing supply dropped to levels not seen since June 2004. The pressures have combined to send prices of Bay Area homes skyward:  the median sale price for a home in Santa Clara County rose 34 percent last year, to $1.3 million, and jumped 14 percent in Alameda County, to $862,000, according to the association.

The median sale price for homes climbed to $1.5 million in San Mateo County and $1.48 million in San Francisco. Both represented a 12 percent jump from last year’s prices.

William Doerlich, past president of the Bay East Association of Realtors, advises buyers to move quickly even if it’s one of the first homes they see. “Jump at it when you see it,” Doerlich said. “If you like it, grab it and go.”

Brisk homes sales in Santa Clara County have been driven by transactions in Sunnyvale and Cupertino, near the new Apple headquarters, said George Montanari, sales manager at Alain Pinel Realtors in Los Gatos.

 

Montanari said cash offers for homes have hastened sales, as well as buyers coming to the table with strong financial positions. Some buyers are asking agents to make offers without seeing the homes, he said.

“Personally, this frenzy doesn’t feel good,” Montanari said, adding that due diligence is an important step before buying a home.

More upward pressure on the housing market is expected as Bay Area jobs and economy stay strong, Wei said. He believes the median price for Alameda County homes, which reached $880,000 in November, could hit the seven-figure mark before the end of 2018.

Throughout the state, the market for existing home sales stayed hot last month. The average time on the market for a single family home was 25 days, and 18 days for townhomes and condos. At the same time a year ago, California home and condo sellers waited about a month on average to close deals.

“This trend is probably going to continue,” Wei said. “Let’s face it, in the Bay Area and California in general, we haven’t been doing enough.”

 

Why is Home Inventory Shrinking in the Bay Area? Two Quick Answers

Bay Area housing trends are easily summarized: As the supply of available homes dries up, prices go up. It’s the law of supply and demand.

But why is the housing supply — insiders use the term “inventory” — so tight to begin with? And what can be done to expand the supply? For answers, we turned to Ralph McLaughlin, chief economist with Trulia, the residential real estate website.

McLaughlin, 36, is a former college professor who brings a conversational ease to subjects that might otherwise seem convoluted. He also has a keen sense of the Bay Area market: Raised in San Jose, he lives in Alameda in the East Bay, and he works in San Francisco, where Trulia is headquartered. For these reasons, we turned to him for the story behind the numbers.

Q: In a nutshell, what was the story of Bay Area real estate in 2017?

A: It was yet another year of price appreciation outpacing income growth and falling inventory that doesn’t seem to be reversing course anytime soon. It’s the same story we’ve been hearing for the last three to four years, but it’s becoming increasingly problematic for homebuyers. They’re likely to be more frustrated than they’ve ever been.

And that keeps me up at night — being from the Bay Area, it’s very tough knowing so many childhood friends who no longer live here because they can’t afford it. Recent data show the average person moving into the Bay Area earns $8,500 more than the average person who leaves: $90,000 for those coming in and $81,500 for those going out. That’s strong evidence that many middle-income Bay Areans are being priced out and replaced by earners with higher paying jobs.

Q: Why does the region’s housing supply keep shrinking? We hear about year-over-year decreases of 30, 40 and even 50 percent or more in some parts of the region.

A: There are two reasons why inventory continues to fall and prices continue to rise, and the unfortunate reality is that the problem is likely to get worse before it gets better.

The first reason is that we just aren’t building enough homes. And building new homes is extremely important for inventory because they create a chain reaction effect: You build a new house, then someone buys that house, and the buyer likely sells their existing house, and the person who buys that house will sell their home. And that continues down the line until an investor or first-time homebuyer buys that house. So one new home may lead to a four-to-five-fold increase in existing inventory.

Second, the Bay Area — and San Jose in particular — has an aging population. Most homeowners are between 40 and 60 years old, and that’s a time in life when they’re less likely to move. This demographic is less likely to move because they have children in the house, or they have no incentive to move because retirement is imminent. So you have a demographic roadblock to expanding inventory.

Q: Let’s look ahead: What impact will the congressional tax overhaul have on the supply of Bay Area housing?

A: The tax plan may actually make the inventory problem worse. That’s because the cap on the mortgage interest deduction has been reduced from $1 million to $750,000. This is likely to slow the market for homes where homebuyers would have to take out a mortgage for more than this amount. In addition, because existing homeowners are grandfathered in at the $1 million level, they’ll be incentivized to stay put and not move.

Q: What are some policy changes that could expand the housing supply?

A: At the national level, we could incentivize investors who snapped up homes in 2012 – at the bottom of the housing market – to sell. Many of these homes, especially single-family ones, would otherwise be available stock for first-time homebuyers. So if we gave investors a one-time free pass on capital gains, they might put those homes on the market.

Q: But maybe they’d wind up being purchased by other investors.

A: Not likely. This isn’t a great time to be an investor in the Bay Area, so we would hope those properties would be bought up and occupied by families.

Q: Why isn’t it a great time to be an investor?

A: If I bought a house in 2012, the rent I would get on that house would have been enough to pay for the mortgage. If I bought a house today, that’s not as likely, even though rents have risen in the interim. This is because prices have risen much more relative to rents, and that makes investing in rental properties less attractive.

Q: Let’s hear a second policy that could help expand inventory.

A: We could do a better job at providing housing for those that need it most. While not a perfect market solution, preserving existing affordable housing, stabilizing rent growth, and otherwise promoting the development of below-market-rate units helps households who might have to otherwise migrate out of the region stay here. We could also do a better job at encouraging the development of market-rate units, and while they don’t directly benefit low-income households, doing so helps keep higher-income households from looking down market for homes.

Q: And what about the bubble? Will it burst?

A: I don’t think there’s a bubble at all because growth in the market is being driven by economic fundamentals: Strong job growth and low supply equals high prices. The best that we can hope for is that price growth moderates to a place that is closer to inflation and that wage growth slowly catches up. But that will take a long time, probably decades if things continue as they are. It’s taken decades to get us into this mess, and if we don’t step up our housing game soon, it could take us decades to get out.

Three Tips for Home Buying in 2018

 

The first three months of the year tend to be slow for home buyers and sellers. But there’s plenty to do — or at least pay attention to — if you plan to buy or sell a home later in the year. Here are three housing and mortgage trends to heed in the first quarter of 2018:

• Peak buying season, traditionally, is later in the year, but the best-prepared buyers are laying the groundwork for success by tidying up their personal finances now
• Mortgage rates are predicted to rise, but not by a lot
• The new tax law will increase take-home pay for many wage earners, which might invigorate sales of moderately priced homes

 

1. Prepare now to buy later

More people buy homes in spring and summer than in fall and winter. If you want to join the warm-weather homebuying crowd, start getting ready now because you are likely to face fierce competition during peak homebuying months. As more buyers vie to buy despite a tight supply, the successful bidders will be those who got their financial houses in order while everyone else was perfecting guacamole recipes for Super Bowl parties.

“I think it’s wise to look into your ability to buy a home a good three to six months prior to shopping for that home,” says Michael Becker, branch manager for Sierra Pacific Mortgage in White Marsh, Maryland. This gives you time to correct any errors on your credit report and to improve your credit score so you can get the best possible rate, he says.

Here are four financial steps you should take now to keep your spring or summer homebuying plans intact:

1. Check your credit report for accuracy. Inaccurate information can cause your credit score to drop.

2. Clear up any problems you find. “If there are errors or some negative items on your credit report, you can spend the next couple months trying to clear them up,” Becker says. Here’s a guide to disputing credit reporting errors.
3. Get debt under control. At the same time, make sure you have enough in savings. This isn’t easy, especially if you overspent during the holiday season. “You want your credit score to be at its best so you can qualify for the best rates,” says Rick Sharga, chief marketing officer for Ten-X, an online real estate marketplace in Irvine, California. Paying down debts is an important factor in raising your credit score, he says.
4. Talk with a mortgage professional before working with a real estate agent.A mortgage officer will help you figure out how much house you can afford, so you can be realistic when you go house hunting over the next few months. “There’s nothing worse than falling in love with a home only to find out you can’t afford it,” Becker says.

2. Watch mortgage rates

Mortgage rates were fairly steady during most of the fourth quarter of 2017, but housing economists expect rates to move upward in the first three months of 2018. Forecasters from Fannie Mae, Freddie Mac, the Mortgage Bankers Association and the National Association of Realtors project a median rise of 0.2% by the end of March. The 30-year fixed began the year averaging 4.09%, so it would be roughly 4.3% at the end of the first quarter, if the forecasts are right.

“Mortgage rates are bound to go up at some point,” Sharga says. “I really believe 2018 is probably the year we’re going to see the numbers start to move back up, and part of that is tied into this tax reform bill that was passed.”

The president and Congressional Republicans have promised that many wage earners will see an increase in their take-home pay as tax cuts are reflected in reduced tax withholding. If they spend the additional money in their pockets, the economy will heat up, stoking inflation, according to basic economic theory.

“Inflation is the real reason bond yields and mortgage rates rise,” Becker says.

3. Know how the tax law affects homeownership

The new tax law sets a few things in motion:

• Many wage earners will see increases in take-home pay this winter after the IRS updates its tax withholding tables
• The standard deduction is almost doubled beginning in tax year 2018, so fewer homeowners will take tax deductions for mortgage interest and state and local taxes
• For some homeowners who do itemize deductions, the tax break on property taxes and state and local taxes will be reduced

Outside of high-tax states with expensive homes, “we might actually see some positive effects,” Sharga says. The higher standard deduction might result in taxpayers “with a little more cash to use, and we might actually see more of the low- to mid-priced range properties sell because of that.”

But that’s all theory, Sharga says. We won’t know for sure how the tax law shakes out for another year or more.