Tag Archives: real estate

OC real estate forecast suggests smaller gains in 2018

Home for sale in Dana Point. Click photo for details.

As I said a couple posts back, the median sales price for homes in Orange County rose above $700K in September. But a recent forecast for the OC real estate market suggests that home prices might rise more slowly in the months ahead, around 1% through summer 2018.

Here are the home-price forecasts for the three largest cities in Orange County:

  • Anaheim: The housing analysts at Zillow expect home prices in Anaheim, California to rise by 1.4%. House values in Anaheim rose by 6.5% over the previous year.
  • Irvine: An even more modest forecast for the Irvine housing market, with an expectation for a 0.8% price increase over the next year.
  • Santa Ana: Economists predicted that home values in Santa Anna would rise by 2.1% between now and the summer of 2018. That was one of the highest forecasts they issued for cities within the broader Orange County real estate market. Santa Ana also had the highest increase in home prices over the last year, with values rising by 11%.

Is There a Price Bubble?
The Orange County real estate market is still constrained with limited supply available. According to local housing professionals, the county had about a 2-month supply of homes in May of this year. A “balanced” real estate market is considered to have about six months worth of supply. So from an inventory standpoint, Orange County is still a seller’s market due to limited supply. But homes aren’t selling as quickly as you might imagine, given the limited inventory. In May, the median number of days on market for listed properties was 40. That means houses in the area are selling a bit faster than the national average, but they’re not going like “hotcakes.” This reinforces the idea that the local housing market is becoming unaffordable to the majority of buyers.

Which brings us to the million-dollar question. Is the Orange County real estate market in a bubble, or will it enter one in 2018? Jim Doti, an economics professor at Chapman University recently told the Orange County Register that home prices in the area have reached an “irrational level.” This is because the median value is now eight times higher than the median family income. Doti went on to say: “We are in a balloon. No question.”

Source: Home Buying Institute

Solar panels: Yes or no?

If you’re like me, you’ve probably looked into installing solar panels on your roof once or twice before. There’s a 30% Federal Tax Credit on the table to incentivize us to seriously consider solar and I’m here to say that I’m intrigued!


By How Much Does Solar Increase Your Property’s Value?

The National Renewable Energy Laboratory offers a useful guide when determining how much your property’s value will go up. According to its research, each additional $1 in energy bill savings (from your solar installation) adds $20 to your home’s total value.

It’s important to note that these statistics only apply to today’s housing prices and utility rates. As electricity prices go up (as they most certainly will), the advantages of solar energy rise proportionally as well.  In fact, an article on NowGoSolar.com states SDG&E rates have increased 500% over the pas 15 years!

In addition, installing solar panels not only helps you fetch a higher asking price, but it can also help your home sell 20% faster vs properties without solar installations. For homeowners who want to reduce exposure, paperwork, and wait times, this can be a huge advantage – especially in today’s sluggish housing market.

To substantiate the claim that solar panels improve property values, the Lawrence Berkeley National Laboratory produced an interesting report that provides hard numbers from calculations that were made after examining real estate transactions across the country in eight states from 2002–2013.

On the other hand, can we count on realtors to educate prospective buyers on why paying a premium for a solar-powered house is justified?  I suppose that remains to be seen.  Truth be told, there are very few home improvements that will affect a homeowner’s bottom line like having it equipped with solar power. I haven’t seen a dramatic improvement in cost for these systems, nor have I seen any significant improvements in the technology of late, but I expect (and hope) solar to stay around for the long haul, which to me makes it one home improvement you may want to consider.

Buying in a good school district: Is it worth the price?

When house hunting, most people with children look at school ratings and even plan where they live based on those ratings. According to this article, California renters pay up to 46% more near top schools. 46% more! Then I read this article from OC Housing News and wondered if school ratings are really everything. Take a look and tell me what you think!

Source: OC Housing News

Do school ratings reflect the quality of education that warrants high real estate values?

School ratings reflect where concerned parents move with their children, not the quality of education a school provides.

Parents want to provide their children with every advantage in life. Those students with the best education generally enjoy higher wages and greater life achievement than students from school districts with low achievement scores. Parents react to inequities of our education system by shunning poor performing districts in favor of higher rated ones. Thus real estate values are higher close to better schools.

Many parents shopping for a house obsess over the school ratings. They aren’t chasing the ratings because of abstract correlations to a better life. Parents seek out these schools because they believe the quality of education is higher and the higher quality of education is what will make their child succeed. However, school ratings may not signal that the quality of education is any better.

School ratings are largely based on standardized test scores, probably the best method because it compares all schools to the same benchmark. However, school ratings often have less to do with the quality of the teachers than it does with the quality of the parenting. The more parents value education, the better their children score on standardized tests.

The activities of these parents make school ratings self-reinforcing. Once a school district obtains a high rating, it attracts other parents who greatly value education, so they bring in their children who will also score well. High ratings beget high ratings and low ratings beget low ratings as parents who value education shun poor performing districts.

School ratings only change significantly if the demographics of the school change. For example, poor performing school districts in the path of residential development generally see a significant improvement in test scores once all the high wage earners move in to new houses in the area. One example in Orange County is San Clemente. In the early 00s, the schools in San Clemente were about average, but when new developments at Talega and Marblehead added a large number of high wage earners, the school achievement scores went up considerably.

Were the improved test scores at San Clemente High due to a sudden improvement in the quality of education, or was it due to the sudden influx of new families concerned about education?

Does recognizing this fact change how you look at school ratings?

The Nixon Estate, aka La Casa Pacifica, aka The Western White House

Do you have $75 million lying around? If you do, take a gander at this 5.45-acre oceanfront estate in San Clemente. It’s not just any estate. It’s known as President Nixon’s Western White House.

4100 Calle Isabella is located in Cypress Shores, up at Cotton’s Point in southwest San Clemente. It was built by Hamilton Cotton, a financial partner of San Clemente founder Ole Hanson. Cotton was a Democratic Party supporter who entertained President Franklin Roosevelt at the residence. It’s said they played poker together.

Ironically, a Republican bought it in 1969. Richard Nixon. He paid $340,000 (a fortune at the time) and dubbed it La Casa Pacifica. When Nixon resigned from office, he returned to La Casa Pacifica to write his memoirs. He moved to New York in 1980 and sold the home and 26 acres to Gavin S. Herbert and 2 developers (George Argyros and Donald Koll). You may not have heard of Herbert, but he’s a big name. He founded pharmaceutical giant Allergan with his father in 1950.

A bit about the property: It has some 15,000 square feet among all the structures, including a 9,000-square-foot main residence. Noteworthy features include: a pavilion with a grand main room, bar, guest suite and den, a two-bedroom guest house, pool and pool terrace, lighted tennis court, gazebo on the bluff, expansive lawns, vegetable and succulent gardens, a greenhouse, catering facility, four staff residences, security annexes and a private well for landscaping water.

The estate remains a historic property, even after a large part of the estate’s acreage was divvied up into lots for private residences. In 2009, Herbert entered into a 10-year preservation agreement on the home with the city of San Clemente in exchange for a tax break.

“We’ve always regarded it as a historic property,” Herbert told the City Council. “It’s like owning a big boat on the ocean. It gets a little rusted. We have projects going on literally every month to keep the property in order.” (Source)

Herbert, now 83, says it was a very hard decision to sell the property. He told the Wall Street Journal, “I think (my wife and I) felt we were caretakers. We care a lot about who the next caretakers would be.”

The property has been on the market for a little over a month. Any takers?

f President Richard  Nixon and Wife Pat NIxon   Home house 4 house 5 house 6 house 7 house 8 house 9

>> More photos (and a virtual tour) on the Sotheby’s website.

The pros and cons of investment property

One thing I didn’t know about Capistrano Beach until I moved into the neighborhood is that it has a ton of rentals. Almost every street has multi-unit dwellings–duplexes, triplexes, quads. Plus, many people who move out of Capo Beach keep their single family homes as rentals because of the market demand. Let’s face it–people will pay a premium to have the ocean nearby.

In many cases, rent paid can cover the mortgage (and, ideally, property taxes and some other expenses related to the property, like gardening, pool service, etc). But, even if you break even, owning a rental property can still be a great option. After all, there are tax benefits. In the eyes of the IRS, that property is its own little business. Yes, you have to declare the income, obviously, but you can also write off expenses you have on the property. Plus, consider that the property has a good chance of appreciating in value over time. While the market has plateaued a bit, the big picture shows gains. Even if are in the red a bit on a rental property, the long-term appreciation may make it worth hanging onto.

This is a vacation rental available in Capo Beach. Check it out here: www.homeaway.com/vacation-rental/p189857

This is a vacation rental available in Capo Beach. Check it out here.

Of course, like most investments, there can be downsides to income properties, too. They are considered “concentrated investments,” meaning you’ve got a lot of eggs in one basket. And they are “illiquid,” meaning you can’t get your money out quickly. On paper, you have this 400K asset, for example, but you can’t access that as real money overnight. And, by owning an income property, you find yourself in a new role–landlord. Dealing with tenants can be a really great experience, or a really tumultuous one. My in-laws always tell the story of the couple who refused to pay rent and, when finally evicted, they squeezed honey all around the borders of the house to draw in ants. It worked. There were lots of ants.

If you’re hesitant about being a landlord, there are property management companies that will oversee your property for you at a cost of about 8% to 10% of the monthly rent. They’ll collect rent checks and field calls about backed up toilets so you don’t have to. Property managers are not only convenient but essential if you live far away from your rental property.

Keep in mind, your property may make a great vacation rental. There are companies that specialize just in vacation rentals and they will be able to tell you how much your home would go for per night (it usually varies depending on season). They will collect a percentage fee to market your home and manage the tenants. Sometimes, you can collect the same cash in one week as you would in a month from a tenant on an annual lease. But, you also run the risk of not having renters for weeks or months at a time, depending on demand in your area.

If you’re considering adding a rental property to your portfolio, these would be my questions for you:

  • Are you okay with tying up your money in that property, possibly for several years, until it appreciates to a certain level?
  • Have you done the math on how much you spend on the property per year (mortgage, property taxes, property insurance, repairs and maintenance) versus how much you can bring in per month?
  • Are you ready for tenants?
  • Do you have an emergency fund when things like water heaters and air conditioners break?
  • Do you want a property manager?
  • Are there vacation rentals in your area, and would that be an option for your home?

Feel free to contact me if you want to discuss rental property opportunities near you!