Tag Archives: realtor

How much longer can southern CA home prices keep going up?

 

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

Source: OC Register

For 62 straight months, Southern California home prices have gone in one direction. Up. Five years ago, you could snatch up a median-priced condo in Orange and Los Angeles counties for about $280,000, 76 percent less than today’s prices. A median-priced house cost $323,000 in L.A. County five years ago and $495,000 in O.C., about $260,000 less than today’s prices in both counties.

What should a buyer do now? Will prices keep rising? Or are prices close to the top?

The OC Register asked a half-dozen economists and industry analysts what the future holds for home prices in the region. Among their answers:

  • Southern California home prices aren’t about to drop. In fact, they believe prices will keep rising for two more years, at least, and possibly longer.
  • The market isn’t in a bubble — yet — although bubble talk is starting to “raise its ugly head” at cocktail parties, one economist said. Some analysts are saying Southern California home prices are showing signs of being overvalued.
  • If you’re thinking about buying a home, now just might be the time to act — provided you don’t overextend yourself and you plan to live there awhile.

Here are five key questions about where Southern California home prices are heading in the future.

Q: Are we at the peak?

A: Not one of the economists interviewed thinks we are, at least not for entry-level homes. Luxury homes, priced at $2 million and up, may have reached a price peak and are facing an oversupply of listings, analysts said.

Nominal home prices have surpassed pre-recession highs in Orange and Los Angeles counties. Riverside and San Bernardino counties are about 18 percent below their price peaks. But none of those counties has reached pre-recession peaks in inflation-adjusted dollars.

If home prices were to keep rising at the current appreciation rate, and inflation were to continue at the current rate, Orange County’s median home price won’t get back to the pre-recession peak after inflation for about two to three years.

Another fact to consider: During the last market run up, Southern California home prices increased year over year for 126 consecutive months, or 10½ years. That’s twice as long as the current streak in home price gains.

Lastly, analysts say home prices aren’t rising that much. Price increases averaged 6.3 percent in Southern California in the past year, ranging from a low of 5.4 percent In Orange County to a high of 7.9 percent in San Bernardino County.

Q: How much longer will home prices go up?

A: Two years at least, most economists interviewed said. Possibly longer.

Projections by the California Association of Realtors show a gradual decrease in home price appreciation over the next few years, said Oscar Wei, a senior economist for the group. For example, CAR projects prices will go up 5 percent statewide in 2017, 4 percent in 2018, and 2.5 percent in 2019.

Assuming the Gross Domestic Product continues to grow at 2.5 percent and mortgage interest rates stay below 4.5 percent, Southern California home prices could be going up at 6 percent a year for the next six to seven years. At 6 percent a year, the median home price could reach almost $700,000 in Southern California by 2023, $500,000 in Riverside County, $800,000 in Los Angeles County and nearly $1 million in Orange County.

Q: Are we in a bubble now?

A: No.  Los Angeles and Orange counties had an 11½-month supply of homes for sale in the spring of 2007 compared with under four months available this year. Riverside County had an 8½-month supply of listings for sale, vs. just under four months today; San Bernardino County had a 16½-month supply, vs. four months today.

In California as a whole, 43 percent of borrowers had second mortgages in 2006, vs. 4.8 percent last year.  California’s median down payment was 11.8 percent of the purchase price in 2006, vs. 18.6 percent last year. To sum up, we don’t have as many people over-leveraging their homes.

Q: When is the next recession?

A: Not for at least two years, economists said. “Over the next two years, the recession probability is very low,” said UCLA economics professor William Yu, a member of the team producing the UCLA Anderson Forecast. “But beyond two years, that is very difficult to say.”

A major global calamity — like a new Korean War, a messy breakup of the European Union or a surge in oil prices — could trigger a recession, but forecasting exactly when is an extremely murky business, said Joachim Fels, a Pimco managing director and global economic adviser.

Q: Is it too late to buy a home?

A: Industry analysts have advised renters for the past four years to get into the housing market while interest rates and prices still are low. While it’s definitely more expensive to buy a home today than it was a few years back, the cost of buying will be even greater down the road.

If you wait, home prices probably will go up about 8 percent or so in the next couple of years. Plus you’re probably going to see some increase in mortgage rates. Analysts predict mortgage rates will go up half a percentage point this year and half a percentage point next year.

Source: OC Register

Finding a property’s square footage

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

Who is right? The appraiser measures your house, but tax records show something different. Or, maybe you’re walking a couple of different townhomes that appear to have identical floor plans but one listing has a higher square footage estimate than the other. Why is there sometimes a disparity between the all of these square footage figures?

At times, an area such as an enclosed patio, basement, detached studio, porch, or garage is included in the square footage when it really shouldn’t be included. Remember too that an area must have direct access to the main house to even begin to be considered as living area. If you have to exit the home to enter another area, that other area is not considered square footage (it might still have value, but it’s not counted in the total square footage by the appraiser). There is square footage and livable square footage.

What do appraisers INCLUDE in the square footage of a house?

  • Interior spaces that are conditioned spaces (heated, and cooled, if necessary) such as bedrooms, bathroom and living rooms
  • Enclosed patios that are heated and (if the rest of the house is) air-conditioned and are similar in workmanship (quality) as the rest of the home
  • Finished attic space as long as it also conforms to the original structure (can’t just add carpet and call it a bedroom)

What do appraisers EXCLUDE in the square footage of a house?

Some common spaces are not considered to be living space and are therefore not included when calculating the square footage of a house:

  • Screened patios (and open ones as well)
  • Garages, unless they have been converted to living space
  • Unfinished areas, regardless of the level in the home
  • 2nd floor airspace (for example: open space, above an entry, or a vaulted room)
  • The open area above a stairway on the second floor
  • Detached living space such as an office in a extra building on the property – these spaces are measured separately
  • Spaces that are accessed only by traversing non-living space, like an enclosed storage area of a garage

These spaces may be determined to add value to the property upon analysis of the comparable properties in an area, but they are not included in the square footage.

Why this matters: This conversation underscores the importance of marketing your home accurately. After all, it can make a price and value difference whether a property is actually 1500 or 1700 square feet, right? Case-in-point: I recently measured a home for an investor that ended up being the 3400 sq ft model instead of the 3000 sq ft model as tax records incorrectly stated. My advice? If you doubt the accuracy of your square footage, hire an appraiser or someone else who knows how to measure a house accurately. It’s better to be informed up front than leave money on the table unnecessarily.

 

A rookie’s guide to buying a rental home

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

Source: OC Register

As rents hit record highs, here’s a rookie’s guide to buying a rental home

Hugh Siler had a vision when he bought a full block of small houses in Orange this spring. He would restore the homes, built in the early 1900s and long fallen into disrepair, to their original state. After that, he’d rent them out at top dollar.

One house is done, and if it’s any sign, his payoff will come sooner than later. The 450-square-foot, one-bedroom cottage on Palmyra Avenue near Orange Plaza rented for $1,850 a month – immediately.

“Literally, it rented before I even stuck a sign in the ground,” Siler said a couple of weeks ago. His tenants, a young couple, plan to move in by the end of November.

As rents break records, apartment vacancy rates stay low, and millennials delay homeownership, buying houses to rent appeals to investors large and small. But the foreclosures of the Great Recession have been receding for years, and bargains can be hard to come by in Orange County, where the median home price was $640,000 in September.

That’s led many local buyers to set their sights on less pricey property in the Inland Empire and sometimes other states.

“Most investors still invest in their backyard,” said Daren Blomquist, spokesman for Irvine-based Attom Data Solutions. “So for those folks in Orange County, Riverside and San Bernardino are good options.”

Of course, risks abound, including the impact of housing and economic policies to be shaped by a new president, albeit a real estate developer. Also, Federal Reserve Chair Janet Yellen said last week the U.S. central bank is ready to lift interest rates. The hike is expected in December.

Earlier this year, real estate adviser RCLCO predicted, “If household income growth for lower and middle-class Americans remains slow relative to historic gains, and home mortgage standards do not loosen for subprime borrowers, it is likely that the recent boom in single-family rentals is here to stay.”

Here are five additional things investors and would-be landlords should take into account.

POPULAR PLACES

Attom released a report in October showing potential profits on rental homes throughout California. The analysis included capitalization rates – or rates of return on a real estate investment property based on the income the property is expected to generate.

With a potential annual gross rental yield of just 4.3 percent, Orange County came in at No. 461 out of 473. By comparison, San Bernardino County has a 7.6 percent potential capitalization rate, ranking No. 311. Riverside County has a 6.1 percent potential cap rate, ranking No. 399.

So where else are Orange County investors looking?

The company did an analysis for the Register last week and found the top 10 counties where Orange County residents own investment homes are led by Riverside, Los Angeles and San Bernardino counties.

Those places were followed by Clark County, Nev.; Maricopa County, Ariz.; San Diego County; Mohave County, Ariz.; Kern County; Wayne County, Mich.; and Harris County, Texas.

FINDING A NICHE

Many investors specialize in one type of residential property, whether it’s single-family houses, mobile homes or apartments.

Siler has found a niche within a niche: restoring and renting out historic homes.

It can be a difficult proposition. For one thing, he said, a bidding war ensued over the five homes – one a duplex – that he purchased in April. He said he spent a total of $1.62 million to come out the winner.

Then, there’s the exacting work of creating authentic restorations. “Most people would say I’m fairly nuts to take this on,” he said. Compared with remodeling homes from the 1970s or ’80s, “When you do a vintage home, the template goes out the window.”

He’s had some experience, restoring the historic Shaffer Cottages, a set of four tiny, attached apartments he bought elsewhere in Old Towne Orange for $585,000 in 2011. That project saw him spend about $175,000 and some 4,000 hours on refurbishing and restoration.

At least he could count on some future cost-cutting. The original, refinished floors eliminate the need to buy carpeting for every new tenant, and it takes only a gallon or two of paint to refresh a small interior.

RENTS UP

One of the most dramatic shifts in the U.S. housing market in the past decade was the “unprecedented” increase in single-family home rentals, RCLCO said in a report this year.

But, the firm added, “While there has been widespread discussion of the economic and demographic shifts affecting the U.S. multifamily rental market, a major component of the overall rental market – single-family rentals – has been largely overlooked.”

Reis Inc., which tracks apartment rents, said rates went up in all 79 major U.S. metro areas it studies. The average rent for all metros was $1,271 a month, up 19 percent over the past 4 1/2 years.

In Southern California, rents hit all-time highs. Orange County rents were the ninth highest among the top 79 U.S. cities.

The average asking rent for an Orange County apartment climbed to $1,781 a month, following 61/2 years of steady hikes, according to Reis. In the past 4 1/2 years, rents shot up 14.3 percent, or $223 a month.

In Los Angeles County, the average asking rent reached $1,676 a month, rising nearly 18 percent over the past 41/2 years, Reis reported. In the Inland Empire, the rents were up 17 percent to $1,239.

Meanwhile, homeownership has been dropping, and millennials are expected to rent for longer than their parents did.

John Burns, an Irvine-based real estate consultant, predicts an overall 60.8 percent homeownership rate among all age groups by 2025, the lowest since the mid-1950s.

THE RISKS

Still, investors can face plenty of uncertainty, starting with their newly purchased property.

For one thing, often, a home inspector won’t find everything, Siler said.

“So make sure to set aside an additional fund of money – about 15 percent of your overall renovation budget,” he said, “and call it your ‘just in case’ fund.”

Investors also say it’s best to have at least six months of reserves in the event a renter doesn’t turn up right away.

Institutional investors – those with 10 properties or more – have purchased more single-family rental properties this year, even though average returns dropped to a nine-year low, Attom said in an Oct. 27 news release. But, the data firm said, “After a drop-off in single-family purchases by both individual and institutional investors over the past two years, we’re starting to see investor acquisition activity pick up again.”

Blomquist said it’s a good idea for smaller investors to pay attention to what the larger, better-capitalized investors are doing.

“In some cases it may be so the smaller investor can simply follow the lead of larger investors who have found a market or strategy that delivers strong returns,” he said. “But in some cases, it may be to avoid the strategies and markets employed by larger investors, so the smaller investor doesn’t have to compete.”

NOT A LANDLORD?

A lot of mom-and-pop investors like the idea of collecting monthly checks, but balk at the hassle of finding renters or fixing dishwashers. Or they worry about being too far away to handle the upkeep.

An Irvine company is one of one of several online investment management firms helping buyers more easily pick up single-family rental homes in lower-cost markets where returns are higher.

HomeUnion acquires the property on behalf of the investor, completes the documentation online, lines up property management, and later helps the investor figure out when to sell. Transaction fees are 3.5 percent of the purchase price; management fees are 10 percent to 10.5 percent of the rent.

The company, operating in 18 U.S. markets, has penned the motto, “You invest, we do the rest.”

It appears to be working.

The firm recently announced plans for an initial public stock offering.

610 Calle Fierros

This San Clemente home came on the market a few days ago. I think it’s a great buy!

610 Calle Fierros
4 bed, 2.5 bath
2,700 square feet
$897,000

home 1

home 2

home 3

home 4

 

Here’s why I think this is a great buy:

  • It’s selling at $332/square foot. Over the past six months, houses in the Coast District have been around $380/square foot so this is priced well
  • Great, relaxing backyard!
  • The previous owners have put some good money into renovating the kitchen and baths
  • The overall square footage is generous, with lots of space for a family

Want to check it out? Contact me today.

26805 Calle Real

My pick this week is a 1929 historic home in Capistrano Beach. These properties don’t come on the market very often and, when they do, they don’t last long!

26805 Calle Real
4 bed, 1.5 bath
1,930 square feet
$1,225,000

home 1 home 2 home 3 home 4 home 5 home 6

Here’s why I think this is a great buy:

  • The home is beautiful, with Spanish style construction, a central courtyard, and patios off every room
  • For a 1920s home, it’s got a lot of square footage (about 1900 square feet)
  • It’s move-in ready–also rare for a historic home. Central air and heat have already been included, so need to worry about that
  • The location is great: Walking distance to Pines Park, a half mile drive (or walk) to the beach, and close to all the action in San Juan Capistrano, Dana Point, and San Clemente
  • Value, value, value. These historic homes tend to hold value over time because of how unique they are

Want to check it out? Contact me today.

 

32011 Paseo Amante

This week’s listing is a nicely-renovated home in San Juan Capistrano, just under $850K!

32011 Paseo Amante
4 bed, 3 bath
2,559 square feet
$849,000

home 1 home 2 home 3 home 4

 

Here’s why I think this is a great buy:

  • At $332/square foot, you get a lot of space for a fair price
  • It’s in a quiet cul-de-sac in the exclusive, 27-home Loma Verde community
  • It’s been nicely renovated so no work needs to be done
  • There’s a private courtyard and great views of sunsets, hills, valleys, and city lights
  • HOA fees are low ($65/month)
  • It’s just a few minutes from downtown San Juan Capistrano (the Mission, shops, restaurants), and 10 minutes from the beach

 

26661 Calle Salida

This week’s listing is in the heart of Capistrano Beach!

26661 Calle Salida
4 bed, 4 bath
3,100 square feet
$1,069,000

house 1 house 2 house 3

 

Here’s why I think this is a great buy:

  • The location is great: On a quiet street in the center of Capo Beach, minutes from the Dana Point Harbor, Lantern District, and Doheny Beach, and just a short drive to San Clemente
  • It’s priced well at $345/square foot
  • It offers a lot of living space for a beach community home
  • No HOA fees or Mello-Roos