The Legacy Of 1949: Don Newcome And The 1949 Housing Act

Don Newcome died yesterday. If you’re not a baseball officiando you may not have ever heard of him, but he was an important figure to baseball, the Dodgers, Los Angeles, and our country. You may wonder why a real estate blogger would take the time to write about a baseball player. Don Newcome’s story is the story of a changing America. The attitude of the country was shifting. The integration of baseball was the first step in popular culture towards equality, but when it came to housing, the year of Don Newcome’s arrival would prove to have negative ramifications that we still deal with today.

The year was 1949. Jackie Robinson had broken the “color barrier” of major league baseball just two years earlier. Baseball, America’s game, finally allowed people of color to join in. By 1949 there was still just a handful of black ballplayers, among them was the pitcher Don Newcome. Tall and powerful, Newcome was a man of firsts. He was the first African American pitcher to win a World Series game, the first to win 20 games and the first to win the league’s Most Valuable Player and Cy Young award for the year’s best pitcher in the same year. For the African American communities, seeing ballplayers like Robinson and Newcome excel was a great source of pride. Little did they know that at the same time, the Federal Government was conspiring to segregate America.

Segregation was nothing new in 1949. The landmark legislation of 1954, Brown vs. The Board of Education outlawing segregation in schools, was still 5 years away. Following World War II, where black soldiers fought and died with distinction, returning servicemen found little had changed back home. The South still lynched black men for looking at  white women, had white and colored only bathrooms, restaurants and hotels. But the South wasn’t the only place segregation and inequality existed. In fact, the Federal Government itself began a systematic push to restrict black homeownership. The 1949 Housing Act was designed under the guise of helping Americans buy homes by easing the ability to finance a home purchase. But it also gave the FHA tacit approval to rank neighborhoods for the purpose of restricting lending to white only neighborhoods and not just in the South. This happened in every city across America. Communities like Levittown in New York sold to whites only. This has been referred to as “White Flight” and lead to the creation of the modern American Suburb, the modern American white -only -suburb.

It’s hard to imagine today that a Government of the People and for the People would create a system that would specifically suppress a large segment of the people but that’s exactly what the 1949 Housing Act did. It allowed the FHA to create a color coded map which ranked geographic areas for lending, restricting which areas would be eligible for FHA insured loans. This served to restrict access to financing for many urban areas that had higher level of nonwhite residents. Today we call this Redlining and this phrase comes from the lines drawn around certain neighborhoods (check out local neighborhood sales here ). The effect of restricting the ability to finance meant, people of color couldn’t buy, couldn’t finance to make repairs and as a result neighborhoods rapidly deteriorated. The Act also had a provision that lead to the demolition of slums that supposedly was to spur building in declining neighborhoods but actually removed housing instead of creating it.

The impact of The Housing Act of 1949 is still felt today. As history has shown, people who own their homes have more wealth and pass that wealth to future generations. Since blacks weren’t allowed to buy, there was less wealth to pass and this is in large part why African American household wealth is so much lower today than that of the white population. Drop a stone in a lake and the ripples go all the way to the shore.

It is in this context that we look to a man like Don Newcome. He broke down barriers that would eventually culminate in the Civil Rights Act of 1964 and the Fair Housing Act of 1968. This is Don Newcome’s legacy and his contribution to this nation is invaluable. Want to chat about this article or real estate, just give me a call or send me an email.

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Interpreting What The Early 2019 Housing Data Means

The housing data that came out of the National Association of Realtors yesterday morning was not good. Sales were down 6.4% from last year, similar to the sales pace to 2000 which if you recall was in a mini recession after the dot-com bubble burst.  If you’re me, or follow me, the data is not the least bit surprising. I’ve said for months that you can not have a booming economy while simultaneously having a sagging real estate market and we’ve had a sagging real estate market since early summer.  According to me then, this by my definition means that the economy may not be  as strong as some would have us believe.  I’ll even go a step farther and say that the real estate market is a leading economic indicator and is telling us where the economy as a whole is headed.  OK, maybe not exactly a leading indicator rather an early reflection or a collective indicator that foreshadows undercurrents within the economy that are not yet articulated by Wall Street or The Federal Reserve but increasingly being felt on Main Street.   The slightest insecurity due to domestic politics, geo-politics, uncertainty at the workplace or in the stock market manifests real estate activity.  So, what does that mean for the spring buying season?

You may think that negative data means the start of something ominous.  The fact is, if you are looking for ominous, it started several months ago as the Fed raised rates while also selling off their balance sheet.  This raised the cost to buy and borrow and buyer’s hit the ceiling on affordability.  The decline in sales, heck even showing activity has created longer “on market” times.  The result has been a lot more price reductions and inventory has increased making selection in many markets, the best it’s been in some time. “Is that everywhere,” you ask?  No actually, not everywhere but it is pervasive.  I just spent considerable time researching and showing a $1.5M client properties on the Westside (of Los Angeles).  If you’re familiar with West LA, you know it’s very expensive. The uber expensive Platinum Triangle of Brentwood, Bel Air and Beverly Hills plus Pacific Palisades and the Beaches have listing prices in the middle 7 and even 8 figures.  There’s even some in the 9.  For our search we were looking more Mid City, think Mar Vista, Culver City, Beverlywood, Larchmont etc.  Here’s what we found: A single family new construction (torn down and rebuilt) at about 2,200 SF is starting around $1.8M.  At our price point of $1.5-1.6M, you find 1300-1800 SF with good locations in exciting, re-gentrified neighborhoods.  The problem is that there are 3-5 offers on anything great within days of listing.  $1.5M in  a nice location and nicely improved is viewed as just modestly above entry level on the Westside.  For example, we wrote an offer at full price on a lovely home in Culver City.  My buyer has 25% down and is well qualified.  The home was already $150,000 above where we had started looking but it was a terrific neighborhood.  Alas, the agent told us that while they appreciated the full price offer, we weren’t the highest. He asked if we wanted a counter but then added it would be over $1.7.  My clients said, no thank you, it was over their budget and that was that. Back to the drawing board.  What was that old adage about real estate…? Oh yeah, location, location, location.  The Westside of Los Angeles is home to Google (they just leased the Westside Pavilion, an entire mall in West LA to house their growing presence in So Cal) and Youtube, Amazon Pictures, Netfilx content, Hulu… am I missing anyone, oh yeah, the rest of the entire entertainment industry that doesn’t stream.  It’s home to finance, has several universities, aerospace and is a growing presence in biotech.  In other words, this area is exploding with high paying, good quality positions and the demand for turnkey, ready-to-go homes is at a premium.  Turnkey is still a big factor.  Overpriced, under appointed or fixers are a misleading indicator of available property. This is true in every market I find by the way.  Mis-priced properties given the amount of work the require, is often the inventory sitting, even on the red-hot Westside.

OK, so while entry level is still pretty strong, the market is soft in many other price points and it’s especially soft for less than perfect. Ironically, these are the properties we used to think of as wealth creating/equity building opportunities.  I wrote an offer for another buyer  on a home in the Conejo Valley that needs pretty much everything.  It has a 1960’s kitchen, original aluminum windows, really old and tired carpet and floors.  Pretty much a high 7 on the icky scale except for its solid location in the area my client wants. Unfortunately, it’s also grossly overpriced.  What did we do then? We did the unthinkable, we wrote an offer for what we thought it was worth. The seller’s been on the market for 208 days and the market has only deteriorated during that time. (Memo to all sellers: don’t do this, it only costs you in the end.)  As is typically the case with this kind of property, the seller wasn’t very receptive to the initial offer, but I think my client will go up and we’ll see if we can make a deal.  My point here is that we wrote an offer.  This is the place I feel the Southern California market is generally at: regardless of where a buyer is looking right now, there are opportunities to make a good buy, but you have to write the offer.  In many ways, this is the best opportunity we’ve had in several years because there is softness in the marketplace and sitting sellers are going to have to negotiate if they want to sell.

I wrote yet a 3rd offer for a buyer this week, on a condo that was a turnkey “flip” that had been on the market 9 days already.  We asked for some credit towards closing costs, the flipper countered, and we settled in between. The flipper thought he was going to get multiple offers, then when he didn’t and made the best deal he could so he could go on to the next project.  This is a good example because a flipper is in the business of moving properties.  Sitting and waiting is not his strategy.  Again, the point here is that buyers can make deals, not on every home and not in every market obviously, but there are deals to be made.

When you have a pretty healthy economy like we’ve had but there are headwinds and uncertainties, real estate points towards the direction that things are heading.  As I said earlier, real estate is kind of a leading economic indicator.  People will always buy and sell real estate, but they do so with vigor when they are confident in their job security, income and the nature of the world as a whole. (Search listings here). When they are lacking these elements, there is hesitation. This leads to all the factors I’ve just described. There’s not question that entry level is hot (even when $1.5M means entry level-ish for a nice single family home in West LA) but everything else is slower.  The serious sellers are going to sell their properties and the serious buyers are need to write offers.  As the data comes in over the coming months, don’t be surprised to see that sales are still off, and that price appreciation continues to slow. We may even give a little back.  None of this is out of the ordinary when it comes to the cycle of real estate and for that matter, the cycle of the economy as a whole. Nothing goes up forever. That doesn’t mean we are in for a significant correction or even necessarily headed towards a recession (2 consecutive months of negative GDP) rather, that we are experiencing the natural course of economic behavior. Economic cycles are a part of life and real estate is a cyclical business. There’s always a correction coming, not if, just when?  But with that correction comes opportunity for the savvy buyers and sellers.
Have something to sell or thinking of buying, give me a call.  (Contact Tim Here).

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Real Estate, The Economy and Predictions for 2019

If you’re like me you are listening to the prognosticators making their predictions for 2019.  Not one to be left behind, here are my predictions on what you can expect from real estate and the economy at large in 2019.

Starting with what I know best, let me speculate of real estate first. (Contact Tim Here)

  • I think real estate pricing will be down a little as the effect of higher rates and lack of income growth conspire to keep buyers on the sideline and push sellers to lower their prices if they want to sell.
  • Inventory will stay on the market longer actually giving buyers better selection than they’ve had these past few years, but the total number of units for sale will remain historically low.
  • I think transactional volume will continue its slightly downward trend as owners with low rates and/or low property taxes, choose to stay put keeping inventory low, which in turn forces many sellers/buyers-to-be to wait when hopefully selection improves.
  • I expect rents to remain flat to slightly lower. That said, the ripple effect of the loss of units due to the California Fires could force rents higher in fire affected areas but I think flat is the more general scenario.
  • I believe mortgage interest rates are going to stay flat from here and may even go down should the Fed cut rates instead of raise as they’ve indicated they are leaning towards.
  • I think the stock market will continue to trend lower as the global economy slows and the effects on consumer and business owner confidence becomes more unsteady.
  • I see a 50/50 chance of a recession in 2019 (Negative growth for 2 successive quarters). I think either way, it will feel like a recession because the decline in growth in domestic GDP from 2018 is going to scare people into more conservative behavior.  Slowing spending as the wealth effect or lack thereof enters the psyche of business owners and consumers alike.

If you only wanted my predictions stop reading here but if you want to understand my reasoning, keep going!

The backdrop is that rates shot up in 2018 following 4 Fed hikes and The Fed’s simultaneous shrinking of their balance sheet.  This was like a double, triple or quadruple whammy.  It’s the shrinking of the balance sheet along with the largely ineffective yet very expensive tax cut, that is the fly in the ointment of the whole economy and why equities have been so volatile and why the economy is not on stronger footing.  Let me explain…

Following the financial crisis, the Federal Reserve began a course of aggressively stimulating the economy to avoid a depression.  They did this by reducing the rates banks charge one another for short term borrowing (The Fed Funds Rate) and what they charge banks to borrow directly from the Fed (Fed Discount Rate) down to zero.  Unfortunately, the economy was in such a free fall that that strategy proved insufficient in both stimulating the economy and adding liquidity.  Liquidity is a word used to describe how much cash is floating around for lending and borrowing.  The lack of liquidity was the result of the vast amounts wealth that evaporated when housing market crashed, and trillions of dollars of equity vanished.  To combat the lack of liquidity The Fed began a process of buying debt (Mortgage Backed Securities, US Treasury Bonds and Mortgages from Freddie Mac, Fannie and Ginnie Mae).  This they called, Quantitative Easing or QE for short.  Historically the Fed had always maintained some balance of debt that they owned and in 2008 that amount stood around $1 Trillion.  When QE still wasn’t enough to stave off the economic free fall, The Fed embarked on additional rounds of easing monetary policy by buying more debt (QE II, III and IV) adding several more $ Trillion to what they owned.  By 2018 that amount stood at $4,000,000,000,000.  

Now you’re probably thinking, “So what?  What’s the significance of The Fed buying and holding debt?  The significance is that by being a buyer of debt they effectively created artificial demand.  They were buying huge amounts of debt so the price they paid went higher and higher.  Basic Econ 101 tells us that as demand goes up, so do the prices.  In the case of bonds, when the price goes up, the yield goes down and thus rates came down (the whole point).  This stimulated the economy, the recovery in housing (Search listings here) and saved us from a repeat of the 1930’s.  Phew!

You’re probably wondering at this point, where did the money come from to buy that debt?  Simple, they printed more money and all that money improved liquidity and in turn all that extra money helped us climb out of the Great Recession and helped the DOW Jones Industrial Average go up from a low of a 6,500 in March 2009 to over 27,000 in October 2018.  However, by inserting themselves into the daily functionality of the market place, they warped the market.  They weren’t alone  either.  Central banks around the world did the same and this massive world wide debt is contributing in part to the global economic slowdown we are experiencing now.  At some point all “good things” come to an end and as the U.S. economy strengthened The Fed announced in June 2015, an end to QE.  They stopped being a buyer.  By October 2017 The Fed began the process of “Unwinding” the balance sheet (selling off their debt) $75B at a time.  But this amounted to the equivalent of many rate hikes.  Remember, as the Fed became a seller not a buyer of debt, the demand for debt decreased.  Again, Econ 101 teaches as demand wanes for a good or service, prices decline.  Since interest rates move in the opposite direction of prices, by backing out Quantitative Easing, the Fed caused rates to rise.  As a result a 30 mortgage went from about 4% to over 5% by fall 2018.  And while the rates have recently come down as investors are betting we are now closer to a recession than an economic expansion, the cost to borrow is still .5-.75% higher than it was.  This has lead to a decline in real estate affordability and that has turned into a decline in demand for homes.  I maintain this axiom remains true: Housing is the engine of the economy and you can’t have a booming economy with  a contracting real estate market.  It is for this reason that I am leaning towards a Fed that keeps on pace in reducing their balance sheet of debt, but holds rates steady or if need be, even lowers them in 2019.  In the absence of inflation, (inflation is still running below The Fed’s stated optimal annual inflation rate of 2%) there is little justification to continue a path towards raising rates.  Rates are raised to stave of the danger of inflation which once accelerating, is very hard to slow down – think the late 1970’s.  No significant inflation, no need to raise rates.  That said, The Fed cut rates to zero and then added debt with the QE’s.  To walk that back, I believe they should have accelerated the unwinding component and then raise rates; think about Jack Nicholson chasing the boy  in The Shining where the little boy had to walk backwards in his footsteps and then hide.  Walking back in his footsteps happened before the hiding part.  The Fed probably should have gotten rid of more debt first and waited to raise rates, letting the market place return to some form of normal.

As for the 2018 tax cuts, the Federal deficit has now ballooned an additional $1.5T.  And what happens when supply is greater than demand?  Prices decline and then rates go… up.  In this case that means the amount of money the Federal Government must pay in interest payments goes up because there’s so much debt and only a limited amount of countries buying it (ie: China and to a lesser extent Japan.)  That means rates have to go up on the debt to attract buyers and that makes paying off the debt that much harder.  The corporate tax cut to 20% was supposedly designed to spur economic expansion through investment by corporate America, as well as increase wages since profits would be higher with a lower corporate tax rate and employers would pass some of that profit to workers in the form of higher pay.  And since they’d have to compete for workers in a tight job market, historically wages went up.  We got the tight labor market, but wages haven’t gone up.  Too much global competition.  Unfortunately then, the predictable happened which was that instead of getting pay raises, some employees got one-time bonuses while most didn’t even get that.  Amazon made headlines for example by raising the minimum wage to $15 but then cut other perks like stock options.  Meanwhile, instead of using the windfall of cash on capital expenditures, Corporate America engaged in massive stock buyback programs the likes of which has never been seen before, fattening the pocket books of the shareholders.  Said another way, Corporate America used the money to buy back stock boosting the stock’s value by tightening supply rather than by improving actual capacity, making capital improvements or increasing Research and Development which ultimately contributes to economic expansion.  Capital investment and R & D lead to far greater economic growth, job creation, income and prosperity, than stock buybacks which tend to boost the stock price for benefit the very few rather than the many and accomplishes very little else.  Sadly, the President and Congress awarded massive corporate tax-cuts without any strings attached linking the cut to desired behavior, ie: investment.  Some of you won’t agree with my assessment especially on the effectiveness or lack thereof of the tax cut, perhaps pointing to a timeline down the road not yet visible, but I’m pretty sure I’m right on this and 2019 and 2020 will bear that out.

So that’s it.  It’s going to be a continued year of volatility in equities and housing.  If there’s a take away for real estate it’s this: as home prices give back a little of the 2012-1018 gains and interest rates drop due to a slowing economy, there’s going to be an opportunity to “buy the dip.” And because supply is still very low and demand is only going to increase in the years to come with the bulk of the Millennials just now beginning their household formation home buying cycle, 2019 is going to prove a great year to buy real estate.

 

#realestate #luxuryrealestate #theeconomy #thefederalreserve #allrealestateislocal #dilbeck #christiesinternationalrealestate #luxuryportfolio #leadingre #interestrates #taxcuts #thousandoaksrealestate #westlkevillagerealestate #conejovalleyrealestate #agourarealestate #calabasasrealestate #oakpakrealestate #theconejovalley

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Timing The Housing Market

You’re a would be home buyer and you’re wondering about timing the housing market when that market is showing signs of slowing.  This begs the question, can you as a buyer, time the real estate market?  The answer is yes but that doesn’t mean what you think.  It’s not timing the bottom.  What then exactly do I then mean by yes you can time the market?  Let me explain…

If you are a buyer today and you want to buy your family home, timing means by as soon as you find a home you love.  That’s timing, that’s your timing and if you’ve ever planned for a big life change you know, timing is everything (if this is the right time for you, check out listings in your area here).  If you want to get in for the kids before school starts, that’s timing too.  It’s timing subject to a set of priorities you’ve assembled.  Same is true if your career has certain times of year that may be slower, when you have a little more time to move.  For me that is fall because spring is always crazy in my business and I couldn’t imagine trying to move in spring.  For my insurance buddy that’s spring because the last part and first part of every year is open enrollment and renewal.  For my accountant that’s May-June, after tax season and after a much needed vacation.  Perhaps you have been looking in spring and felt that everything nice was disappearing.  There were multiple offers and prices seemed to be running away from you so you decide to hold off until fall.  That’s timing of a different sort too, that’s timing the seasonality of the housing market.

OK, that’s not what you mean when you refer to timing.  You were thinking about timing the bottom or timing the decline.  Jumping in at the exact moment that you can buy at the lowest price, to gain the lowest payment and obtain the greatest return on investment.  If you are a buyer and the market is soft for the first time in 6 years and you can negotiate a little better deal, that’s timing.  That’s timing the market and that’s what you should be looking at doing now.  Don’t misunderstand, I’m not suggesting like all the investors on CNBC do that “You should buy now, buy now!”  I hate it when I hear that because what do you expect them to say?  Don’t buy?  They never do.  Same can be said for a Realtor, but when you are in the market for a home and you know that sales are slowing it’s important to realize that while you may not be at or even near bottom, a home is so much more than an investment.  If you can find a home you love and you know that the price is softer now than it was just a few months ago, write your offer. Write a lower offer.  Test that seller.  How motivated are they?  Do they really want to sell today or are they willing to wait?  This is especially true if that home has been on the market a while and the seller has already had a couple price reductions.

Prices typically rebound in the spring, but maybe this year they don’t or maybe they do.  This timing thing swings both ways for buyers and sellers.

My point is this.  If you find the right home (click here to search for homes ), can get it at an improved price from a few months ago, buy it.  Even if prices go down some more, so what?  It’s you home and when you are looking at buying your home, you don’t pass on your Shangri La over a fist full of dollars.  So long as you feel confident in your employment and you’ve assessed your ability to repay the loan that you’ll undoubtedly be taking out, don’t worry about the possibility that there could have been an extra $10,000 or even $30,000 that you might be able to save.  This is a few hundred dollars a month if it were to drop that additional amount.  If…  Right now, there are signs the market is correcting.  The headwinds of rate hikes, lack of wage growth and a potential slowdown in the global economy is putting pressure on prices.  Some sellers are still pricing their homes like the market is going up.  For most of these sellers, they’re in for a rude awakening and your low offer after they’ve languished a few months is that wake up call.  As a buyer you should be watching and lying in wait.  You’re getting the opportunity that many buyers only 6 months ago, longed for.  Don’t lose the home that you wanted, if and when it comes available.  Timing the market bottom is a sucker’s bet.  Sure, you might wait another year and the market corrects substantially, anything’s possible.  Equally possible is that rates continue to rise in the face of a declining Fed balance sheet and ever increasing government spending and borrowing.  In the absence of substantial wage inflation, your buying power actually decreases even with a marginal decline in property value.  For each percent of interest rise, a property has to decline roughly 10% in value for your buying power to remain neutral.  The reality however is that a perpetual shortage of supply in the face of a generational cycle of increasing demand as Millennials age into buyers, means any decline or correction is likely to be measured.

So timing the market?  Heck yeah, you can time it but don’t confuse timing the market with timing the bottom. If you have questions or would like to know if it’s the right time for you, give me a call 805.427.3008 or contact me.

This blog is also available as a podcast, please listen here.

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What It Takes To Be A Good Landlord

Many property owners have a fear of being a landlord, yet in a time where the real estate market may be in correction, some owners will choose to become landlords instead of sellers.  So what’s it take to be a good landlord?

The first step to being a good landlord is understanding what a tenant thinks “good” means.  RentalFor many landlords, it’s been a very long time since they themselves were tenants.  The second step is understanding why a landlord wants to be a good landlord.  To a tenant, a good landlord takes pride in their property.  They are interested in maintaining the home and understand and respect the value of a good tenant.  I often tell my landlords, a good tenant is worth their weight in gold.  That’s not to say a landlord should ever be beholden to a tenant or that the tenant should be allowed to dictate terms.  The homeowner is always in charge.  It’s their home.  A good tenant should be grateful that the landlord is allowing them to rent their home, regardless of how qualified that tenant is but in return, the landlord has to live up to certain responsibilities and understand their tenant’s expectations.  It’s a two-way street that requires mutual respect and cooperation.

When a tenant begins searching (Search Listings Here) they’re typically looking to move within 30 days.  This is a good thing since most landlords want their, soon to be or already vacant rental to be rented yesterday.  Therefore, the first thing a good landlord needs to do before listing their property for lease is to get it in tip top shape.  Tip top shape of course can mean different things to different people.  I have one landlord I often joke with by asking, “Are you a slumlord?”  IMG_2934For him, getting the home ready consists of wiping down the counters and baths, taking a lawn blower and “blowing out the home” and then vacuuming.  While this method may work for him, it’s not the approach I recommend.  I am of the opinion that the more pride a landlord takes in the condition of their property, the better the tenant will treat and respect it.  Obviously, there are always going to be tenants that get into a place and are total slobs and disrespectful.  However as a Realtor who’s done my share of lease applications, we do our best to try and screen this type of thing out.  Looking at credit history is one obvious data point, but these days we also Google our applicants and look at their social media pages too.  It’s a lot easier to truly find out about people by this method than just looking at credit or income.  I tell my kids, be careful what you post, you never know who’s going to see it!

Regarding condition, a good landlord should pay attention to the obvious: cleaning.  If your rental is spic and span, it will rent more quickly.  This means, be sure to focus on the caulking, the grout and things like the window tracks.  Look at the light switches and the outlets.  Not only does a clean rental show better and raise the likelihood you’ll get a high quality tenant and a better price, it makes the eventual move out easier because if it starts out in great condition, the tenant needs to return it great condition.  In California a tenant is entitled to “reasonable wear and tear.”  This admittedly is subjective, but I tend to think wear and tear applies in large measure to the paint and sometimes the carpet depending how old it is.  I always put in my leases that the tenant must have the home and carpets professionally cleaned (Contact Tim Here) at move out.  I tell my landlords to expect to have to do paint touch up and often recommend to tenants, that they allow a pre-move out walk through to establish what the expectations are for both parties at move out.  As a landlord you have to expect that when a tenant moves out, that there’s going to be touch up required.  This means down time.  The longer the tenancy, the more painting will be required and the longer the down time and down time is money.  In any event, if you deliver it in A-1 condition, you can reasonably expect it to be returned in A-1 condition for the most part.

Next up in our “Tip top shape” definition for a good landlord, is “In working order.”  Broken microwave handles are a no-no.  For that matter, broken anything should almost always be repaired by the landlord before the tenant moves in.  If it’s not discovered prior to possession and the tenant calls it out, a good landlord will hop on the repair right away.  That’s not to say a landlord jumps at every little thing the tenant asks for, but if it’s broken, it should be repaired and in a timely manner.  Also keep in mind, if a property is delivered with broken blinds or window latches, torn screens, door handles etc. the tenant is going to be sent a message.  That message is, “I don’t care” and if you don’t care, neither will they.  Some of you out there have old homes that aren’t in the best of shape and your rent reflects it.  Heck, my college apartment in Isla Vista was a total dump.  And we were hard on it, but that’s a college apartment and for the purpose of this article, I’m focusing on more “Regular” suburban homes, not low income or college town housing.  I started by suggesting that some of you might consider becoming landlords because as the real estate market softens, some owners will elect to rent their place instead of selling in a buyer’s market.  If this is you, all I’m saying is make sure everything is working before you put it out there for lease.

Another thing that makes a good landlord is being responsive.  If you are moving out of area, it’s best if you hire a property manager.  If you are nearby, be sure and get back to your tenant when they have issues.  Some landlords buy a home protection plan and instruct the tenant that it’s there for their use, but they are responsible for the service call fee.  Sometimes this works and sometimes it doesn’t.  If a tenant doesn’t want to pay the $75 for the service call, things in the home that stop working correctly can quickly become neglected.  Sure, the tenant may be held responsible for this down the road at move out, but that’s really not desirable.  Plus, if following the move out a tenant objects to the landlord’s withholding of a deposit and chooses to take that landlord to small claims court, the landlord should know, the landlord often loses.   This is especially true in California where courts tend to side with the tenant.  Better to take care of your home’s health than depend on a tenant to do it only to charge them at move out.  Some long term tenants ultimately treat the rental home like their own and take care of things out of pride, but you shouldn’t expect this as a landlord.  It’s a big bonus when it happens but it isn’t all that normal, especially in this day and age.

Speaking of what a good landlord should take care of, gardening is at the top of the list.  Many landlords are willing to give the tenant a reduced rent if they take care of the garden.  I don’t like this approach however.  When I was a renter, I would have agreed to care for the yard for a reduction in rent.  overgrown yardLet me tell you, you would not want to have me care for your yard.  I only kill gardens and can’t grow squat.  Since there’s no way to know if a future tenant has a green thumb or not, there is no benefit to the landlord to give the tenant the option of caring for the yard.  Landscaping replacement is expensive and most deposits won’t cover the cost of a new lawn or plants and flowers.  A good landlord offers gardening with the rent, it’s in their best interest.

Finally, there’s the issue of pets.  DidiMost landlords apparently don’t own pets – not sure why that it is but it’s true, while most tenants do.  I make it a policy to try and get my landlords to accept pets.  There are a couple reasons for this approach.  The most obvious is that it’s easier to rent your home if you accept pets.  Second is that a tenant who has a pet could lie and bring the pet in anyway and while this is a violation of the lease terms, it’s difficult to police.  Another more recent issue is that under nondiscrimination laws, if a tenant has a service animal you can’t turn them away.  By the way, it’s easy to get a dog certified as an Emotional Service Animal.  If you look online, there’s a bunch of online services.  Last year I had a landlord turn down 7 applicants including one willing to pay a full year in advance because they didn’t want pets.  Finally, we found a tenant who didn’t have a pet and took even less than asking when accepting them.  She moved in without a pet.  Two months into the lease there was a school shooting at USC where her daughter attended.  The daughter ended up moving home and commuted to school.  Since it was determined that she was suffering from PTSD, her doctor recommended she get a service dog.  It helped her immensely but the landlord who so adamantly refused a pet, ended up taking a pet anyway and without compensation in the form of “Pet rent.”  By the way, in California a landlord can only take up to two times the monthly rent as a deposit.  That means not 2 months plus pet deposit.  The total deposit cannot exceed 2X rent.  When a prospective tenant comes forward with a pet, the way the landlord gets compensated for taking a pet is by charging a little more rent for the pet.  I call it pet rent.  $25 or $50 helps offset any extra potential wear and tear that a pet brings and most tenants don’t object because after all, they love their pet and it’s a small price for them to pay to get the home they want and keep their pet.  On a side note we are seeing many of our military service members come back from war and they have service animals with them.  It’s just become a fact of life.

Being a good landlord pays dividends in many ways.  It usually leads to better quality tenants and better tenants tend to take care of the property.  This means less down time doing repairs after a tenant vacates which in turn saves the landlord money by getting it turned around and rented faster.  The downside to being a good landlord?  None that I can see.

 

 

#TimFreundCRS #LuxuryRealEstate # RealEstate #RealEstateInThousandOaks #RentalProperty #ConejoValleyRealEstate #RealEstateForLease #PropertyManagement #LandlordAcceptsPets #GoodLandlord #ForLease

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Buying My First Home: An Online Discount Broker Experience

I’d like to relay a story to you…

My name is Sam Lottner.  I’m 34 years old, a programmer by education and trade and the time had come for me to buy my first home.  Some of my friends have already bought and even sold and bought again, but I live in Southern California and between the high cost of housing and my student loans it’s taken me longer to buy my first home.  I am comfortable doing my own research so I chose an online discount brokerage, one that would rebate me some of the commission. 

I had a pretty good idea of what and where I wanted to live by the time I contacted an online real estate broker.  It all seemed pretty easy really.  An agent met me at the property I’d selected and over the course of time I got to seeCivic Arts and Gardens shots 025 most of the homes on my list.  Like anyone, I wasn’t really sure what I liked at first but through research and seeing some homes, I got a pretty good handle on it.  There were a couple of homes early on I wanted to see but wasn’t able to get in to and that was frustrating.  Apparently, some traditional agents wouldn’t set up showings because my assigned agent wasn’t able to provide them with information about me like my preapproval letter and down payment funds etc.  At the time, I wasn’t inclined to give that up since I wasn’t always working with the same agent.  It hadn’t occurred to me that not having a single, established local agent who knew about me interfacing with the listing agents meant I wasn’t being taken as seriously as I might have been otherwise.  By hiring the rebate broker and doing my own research I planned to save about $5,000 which I thought was a lot of money.  In hindsight, what I thought I understood and expected about the home buying process wasn’t entirely accurate. 

I finally found a home I liked.  It was older, somewhat fixed up and was vacant.  1396 Calle Yucca Web-43I looked at it a couple times with 2 different agents from the firm before finally writing an offer.  I had a lot of questions about the property but had trouble getting answers.  Turns out that I was asking many of those questions too early, so I was frustrated for no reason.  My agents didn’t explain the process and I didn’t know to ask because the people who were showing me the property were always different.  The seller always had the same agent interface with me but I was getting different people.  I didn’t realize this was what happens with most online brokers.  You don’t work with the same person throughout the process.  I later found out that this approach is common to online discount brokers.  My “main agent,” the one who wrote the offer, recommended an inspector whose reviews were solid and so I went with it.  I didn’t actually meet my main agent for the first time until the inspection.  Not knowing any different, I was like, “Okay…”  During the inspection, my agent said to me on more than one occasion that the “Seller would take care of this or fix that.”  Imagine my disappointment when the seller balked at most of my requests for repair.  I didn’t expect a “new home,” but I thought surely the seller would fix pretty much everything that I thought was wrong or I was going to have to correct right after I moved in.  My agent made it sound like fixing everything I wanted was common place.  Maybe if I had a stronger relationship with my Realtor this would have been explained better.  News flash: Sellers don’t see the world from the buyer’s perspective.  What negotiating repairs comes down to I found out, is how much did I want to buy the home vs. how much did the seller want to sell?  It’s from that place that we’d negotiate repairs.  Turns out, there is no guarantee the seller was going to do all the repairs I’d like done.  It would have been helpful to have known that going in.  Maybe had I not had a revolving door of agents I would have had a better relationship with my agent and would have understood this better.         

At the final walkthrough I met yet another agent from my broker, the 4th.  The seller’s agent who I now knew as well as my own, said that the seller had made the agreed to repairs and even did a couple extra things.  I pulled out my list of requests and said “What about these?”  The listing agent pulled out the list he said we’d negotiated and said, “This is what the seller agreed to fix and they fixed it.  That other stuff wasn’t agreed to.”  I looked to my agent but she had no clue as to what I’d asked for, what had been discussed or what the seller had agreed to.  She didn’t have the inspection nor the repair request I’d signed.  After a few more frustrating exchanges the seller’s agent said that the seller was “reasonable” but that every home is sold “As-is” in California with the exception for repairs agreed to and that some of my expectations and requests weren’t reasonable, like the level of how clean the garage should be for example.  What??  I am about ready to lose it.  He said it’s a 50 year old house and there’s bound to be cobwebs and dust in the garage.  I wasn’t happy.  The seller had agreed to clean out the debris from the garage.  It was abundantly clear who the seller’s agent was working for.  Unfortunately for me, my main agent wasn’t there to help.  Finally, my “walkthrough agent” called my main agent and they advised that I should wait to write down anything that wasn’t correct in my mind, until after we spoke later.  I wanted to deal with this now at the walk through, but I couldn’t.  I had no one I trusted to help me.  I was alone and at this point I was pissed.  Why was my main agent not there?  No one said that if I received a rebate on commission I’d be dealing with some “division of labor” approach and get different agents at each step of the way.  I couldn’t help but wonder what if?   What if I’d chosen a different type of agent?  How different might my experience have been?

My dad used to always say, “The buck stops here” in teaching me about being responsible.  HS TrumanI felt like I was in this process on my own and had no one working for me.  There was no “Here” for the buck to stop at because I didn’t have “My” agent, I had a bunch of different people, apparently paid an hourly rate or salary or some totally bare bones commission.  There was no one person that had an incentive to be there for me.  This was not the experience all my years of paying off debt and saving should have been.  I deserved better and clearly, I’d made a mistake in choosing the discounted approach.  I should have hired a real estate agent I knew or was referred to by someone I knew and trusted.   If nothing else, I would have felt more confident and satisfied with my decision and definitely less angry and taken advantage of. 

#DiscountRealEstateBrokerage #OnlineBrokers #FirstTimeHomeBuyer #RealEstateStories #SamSpeaksTrue #TrustSam

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The Curious Case Of This Real Estate Correction

As I’ve been suggesting in my most recent posts, the real estate market of 2018 is showing sign of correcting.  The funny thing, is that this curious correction looks different than any I can recall.

Maybe it’s just how corrections always are, and I frankly don’t remember their onset.  Kind of like when your kid had colic as a baby, you vaguely remember the sleepless nights, but it’s usually part of some affectionate recollection rather than tacit unpleasant recall.  As I suggested in my last post, it’s my supposition that you can’t have a strong economy with a weak housing market.  Yet by all measures, we have a strong economy.  Low unemployment, corporations flush with cash from the corporate tax cut and a booming stock market.  Looking at the real estate market fundamentals, you’d have to think a slowdown isn’t likely.

Supply is low.  Builders aren’t building enough to meet rising home buyer demand.  They haven’t built enough to satisfy a growing population not since the Great Recession and they still aren’t.  A shortage of buildable lots, available tradesmen, rising material costs and a general fear about over building are the common explanations.  Part of the collective memory of an industry that exploded a decade ago I suppose.

Moreover, sellers in general aren’t selling either.  This is for a variety of reasons not the least of which is they’ve got a super low interest rate on their current mortgage so any move up in price is exacerbated by higher borrowing costs and higher taxes.  Senior sellers can’t find the one story they want, in the neighborhood they want to live and are choosing instead to put in lifts or move downstairs.  More and more baby boomers are electing to die in their home rather than move too and that further constrains available inventory.

Then there’s the demand side of the equation.  Millennials are just now starting family creation and beginning to purchase homes.  Given this group is the largest generation on record, that’s a lot of buyers, a lot of demand.  The booming economy means more people are working and one would think this would spur home buying as well and it has.  Therefore, there will be a permanent shortage in supply of homes to sell and an ever-increasing demand from buyers wanting to buy.  When taken in totality, there is every reason to believe that a down turn in the real estate market is a statistical impossibility.  Still, the market is slowing.

When I began thinking about this conundrum, I looked back at previous bubble-corrections.  They were all fueled by some sort of artificial demand component.  Speculators artificially driving up prices, easy loans artificially propping up buyers etc.  So that lead me to thinking about the appreciation we’ve had steadily since 2012.  “Artificial appreciation, fueled by a shortage of available homes,” that’s it!  No, that doesn’t make any sense.  Supply and demand dictated the rise in prices: tight supply combined with low rates and a strong economy drove demand and that fueled that appreciation.  Despite this, we are in fact seeing pressure on prices and a slowdown in sales activity.  All this evidence is consistent with a market correction.  Where does that leave us?

Here’s my belief: The unabated 6 years of appreciation and the rise in rates, coupled with stagnant wage growth, has caused the buyers to hit the ceiling of affordability.  Most of the supply lies in price ranges that exceed the affordability for the buyer of that given type of home.  In other words, buyers can’t afford what they want, and they don’t want what they can afford.  As a result, they’ve it the ceiling, rebelling and refusing to buy.  I tell my sellers all the time, a home is only worth what someone is willing to pay for it (Want to know what your home is worth check out my home valuation program ).  If a buyer isn’t willing to spend $600,000 on a 3 bed, 2 bath, 60 year old, slightly improved home in Newbury Park, Ca then it’s not worth $600,000.  If a buyer isn’t willing to spend $2M on a 3600 SF somewhat improved home in Westlake Village, Ca, then it’s not worth $2,000,000 (Check out my website for more local info ).  Just because someone paid that much for a similar sized home in the same neighborhood, doesn’t mean that all homes in that neighborhood are worth that.  There are factors like condition and turn key, that must be considered.  In fact, turn key remains a big reason why some homes sell at outlandish prices.  Most homes however, are far from turn key and therefore can’t command the turn key premium.  One thing we know for certain, buyers today don’t want to do any work.  If Millennials were like the first-time buyers before them, they’d buy older homes, improve them and build equity hoping to fuel their move up a few years and a kid or two, down the road.  But they aren’t.  Today, those buyers are often dual income, much older than previous generation first time home buyers and simply don’t have the time to remodel nor have the cash after buying to remodel, but they see remodeled homes online and on HGTV and that’s what they want.   If they can’t get it in their price point, they won’t buy.  There is a lack of incentive.  Prices aren’t low and rates aren’t super low like they were, two big incentives for fueling our recent housing demand.  Moreover, the discount or negative premium buyers today demand of under improved homes is substantial, which runs in contrast with the asking prices of those same homes following years of broad appreciation.  (As opposed to the premium they’re willing to pay for turn key remodeled.)  This problem is exacerbated by the home builder’s failure to build more entry and mid-level homes.  Most analysts fail to consider the impact that new homes have on the overall health of real estate market.  People sell their existing home to buy a new home.  That existing home is then added to the supply of available inventory.  If builders aren’t building where the demand is, then we end up with an over supply in homes people don’t want (or can’t afford) and a shortage of those people do.  What happens when there is an over-supply of homes in a price range where there is a limited supply of buyers?  That’s right, price corrections.

The real estate market correction that is just now starting, is fueled in my opinion, by a shortage of affordable supply, rising interest rates and stagnant wage growth.  It should be very interesting to see how large the drop in home values has to be, before buyers jump back into the market?  I personally don’t foresee a huge slide in home values, but there will be some – heck nothing goes up forever – at least not home prices, (that is unless everyone starts making a lot more money so they can afford what they want.)  Thus a correction is always an inevitably; it’s not a matter of if rather, when.  Then there’s the question of, how will a correcting real estate market affect the economy as a whole?  Remember, I believe as the housing market goes, so goes the economy.  Just look at how home builder related stocks have performed in 2018: the sector is down between 27-42%.  Talk about a harbinger of things to come!  If you’re looking for a crystal ball, look no further than that.  The ripple effect of a correcting real estate market is felt across the entire economy.  It affects incomes, confidence, the stock market which in turn affects, income, confidence and the stock market and so on.  That ladies and gentlemen is how we end up in a recession.  As I see it, the only way we stave off this inevitability is through substantial wage growth which offsets the rising cost of homeownership. Have any comments or questions? Feel free to send me an email, I always love to hear your thoughts.

 

Posted in Demographics, Economics, home builders, Home Buying, Home Selling, Market Conditions, Real Estate, Real Estate Correction, Recession, Tax Reform, Tim Freund | Tagged , , , , , , | Leave a comment