Selling Real Estate During a Pandemic – Are You Kidding Me?

I have been selling real estate for a long time.  I have seen recessions, stock market crashes, speculation and finance driven real estate crashes.  I’ve seen booms and busts, sold new tract homes and resold custom estates.  I however, wouldn’t dare to say that I’ve seen it all.  My father-in-law Mark Bader, sold new homes for the better part of 50 years and he would say, “When you stop learning in this business, you’re dead.”  He was so right and if there was ever a week that proved this was true, it’s this week.  I most certainly haven’t seen it all.  So, what happened?

Well for one thing, this damn pandemic happened.  I, like every Realtor in America, was in a free fall without a net in spring 2020; a most uncertain time.  Since then, we have seen an epic boom in real estate activity and pricing.  Fast forward to this fall and I can honestly say 2021 is going to be my best year ever [Contact Tim Here].  But this week in particular demonstrated that the pandemic and its effects are still coming home to roost and the ramifications are unclear.  Today for example, Case-Shiller reports that indexnationwide real estate prices are up nearly 20% year over year and up 25% in places like Phoenix, Seattle, and San Diego.  Are you kidding me?  If you’ve read any of my articles in the past you know that I attribute the boom to a confluence of events not the least of which is dramatic under building, Millennials starting household formation and the premium placed on space as a result of, you guessed it, the pandemic.  But 20%?  To channel Yoda, “Problematic this is…”

This week also brought me two cancellations.  One of those has been off market and under contract 3 separate times for a total of 9, yes 9 weeks.  It has fallen out 3 times as a result of Covid.  The first was a professional musician getting what’s called a “12 Month Bank Statement Loan.”  This is a loan that tracks cash flow via bank statements and tax returns rather than relying on monthly W2 income.  This is particularly useful for the self employed who have irregular income streams, perfect for this buyer.  But the mortgage lender changed the terms of the loan mid-stream and told the borrower they needed to track 24 months bank statements rather than 12.  As you can imagine, this composer with their new 2021 TV contract was like me in spring of 2020; free falling with no income and no way to make any 1either.  So by going away from summer 2020 to summer 2021 statements to summer 2019 to summer 2021, the borrower showed months with no money coming in due to the pandemic [Search for Listings Here].  Deal falls apart.  Being this is a seller’s market, we immediately receive another offer.  This buyer 2 is all cash – dad buyer for Millennial daughter – and a 15-day close.  On day 10 dad contracts Covid and goes into ICU.  Thank God he going to survive but they had to cancel.  Once again back on the market and I once again sell right away.  This buyer #3 is two weeks into escrow when I hear they report feeling unwell so their repair request was tardy.  We finally get their repair request and sit down to negotiate the repairs when I am informed that this whole family is not just unwell but has contracted Covid and they have to cancel.  So again, I must ask, are you kidding me?

As if this weren’t crazy enough, another transaction also struggling with irregular financing finally gets loan approval only to cancel, this being a $2.1 transaction.  The buyer just walks from the deal last minute and a $63,000 earnest money deposit without explanation.  What?  Are you kidding me?  In my 31 years of selling real estate, I have never had that happen [Follow Us on Facebook].  And while all this is happening, I have one buyer who 1wrote $272,000 over ask to win the property of their dreams, another who wrote over ask and we’re waiting to hear, a third who simply cannot find a home to buy despite going up from $1.2M in price range to $1.7M and I just put up for sale a new listing where the seller last minute raised their price to way over what I’d recommended and I already have 4 offers with two over ask!  Repeat after me: Are you kidding me?  And to think, I actually thought the market might be normalizing just a couple weeks ago…

So, what’s it like selling real estate in the middle of a pandemic?  Nothing if not incomprehensible.

Posted in County Line, Demographics, Economics, Home Buying, Home Selling, Market Conditions, Market Conditions, Real Estate, Real Estate Correction, Recession, Seller Advice, Thousand Oaks, Tim Freund | Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

The Elephant in the Room (And It Is Us)

In my 31 years of selling real estate, certain things have remained true.  The 3 most important words for example, are now, always have been and will always be, location, location, location.  For investment, find the cheapest house in the most expensive neighborhood.  Alternatively, someone always buys the most expensive home in the neighborhood.  Spring is the best market for sellers and fall is better for buyers.  There’s no greater way to build wealth than with real estate.  I could go on like this for another 20 minutes, but it’s the last two statements that I want to focus on and discuss.

I have buyer clients that are actively looking to purchase homes.  At present, these clients are looking in the more affluent ends of town like Agoura Hills, Calabasas, Westlake Village and Oak Park.  Essentially the east end of the Conejo Valley and the towns that straddle the Los Angeles and Ventura County lines.  These areas have become hotter than ever since the pandemic has put a premium on space and these areas are close enough to LA to 1attract those who still need to get to their city jobs.  Despite the huge run up in prices over the past 18 months, I have begun telling my clients that I believe I’m beginning to see a pattern of normalcy emerging (Contact Tim Here).  This normalcy I’ve predicted will benefit them as buyers.  That is, that more homes are going to come on the market just as they do every fall and then they should stay on the market a little longer than a minute.  In doing so, inventory will build and this in turn will put some pressure on prices and perhaps even offer a little more negotiating ability.  If nothing else, there should be a better selection to choose from.  I thought I saw this pattern emerging and I thought this reflected a return to normal where prices will again rise in the spring and give some of those gains back in the fall.  I thought this was happening as it has year in and year out.  And yet…

While it is true, that we have not yet hit fall officially, September has often been the looking glass to the coming fall and even winter months.  Some years we Realtors would tell our sellers, “September is usually a pretty good month for sales; a rebound from historically slow August.”   Other times I might say, “It’s slower than normal this September because the Jewish holidays came late.”  Other times it’s that the “Jewish holidays came early.”  Some years we’d say, it was an “Especially hot September that kept buyers away.”  Or even, “Expect the market to be slow, it’s an election year so people are distracted.”  This year we’re singing a different tune. This year we started warning our sellers that it “Might be slowing just a little…” but to our buyers, “If it’s slowing, it’s not really slowing much.”  It’s sort of true that there’s been an uptick in inventory nationally.  But real estate is local, just ask @DianaOlick with CNBC.  It’s phrase she uses a lot.  (Search listings here)  Our local market for example, has more active listings than we did last month: 7.  We went from 223 to 230 – a 3% gain.  But really?  7 homes?  Compared to last year (333 Active listings) when the market was on fire, we are down 30%!  Or 2019 when we had 548 (+57%) or 2018 when we had 634 (+64%) or 2017 when we had 508 (+54%)… yikes.

For casual observers, this real estate market doesn’t make much sense.  In fact, most Realtors have trouble wrapping their heads around it.  Where are all these buyers coming from and how long can this continue?  Over the past month I have moved from predicting an expectation for a return to normalcy, to one of hoping normalcy returns for both the health of the market and the dreams of my buyers.  Why the change you ask?  Simple really, I’m not seeing a substantive move in inventory and there are still multiple buyers for too few listings.  Don’t get me wrong, there some signs of a slowdown like there are not as many multiple offers as we saw in the spring, but multiple offers of any kind are an indication that there’s a shortage of available homes.  There are also a lot of cancelled contracts or “Back on Market” listings which is an indication of buyer remorse and doubt.  Yet, if it’s slowing down, it isn’t slowing down very much.  It’s funny, I can remember showing people homes over a period of weeks and coming back to the one they ultimately decided on and it was 1still available.  And I’m not referring to the Great Recession rather the mid Aughts.  So, what or whom do we have to thank for this rather unexpected, continued mayhem?  Yes, yes, The Millennials are starting household formation and are the biggest generation ever; and yes, yes, the pandemic has put a premium on space so people are clamoring to get out of apartments and condos; and yes the Fed refuses to stop buying bonds and mortgage backed securities let alone dare I say, raise lending rates.  But that’s not all there is.  The elephant in the room, and no place is this more acute than in California, is slow growth and lack of single family home construction.   Sure, new home costs are high and there are supply chain issues resulting from the Pandemic, but the NIMBY (Not in my back yard) movement that every somewhat affluent neighborhood has been experiencing is driving us into a situation where, as a nation, we will soon have more renters than homeowners.  The great American Dream, home ownership, gone for most… the USA, a renter nation.  Now that’s something hard to wrap one’s head around.  This may sound a bit soap boxy, so allow me to apologize in advance, but go back to the last adage I started this article out with: There’s no greater way to build wealth than with real estate.  Without the ability to own real estate then, how does the average Joe accumulate any wealth?    Slow growth and maintaining the status quo is leading us down a very dangerous road of ever-increasing inequality; one that will only exacerbate the wealth disparity between the haves and have nots.  It’s pushing people onto the street, which in turn means tents under our freeway overpasses and in extreme cases into our own back yards.  “Let them build somewhere else!” You say.  “I like things how they were!”  But consider who you are saying this to.  It’s not just our working class and service workers, no, this includes our police and fire, healthcare professionals and teachers, government workers and even small business owners.  We are being forced to move farther and farther from where we work.  And yes, I do mean we, not they or them.  We are pushing our own people away.  Steve Lopez (@LATSteveLopez) recently wrote an article about LA Firefighters commuting from Texas for goodness sakes.  Sure, there’s a political component there, but none the less, this would never happen in our parent’s and grandparent’s time and wouldn’t now, if slow growth wasn’t the go-to law of the land and close-in residential new construction virtually nonexistent.  Ventura County has the slowest most regressive growth restrictions in the entire country, so is it any wonder we don’t have enough homes and prices are through the roof?

In a study released this week, Realtor.com, the online data aggregator and brokerage, estimates we are more than 5 million single family homes short of what is needed to keep POGO altup with, yes you guessed it, Millennial household formation.  And they say the gap is widening.  There’s no answer that will please everyone here.  In fact, it’s an almost certainty that the answer will please no one.  But as they say, a good negotiation is either a win-win or a lose-lose, so expect the latter.  Yes, we are the elephant in the room and to quote the inimitable Walt Kelly and Pogo, “We’ve met the enemy and he is us.”   As to what to tell my buyers looking to buy a home in a nice neighborhood?  What can I say, except, “Sorry and let’s keep trying.”

Posted in County Line, Economics, Home Buying, Home Selling, Market Conditions, Market Conditions, Real Estate, Thousand Oaks, Tim Freund | Tagged , , , , , , , , , , , , , , , | Leave a comment

Case Shiller July 2021: You Never Hear the One That Gets Ya

With the S&P Case Shiller numbers out today for May 2021 (Case Shiller lags 2 months in their reporting) showing unprecedented year over year appreciation in all 20 Cities they follow, all we can do is shake our head.  It’s been and still is an incredible run.  Managing Director Craig J. Lazzara put it this way, “A month ago, I described April’s performance as “truly extraordinary,” and this month I find myself running out of superlatives.”   While there is some evidence suggesting a slowdown in the offing, with new home sales numbers hitting a 14-month low and inventory up a little.  Lawrence Yun chief economist for NAR said last week, that “We may have turned the corner on inventory.  There is a softening in the demand.”  But he went on to say sellers are “getting 3 offers instead of 10.”  I don’t know in what world 3 offers is in anyway “turning a corner on inventory.”  Moreover, I’d suggest that this is temporary due to summer always being slower, and the freedom to take a vacation for the first time in 2 years has got people distracted and traveling.  Have you been to an airport lately?  No, naysayers this market still has plenty of room to run.

While it is true inventory has risen slightly and sales are slowing, I would caution those who are predicting a turn in the market.  The fundamentals that got us here are still in play.  Moreover, and this is evident when looking at the Shiller graphs, if you take out the high and low peaks of Great Recession and draw a trend line from 1996 to today, it’s unmistakably 20210727-case-shiller-graph-2obvious that we are actually below where we would have been in the absence of the subprime meltdown (Contact Tim Here).  This suggests the market still has legs to run and it makes sense when looking at the factors that got us here.  Perhaps most significantly, low interest rates for what has turned into an extended period of time, have changed the cost of home ownership irreparably.  This low cost to borrow has allowed unprecedented appreciation and now that the cow is out of the barn, it’s not going back.  Toss in the trillions of dollars of stimulus you find that even in the face of a crippling pandemic, the economy is running red hot.   A strong economy always manifests in real estate price gains.  Moreover, inflation which is like the shadow of a hot economy, always lurking just behind, also affects real estate values.  People think that inflation affects all asset classes but somehow excludes real estate.  This is absurd.  Rising interest rates combating inflation affect real estate values but not inflation.  A rising tide raises all boats.  Besides, rising rates is not our situation.  Rates remain at historic lows.

Then there’s those damn demographics: The Millennials starting household formation and buying homes, the seniors aging in place, the afore mentioned insufficient supply of new homes to meet a growing population and the pandemic that has changed our need for 1space and allows for workers to push out to new areas… this is how we’ve come to this spot: Tremendous real estate price appreciation (View Listings Here).  In fact, the movement of people from expensive areas to less expensive areas, be it California to Idaho or Los Angeles to Westlake Village, has exacerbated the unprecedented appreciation we are experiencing.  Big state dollars and big city dollars bid up properties in lesser expensive areas because by comparison to their place of origin, those areas represent a bargain.  We are seeing this all across the country and this coupled with the need for more space, is all thanks to the pandemic.  But even before the pandemic, the demographics were going to take us here.  It’s just more intense and more dramatic and probably faster because of the pandemic.  Technology changes and job location flexibility was going to come someday, it just happened faster with Covid.  This all begs the question, “What is going to cause this to change?”  As I say in the title, you never hear the one that gets ya, is never more true than when it comes to guessing the real estate correction.  The most likely answer is interest rates.  When interest rates rise in an effort to slow the economy and stave off inflation, affordability and subsequent property appreciation is going to get crushed (Check out our YouTube page here).  When this happens, people will find they can’t afford the new price metric and they’ll stop buying.  Then as the economy sinks into its inevitable recession (never a question of if just when and how severe,) we will see a price correction when people find themselves forced to sell due to job loss.  But that is not now and that is not anytime soon.

Posted in County Line, Demographics, Economics, Home Buying, Home Selling, Market Conditions, Market Conditions, Real Estate, Real Estate Correction, Seller Advice, Thousand Oaks, Tim Freund | Tagged , , , , , , , , , , , , , , | 1 Comment

When It’s Easier to Buy Than to Rent

960x0

All you hear these days is about how white-hot the real estate market is.  Ask anyone sitting on the sidelines and they’ll tell you they’re waiting for the crash.  Ask anyone in the hunt for a home to buy, they’ll tell how difficult it is.  So, this begs the question:  Is there some method to determine the future of the real estate market?  A crystal ball as it were, a Rasputin-like secret window into the real estate future?  If you want some indication, may I suggest that you look no further than the rental market.

If you’re examining the rental market in cities like San Francisco or Manhattan, you would get the sense that the real estate market is soft and that they’re in for a correction.  You could even argue that the correction is already underway and may even be seeing the beginnings of a rebound (Contact Tim Here).  You’d come to this conclusion I speculate, because the percentage of renters to owners in these cities exceeds 50% according to Bloomberg.  And since rents are declining big time, you’d have to say real estate values will follow.  Since the pandemic, renters in the city want to be in houses or townhomes with a yard rather than apartments.  Work mobility is also allowing people to leave the city for the wide-open spaces and this in turn is putting pressure on urban rent for apartments but single-family homes not so much.  But what about the suburbs?

Let me share a couple real time, real life stories that I am ankle deep in as I write this.  My good friends and former neighbors recently opened escrow on their home in Woodland Hills.  Both have amazing careers, stellar credit and reserves that make them the perfect tenant candidate.  So, their home is closing soon and since it’s so hard to find a home to Gorgeous Bath in The Trailspurchase, the decision was made to rent for a year until the perfect home comes up.  Simple right?  Uh, not so much.  Would you believe if I told you… (pardon the channeling of Maxwell Smart but I couldn’t help myself), that at $4,500 a month, my clients were passed over for another applicant? (View Listings Here)  I couldn’t believe it, so we began increasing our budget.  A home just around the corner from where they used to live came up for rent.  Incredibly that home just a couple years ago might have rented for $3,800-4,000 a month, but now is asking $5,500 a month!  I saw that and thought, you’ve got to be kidding, but my friends are getting nervous, so I called.  “Sorry Tim, we have 5 applications and the landlord is selecting this morning.” I was told by the Realtor.  What the…?  Now I’m scratching my head.

It’s hard to imagine there being so many people willing to shell out $66,000 a year in rent.  I mean you have to earn near $100K to pay that.  As our search continued, we found ourselves applying sight unseen for homes for $6,500 and $7,000 a month.  So far, a week in, we still have not found a place.  For up to $7,000 a month!  Whoa… something is going on here.  Maybe when Freddie Mac said in 2020 that we as a nation are short some 3.58 million units of housing given our population rise, they weren’t kidding!

My son Adam is working on his PhD.  He’s changing schools and moving to Golden, Co.  At first, he thought he’d buy but the market for 5% down buyers is pretty much impossible since the average days on Market in the Denver Metro is 4.  Thus, he went to Colorado on spring break to find a suitable house to rent.  Apparently, the situation there is not dissimilar to ours here in Southern California.  Multiple applications for every new listing.  maingoldenHe came home unsuccessful and really concerned.  What’s a dad to do?  Well, being that I am in real estate and have long advocated buying income property in college towns, I decided to partner up with him and set out to buy a home.  After a few unsuccessful phone calls to Realtors, I called on a listing held by Lisa Reich with ReMax (reach Lisa here – she is terrific) and she agreed to show me her listing virtually.  It wasn’t for me, but over the course of 10 days I identified a home in Golden and successfully negotiated what I believe to be at, if not under, market value.  Now granted I am a professional, but I’m still just a buyer in a foreign land so to speak and had to win the bid like everyone else.  The point is though, I was able to buy a home more easily than I could find a rental for my son.  That’s incredible.  It’s actually easier to buy a home than to rent one!

1Now you may argue that to buy you have to have a down payment etc. etc. but come back to the question I originally posed: is there a way to predict the future of the housing market?  I would suggest that while not a definitive nor perfect soothsaying crystal ball, looking at the state of the rental market is a pretty good indicator of the housing market.  And when it’s more difficult to find a rental even at exorbitant prices than it is to buy, real estate prices are still going up and going up a lot.  Because no matter how you look at supply and demand, it can’t be cheaper to own than to rent and until it is again, home values are going up.

Posted in County Line, Demographics, Economics, Home Buying, Home Selling, Market Conditions, Market Conditions, Real Estate, Real Estate Correction, Rental Advice, Thousand Oaks | Tagged , , , , , , , , , , , , , , , , , , , , | 2 Comments

The Hot Real Estate Market: It’s Not Just Here, It’s Everywhere

My wife and I just returned from a 5-day whirlwind trip from SoCal to Chicago.  Now that IMG_3220we’re vax’d and hopefully on our way back to a post pandemic normalcy, we took it upon ourselves to go somewhere.  We chose The Windy City.  It’s a great town with lots of museums, history, music and my favorite, architecture.  There were few crowds as the opening there isn’t nearly as vibrant as it is in California, yet still enough was open to make the trip worthwhile.  On our journey we marveled at the incredible skyscrapers Chicago is known for.  We also hopped on the “L” and went to the suburb IMG_3218of Oak Park.  Why Oak Park you ask?  Well for starters, my mom’s from there.  It’s also the home of early Frank Lloyd Wright and the birthplace of his Prairie Style architecture. It also shares the name of a local unincorporated hamlet here in Ventura County (Contact Tim Here).  Once there of course, we explored the local real estate market.  I had to know, was the housing situation in Oak Park, IL the same as Oak Park, CA.  That is, low inventory and not much for sale.  As Tama and I walked the neighborhood surrounding Wright’s home studio, we admired his early work but couldn’t help and notice there weren’t many for sale signs.  Could that be true?  Is the market as tight there as it is back home?  So, I did what I do, and I looked at the numbers.

Being that I am completely unfamiliar with Illinois real estate, the first thing I did was go to Zillow and see how many homes there were for sale in Oak Park, IL to determine if my cursory perception was correct.  Well imagine my surprise when I found 70 homes for sale.  Wow, says I!  That’s a lot more than I thought I’d find.  In fact, it sounded like so many that I almost tossed this article all together.  But then just out of curiosity I decided to look up the number of solds in the past 6 months.  I mean 70 home is a lot if you’re selling say, 15 homes a month right?    Remember that the National Association of Realtors considers a balanced market as 6 months inventory.  In other words, if it takes 6 months to sell all available properties, the market favors neither buyer nor seller.  Less than 6 is a seller’s market while longer than 6 a buyer’s.  Now, I have no idea how many homes sell in a month IMG_3217in Oak Park, IL because I have no idea how big it is – I just didn’t see many for sale, but 70 available looked like a lot on the Zillow map (View Our Listings Here).  Would you believe if I told you that in the past 6 months Oak Park, IL has recorded over 720 sales!  Whaaaat?  Yes, Oak Park. IL with it’s 70 homes for sale, has been selling 121 a month.  Not 15 not 70, 121!  That my friends means that this little suburb of Chicago has about half a month’s worth of inventory.  What the…?  That’s as tight as little Oak Park, CA which has 9 homes for sale and sells 18 a month!

Real estate pundits and prognosticators have been saying for months now that something has to give; that the market is too crazy with demand far exceeding the available supply of homes for sale. That if prices continue like this, naturally we are headed for a repeat of 2008-2012: A disaster; a major crash; a huge correction.  If you accept this premise, it’s easy to understand how one might come to this this conclusion, a conclusion that leaves you saying I’m not buying now.  Instead, I’m going to sit tight and wait for the correction and then I’m jumping in.  After all, how can prices go up 10% in 6 months?  It’s unsustainable.  Difficult to argue with that logic, and yet…

In California, we are used to seeing high prices and occasional crazy annual appreciation.  I mean you don’t get to a median price of over $800,000 if you don’t have long periods of home price appreciation.  The thing is, it’s not just happening here.  Phoenix is the hottest market in the country with over 19% YOY appreciation according to Case Shiller.  What’s so housing-market-on-the-rise-580-1striking about that is that the last time I checked, Arizona was not a slow growth state nor a place that has few areas of flat buildable land.  On the contrary, you can build til the cows come home and still not dent the available desert to build on.  But if there’s a crash coming, why are areas with ample future homes, leading the nation in appreciation?  Doesn’t it stand to reason they would lag the land challenged areas of SoCal?  And why is an old early 20th Century town like Oak Park IL, going so crazy?  According to multiple reports, the white-hot market is not just on fire here in Southern California or Oak Park, IL or Phoenix, AZ, rather as my research suggests, it’s hot everywhere.  If that’s true, what’s this all mean then and when will it end?

They say you never hear the one that gets ya, but I have to tell you, I see no end in sight.  IMG_3210Scary right?  I just looked at neighboring Simi Valley with a population of over 100,000 and there are only 66 homes available.  A low number for sure, but when you consider that there are 262 in contract… wow.  That’s 78% of all available homes, under contract.  Neighboring Moorpark, 20 available and 63 under contract, that’s 76%… Ventura 65% are sold.  Calabasas where the median priced home is pushing $1.4 it’s still a whopping 56%.  The market is sizzling across all communities, cities and states and across all price ranges.  Even NYC and SF are on fire and everyone sang the funeral march for those in the big city.

As muddled as this picture isn’t, one thing is absolutely crystal clear, the market is hot everywhere and that suggests this “bubble” ain’t bursting anytime soon.

Posted in contingencies, County Line, Demographics, Economics, Home Buying, Home Selling, Market Conditions, Market Conditions, Real Estate, Seller Advice, Thousand Oaks, Tim Freund | Tagged , , , , , , , , , , , , , , , | Leave a comment

Setting Expectations

Thanks for tuning in!  Today, we are talking about setting expectations in today’s real estate market world. 

The real estate market today is insane, and shows no signs of stopping anytime soon.  So much so, that we have to re-evaluate how we conduct real estate transactions and get you the deal on your home. 

Here’s my take on the situation, and what it may mean for you.  If you enjoyed this podcast, then we would love to hear your feedback, and if you’re in the market, let us know so we can help!

Posted in contingencies, County Line, Economics, Home Buying, Market Conditions, Market Conditions, podcast, Real Estate, Real Estate Correction, Seller Advice, Thousand Oaks | Tagged , , , , , , , , , , , , , , , , | Leave a comment

Bidding Wars: How Long Can This Continue?

Realtors across the country are reporting the same thing: There’s no inventory and sale prices are regularly going over the asking price.  Inman, a real estate news service, recently published an in-depth discussion on the low inventory and crazy bidding wars and cited examples from Raleigh to Oakland, from Austin to Jacksonville and everywhere in between (Contact Tim here).  The reasons for this are many and if you follow my blog, you know I’ve been speaking to the need for housing for a long time.  The situation is acute but still, many oppose new development.  It’s a bit of a case of haves and have nots.

Just last night I commented on the @Nextdoor App where a discussion regarding a proposed development plan near me in Newbury Park, Ca was taking place.  As you can imagine this being in California and all, you’d expect an anti-development slant and there was.  As a point of clarification, I am what you’d call a practical environmentalist.  Protecting Bear Ears and The ANWR etc., I’m all for it and I’ll even give you money to protect it.  But I also recognize we need to house our people.  Just visit Los Angeles or San Francisco and you’ll see how badly we need housing with tent cities commonplace.  Anyway, I chimed in expressing my thoughts that we desperately needed new construction.  Suffice to say, my comments were not particularly well received although, there were a few likes from folks including an executive with @Caruso Affiliated, thanks for that @RickLemmo.  One person actually said they wanted things to go back to how it was 30 years ago.  My initial reaction was, “Me too, I’d love to be in my 20’s again.  Oh, what I would do differently given the chance…”  Alas this is what the movies are for, living in fantasy, a break from reality.  For those who’ve not read my blog or listened to my podcasts allow me to recap what is going on with our housing supply and demand.

Any discussion of today’s housing market and inventory shortage must begin with the financial crisis and the Great Recession.  Created by irresponsible lending practices and Wall Street greed, non-qualified buyers purchased available homes creating artificially driven demand and correspondingly unsupported price appreciation. When those unqualified borrowers could no longer afford the home they’d purchased, they went into default and as we all saw, an epic value collapse ensued.  With thousands of distressed properties flooding the marketplace, builders did what any manufacturer would when faced with a flood of cheaper competition, they pivoted and slowed production.  Then as their land became worth less than what they’d paid, they too let their property go back to the bank.  Consolidation took place with many home builders being acquired by others during this time, while some simply closed their doors.

When the builders did finally come up for air, they found they faced many new obstacles.  A large segment of the workforce had left construction completely when the jobs dried up, so there was a shortage of qualified tradespeople to build their homes.  They found a shortage of available buildable lots so building never achieved prior to recession levels.  Then the pandemic hit bringing shortages of the commodities needed to build a home which has driven up the price of new construction by an industry estimated $24,000 per every new home built in 2021.  This has resulted in a further slow-down in new home construction since the increased costs are not easily passed to the consumer.  As a result, we have both fewer newly built homes for sale than normal but have also not made up for the lost units from years of limited building due to the Great Recession.  This has conspired to make the supply of available homes for sale lower than ever.

With little new construction, all eyes turn towards used homes and the resale market.  One obvious source of preexisting homes is long time homeowners moving into assisted care or downsizing to one-stories.  However seniors, not eager to go into assisted facilities in the time of Covid and unable to find one stories to purchase and move to, are electing instead to “Age in place.”  This is further constricting supply.  Moreover, where once people moved every 5-7 years, now according to NAR, people are staying longer only moving every 11-12 years.  Finally, there’s the issue that at the tail end of the Great Recession, banks like B of A dumped their bad paper and collected supply of foreclosed homes, by selling to @Blackstone and @AmericanHomes4Rent.  These would normally be homes for sale today, but instead are corporately owned rentals. Not only are these homes not for sale, they are largely restricted from sale by FTC rules governing REITs.  Ironically, besides being unavailable to purchase, they are also fully occupied with renters!  Which begs the question, even if we could sell, where would all those tenants go?  Fewer used homes + fewer new homes = lower supply.

OK, so supply is tight we get it, but why is demand so bloody high?  Here we need to jump into demographics.  Several things have conspired to make this situation so acute.  First are the Millennials.  They are the biggest generation ever, even bigger than the Baby Boomers.  They are just now starting to form households and at a much later age than previous generations.  Not only are there lots of Millennial buyers but they also have money.  Many have been working for 15-18 years now so they aren’t buying your typical first-time buyer starter home.  They are instead, competing with the move up buyer for the same limited supply of property. And if they don’t have enough of their own money don’t worry, they’re getting help from parents and grandparents who are, according to Bloomberg, sitting on more than $66 Trillion in assets.

Then there’s low interest rates.  Interest rates are still well below historical averages and would be buyers want to take advantage of these super low rates.  For those who may not remember 1981, as a reminder, the Prime rate was at 21%.  Today Prime stands at 3.25%.  Also don’t forget there’s the reality, that people have to live somewhere and with the shortage of housing for sale, comes an equally short number of rentals.  As a result, rents are very high and these low rates are pushing renters into the purchase market at unprecedented levels.   This means more buyers yet again for the already scant supply.  Finally, there’s the pandemic which has done several things to complicate the situation further.

The Pandemic has made people realize that a home is more than a roof over your head.  It’s been the school, the office and the vacation spot everyone’s going to (View Listings Here).  This has elevated the need for space.  It has also shown us that we don’t need to always live within a commuting distance of the office.  Instead, the remote workplace has freed people up to move further out but this demand in turn has put pressure on supplies in areas where supply was never an issue.  Add this all together, dramatic under building, restricted availability of homes, people just not selling because they can’t find a place to move, coupled with a huge generation of new buyers, plus all the would be move up buyers, historically low interest rates and a new emphasis placed on a home serving multiple needs and you get the 2021 housing shortage, a shortage of epic proportions.  When will it end?  Not for anytime soon I’m afraid.   I predict we won’t see a measurable drop off in demand until we get to 5% interest rates.  And when will that happen?  If you believe the Fed, not until 2022.  That means we are in for continued and unprecedented price appreciation because sometime in 2022 is a long time from now.

Posted in County Line, Demographics, Economics, home builders, Home Buying, Home Selling, Market Conditions, Market Conditions, Real Estate, Real Estate Correction, Recession, Seller Advice, Thousand Oaks, Tim Freund | Tagged , , , , , , , , , , , , , | Leave a comment

Escalation Clause: What Is It And Is It A Good Strategy?

Perhaps you’re a buyer and you’ve never heard of an escalation clause.  Or maybe you’re a young Realtor and you’ve never come across one before.  An escalation clause is a term in an offer where the buyer agrees to increase their offer by a set amount over and above the actual highest offer. It’s a way to help a buyer out bid the competition in a multiple offer situation.  It’s pretty crafty if you’ve never seen or used one before.  An escalation clause goes something like this:  Here is my full price offer for $700,000 and we agree to pay $2,000 over the next highest offer.  In this scenario, if a competing buyer wrote at full price, you would escalate your offer to $702,000.  If a competitor wrote at $710,000, our buyer would pay $2,000 over the $710,000, thus their final offer would be $712,000.   Pretty clever.  If you’re a buyer, this strategy is designed to help you win the bid (View Tim’s listings here).  It’s an obvious win-win right?  The buyer gets to win the house and the seller gets more money.  If that’s so then, why doesn’t everyone do it and why do I decline/counter, offers with escalation clauses on my listings?  Before I tackle why I decline offers with escalation clauses, let me explain how multiple offers are working in this market.

With inventory at historic lows, sellers are commonly receiving multiple offers on their property.  This is because there are far more qualified buyers than available properties listed for sale.  As an example, I just listed a home in Ventura for $599,900.  I had to use a digital scheduler to manage the showings which I set up for every 20 minutes.  I had 24 showings on Saturday and another 20 on Sunday.  I then put it on hold and sat back and waited for the offers to come in.  At last count I have 16; I’ll be presenting them today.   In this scenario the most common response from a seller in this situation is a counteroffer called “Best and Final.”  This essentially turns the sale into a blind auction (Search for homes here).  Buyers hate them, because any buyer would rather a seller just come back and say, “give me this price and these terms and it’s yours.”  However, because we are seeing so many multiple offers, it’s become the standard to counter best and final and then a seller chooses.

You can see that in this environment having an escalation clause gives you as a buyer, an advantage because you will always have the highest price.  Of course, if there’s no cap you could find yourself spending way more than you bargained for.  When I’ve used this technique, I’ve often capped it by writing in an “up to” dollar amount to limit my client’s liability.  For many this trick is working, so why won’t I allow an escalation clause on my listings?

An agent just asked me this yesterday on my Ventura listing.  I told him I don’t allow them for 3 reasons.  First, it’s not fair.  If a buyer responds with their best and final, they expect that their competitors will do the same.  But the guy who wrote with the escalation clause did not have to since he built in a way to jump over everyone else.  Second, what if everyone writes with an escalation clause?  How would I and the seller deal with that?  We would have to go back and ask each one to rewrite and that’s ridiculous.  Finally, an escalation clause doesn’t necessarily get the seller the highest price.  Think about it.   If a buyer places a $2,000 escalation clause on and the highest offer for our $700,000 asking price home is $710,000, the seller would get $712,000.  But if that buyer with the escalation clause has to come up with an actual number to win, maybe they choose to “buy the home” and writes a $725,00 or higher offer.  This gets the seller the possible highest price.  I mean that’s sort of the whole point to a blind auction (Contact Tim here).  It’s also why buyers hate “best and final” because they very well may end up bidding against themselves and have no way to know it.  As you can see that while an escalation clause can be a good ploy for a buyer when they’re the only one doing it, it isn’t fair, doesn’t always fly and almost always works to the disadvantage of the seller.

Posted in contingencies, County Line, Economics, Home Buying, Home Selling, Market Conditions, Market Conditions, Real Estate, Seller Advice, Thousand Oaks, Tim Freund | Tagged , , , , , , , , , , , , | Leave a comment

“Should I Buy a Home in This Market?”

Hello everyone!

Thanks for tuning in to another episode of my podcast!  This time, I am here to offer my advice to you if you’re looking to buy a home in this RED HOT market.  Buying a home in this market can be incredibly difficult due to the competitive nature we are currently in, but still incredibly rewarding to get into something to call your own.

If you like the podcast, feel free to subscribe so you don’t miss any others, and check out our past episodes as well!

Posted in County Line, Economics, Home Buying, Home Selling, Market Conditions, Market Conditions, podcast, Real Estate, Thousand Oaks | Tagged , , , , , , , , , , , , , , , , | Leave a comment

Market Update – February 19th, 2021

It’s a crazy real estate market.  There, I said it.  How can you tell you ask?  Allow me to elaborate.  The first thing is that in many of the markets I work, there are fewer than 2 weeks inventory.  This is especially acute in the sub $750,000 range.   But even in the higher price points those number don’t go Crop3much above a month’s worth of inventory.  That said, I am seeing more homes come on the market which is seasonally consistent with historical trends.  It is the hot spring market after all.  This is also the first week over week that inventory actually went up in 2021.  Here in the Conejo Valley the number of available homes listed for sale went up 8% this week.  But that means it went up by a whopping 14 homes across all price ranges. What’s this all mean you ask?  It’s a seller’s market and it’s changing the way agents search property, sellers price property and buyers write offers on properties.

First, let’s start with agents.  (Search homes here)  In the past, I would set a parameter of price and area.  This of course is unchanged.  But then I would sort and start scrolling through in order of price.  This is where I have changed.  I now sort by days on market first and I start with zero days and stop at 3-5 or I may go out a week.  There are a couple of reasons for this.  First, this market is so hot that I want to get shack1me emails out to my clients right away on anything new.  Second, if it hasn’t sold in 5 days, there’s something wrong with it.  Now I want to pause on this to let that sink in.  Something wrong with it.  OK, so I don’t really think there is anything wrong with it per se, but it’s likely mispriced for what it is.  Funny thing about why a home doesn’t sell.  If you find an objection with a home you just need to put the phrase “At that price” at the end of the objection.  For example, the yard is too small… at that price.  If it were $100K less would you say the same thing?  Probably not.  The condition is awful… at that price.  I don’t like the location… at that price.  See how that works?  Now in this market, since it’s so hot, if a home has gotten an offer, there’s a reason and that reason goes away with “At that price.”

Regarding Sellers, the above is notable because when setting a price you have to ask, are you better off pricing it a little under and hope you get multiple buyers competing or a little higher to test the marketplace? If you choose the latter, that’s perfectly fine and in fact many times this is the exact course I recommend.  Understanding this is one way where a great agent differentiates themselves from the masses. (Contact Tim here)  But if you are a seller getting ready to price your home, you have to ask yourself this question: If I come in too high, how much am I going to have to reduce to get multiple parties interested enough to come and look or look a second time?  If I were typing this on my phone I’d put the emoji with all the teeth showing because in California, at $10,000 or $20,000 price reduction don’t mean nuthin’!  If you haven’t sold in 45 days, no one is racing to your door for a $10K cut, well that is if you’re over $500,000 asking anyways…  Not only that, go back and reread how agents are sorting listings.  Again, this is a crazy market, but a seller can still blow it.

As for buyers, you guys know how brutal it is out there.  My buyer just lost out on an offer in the Rancho Park area of West Los Angeles.  And yes, I do work the City incase you were asking… Anyway, the charming 1927 Spanish Bungalow was expanded to 1,700 square feet, had a Wolf range and the carriage house (garage – but only wide enough and long enough for a Model T or horse and buggy) which in this case was  finished with high tongue and groove ceilings and HVAC, was listed for $1,595,000.  We were one of 110 showings and 40 offers.  We offered $1.7M, $105K over ask.  The sellers actually only countered the top 9 of which 5 were all cash.  The counter by the way, also BiddingWardemanded a 15 day close and no, repeat no contingencies.  Not loan, appraisal or most importantly, as is – no investigation contingency.  In other words, once your earnest money is in escrow, it’s subject to forfeiture.  Nuts, right?  So, what does that mean if you’re a buyer?  The answer is if you see a home and really like it, don’t get hung up on the asking price.  It is not the same thing as the selling price.  Asking if designed to get multiple offers, will get multiple offers and the price will go higher.  Therefore, you need to look at any home in the context of other similar, alternative homes you could buy at the same time and if there aren’t any, or you’ve lost out on some already, you have to step up and give it your best shot.  My counsel to my Westside buyers was that I thought the home was going to go for $1.8 (it’s actually is in escrow for closer to $1.9 BTW) and that whatever their upper, upper limit was for that property – and it was an amazing never-move kind of property and location – go in with that.  So buyers, do not assume you will get a counter if there are multiples in play. Sellers who receive a lot of offers, while excited, are exhausted too.  They want the process over just as bad as all the buyers.  This means they’ll pick the smallest number to counter they think they can to get the best price and terms.  Sorry for the tough love but that’s how it is right now and for the foreseeable future.

Oh, what about appraisals you ask?  Simply put, it’s a problem so you need to be prepared that you might have to come up with additional cash.  I will say this about appraisal, first they are backwards looking so in every appreciating market since the dawn of time (Think caveman here: Baku: “Grog.  I give you 5 brontosaurs femurs and a wooly mammoth tusk for your cave.”  Grog: “What?  Baku, you a crazy man.  That last year price.  Cave worth 2X that today!  This a hot market!”)  (See Tim’s latest cave listing here)  Yesterday’s closed sales data doesn’t support today’s rapidly rising home values.  caves-in-oregon-1080x675But also, the appraisal isn’t telling you what the home is worth.  Value according the National Association of Realtors is defined as follows: “A home is worth what a willing buyer and willing seller agree on without the presence of duress.”  You offered, they agreed, that is now market value by definition.  In fact, even though you’re paying for the appraisal, it’s not for your benefit at all.  The appraisal is for the bank’s benefit so that when they go to sell the loan, they can substantiate the loan to value ratio with an accompanying appraisal.  Don’t get hung up on what one appraiser says, especially when if it does come in low, you’ll want to say to the guy or gal appraiser, “Oh yeah?  Find me one for that and I’ll buy it!”

If you like what you read here, please reach out and let me help you sell YOUR cave for top dollar.

Posted in County Line, Economics, Home Buying, Home Selling, Market Conditions, Market Conditions, Real Estate, Thousand Oaks | Tagged , , , , , , , , , , , , , , | Leave a comment