Five Reasons You Should Buy a Home Today

Benson LR-1

For sale in Thousand Oaks

With the real estate market slowing due to rising rates and a lack of affordability for a growing segment of the population, it’s easy to find reasons to put any home purchase plans on hold.  The most common mantra is that we are poised for a pricing correction and if you wait, a better opportunity will come along in the future [Find us on social media here].  While this argument has merit, there are reasons that waiting is not the right decision for you.  Here are 5 reasons you should buy today:

Reason 1: You’ve been waiting, saving and your dream home just came on the market.  This should be a compelling argument.  Since real estate is a long-term investment, when the right home becomes available, don’t wait because you don’t know the next time that “perfect home” will come along.

Reason 2: There’s a substantial change in the family dynamic.  With Millennials now representing 43% of the home buying populace, a growing family is a big reason to sink roots and buy now.

Reason 3: Rising inventory creates opportunity.  Maybe you’ve been waiting to buy due to student debt which you’ve finally paid down or maybe you just haven’t seen the right home come along or maybe you’ve been out bid time and time again.  Rising inventory means that you have better selection and less competition.  It also means that with fewer buyers for each property you may have a better negotiating position which you can leverage into a better price.

Reason 4: Rising rents.  Despite a slowing housing market on the purchase side, rents continue to rise.  This trend is unlikely to change and in fact with a slowing housing market due to rising interest rates, many would be buyers are choosing to stay in their current rental.  This will put even more pressure on already tight rental inventory and since there will be fewer rentals available rents will continue to rise.  I was just in Golden, Co and saw on Zillow that there was not one 4 bedroom home for rent.  Not one.

Reason 5:  Inflation.  This is a two reason, reason.  First inflation means The Fed will raise rates.  If rates are rising, buying today allows you to lock in what is still considered to be an historically low interest rate for 30 years before they go up again.  The second is that housing is a great hedge against inflation.  Remember inflation means rising prices and despite the popular thinking that inflation means home values will decline, that truth is that when prices for goods and services rise, real estate is not excluded.  Inflation means that the dollar buys less/is worth less over time yet unlike cash however, hard assets like real estate go up over time. [Contact Tim here]

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

The Bifurcation of Today’s Real Estate Market

As a top producer, I try to share information of value with my fellow agents.  The other day in our weekly sales meeting I said that the word of the week is Bifurcation.  This is essentially a word meaning fork in the road.  And this is where I see our current market.

3095 Eaglewood LR-5

Sold in one day!

When you reach a fork in the road, there are two different paths before you.  However, for today’s real estate market, the choice of path is not of the seller’s choosing, rather the buyer’s.  This in and of itself is a divergence from the past two years of a seller’s market.  I’m not suggesting it’s not still a seller’s market, rather that it’s not a seller’s market for all properties.   How so you ask?

If a property is in turn-key condition, super upgraded, has an amazing view or property size or is perhaps in a super hot and popular neighborhood, it’s still firmly a seller’s market and a buyer should expect to compete and pay over asking.  In this way the market is unchanged despite what you’ve been reading and higher interest rates.  However, if the home is not tricked out or perhaps has a location issue be it backing a road etc., buyers are not bidding these homes up [See what your home is worth here].  Here you find a change in the market vs. the past 18 months.  It’s interesting really, I tell my clients that you can buy a “challenged” property (people do this all the time), fork-in-roadprovided you “Buy it right.”  By this I mean, an appropriate discount from market price because when you go to sell, you have to discount it in the same way.  What made our recent market unique was that the shortage of properties compelled some buyers to pay market for a challenged property and not buy with the appropriate discount.  In a market like the one we were just in, everything sells. But in a normal market, that’s not how it works.  And in a down market, that’s definitely not what happens.  In a down market, there’s always a nicer home or better location that must sell at the same time and the discount you have to make often times ends up disproportionate.  A home is only worth what a buyer will pay and if they can buy a better property than yours for “X” then you have to offer a discount to incentivize the buyer to buy yours.

I just listed two properties.  Both excellent locations, one totally remodeled and the other with a new kitchen and pool, and both sold within a day for at or above asking.  Conversely, I wrote an offer for a buyer on a home that had been for sale for all of 16 days.  We wrote nearly 10% below and settled 5%


Also sold in one day!

below.  Pretty good for a home that had only been for sale two weeks.  But the seller to their credit, recognized that with the interest rate environment changing, they were better to make the deal today rather than go the reduce and reduce route until they got low enough that someone would buy [Find us on social media here].  In the city of Los Angeles, where I sometimes venture for clients, listing agents are listing as much as 40% below market value.  Think about that!  Can you picture yourself asking $950,000 for a home destined to sell at $1.4M?  I had heard this has been happening in the San Francisco Bay Area for years: list a home at $1.22M and sell for $2M, but I hadn’t seen it first-hand.  Things tend to happen in the city before the burbs and this is an example of this.  When I asked several agents why, they said they were “in the market” but that because buyers expect to be in a bidding war and to pay over, the home has to be priced to ensure this is what happens.  I can see this because recently I had a listing where day one an amazing offer came in, over ask giving up contingencies etc. and I told the agent for the buyer that my sellers were going to accept it without a counter.  The agent to my surprise said, “Hold on,” and then the buyer proceeded to withdraw since they weren’t getting a multiple counter.  An example of “Herd Mentality” if ever there was one [Contact Tim here].  If you take a look, I think you’ll agree that bifurcation is the first sign of a market in flux.

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Masterpiece, Winslow Homer and the Art of Real Estate


Growing up, one of my favorite games was Masterpiece.  It was always an adventure trying to determine which pieces of art I liked, which were valuable, and which were forgeries.  The real estate market, in times of uncertainty, is much the same game or can feel that way anyways.

As you are probably aware, interest rates have nearly doubled over the past few months and at the same time prices, have jumped 20% year over year.  For a buyer today, it’s difficult to know if you’re buying a gorgeous property that offers value or if you’re buying a dud or, heaven forbid, even a forgery.  Now I know what you’re thinking, there are no forgeries in real estate, and if you are you’d be correct.  That’s the beauty of real estate, it’s not just an investment that hangs on the wall but is something you also get to live in.  So, there are no forgeries, but the feelings of self-doubt and nervousness are real.

I recently came across a Winslow Homer painting that was part of my Masterpiece game.  “The Herring Net,” is that painting where you see two sailors in a small dingy in what appears to be a rough sea.  [See what your home is worth here] They’re wearing rain slickers and caps; the sky is turbulent, and the waves are as high as the men, if not higher.  As a kid I always thought this as a very foreboding image.  However, as I looked at it today, it’s not really foreboding at all and in fact it’s an image of two men working to pull in a net full of fish.  As an allegory for today’s real estate market, I don’t think I could find a better one.

On the surface, this market is starting to show some signs that the frenzy may be easing and the shortage of available homes not so acute.  In my local market, the Conejo Valley, we started the year at an unprecedented 92 available homes.  Today we stand at 250 – a dramatic change.  And yet, in 2020, we had 440 and in 2018, we had 550!  Still, it’s undeniable that the inventory is increasing.  As you can imagine, this makes buyers feel insecure.  “Am I buying at the peak?”  “Are prices going to drop?”  Just last month I had one listing where a buyer came in over ask and gave up most of their contingencies.


Coming Soon!

When I told the agent the seller was going to accept without a counter, he said, “Hold on…”  The buyer was so accustomed to losing bids on multiples that when they didn’t’ get a multiple counteroffer, they assumed they were over paying and cancelled.  I always remind my buyers that when they win the bid, it is precisely because they offered the highest price and best terms that they won, which means of course they will be paying more than someone else offered.  Just to put a point on it, I did end up selling that home for a little less than what the first offer came in at, but not by much.

It’s funny really, but as a keen observer of economics all I hear these days is that we are heading into a recession.  That the Fed rate-hikes and “Quantitative Tightening” are going to drive the economy into the toilet.  Extrapolated out it has been suggested this means we will see a correction on home values.  And while it is true that there are substantial headwinds for the economy, inflation being a potential hurricane, we still have an incredible shortage of real estate to house our population [Find us on social media here].  And if you think that multiple offers are going away, you would be surprised to hear that just this week I had two offers in two vastly different price ranges and markets, one in Los Angeles and one in Simi Valley, lost to multiple offers.  In fact, both had 7 offers and even though both my buyers wrote well over asking, we still lost out.  As did 5 other buyers on both, I might add.

I will concede this much however, the days of sellers commanding the moon and stars may be coming to a conclusion.  You can see this as evidenced in the rise in inventory and in the price reductions that follow.  According to Redfin, 1 in 5 homes reduced price.  But that is not the same as price correction, not yet anyway.  One trend that I am seeing, is that some agents/sellers are pricing very aggressively to the low side.  I saw this with my Los Angeles buyer where one home we thought about writing on had 20 offers and was probably 40% below market.  If you looked on the surface at the asking price, you’d initially assume that the market was correcting, but when it finally closes the price will suggest otherwise.  It seems some agents are anticipating that buyers will feel more confident if they receive a multiple counter, so they’re pricing to ensure they get multiples.  After all, we’ve been dealing with multiple offers for several years now and the herd mentality is what we’re used to.  As a result of the price reductions and in response to the nervousness out there, if a home has been sitting for a few weeks, I’m having my buyers write aggressively below ask [Contact Tim here].  Because just as buyers are watching the market nervously, so are the sellers.  But you see, like the Homer painting, if all you do is look at the waves and the stormy skies, you’re likely to miss the net full of herring.

Posted in contingencies, 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

Talking About Location

Everyone’s heard the old adage, location, location, location.  But what does that really mean and why is it important?

I had a partner years ago that explained it this way:  The first location in the phrase is in reference to the town that you’re looking in.  The second is the neighborhood within the town and the third is the specific home site within the neighborhood within the town.  That pretty much nails it, I think.  So, let’s talk about why this is important to a home buyer.  First off, quite obviously not all towns are the same.  In the Conejo Valley where I conduct the bulk of my business, the 800-pound gorilla is Westlake Village.  I tell my clients it’s the last place to drop in a correction and the first to come back.  For this reason, it’s a great place to “park your money.”  Because of the Kardashians, many people are familiar with Calabasas.  Calabasas is a popular location because it’s the closest east, or closest to Los Angeles that you can live, without being in Los Angeles Unified.  Clearly the town is important.

The second location is no less important.  Where in the town?  Could be within the proximity or the sphere of the school you want your kids to attend.  Or maybe it’s the one with the views or bigger lots, or perhaps it’s gated or zoned for horses.  Finally, the last location is the specific lot that a home is placed.  For example, a super desirable location is a cul-de-sac.  I’ll often refer to the “Big 3” as being cul-de-sacthe rarest of rare.  This would be a view lot (rarest of all amenities), a large lot and a cul-de-sac lot [See what your home is worth here].  Get one or two and you are set.  Get all there and you’re in hog heaven and guaranteed, you’ll always have a buyer when you decide to sell – regardless of market conditions.  One type of lot that swings both ways might be on a corner.  Some people like corners, more open and fewer neighbors.  Some on the other hand do not, less private.  Then there’s good corners and bad corners.  A bad corner for example, might be one where oncoming cars’ headlights flash across your home every time someone turns down your street.  Another example might be a flag lot.  Some love them – long driveway, more land.  However, some buyers want to see the front of their home, so they don’t like a flag lot.  A flag lot (so called because the driveway is like the staff and the lot like a flag flying in the wind) often times is landlocked by other homes too which can be a negative.

Then there’s the location challenged properties.  These would be backing up to something like the railroad tracks or a school for example, commercial or something unsightly or even a health concern like high tension lines [Find us on social media here].  Busy streets, through streets etc. are typically to be avoided when possible.  That said, I sell homes wherever my clients want.  I do however, inform them of the location challenge and remind them that this can be OK, so long as they “buy it right.”  This is because when it comes time to sell, they will in all likelihood, have to discount their property to move it.


Oaknoll Villa Condo For Sale

This gets us to why location, location, location is important.  In a market like we have been in, we have seen a preponderance of inferior location homes come and go.  In a market like we are coming from, one that’s a super-hot seller’s market, locationally challenged homes get to take advantage of the fact that buyers will overlook location issues and because prices are rising, often time pay an amount equal to a superior location.  This is bad business, but this happens all the time.

As we transition from a seller’s market to one that may be a little more balanced, those locationally challenged properties are going to have a harder time finding a buyer.  Should we end up moving into a buyer’s market, the negative location becomes even more pronounced because in a down market, there will always be a better location that has to sell at the same time as you and will discount some to accomplish this.  Therefore, if you can buy theirs for “X” you clearly can’t sell your home backing the supermarket for “X,” rather it must be “X-Y” – or else the buyer will just buy the better location… every time.  Makes sense, right?  And since a correction in the real estate market is not a question of if but when, “buying right” is incredibly important [Contact Tim here].  The best way to avoid trying to thread that needle, is to always buy location, location, location and to hire an agent that puts your interests ahead of all else.

Posted in Economics, For Sale By Owner, Home Buying, Home Selling, Market Conditions, Market Conditions, Real Estate, Real Estate Correction, Seller Advice, Thousand Oaks | Tagged , , , , , , , , , , , , | Leave a comment

Lions, and Tigers and Oh Yes, Da Bears

In 2011 I wrote an article entitled Lions and Tigers and Bears, Oh My!   In it I discussed the consumer confidence as being a drag on what could be an improving housing landscape.  We had just seen that the number of homes in the foreclosure process had dipped from 1.9M to 1.7M.  Bernanke had estimated GDP to be around 3%.  I expressed some cautious optimism, but the lagging consumer confidence was a sprinkle of pessimism.  Without consumer confidence, the US consumption-based economy is in trouble. Fast forward to today and we have an entirely different picture and yet…

This week has been another roller coaster for US equity markets.  If you’re watching @CNBC or @Foxbusiness, you’ll hear things like, the stock market is in bear market territory.  Investors are repricing risk assets (tech companies that don’t necessarily make any money.)  Interest rates are rising at the fastest pace in 40 years in response to rising inflation [Check out what your home is worth here]. OMG, the sky is falling, run for cover!  Uh… really?  Some economists have even been making statements like this: “There’s a 24-43% chance we goCredible-inflation-forecast-iStock-1317087986 into a recession in 2023.”  What is this @Anchorman?  They sound like Paul Rudd’s character Brian Fantana when he says of his panther cologne, “60% of the time, it works every time?”  Seriously?  If the economy is really in trouble prove it!  And if there’s trouble on the horizon, how is it that continuing claims for unemployment (insurance) are at a level not seen since 1970 and still declining?   That’s right, not going up, not leveling but still declining.  We would realistically need to have 3 months with an average increase in unemployment of 3% or more, to indicate a recession is coming.  There is no evidence of that.

Consumer sentiment, however, is a wild card.  As I wrote in 2011 when the news was still negative, consumer confidence was negative.  This became a self-fulfilling prophecy in that if the consumer feels on edge or like they might lose their job, they stop spending money and this of course begins a spiral of slower growth and one thing leads to another [Find us on social media here].  Clearly the declines in the stock market are concerning.  If you watch your 401K drop by 10-20%, it’s alarming.  And yes, inflation is a real problem.  Gas, food, it’s all adding up and even though we are making more money, we’re feeling the pinch.  But is the consumer really that worried?  My answer is no.  Why?  Simple really, we have jobs, better jobs than we had 5 years ago.  We’re making more money and changing jobs means we can make even more money.  The Great Resignation it’s being called.  There are 1.9 openings for every 1 working person.  Now you can argue that in itself is a problem, but then we’d have to start discussing immigration policy and this is supposed to be a real estate blog… But no, we are not likely heading into a recession soon.  Clearly the Fed is trying to cool the economy and slow things down, so there’s a possibility of one eventually.  After all it’s not a question of if there will someday be a recession, rather when.  OK, so what about housing?

You know I had to circle back to that which I am intimately involved with, didn’t you?  I will say this: Housing is changing.  There is no doubt that with rates in the mid 5%’s the cost to buy a house is growing and it’s getting more than a little painful.  ARM’s like the 7/1 saw a 14% increase in


Oaknoll Villa Condo For Sale

applications this past week.  So, buyers are adapting and moving to a longer-term variable loan to offset the rising 30-year mortgage.  Inventory is rising but it’s still so incredibly low that so far, it’s only reducing the number of offers we see on a hot new listing.  The listings are still selling and still in many cases with multiple offers over asking.  What is changing is my phones are quieter.  This is interesting because spring is usually my busiest season and I’m not getting the calls to list property.  So, what does that tell us?  For one thing, inventory isn’t going to explode.  If it were, I’d be fielding lots of calls. 

It’s worth pointing out that from mid-May to mid-June, the real estate market is historically herky-jerky.  Mother’s Day, Memorial Day, Father’s Day and graduation, have historically been bumpy and the quiet phones could well be nothing more than usual market behavior.  I don’t have a crystal ball and I’m not an economist, though I play one on TV (kidding), but until we stop seeing “Now Hiring” in every window and as long service and supply chain related delays are common place, conspiring to further fuel pent up demand, I just don’t see how we go from boom to bust; from a massive post pandemic hottest ever economy, to a recession in a matter of months [Contact us here].  I would like to see the Fed stop pussy footing around and catch up to the bond market so that if a recession should begin to develop, they’d be in a position to lower rates quickly, but that like the immigration-labor policy discussion is for another day.       

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

Market Snapshot – May 2022

Year in and year out spring is Southern California’s strongest market.  Spring brings out the most buyers and the most sellers.  And May 2022 is no different.  Inventory is rising to meet the increased demand.

One way in which things are the same is, as I said, that inventory is rising which is great.  Today, the Conejo Valley inventory has doubled from January 1.  That’s no small feat, as we went from 90 on January 1 to 188.  Hmmmm… doesn’t sound as impressive with numbers that low.  A couple days ago I came upon an old blog post from September 2012 entitled “Houston We Have A Problem.


Oaknoll Villas Condo For Sale

In it I ask, “What happens if there are no homes to sell?”  Mind you, this was written 10 years ago, before prices began their historic rise.  Incredibly, I state there were 434 homes for sale… and I was concerned.  LOL, right?  Today we only have 188!  So, looking back piqued my interest to examine 10 years ago and compare to today.  The date is May 6, 2012 and the median days on market for a home in the Conejo Valley was 133 while the average price per foot was $266.  Compare that to today, where the median DOM is 25 and the average PPF is a $544 (Check out what your home is worth here).  Looking at this another way, homes are selling 82% faster today than in 2012 and the prices of those homes are up a whopping 105%!  Something has got to give, doesn’t it?

Perhaps you’ve been following @CNBC and have taken notice that the stock market is in bear territory with many tech stocks having lost 50% of their value in 2022 alone!  Inflation is running red hot, and is the highest since the 1980’s.  There is still a pandemic, especially in China which is causing all sorts of supply chain problems and there’s an ongoing war in Ukraine that is driving food and energy costs through the roof.  The Federal Reserve has taken notice too and rates have jumped nearly 2% in the past 2 months.  We must be headed for a correction, right?  Like you, I have concerns about months to come, but not so much about real estate.

Unlike most assets, the great thing about real estate is that even in times of great economic instability, real estate ups and downs don’t usually affect us.  Let me explain.

After you buy a home, you don’t immediately turn around and sell it.  On the contrary, you hold it.  Whether that property rises or falls over the near term, is only significant if you are forced to sell.  And since you only lose money in real estate when you sell for less than you buy, the solution is don’t sell indexeven if prices drop.  “Why, you ask?”  Why would you?  Even if you’re financially under stress, you can always get a renter if you had to.  And of course, if past experience portends to the future success, prices will eventually go back up (Find us on social media here).  Moreover since buyers today are putting 10%, 20% or more down, even if there is a short term correction, a buyer won’t even be upside down even if there is a substantial correction.  So being forced to sell is unlikely.

Another great reason to hold is that real estate is a great hedge against inflation.  Remember, a rising tide raises all boats and asset inflation does not exclude real estate.  So having your money in real estate is a great place to shield yourself from inflation as well as economic collapse (Contact us here).  As long as you can make the payment you’ll be fine, but even if you can’t and have to rent to someone who can, you can’t get hurt by real estate as long as you don’t sell for less than you paid.

Back to our concerns about an eventual correction in real estate values; are we on the precipice of collapse?  Simple answer, no.  Why?  Too many buyers and not enough sellers.  That said, there are rumblings; little things that pros like me can detect that suggest, the peak may have passed but that doesn’t mean a collapse is imminent. On the contrary, I don’t foresee a tangible drop at all rather that a plateau should be expected and perhaps from there some give and take on pricing.

Yes, it costs more to buy today both in borrowing costs as well as sales price, but there’s still too many buyers, in too strong a job market coupled with not enough housing, to prompt any of us to panic that we are ready to repeat 2008.  No, that ship sailed and while there are some signs things are slowing, by no means is it slow.

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

Rising Rates: What to do?

With interest rates expected to rise even further in the coming months, would be homeowners find themselves in search of options and solutions.  For many, especially Millennials who’ve never experienced rising rates, this is a time of great concern when priority number one is to own a home.  Because I am the father of two Millennials, their friends as well as my client’s children, look to me for Optimized-Rising-Ratesguidance when it comes to matters involving real estate.  Rising rates are not the end of the world.  Rising rates are the result of rising inflation and inflation raises all asset classes including real estate.  This notion that rising rates is the death knell of real estate is simply as my mother would say, hogwash.  But there’s no doubt that rising rates do and should alter they way we view a real estate purchase. 

I have been a homeowner for nearly 30 years.  But it wasn’t until I locked in my rate at 2.5% two years ago, that I took a 30-year fixed mortgage.  Literally, every home I purchased and subsequently refinanced was until two years ago a variable or “Adjustable-Rate Mortgage.”  A 3/1 ARM, a 5/1 ARM, a 7/1 ARM even a 10/1 ARM.  Why?  Because I never saw owning my real estate outright as either desirable or viable.  While for some this may sound controversial, for me it was logical.  Allow me to explain.

The first thing any would be homeowner needs to understand is the concept of leverage.  This is the power of owning real estate.  Leverage means that regardless of my equity position, my home value is going to rise or fall irrespective of my equity in that property [Check out what your home may be worth here].   If I put 20% down on an $800,000 home, I put $200K down.  If my home goes up by 10% it goes up 10% of the whole $800,000 ($80,000), not 10% of my $200,000 down payment ($20,000).  This is leverage, and this is how wealth is created.  Making money using other people’s money.  So, it never made any sense to me to tie up a lot of money in my home beyond my required down payment.  I didn’t start overpaying on my monthly payment until I was well into my 50’s, and this only because rates had gotten so stupid low.  Until then, I reasoned I would rather use that extra money to generate wealth by buying more real estate and by investing and diversifying in equities. 

Adjustable Rate Mortgage ARM papers in the office.

Because of this approach I also never considered owning my home outright as a realistic possibility.  I simply saw myself as a renter but with the advantage of having an equity position in the property and a beneficiary of its inevitable appreciation.  Using this thinking, all I cared about was getting the lowest cost to finance.  Admittedly, this took place during a multi decade period of declining rates.  But my first ARM was 6.5% while fixed were in the high 8%’s.  I always figured when the adjustment time came I would either accept the stepped-up rate or I would refinance into something else. 

If you are unfamiliar with how these variable rate programs work, then allow me to elaborate.  When you take a 3/1, 5/1, 7/1 or 10/1 ARM, what you get is a low introductory or “teaser” fixed rate of a shorter duration of time ie: for 3, 5, 7 or 10 years, then the balance of the loan is adjusted every year.  That’s the “1” in 5/1 [Find us on socials here].  This contrasts with a traditional 15 or 30-year fixed where the rate and payment are unchanged for the loan’s duration.  Variable loans are usually fully amortized, though you can get one with a balloon payment at the end of the fixed period.  I’m not a fan of these as it can put you in a compromised position should rates be too high for you to qualify to refi or if values dropped below the threshold for your minimum loan to value ratio (ie: your 20% equity position had eroded) or worse if you’ve lost your job and simply can’t qualify for any loan.  Then with a balloon payment due you’re forced to sell regardless of market conditions and simultaneously lose the roof over your head.  But a fully amortized loan means that by the end of the term of 30 years, even if a variable rate program, the loan is paid off in full and that you never have to re-qualify.  What makes this an ARM is that it’s only fixed for a specific period of time and then the loan will adjust annually. 

Variable rate loans are comprised of a couple key elements.  The first is the index.  The index can be from a variety of sources.  The London Inter Bank Offered Rate often referred to as LIBOR which adjusts annually can still be found but it’s replacement SOFR is more common since it adjusts every 6 months.  The 11th District Cost of Funds is another index you’ll find and has traditionally been the best in times of rising rates because it is slow moving. And then there’s the 1-year US Treasury rate.  These are essentially the rate a bank can borrow money at, their cost in other words.  Then they tack on what called the “Margin” or margin of profit and this can vary from lender to lender, and this is definitely a number you must pay attention to.  The combined total is the “fully indexed margin” and is the rate that your monthly payment will be based on for that year.  This process will repeat annually so long as you keep the loan or until paid off.

There are a couple other key elements of this program you need to understand, but both are awesome. 


Coming Soon!

The first is the rate cap.  That’s right, an ARM has a lifetime cap.  This is typically 5%.  If rates go to the moon, the most your rate can ever grow to is the start rate plus the 5% cap.  So, let’s assume you have a 5/1 ARM starting at 3.5%.  Your lifetime cap means you can’t exceed 8.5%.  The second element is the annual cap.  This is typically 2%.    If rates jump to 7% and you started at 3.5%, your 2% annual cap stops you in year 6 at 5.5% (3.5% + 2%).  Since rates fluctuate, I have had this happen only to have it go down in year 7 because the Fed reduced rates in my adjustable year.  And many times, rates only rise slightly so the 1-year adjustment may only be a ¼% or ½%.

You can see that an ARM is not as secure as a fixed rate mortgage.  So why would someone take a variable loan over a fixed?  The answer as I said at the top, is to reduce the cost to own.  Why take a 5% rate when you can get a 3.5% for the first seven years?  Even if it adjusts to the cap in year 7, you’re only at 5.5%.  Take the monthly savings and address the change when and if it ever happens.  You still pay off the loan in 30 years if you want, but for many the key is getting in and to stop paying the landlord’s mortgage off [Contact us here].  Also, 30 years is a long time and even with the latest data indicating people are staying in their home for 11 years before selling, 11 years is still not 30.  Bottom line is that most people never keep their mortgage to fruition.  So why take a more expensive 30 year mortgage rate when you can immediately save money using an ARM, there’s no guarantee the ARM will be higher when it finally does adjust and even then there’s a cap, it’s fully amortized should you stay 30 years and when there’s a good likelihood you’ll end up moving before you use up all the savings created by the low introductory rate? 

What this all means is that rising rates aren’t the end of the opportunity to own and through leverage create wealth, rather that you need to adjust the way you view your real estate financing, that’s all.

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

The Inventory Crisis in Housing

There isn’t enough housing for the population.  Spoiler alert: That’s the end of this story. 

I thought I might start this article with the conclusion, a literary trick often used by storytellers to build UnitsbyDecade_CityofLA_2019_withRHNAsuspense.  Alas, there is no suspense when it comes to housing.  No, there’s no mystery here at all; we simply don’t have enough housing.  And notice that I am carefully using the word housing, not homes.  This is to emphasize that we have a structural problem, not just a problem of wealth inequality or a battle of the haves and have nots.  We have not built enough shelter for our people and California is the worst, ranking at 49th in unit per resident ratio.

According to data aggregator Statista, we built 8.9M units of housing between 2009-2019.  This represents the fewest number of homes built over the course of any decade going back to 1920 when record keeping began.  Now contrast this: It is estimated that the Millennials are 72.1 million people, the largest generation on record.  This generation of people is just now starting household formation – at the very time that we as a nation are building the fewest number of new homes on record.  If you want to understand why Case-Shiller’s numbers are so crazy, all you need to do is look at those numbers.  72.1 million people are seeking a place to live and there are fewer available than ever.  Sure the pandemic and historic rates are characters in this story, but by no means are they the story.  Of course, not every Millennial is looking to move.  Some have a place already, while others are living at home or with each other but that’s changing by the day.  They’re moving away from parents or their roommates wanting a place of their own.  If 72.1M sounds like a lot of people, that is because it is.  This massive demand in the face of anemic supply means prices are skyrocketing.  Take Phoenix for example, where in December 2021 home prices went up 32% year over year, helping it maintain its position as the number one city for appreciation [Check out what your home may be worth here].  Naturally, one immediately jumps to the bubble talk.  This can’t possibly be sustainable.  Yet, this is the 13th straight month where Phoenix had the highest YOY % increase in home values and they have tons of buildable land and a fairly accommodative approach to building.  No, if this is a bubble, it isn’t popping anytime soon.

Not everyone is a buyer.  Renters are becoming a larger and larger percentage of our residents.  But this means rents are climbing too.  Rents had the single largest annual increase in history in 2021.  And guess who wants to get in on that action?  That’s right, investors, both large (Wall Street’s Blackstone Age-of-houses-in-the-US-101comes to mind) and Small (Mom and Pops).   Investors represented 17% of all buyers last month, squeezing out the would-be Millennials [Find us on social media].  So, we have lots of people looking but scant supply to satisfy the demand.  A demand that is fueled by household formation, investors, and strong economics and if that weren’t troublesome enough, the median age of a home in the US is 37 years.  In fact, 57% of the homes in America were built prior to 1979.  Our housing stock is not only in short supply, but it is also getting old very fast.

So why are prices through the roof?  As I said previously, there’s no mystery here.  We haven’t built enough homes to meet the requirements to house our people and this is a structural problem.  Doubt me?  Take a drive through Los Angeles and you’ll see what happens when a city doesn’t have enough housing to shelter its people.  What does this mean if you’re a homeowner?  Your value is going up, big time.  I predicted in December that we should expect a huge spike this spring and that’s exactly what’s happening.  Yes, rates are higher but that has done little to slow demand.  Prices are going to continue to go up and if ever there were a time to cash out, this would be it.  But you better get the right agent – one that understands the market and can advise you on getting the best terms and the best price or you may 1feel taken advantage of.  If you’re a buyer, you’re scrambling to find a home to buy and capture those sub 4% interest rates before it’s too late.  BTW, this is just another reason to make sure you have a strong agent presenting your offer.  If there aren’t enough homes, you’ll need every possible advantage to win the bid [Contact Tim here].  What’s going to happen?  Prices continue to rise; that is until rates get to 4.5% and then maybe the foot lets off the pedal – some.  Even then, don’t expect a huge correction because the conditions that got us here, aren’t going away.

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A Trip to the Moon

As I look back on the year in real estate with an eye towards 2022, I am reminded of Georges Melies’ famous 1902 movie, A Trip To The Moon.  Despite being 120 years old, the movie holds up because it A Trip To The Moonwas built on great story telling and imagination, the same fundamentals of film making today [Contact Tim Here].  I found this film an allegory for today’s real estate market because like Meilies’ masterpiece, our market feels a lot like a rocket to the moon, and like the film its longevity is built on solid fundamentals.  The basic economic tenet of supply and demand states where we find greater demand for a good or service exceeding supply of that good or service, the value goes up.   You can’t get more fundamental than that and this describes our market to a T.

The comment I hear most is that we are at the top of the market; that we’re in a bubble and the market is going to correct.  The fear that the market will collapse is largely tied to our recent experience of the financial crisis when values surged and then cratered leading to the Great Recession.  Let me be clear: the only thing we have in common with that market is the volume of sales.  The last time we saw the volume of sales like we had in 2021, was 2005, right before the epic price rise that preceded the epicA Trip Percent of home ownership price collapse [Check what your home is worth here].  Where we are so different today is the fundamentals.  According to data collected by the mortgage industry, low quality borrower applications surged in 2003 and loans originating with a sub 660 FICO scores peaked in Q1 2007.  You can trace the industry’s careless approach to lending to George W. Bush and his American Dream Down Payment Act of 2003 wherein he stated his goal was to increase the percentage of Americans enjoying home ownership.While well intended, his plan created the environment where low quality borrowers artificially fueled demand which Wall Street was all too happy to oblige and in turn allowed property values to become artificially inflated.  The rest of course is history.

In contrast, low FICO score borrowers make up a very small percentage of buyers today.  In fact, we have never had the quality of borrowers as we have right now.  What makes them highly qualified borrowers, is a great economy with rising incomes.  Unemployment is near pre-pandemic levels, and we actually have 14% more job openings than have job seekers so there’s no recession in sight [Follow us on Facebook here].  We also have record low interest rates.  Add to this a group of buyers, the Millennials, who are still in their home 144 Calle Pecos LR-1buying/household formation infancy and a tsunami of investors literally pouring an ocean of cash into the market as a result of skyrocketing rents.  What you get as a result is unprecedented demand.  This would be fine if the supply was keeping up, but it’s not.  Instead, we are finding people staying in their homes longer than ever; seniors aging in place, builders unable to build enough to keep up and a ton of homeowners not selling because they don’t have a place to move.  This combination of low inventory and too many buyers has created a supply/demand imbalance that is historic and it’s not going to change anytime soon.

What’s this mean for 2022?  Like George Meilies’ movie, real estate prices are going to rocket to the moon and with strong fundamentals, don’t expect a correction until rates approach 5%.

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 , , , , , , , , , , , , , , , , , , , , | 1 Comment

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