The End of the Home-Buying Frenzy

http://www.dreamstime.com/-image14115451You may have seen recent news accounts about how home sales have slowed nationwide. So I got curious: What’s going on in the San Fernando Valley area?

I looked back at the local home-sales stats we publish in the Business Journal, courtesy of Redfin. And in the Valley area, home sales have indeed slowed. In fact, they were down way more here than in the rest of the country, at least in June, which is the latest reporting period.

Nationwide, sales of existing homes in June were down 2.2 percent from June of last year. But they were down 11 percent in the portion of the Valley area that’s in Los Angeles County. In Ventura County, it’s more dramatic: Home sales were down 23 percent.

That’s a huge drop off. But then I thought: Wait a minute! There’s a housing shortage here. The sharp slowdown in sales may result from the fact that there just aren’t many homes to buy.

But that supposition appears to be wrong. Home listings – the number of homes for sale – have increased over the last year. The number of unsold homes was up 1 percent in the Los Angeles County portion of the Valley area (including the San Fernando Valley and such areas as Burbank, Calabasas, Glendale, Santa Clarita and Palmdale).

Again, it’s more dramatic in Ventura County. The inventory of homes for sale in June was 3 percent higher than one year earlier.

In short, home sales were down in June while the inventory of unsold homes went up.

Can we declare that the housing shortage is over? No, but we can say that the shortage is now less severe.

Now that I think about it, this slowdown in house-buying shouldn’t be all that surprising. Mortgage interest rates have been going up, making monthly payments higher.

And have you noticed in recent months the sudden reappearance of for-sale signs? For a couple of years, for-sale signs were scarce. Whenever a home came up for sale, the broker who got the listing quickly showed it to his or her roster of home buyers, and a deal was quickly made before a sign was ever planted in the yard.

But lately, not only is there a proliferation of for-sale signs but even some open houses. Again, I don’t think we can declare the housing shortage dead. However, the buying frenzy – all-cash offers above asking price on the day the house hit the market – appears headed to the hospice.

What about prices? Since home sales drooped in June as the supply expanded, surely that means prices went down, right? Well, ahem, no.

According to our Redfin data, the median price per square foot in June was up 4.2 percent in Ventura County from the previous June, and up 7 percent in the Los Angeles County portion of the Valley area. From the previous month, prices were up in Ventura County and flat in the L.A. portion of the Valley.

The fact that prices are not going down in the face of weakening sales and higher mortgage rates seems to defy reason.

But here’s a thought: All the prices mentioned above are for June. Since then, things may have changed. After all, whenever a slowdown takes hold, the old psychology may linger. It may take a while, but reality eventually sets in and prices inevitably drop. Maybe that just had not happened yet in June.

Here’s a slight bit of anecdotal evidence: A home in my neighborhood went up for sale in April. I walked by it last week. The house still has a for-sale sign in front, although the owners apparently have moved out. According to Zillow, the seller has cut the price three times for a total of 13 percent. The sales sheet describes them as “super motivated,” which I assume means they’ll slice the price some more.

Last year, that house probably would have been snatched up quickly regardless of price. But this year, after more than three months and three price cuts, still no deal.

The housing shortage is not over. In the big picture, there are still too few houses. However, the worst of the house-buying frenzy does appear to be finished or at least abating. The price cutting will surely follow.

Charles Crumpley is editor and publisher of the Business Journal. He can be reached at ccrumpley@sfvbj.com.

This article was originally published by Fox and Hounds Daily

Prop. 10 May Cost the State, Communities Millions While Freezing Housing Construction

urban-housing-sprawl-366c0Anyone concerned about the future of the state and local budgets should pay particular attention to what the state’s non-partisan legislative analyst had to say about Proposition 10, the ballot measure that repeals the Costa-Hawkins Rental Housing Act, including protections for tenants and single-family home owners.

The Legislative Analysts Office (LA) noted Prop 10 could cost local governments up to “tens of millions of dollars per year” in new costs and the state could lose up to “hundreds of millions of dollars per year” in revenues. 

In the analysis, the LAO also noted that the value of rental housing would decline and that rental units also would likely be sold and no longer be available for rentals.

This, say experts, would work California’s affordable housing crisis even worse.

In addition, the LAO predicts that “If many localities enacted strong rent control legislation, other economic effects (such as impacts on housing construction) also could occur.”

What does all this mean? For one thing, less money for key government services from healthcare to childcare to transportation. Proposition 10 would create scarcity, not just in California’s already broken housing market, but in state and local coffers. That will set the stage for a new round of budget battles in Sacramento and in cities and counties across California.

Proposition 10 also will cost our state and our communities millions of dollars, reduce the number of available apartments and homes available for rental and could result in a housing freeze – which is the last thing California needs right now.

We all agree that the state needs to take steps to address the chronic housing shortage, and out-of-control housing costs in communities across the state. But Proposition 10 is the wrong solution. It will only make California’s affordable housing crisis worse.

ice president of Public Policy, Los Angeles Chamber of Commerce.

This article was originally published by Fox and Hounds Daily

Southern California median home price jumps to a record $536,250

http://www.dreamstime.com/-image14115451The Southern California median home sale price reached a new all-time high in June, jumping 7.3% from a year earlier, according to a report released Tuesday.

The six-county median — the point where half the homes sold for more and half for less — hit $536,250, real estate data firm CoreLogic said. That’s up $6,250 from the previous record high, reached in May.

Sales, though, plunged to 22,706, down nearly 12% from June 2017. It was the lowest number of closed sales for June in four years.

The drop in sales could signal that people are increasingly priced out of the market or simply unwilling to pay sky-high home prices. …

Click here to read the full article from the L.A. Times

Are builders catching up to Southern California’s housing shortage?

house-constructionSouthern California builders are putting a dent in the regional housing shortage, selling new homes at a pace not seen in nine years.

CoreLogic data shows 18,117 new residences sold in the 12 months ended in May across the four counties covered by the Southern California News Group. That’s the best performance since January 2009, and it’s up 7.7 percent in a year.

This means new housing’s share of sales also grows. Builders were responsible for 8.1 percent of all Southern California home purchases in the past year. That’s the highest share of sales since March 2009.

Still, the upswing looks sluggish compared with housing development before the Great Recession.

From 2000 through 2006, Southern California builders were selling homes more than twice as fast as today at a 43,000 units-a-year pace. (Don’t forget one reason for recently modest homebuilding — that last development frenzy ended badly when real estate’s bubble burst.) …

Click here to read the full article from the Orange County Register

Families earning $117,000 now qualify as “low income” in California’s Bay Area

A report out this week from the Department of Housing and Urban Development finds the median price for a single-family home in the Bay Area is now $935,000. A family earning $117,000 now qualifies as “low income” in the region.

CBS News went to see California’s red-hot housing market with realtor Larry Gallegos. He showed us a house you would think he couldn’t give away. But Gallegos says the home, complete with leaks in the roof, sold for $1.23 million. The buyer beat out six competing offers, all above the asking price.

“It’s a little mind blowing, but it is the norm around here,” Gallegos said.

That norm is fueled by thousands of well-paid tech workers who have driven up the median price of a San Francisco house to $1.6 million dollars, the highest in the country. While housing prices are rising faster than incomes nationwide, nowhere is it more evident than in the Bay Area, where home values have soared a staggering 64 percent over the last five years. …

Click here to read the full article from CBS News

Rent-Control Measure Could Soon Make California Even Less Affordable

HousingCalifornia is an expensive place to live. New residents of San Francisco face median monthly rents of around $4,000 per month, and median rents are cresting $1,900 even in Sacramento. Housing supply runs well short of demand, pushing up prices in more corners of the Golden State than ever before. Many residents are moving to cheaper locales like Idaho or Texas, while others are falling into California’s growing homeless population. Bad as things are, the state might yet make them worse if it goes ahead and declares war on the housing market—that would be the effect if voters approve an initiative on November’s ballot, supported by tenants-rights advocates, repealing a law limiting local rent control throughout California.

The Costa Hawkins Rental Housing Act prohibits rent control on single-family homes and apartments built after its 1995 enactment. Municipalities that already had local rent control laws have earlier cutoff dates; for Los Angeles, this means that rent control is limited to buildings completed before October 1978. San Francisco’s older housing stock means that its 1979 rent control ordinance still applies to three-quarters of the city’s rental units. When a rent-controlled unit is vacated, landlords are free to charge market value. At present, 15 California cities have rent-control ordinances on their books. Repealing Costa Hawkins will allow more localities to impose rent control, which, based on past experience, will deform the market and make it even harder for renters to find affordable housing.

Repeal advocates submitted some 588,000 signatures—200,000 more than needed—and a political fight is brewing that is expected to cost about $100 million in organizing and ad spending. “This ballot measure will pour gasoline on the fire of California’s affordable housing crisis,” said Tom Bannon, CEO of the California Apartment Association, in the Sacramento Bee. Landlord-affiliated lobbying groups are trying to stave off that conflagration by supporting efforts in the legislature to curb “price gouging” as a concession for taking the anti-Costa Hawkins initiative off the ballot.

Economists generally agree that rent control protects incumbent renters at the expense of newcomers, while leading to more gentrification and income inequality. A 2017 Stanford University study found that rent control in San Francisco effectively acted as a $3 billion wealth transfer to protected renters from 1995 to 2012. Over that same period, the city’s rental housing stock decreased by 15 percent, while rents rose by more than 5 percent. In short, a lucky few won the housing lottery at the expense of everyone else.

Scott Weiner, a California state senator who became known for his recent attempt to sweep away housing-density limits statewide, explained to the San Jose Mercury News how rent control could be part of a housing bargain: “We want to make sure that people have incentives to build new rental housing while also ensuring that we have a rent-stabilized housing stock. You can do that. You can find that balance.”

But the cost of using rent control to purchase political support for housing development is high, and its logic is faulty. California real estate investors are already selling off apartment properties or holding off on developing new housing. As the Wall Street Journal reported, Santa Monica, whose leaders have signaled an expansion of rent control if Costa Hawkins is repealed, is seeing the number of multifamily properties on the market jump by 80 percent, to the highest level in two decades. Who wants to own an asset when the government will soon be able to cap its price?

If housing demand is outpacing supply in California, the right answer is to build more housing. The lifting of caps statewide on accessory dwelling units in 2016—and the skyrocketing number of them now being approved in places like Los Angeles—suggests that there is a will and a way to add housing in California. Naturally affordable and invisibly dense development is a more efficient and equitable means of providing dwellings for Californians than locking up their housing stock and throwing away the key.

California’s solar-panel mandate for new homes will keep the cost of living unaffordable.

Solar panelsCalifornia, where a modest, burned-out home in San Jose just sold for nearly $1 million, well above its asking price, is in the throes of a housing-affordability crisis. The state’s latest response to the housing crunch: a mandate that builders install solar panels on every new home in the Golden State.

It’s tough to overstate the high cost of housing in California, even relative to the state’s high incomes. In San Jose, the average home costs 10.3 times the area’s median income, according to Demographia’s International Housing Affordability Survey. This high ratio is not due to some local bubble — it’s 9.4 in Los Angeles, 9.1 in San Francisco, and 8.4 in San Diego. Elsewhere in the country — even in relatively prosperous cities with high growth — housing is more affordable. In Columbus, Ohio, and in Atlanta, for instance, home prices average only about three times the median income. Even New York City, considered “severely unaffordable,” scores just 5.7.

Regulations that stifle building are a big part of the problem. Reason illustrated the absurdity of California’s building rules when it profiled a laundromat owner in San Francisco who has spent four years and $1 million trying to develop apartments on the site of his one-story, non-historic building in a city starving for new housing. It’s so tough to find an affordable place to live in San Francisco that people in their late thirties are living in dorms.

But beyond the zoning and regulatory barriers, mandates that raise prices are an underreported part of the housing price challenge in California. The New York Times estimates that the solar-panel requirement will add $8,000 – $12,000 to the cost of a home — close to the price of a year’s in-state tuition at UC Berkeley. One local chapter of Habitat for Humanity says that the charity will have to raise an additional $80,000 to $100,000 per year just to keep building the same number of homes. Advocates insist that solar power saves money in the long run, but if it’s such a great deal, why does California have to legislate it?

The state’s rationale for imposing the directive is, of course, climate change. But as New York Times climate reporter Brad Plumer tweeted, adding 10,000 new apartments in San Francisco would reduce carbon-dioxide emissions in the state by three times as much as the solar-panel mandate because urban apartment-dwellers use less energy than single-home occupants. California is already a green-friendly state. Building more housing that lets more people live in California, even at current energy-efficiency levels, would have a positive effect on emissions. The alternative is forcing people to move out of state and into more polluting jurisdictions.

State legislators made an attempt to expand housing availability with Senate Bill 827, which would have preempted local zoning rules by requiring cities to allow midrise construction near rail stations and major bus stops. The legislation should have pleased climate-change activists by facilitating the construction of new transit-oriented development and increasing density. But powerful environmental groups in California, including the Sierra Club, lined up against the bill, which failed in committee.

With its heavy-handed, top-down approach to zoning, SB 827 raised legitimate concerns about local control over land use—but the bill’s opponents block any plan that would materially increase housing supply in transit-accessible areas. California’s environmentalist-NIMBY axis has been highly effective in driving housing costs to unsustainable levels. The failure to build new housing in America’s most climate-friendly locales suggests that the underlying rationale for California’s rules is not climate, but exclusion.

Renters vs. homeowners: Political divide as wide as California’s affordability gaps

http://www.dreamstime.com/-image14115451Renters are more worried than homeowners about California’s housing woes.

You do not have to be a pollster to figure this out. But the gap revealed in a new survey from the Public Policy Institute of California shows key differences.

For example, the survey of 1,702 California adults shows 13 percent of renters say real estate costs were their top California concern. Just 7 percent of homeowners felt the same way. One thing homeowners typically possess that renters don’t — the relative certainty of what the roof over your head will cost.

I know California renters tend to be younger, make less money and are more financially crunched than homeowners. And the survey says homeowners lean more conservatively than renters — 38 percent vs. 29 percent. But since this state is only slightly tilted toward homeowners, demographically speaking, these renter sentiments — especially on business-related issues — cannot be ignored.

Please note there was not total disagreement in the poll. Jobs and the economy were cited as the top issues to tackle in the state for renters and homeowners alike. …

Click here to read to full article from the OC Register 

New Mandate Requires Solar Panels on All New California Homes

Solar panelsCalifornia regulators on Wednesday approved a first-in-the-nation plan to mandate the installation of solar panels on all new homes beginning in 2020.

The move was approved with a 5-0 vote by the California Energy Commission, in what supporters of solar energy are hailing as a monumental moment.

“This is an undeniably historic decision for the state and the U.S.,” Abigail Ross Hopper, the Solar Energy Industries Association’s CEO said in a statement. “California has long been our nation’s biggest solar champion … now, California is taking bold leadership again, recognizing that solar should be as commonplace as the front door that welcomes you home.”

The regulation will go into effect once it receives its expected approval by the Building Standards Commission later this month.

And while proponents of renewable energy may be pleased with the decision, there’s mounting concerns that the requirement will only aggravate the state’s home affordability crisis, as the mandate is expected to add at least $10,000 in additional construction costs.

However, supporters argue that utility savings will balance out that cost in the long term.

“Adoption of these standards represents a quantum leap in statewide building standards,” Robert Raymer, technical director for the California Building Industry Association, told the commission. “You can bet every other of the 49 states will be watching closely to see what happens.”

But Republican leaders are already coming out against the decision, framing it as just the latest example of government overreach in Sacramento.

“That’s just going to drive the cost up and make California, once again, not affordable to live,” Republican Assemblyman Brian Dahle reportedly said of the dangers of the rules.

The mandate will apply to all homes, condominiums and apartment buildings up to three stories high — with exceptions for structures that are covered by shade.

According to the commission’s own estimates, the panels will cost homeowners around $40 a month, but save them about $80 a month on heating, air conditioning and other costs.

“This is great for wealthier homeowners, but for everybody else it’s one more reason to not go to California or to leave ASAP,” American Enterprise Institute economist Jimmy Pethokoukis said on CNBC Wednesday.

More broadly, the move is part of California’s plan to have all residential buildings be “zero net energy,” which means that the the total amount of energy used by the building is the same as the amount of renewable energy it creates.

This article was originally published by CalWatchdog.com

Making the Housing Shortage Worse

Rent ControlWe have a severe housing shortage, and last week our mayor said that he’d help make matters worse.

If Eric Garcetti gets his way, rent control could be imposed on far more apartments in Los Angeles and throughout the state. That’d be great for the few folks lucky enough to get a rent-controlled unit. It’d be bad for everybody else.

That’s not a surprising statement. Studies have shown that. Let’s look at one of the latest.

A working paper published in January by the National Bureau of Economic Research examined the effect of a 1994 ballot initiative in San Francisco that slapped rent control on smaller buildings constructed before 1980. Three economists followed what happened to those buildings and compared their fate to similar buildings constructed after 1980.

So what happened? First, there was a reduction in the number of rent-controlled units as landlords decided to convert their buildings to condos or otherwise redevelop their properties. In fact, rent-controlled buildings were 10 percent more likely than the non-rent-controlled buildings to convert, “representing a substantial reduction in the supply of rental housing,” the report said.

Second, there was a 25 percent reduction in the number of renters living in rent-controlled units compared to 1994, largely because of “landlords demolishing their old housing and building new rental housing,” the study said. “New construction is exempt from rent control.”

So there was a drop in the number of rental units as well as a decrease in the number of tenants who enjoyed rent control. No surprise there.

In short, rent control makes matters worse, which pretty much every informed person knows with the apparent exception of Garcetti. What was a teeny bit more surprising was the working paper’s assertion that rent control increased gentrification as well as worsened income inequality in the city.

How so? One of the authors of the working paper, Rebecca Diamond, an assistant professor of economics at Stanford University, was quoted as saying that rent control “pushed landlords to supply owner-occupied housing and new housing – both of which are really the types of housing consumed by rich people,” she said.

“So we’re creating a policy that tells landlords, ‘It’s much more profitable to cater to high-income housing taste than low-income housing tastes.’”

In other words, rent control makes matters much worse.

What’s particularly alarming about last week’s news is that the current move to impose more rent control would make matters even worse than you might expect. That’s because the proposed statewide ballot initiative that would roll back the Costa-Hawkins Rental Control Act (the initiative which Garcetti last week called a news conference to endorse), would not only give cities the green light to allow rent control to be slapped on apartments built after 1978, but it would take the extra step of limiting the ability of landlords to raise rents after one tenant leaves. The way it works now is that when one tenant leaves a rent-controlled unit, the rent can immediately catch up to market rates for the incoming tenant. Rent increases are limited thereafter, until that tenant leaves.

That provision alone is a killer. It would mean landlords would be doomed to falling further and further behind market rates. That means more apartment buildings would not pencil out, and landlords would rush to empty out their buildings, scrape the ground and construct something new – something that’s not an apartment building. We’d see declines much greater than 25 percent in tenants enjoying rent control.

Look, the yearning to do something is understandable. After all, rents have popped up alarmingly and even folks with good incomes are being priced out of homes. But imposing more rent control would only choke supply and make matters much worse.

The real issue is supply. If we had more construction, the shortage would eventually disappear. But for that to happen, developers need to feel confident that they can build with the certainty that they can earn enough income to pay their mortgage and other bills and get a reasonable return. Right now, they can’t. And mayoral endorsements of rent control make matters worse.

ditor and publisher of the San Fernando Valley Business Journal.

This article was originally published by Fox and Hounds Daily