Zillow Flipped Its Plans to Buy & Sell Homes!

Zillow the on-line Home-Listing Platform, said on Monday October 18th, it would pause its automated House-Flipping operations for the rest of the year!  Instead Zillow said it would close existing purchase contracts and selling the homes it has on hand.  Zillow further said, it was experiencing back logs related to to renovating the homes.   Constraints for on-the-ground workers created back logs.

To further detail the announcement I have gone to the Wall Street Journal for Tuesday October 19, 2021;  Zillow stated the practice of buying refurbishing and selling homes using its database 3 years ago.  The WSJ article further opines that sales volume has recently begun to cool.  This was a profitable business for Zillow as they obtained fees on both the buy and sell side.  We call that DOUBLE ENDING.  While most realtors and agents have mixed opinions on the practice as it puts to question Agency, whose interest do you represent, the buyer or the seller?  

Zillow Offers, the house flipping unit accounted for more than 1/2 Zillow's revenue last year, some $772 million.  This was a 70% increase over the same period in 2020.

The article stated unsold units at the end of the second quarter totaled 3,142 units for a total value of $1.17 billion.  This does not include the 3rd quarter which it is believed it purchased more homes, notes RBC Capital Markets.

When I consider the inventory of homes for sale the Fix & Flip inventory appears to be an iceberg that sunk the Titanic.  More is below water than above.  Opendoor Technologies, another I-Buyer or Flipper, bought 8500 homes in the second quarter with another 8200 in the 3rd quarter.

How do we know what the inventory is and how much risk banks have made in funding these projects?

Further on in the October 19th issue in "Heard On The Street column, "ZILLOW GETS OUTPLAYED AT ITS OWN GAME", The article warns investors to start asking some broader questions.   Zillow, who has prided itself on technology to replace human work is now faced with human work to refurbish, and to sell their properties through their Premier Agent Network.  

Is it poor planning for the 17 year old company where many buyers, sellers and agents have gone to for a "Zestimate" of the value of a property.  Was it truly a :"Zestimate" or a price that moves their inventory.  Conflict of Interest certainly comes to mind!

Zillow's action points to other I-Buyers; such as, Opendoor  previously mention but also Offerpad Solutions a public company that has sold 4.7 times that of Zillow last year, stated the article.

The article cautions investors, and I warn buyers and sellers, to tread more lightly around what has been a banner year for real estate.  

The article further states, Opendoor has a 15% profit margin from flipping.  Where they not suppose to save sellers 5 & 6% commissions?

Mike Del-Prete, a real estate tech strategist and scholar in residence at the University of Colorado Boulder, "given that it is unusual that Zillow's pause happened so suddenly and across all of it markets".

"The real estate market has finally started to cool a bit", states the article in quoting Redfin reports on comparative home sales and prices to 2020.  7% drop in sale versus list is becoming common in certain parts of our area.  Of course we do get over bids when agents and seller decide not to test tops but to allow the market to price the house and under price a property.  There are no shortages of buyers at the moment.

Per the recent report Zillow has $8.77 billion in real estate inventory, how much now?  That is a good jump from the $1.17 billion previously quoted above.  Technology was supposed to create deflation , not inflation.  They maybe getting high on their own inventory!

Let me not forget to comment that technology companies are not the only players in the market of "Fix & Flip". Real Estate Brokerage firms have their own "I-Buyer" programs.  Some have teamed up with outside sources to help supplement their business and some have teamed up with income buyers.

Locally, I am still getting emails and texts from Flippers asking for my lead in properties not listed.  There will be a time when those communications end, if the Home-Price Growth continues to decelerate.  

As I look at the MLS reports on sales I see prices soften and list prices sell at lower prices.  That still mens we have buyers, but they are not being fed higher prices.

That could be the reason is that Home Price Growth Decelerated for the first time in more than a year.

I begin to wonder if the Fat Lady is singing when "Flipping 101" is a hot reality TV show?

The caution I bring to the table is the work performed in this Flipped House.  The demand on workers and supplies can push to the use of unskilled /semi-skilled, or fully experienced labor and poor quality parts.  Home inspections are very much needed.

As a final note that makes me lean toward softer prices is a comment a mortgage broker for a well known bank told me.  The bank has a special program for "Flipper". special in Terms?  The only issue is DUE DATE.  Once the property is "fixed" and certified, the note is due.  Then it becomes a "sell or we will" option.

As a closing comment there is the Friday, October 22, 2021 Wall Street Journal front page article, "More Chinese Developers Default".  Read into that as you wish.

Eviction Ends, Interest rates rising, Inflation and the possibility of China's Evergrande Default

 On September 30, 2021 the eviction moratorium ended.  The estimates I have is that there were 1.7 million homes in forbearance.  These are properties which have not made mortgage payments during the Pandemic.  1.7 million is down from over 7 million at the peak of the Pandemic.  There were 600,000 homes for sale in the U.S. at that time. The benefit today is that this is not 2007 during the financial crisis.  Home values have escalated at rates that have ben historic.  That would indicate that of the 1.7 million in forbearance a major portion should be able to refinance or re-negotiated to present-day mortgages.  Considering that interest rates are at historic lows; this gives the new mortgage payments a lower payment that previous loans in forbearance.  Those owners who are unable to afford have the benefit of a strong real estate market to sell their homes and pay off the debt and walk away with proceeds.  This was uncommon during the  Financial Crisis.

As the Law of Supply and Demand creates more inventory the affect on prices paid will still be above the home prices of Pre-Pandemic levels.  My evaluation is that the statistics of the U.S. cannot equally relate to Silicon Valley.  The strong housing market is backed by a strong economy.  If anything the affect of home prices will be either a stalling of prices or a slight decline.  Now the issue is who is in forbearance.  I find it highly doubtful that high end luxury housing will be affected.  The strength of the IPO market and Venture Capital Market along with the net worth of the owners of Luxury homes will not be affected.  There is no forbearance.  But there will be forbearance in the homes of workers laid off during the Pandemic.  That is where the sales will occur.  That is where opportunity exists.

The Federal Reserve (FED) has thought it best to keep rates low to keep our economy moving.  The return of semblance of economic growth has seen a slow growth in the market place as measured by 10-year government Bonds, which are not under the control of the Federal Reserve (FED) in pricing.  The FED has had a long term policy of buying bonds of all sorts in the after market to keep rates down and has accumulated a multi-trillion dollar balance sheet.  The FED has indicated that is will begin to cease it buying program.  As a result the after market has seen some slight increase in the interest rate of all bonds and mortgages.

As an example, a 10-year US Bond is a marker from which all bonds vary.  As the 10-year moves up mortgage rates will move up, in turn all rates of US bonds greater than 10 years move up,. That increase will affect corporate bonds and all bonds sold in the world that are US $ denominated.  The greatest rate paid are the bonds of low ratings.  In the US they are referred to as "Junk".  They are corporations who do not have the financial ability to hold out during economic crisis.

After US Junk there are the Foreign Debt Markets in US denominated Bonds.  Asia is one of the markets who have had historic failures; along with some South American countries like Argentina.  Asia relies on the US to buy goods manufactured in the Asian Countries.  When orders cease, the ability to pay in US$ is under threat.  Default is common and expected  irrespective of the corporation.  One default or expected default puts all corporations in the same bucket.  Now here is something the FED cannot manipulate or control. Buyers of Asian bonds will demand higher rates for the risk.  The higher rates will affect the "yield spread" of all $ denominated bonds.  This will eventually pull up rates down to the 10-year US Government Bond.  

The Greatest Risk in Asia is a Chinese Corporation name Evergrande.  Originally a property developer it grew to the largest developer in China not regulated by the Chinese Government, a capitalist creation like our own corporations.  Its growth moved into other areas other than real estate by debt growth.  The greatest risk now is a potential default of Evergrande in an interest payment.  Supposedly, not confirmed by myself, is the Evergrande gave the Chines holders of thee Chines debt apartments.  Here is one of the greatest risk in Chinese land development of apartments.  They are largely unoccupied and bought as investments.  Chinese buy real estate as a retirement plan.  They have no Social Security or Pension Schemes.

China's Government has already warned Government Banks to prepare for a default.  The next payment this past Thursday is a payment due on all US denominated debt.  No record of payment has been found in my research and the value of the debt is down some 75% per the Guardian.  In addition other Real Estate Developers are signaling warnings of potential defaults.  

These defaults will affect the interest rate market, and the supply chain of goods to and from China and other Asian countries.

Inflation is the last comment for me to address.  The inability to supply essentials as Silicon chips in Auto's and the fear shortage os essential of toilet paper has caused difficulties in the market.  The government attacks on oil based energy has caused shortages in in oil supply.  The recent storms in the gulf has stopped or limited production of oil and gas; as well as, forcing refineries which dominate the gulf coast to slow or stop.  Gas prices have gone up.  

Businesses which have been closed down during the pandemic start up with higher prices, both to make up for months of no income and higher wages to draw back past employees and higher product costs.  The thought that business will cut prices and inflation will dissolve is fool hearty.   Why would prices come down when a business has lost money and depleted savings for 18 months?

Inflation has an effect on interest rates.  Rates are higher from the fear the value of the bonds will be worth less.  Rising interest with inflation feed upon themselves.

The above comments are a BLACK SWAN of monumental proportions.  Will this affect housing?  Builders are not building as they have in the past, as they are concerned about rates and the cost of building supplies. 

We still have a seller's market throughout the US and most certainly in Silicon Valley. I cannot see the crisis in our economy, just a point in which the long and lasting price of assets stop, maybe pull back a bit or consolidate.

For buyers, this is your chance to look at the subjects in this Blog to help your find and buy a home at a low interest rate.  It is not the price of the property you buy.  It is the interest rate on the mortgage, I played with rates of mortgages and payments on homes that deprecated 20% with a 20% deposit and found that affordability is till in the hands of the buyer.  

The Perfect Storm that will create opportunity.

September 30, 2021 Eviction Moratorium Ends!

 When I read about the "bubble", the over pricing of real estate and "pandemic fears", I am reminded of an old Wall Street saying: "The Market Climbs a Wall of Worry".

One thing for certain real estate is far different than the stock market.  No mater when or where, crisis or prosperity value can always be found in real estate.  It is just a matter of learning where to look.  

The legislative end of the Eviction Moratorium will bring property on the market.  OPPORTUNITY! How many homes?  I can't tell you that.  I do know that there are certain statistics that are a telling indicator.

There are approximately 1.7 million home is "Forbearance".  That means 1.7 million home owners have decided they will not pay their mortgage for one reason or another.  That number of 1.7 million is down from over 7 million during the peak of the Pandemic.  Of those 1.7 million who have not paid their mortgage from anywheres from 18 months or less, they are  or should be in a process of negotiation with their lender to restructure the mortgage.  Some will pay off the amount due, some will have a new mortgage with the failed payments incorporated into the new loan.  And, some will find themselves in no better situation than when the pandemic hit.  No job, no future and no unemployment benefits to sufficiently allow them to own a home.  To those how many of them are in the 1.7 million?  

When you begin to ponder that question consider this, there are 600,000 homes for sale in the US.  That is the inventory.  What will happen when another 100,000, 300,000, 500,000 OR 1.7 MILLION come into inventory.  Will prices continue to move up, will they stabilize or will they back off some.  

Next to consider is the rental market.  In California, Policy Link, an Oakland based research group states there are 753,000 families behind in their rent.  They owe a cumulative $2.8. Billion.  Landlords have been suffering.  Government funds still have not be distributed to pay the landlords.  What happens here?  Landlords sell and get rid of the rental property?  Fix and Flippers wanting introductions to sellers and allow a sale without commission, inspection and cash closes. How many come on the market from the Flippers?  Flippers are not long term holders.  They MUST sell!  If they don't the bank takes over and sells the property.

The next phase of potential inventory comes from the Pandemic.  Home owners are fearful of who comes into their home and if the potential buyer is vaccinated and or will they leave the virus in their home.  They are going to iBuyers.  Institutional buyers who will pay all cash no commission and no inspections to "Fix and Flip".  Now we have another source of inventory that are in hands who are not willing to hold and wait.  You and I can look at the soft market and say.  Oh I will hold off, I lived here for 30 years, what is another year or so.  The iBuyer cannot wait.  The Fix and Flipper cannot wait.  They sell to a point they break even.  At least they don't lose money.

BUBBLE WATCH!

I love this phrase and love the commentary around it.  It is the Climbing a Wall of Worry from the stock market.      DOES CALIFORNIA REALLY HAVE A BUBBLE?  Or is it Chicken Little yelling the Sky is Falling?

Jonathan Lansner of the Southern California News Group wrote an interesting and rather enlightening article on the BUBBLE.  He used Goggle Trends to help him analyze data of some 39 states.  The balance where unavailable.

California had the 6th largest "housing bubble".  In the past 12 months. Statewide gain of 20.2% over 12 months, #7 among 39 states from a 6% annual average from 2016-2020.  Now consider the Top Bubbles

District of Columbia is #1.  15.7% gain vs 4.3% average

Idaho #2 with 37.1% gain vs. 11.6% average

Washington #3 with 21.9% gain vs 9.2% average

Oregon #4 with 20.4% vs 6.5% average

Arizona #5 with 23.9% vs 8.1% average

Those are West Coast states

Kansas 16.3% vs 5.2% average

Iowa 11.5% vs 4.1% average

Missouri 16.6% vs 6.1% average

Louisiana 16.6% vs 3.1% average

Pennsylvania 16.4% vs 4.9% average

So are we, you, I and our neighbors and friends going from one over priced situation to another?

Don't let fear and greed dictate common sense.  Sure you or I cannot buy my house for what we paid for it.  That has gone on for generations!

Real Estate is an opportunistic market place.  It is based upon personal needs.  Sure our medical costs are high.  But the service is far better than a town in Kansas or Idaho.   Weather here is alright, far better than the 110 in Phoenix, or the storms of Gulf Coast and Florida.  Yes we are a liberal state, but would you want that or live in Texas where guns are worn and mothers have no choice over their bodies.  

Now let's get back to buying and selling real estate and investing in real estate in California and looking for value building and opportunities.  The grass is always greener on the other side.....until we get there.

Caveat Emptor...Let the Buyer Beware

 Do you realize that not all the States have a FULL DISCLOSURE law in real estate transaction for residential properties?  That's right those documents, sellers are required to complete and provide to buyers and buyers are required to sign and initial, are not a standard in all states.  To those states who do not have the full disclosures the buyer is required to do their own research.  The seller is not required to inform the buyer if there is an issue with the property.  

Take my first real estate transaction when I moved to Hawaii after graduation from college.  The house MLS listing stated "sewer", "yes".  Not all houses in Hawaii and in this case Kailua in Oahu had sewers, but septic systems.  Months after my purchase the toilet backed up.  I called the city and was told I was not connected to the sewers.  The prior owner did not pay for the hook up. How much...WOW, I just borrowed money from my widowed mother to buy this house to supplement my savings.  

I called the agent and complained.  "You never asked if it was connected" was the response.  I took him to Small Claims court and lost.  Caveat Emptor the judge explained.  I was responsible to research before I bought the house.

How many buyers know what to do?  Termites inspection, home inspection, fault lines, flood zones, toxic waste the list goes on.  Did the owner tell you the neighbors were party people until late hours, or the train comes through at 1 in the morning, the dishwasher intermittently stops, the house is not level and needs a new foundation, or the roof leaks.

California created Full Disclosure laws in and around 1986.  For agents it is a pain; as it is for sellers.  For buyers in is a blessing.  

The consequences are severe.  for example a well known agent, at the time, failed to disclose that her client failed to disclose the house was on the San Andreas fault line in Portola Valley.  La Pietra came and the house split in two.  Agent out of business, broker out of business, seller with judgement and buyer made whole.

We are faced every day with Caveat Emptor.  The media is an ongoing sales promotion with articles slanting certain beliefs of the writer and or their employer.  In doing so, before you buy, research. These media promotions do not have a Full Disclosure rule.

When I write this letter or Blog, I look at every commentary that comes before and try to see the application to our markets.

One of the greatest source of my research comes from pricing properties for lenders and insurance companies.  It is called "Broker Price Opinions", or BPO.  From Los Altos Hills to Belmont and Redwood Shores I work on 20 or so pricing a month.  I see trends that are later confirmed by MLS Listings, State and Local Realtor Associations and the Media.  

Cindy, my wife and research assistant, sends me links on a daily basis.  This is one of them. Her comment was this is what you have said in the past.  The BPO work has allowed me to see underneath the market trend while it is developing.  Let me give some insights here

1. Mom & Pop Landlords are under pressure.  They are either liquidating their holdings before the tax change to eliminate 1031 exchanges end, or they are trying to get a larger mortgage to cover their increase costs.  

2.  Buyers are shifting out of once standard select markets to outliers.  Markets that once were not looked at as premium sectors.  As Landlords sold permanent buyers either came in and remodeled or investors bought fixed and flipped.  Menlo Park has seen a decline in average price in past 6 months; were  as, Redwood City has seen an increase.  this week there has been an over abundance ot over bids on Redwood Properties from $1-2 million.

3.  The Black Swan that many are expecting may not really occur; other than, a slow down and over bidding stops and over pricing are met with cuts, cancels or withdrawn or expired listings.  for an example look at Woodside, Atherton, Portola Valley to see the removal from the market.

4.  Sellers are Baby Boomers now wishing the smaller home in communities or downtown walking distance to the shops they normally drove to.  Equity is unleashed and many homes being sold need updating or severe updating.  Those are bought by Gen Z.  Flush with cash from IPO's these buyers want their home and will pay to buy it.  Price is not significant.  BUY, BUY, BUY is their motto.  Portola Valley has been a source of selling on large 1-2 acre parcels with 1950's Ranchers.  Los Altos Hills is another source of sellers.  both of those markets have seen double digit appreciation in the past 6 months.  Among the buyers are the investors, the Fix and Flip crowd.  You see them every day, on your TV, your emails on the radio.  We will buy your house and you pay no commission, as is, no inspections.  Of course there is a discount, to some of the uninformed it sounds good and they sell. 6 months later it is on the market for the Generation Z buyer to move into.

We live in a very fluid market place with many people with different objectives.  There is a transitional change as generations begin to change.  People live longer and they want to enjoy their longer lives.  Medicine keeps on advancing and the longer life's become longer.  Populations shift from locale to locale.  Some out of the area, some out of the state, and some return.  To all those who flocked to Lake Tahoe, are you sure you want to live there?  To the progressive and liberal minded who moved to Texas, are you sure you made the right decision?  Fluidity takes all shapes and forms.  How will the Pandemic phase out?  They all create opportunities and risks....SO Let the Buyer Beware! Caveat Emptor!

On a closing comment here is another flash from my Research Assistant who wants you to know who is eXp Realty

There is a Shift Happening

 Breakneck. That's the best way to describe the pace of the 2021 housing market. The bidding wars got so intense this year that home price growth set an all-time record.

The rush of buyers into the housing market during the pandemic absolutely crushed housing inventory—the number of homes on the market—with that figure falling for 12 consecutive months. By April, housing inventory was down a staggering 53% from a year earlier.

There has been a change.  Ever so slightly, but a change indeed.  Well at least that is so in the Nation.  Here in Silicon Valley inventory has declined.  

In February 2021 we started out with a 2-month inventory in Silicon Valley. Slowly it has dropped and leveled off at a 1-month inventory.  One would expect the law of supply and demand would keep prices moving upward.  Not so, in February 2021 the 6 city area average price went from $3,318,431 in February to $3,874,913 in June and dropped to $3,201,528 so far this month of August.

What's the story?  I have done some work in what is called Broker Price Opinions.  That is when a bank or financial institution want a broker to certify value for a loan.  When I looked at the comparatives I saw completely remodeled homes, interior and out with new landscaping.  The most notable were in East Palo Alto.  But they were elsewhere in the, what I call "bedroom communities" like Palo Alto, Menlo Park, Redwood City.

It was not hard to pick them out.  New lawns, landscaping, a new painted exterior.  To support the movement has been in our faces every day.  buy your home for cash, no fees, no contingencies.  eXp is doing it, Zillow started it, but we agents have been called on a regular basis from contractors and spec builder asking for a listing before it is put on MLS.  

The more spec players in this market place the less likely the desire to hold out for higher prices.  These players run super markets. They just want to move inventory off the shelves.  They will keep on until the inventory of sellers stop.  The more the players the slowly prices will decline as I just pointed out in the 3rd paragraph above.

There are two areas that this did not occur, Woodside and Portola Valley. The large estate properties with building departments who are not cooperative in flipping and quick approvals.  Building department staff to Architectural Review Boards of local residents and then to Planning Board of local residents.  All of which are volunteers.  All with the potential of movements of plans and permits back and forth from board to board before a final approval.

While Menlo or East Palo Alto may have plans and permits granted over the counter and homes go from 1940's or 50's to 2021 in 3-6 months.  Woodside and Portola Valley can take years.  It is not uncommon for plans and occupancy to go 3-4 years.  No spec builder wants to risk money on a long time frame.  It is far better to flip as many EPA homes as possible than risk a big play on Woodside or Portola Valley.  But still prices have had the same effect as owners; rather than, speculators fixed and sold at their leisure.  The simple task is, "if we don't sell it we live in it"

Where is this going to take us?  the Foreclosure Moratorium ends in September.  I have obtained my REO certification.  That means "Real Estate Owned" by banks and financial institutions.  

I stated that I was performing Broker Price Opinions, BPO's.  Not a big pay day.  It prepares for the paper work needed to work with bank inventory managers.  They all have a specific set of forms to prepare that gives them the information to move inventory.  The past experience of the agents who work this market is 2006 and the financial crisis.  Banks just want to clear inventory.  Those agents who knew the process got the listings.  I remember a friend having 75 REO's one year that averaged him $6000 per transaction.  That is $450,000! that meant the average price was $200,000.  Not your Woodside and Atherton homes just the homes that were once rentals or the working class that found themselves out of work.

Will that happen again?  Everything is great.  Prices are strong.  Buyers keep on coming to the market.  Silicon Valley businesses keep buying more land.  What could happen?

BLACK SWAN

Forbearance ends, the government enacted law to allow mortgages to accrue during the pandemic ends in September and October.  Will this be the beginning of inventory?  Will it only apply to FHA loans and low income borrowers?  By all calculations over 1 month of additional inventory will be added nationwide.  Will that be enough to add to pressure on price?  Of course, one needs to remember that the eviction moratorium end too!  People on the street and who will rent the empty units?  Government subsidy money has not been distributed and will that keep the eviction process in abated?

There are many questions that will be popping up as BLACK SWAN'S.  News media will be kept busy.

Silicon Valley has acted like Camelot, with its golden walls and moat surrounding an area protected from the troubles of economic crisis that spread nationally.  Will Evictions and Forbearance be the start of a long awaited stall in housing prices?

Time will only tell, but remember the house you buy is not a trading asset it is something you live in and bring your family up in and age in.

The Institute for Luxury Home Marketing July Monthly Report is out.  The Luxury Market has been a market on to itself.  While median price homes bounce to the tune of interest rates, unemployment and inventory, the Luxury Market stays above the clouds, so to speak, in demand and price.

The sales for luxury properties between January and June 2021 show steady growth, with demand significantly increasing in the spring and trending upwards in early summer.

At the start of 2021, experts predicted a strong luxury real estate market that built on the trends set in the second half of 2020. However, very few anticipated just how much impact buyer demand would still have on 2021’s spring market. 

Inventory levels have been rising since March 2021; as of the end of June there has been a 22.68% rise of luxury properties on the market, and the number of pending sales has also started to decrease. The realization that there is no immediate sign of a dramatic rise in mortgage rates, has enabled buyers to recognize that they do not need to feel the same sense of urgency as they felt in the spring.

Overall, even for hot markets, the expectation is, while the luxury housing market will still experience strong seller market conditions, the intensity of demand will continue to decrease and there will be a gradual but ongoing shift towards a more typical pace

COVID-19 created a huge focus on how homes are built and valued. As a result, there is now an expectation by the wealthy for an array of services to be integrated into their home, to help create balanced solutions that cater to their core needs of working, sleeping, playing, and eating. 

New designs have begun to pivot dramatically toward more integrated live/work/play balances, providing solutions for indoor/outdoor living. Design and functionality are focused on ensuring flex space, greater square footage, more outdoor space, extra rooms and secure, and fast data connectivity. Engineering features now include health functionality, such as air quality, ambient heat and cooling systems, water filtration, and technology driven management tools. 

Of equal importance are the demographic groups who are influencing both current and future trends. Millennials and Gen Z groups are entering the real estate market. Whether their wealth is entrepreneurial, or as a result of the great wealth transfer from their baby boomer relatives, or their investment in the stock market or crypto currency market – their impact on purchasing luxury properties will continue increase significantly. 

Baby boomers also remain a big influence on the luxury market – if they choose not to downsize or move to their retirement home, as they did during the previous 12 months, then this impacts the level of new inventory that typically comes on the market each year. 

The art of selling and buying in this market needs a critical and analytical approach, understanding the realities and setting expectations accordingly will ensure that goals are achieved. For homeowners looking to sell their luxury home in today’s market, working with a Realtor who can capitalize on the preferences of current investors is needed. 

California Real Estate Market Cooling

 While it's a shift of only 1-2 degrees, but the red-hot housing market is finally starting to cool.

Despite the median home price hitting yet another record high in May the year-to-year date statewide home sales dipped by 2.7% in May.  They had been rising steadily since February.  But, for the first time in 2021, the median number of days that a single-family home was on the market did not drip, but rather held steady at seven, the same number recorded in April.

John Graff, a Los a Angeles based broker and chief executive of Ashby & Graff said, "Buyers are getting fed up at this point with submitting as many as 8-12 offers and getting rejected."  "They're throwing up their hands at this point", said John.

The median price of a single family home in California hit $818,260 in May, an uptick of 1/2 % from the previous month.  It's an acceleration with a foot off the gas.  In April the median hit $814,000 up 7% crossing $800,000 for the first time in history.  Compare that to seven months ago at $700,000 and in May 2010 at $588,070.  Buyers are exhausted!

California Association of Brokers gave the median price increase on Ultra-luxury homes of +$1 million increasing 200% from May 2020.  

The most notable place of cooling was Los Angeles.  The talk of Bubble keeps popping up, but that is not the case when it is a simple slowing down in demand over excessive competition and over bidding to unrealistic numbers.

While the housing prices begin to slow their assent, the renters are facing eviction and those with back mortgage due are facing negotiations with servicing agents.  In Los Angeles County 7,677 were locked out of homes.  Eviction rates were higher in the inland empire and Los Angeles County.

Matching the eviction are the Mortgage Service companies bracing for a fallout as Covid Bailout ends.  An estimate 7.25 million borrowers have participated in forbearance programs.  This represents 14% of all home owners with mortgages.  At eXp Realty we are being trained and re-certified to handle REO properties.  That is Real Estate Owned by banks and financial institutions.  In the Sacramento area agents are already getting assignments of developer failed properties.  Locally I get Broker Price Opinions of investor private purchases off MLS.  The prices paid are really pushing the limit of what a home can sell for with improvement.  The over paying is quite significant.  Emails come into me regular with brokers and investors looking for listings not yet on the market.

To add to the issues of home values is the commercial market.  San Francisco office vacancy rate is at 20.1%.  San Francisco residential rental market is still down 20%.  It had a slight pop at the beginning of the year, but it failed to rally further.

According to Kelly Hwang of the SF Chronicle San Francisco's housing inventory went up in May 8.7% from April and 25.6% from this time last year.  

Bloomberg has stated that prospective home sellers who sat tight as the home prices climbed higher and faster are finally starting to cash out..  Bloomberg has stated their numbers show homes for sale climbed 6.7% in early June from the same period in May.  Listing rose in 54 out of 100 metropolitan areas.  Are seller's saying it's time to sell?

Redfin has noted that most of their sellers are retirees.  That makes sense especially when the potential of tax increases are on the horizon.  

WHAT OF THE FUTURE?

California real estate is and was a reflection of the Law of Supply and Demand.  As more people moved into California, demand for real estate increased.  With the increase in demand was the correspondent increase in price.  

The past year of so, the news media had numerous articles on the movement out of the State.  Corporations voted with their feet, as did the multi-billionaires who represented the corporations.   But when the evaluation of the populace is concerned the statistics DO NOT support the media claims.

"Researchers from a consortium of universities – including the Berkeley, UCLA, Cornell and Stanford – teamed up in the fall of 2020 to study California’s population. Their finding, released this week, determined there was “no evidence of an abnormal increase in residents planning to move out of the state”. Victoria Beklempis Yahoo News Friday, July 9, 2021"

Victoria's article HERE will give a detail of the actual movement.  It is more a re-distribution of the population; rather than, a movement out of the population.  

What it does mean is that those who are looking for affordability need only look in new areas or old areas that are in redevelopment.  

There is very little that other states can offer; other than, tax advantages. Our weather is exceptional and beaches and outdoors are within reach.  Our medical and educational facilities are exceptional.

So what are the first time home owners to do?  Look within your area and find locations that are affordable.  La Honda, the Skyline area, Half Moon  Bay are choices.  Then there is East Bay straight to the Nevada border.  My wife and I came back from a tour of Granite Bay.  It is ideal for young families.  Lower priced newer homes with great schools and shopping offering all the benefits our Safeway, Costco and Trader Joe's offers.  Kaiser is their in town and Sutter is nearby.  4430 Rolling Oaks Drive is a 4 BR, 3 Ba, 3197 SF home built in 1969 on .6 acres in town with a 3-car garage.  A 2-story Victorian styled home for $1,250,000.  For all those who can work from home and have a young family Granite Bay is a great choice.  I may add we saw no homeless, clean streets and friendly and open town's people.

Businesses such as Tesla and HP and Oracle can move; but the venture capital firms that created them as still here.  The money the creates investment opportunities will create business opportunities.  The business opportunities will create employment opportunities.

Who knows, the San Francisco exodus may just have a new migration as SF rebuilds and refurbishes itself.

The Price of Everything!

The prices of everything, everywhere, are going up.  A house in Phoenix is going up, a Ford F-150, a plane ticket to New York City, they are going up for as much as everything all over the country.   Well, maybe not San Francisco.  There the prices of homes are all down from 10-12%.  The only part of the country and the State of California that is not going up?  Down from 10-12% where the rest our metro areas are up over 12%. 

For pseudo-scientist, aka Economists, it is a dismal picture!  They, along with the people that brought you the last recession, aka Wall Street Banks, say it is only temporary.  "A transitory event that will disappear."  Mark Zandi, the chef Economist at Moody's...yes Moody's the people that gave AAA ratings to bonds supported by mortgages that went into default and put us on the verge of economic collapse WORLD-WIDE......“Inflation is one of the mysteries of economic study and thought. A difficult thing to gauge and forecast and get right. That’s why the risks are high.”    How can inflation be a mystery?  If people can charge more for products in short supply they will.  What is a mystery of one of Economists solid formulas, The Law of Supply and Demand?

The Federal Reserve is taking a pretty big risk with their calculations over a economic study that is "difficult thing to gauge and forecast".

Is this transitory, and does that mean prices will come down?  Will that include housing prices, since housing prices are part of the inflation index?  Oh yes, and when will inflation cease to become transitory?  Will it stop at 13.5% as when President Jerry (can't walk and chew gum at the same time) Ford launched "WIN", Whip Inflation Now?  Remember he had his training in running the Country as Speaker of the House...hint, hint, hint.

The Federal Reserve reported that the May rate of inflation was 5%.  That is the fastest rate in 13 years!.... which was when the economy over heated from the housing boom....Sound familiar....went off the cliff and sent us into the GREAT RECESSION.

Let us not leave the pointer on housing.  Used Car prices climbed 7.3% last month and 29.7% over the past year.  Did you take your old jalopy in to your dealer for some work?  I did, boy did they have deals for my car at Blue Book Wholesale to buy a new car for a premium.  They would make more money on my used car than selling a new car.

Not all things are being priced into the stratosphere.  Healthcare and education are flat, including smart-phones, technology and internet services have been relatively flat.

All eyes are on Houses and Cars.  Interest rates are low and the cost of buying them are low, so why not pay up??? Sure, good idea, you are making a rocket ship rise straight up to a technical blow off!  BLOWOFF? sure it happens in real estate and cars.  The Federal Reserve said they are not raising interest rates until 2023...THAT"S 2 YEARS FROM NOW...we all maybe be speaking Chinese, or North Korean, or Russian..Far better than in a corner reading the Koran and growing beards and long hair and having our women wearing tents with mesh for seeing through...Well at least we can listen to Yellow Brick Road, In a Gadda da Vida and getting high on great California MJ we bought at Safeway.  

Let's get serious here!  The Federal Reserve already began the rate increase.  The Federal Reserve tightened, the rate on which banks get paid for having money on deposit with the FED.  Not much, .37% if I am correct.  But that is not bad for a bank that does not have any clients to borrow money to: if they do, they want 100% certainty they will pay it back.  That means money is being drawn back from supply.  The FED can continue to do that without keeping a thumb on the interest rate we get paid.  Just slowly draw money out of supply.  Wait until inflation stops and then we can go back to normal.   WAIT ON THERE.  What if the "F" factor comes in and inflation rates do not decline.  What if we have not supplied enough lumber, what if there are not enough plants here in the US to produce semi-conductors....what if?  Well, then we sell some bonds and pull more money out of the system.  Interest rates go up from lack of supply of money.  Prices come down on houses and cars? Business slows down.  Stocks go down.  IPO's stop. Layoffs in the high tech industry.  Another Recession.  Foreclosures and defaults.  Sound familiar?  

Now that goes back to when I was about 50 years younger and I really believed they , the economist , knew what they were doing and I believed the Politicians.  Come on Gary, were you that gullible...sure was, and so were you, your parents, and grandparents.  Today you people are a bit more savvy, AREN'T YOU???  Screw it man, we're getting our advice from Reddit.  We're getting those hedge funds shorting companies that are going out of business.  We will make more money and just sit back "bragin" to our buds on Reddit.  

Now let's talk about this reasonably.  Trees don't grow to the sky.  Stock's prices don' go up forever.  If you can buy a 3000 square foot home for under $1 million and a 1350 sf home for $2 million wouldn't you look at how far away is the 3000 sf home?  Would you think twice about paying ridiculous prices for rent in a slum when you could own a home for the cost of the rent in a mortgage payment?  A home where there is no homeless, drugs on the street, trash in the gutter, gun fights and they have great schools in gated communities with pool and tennis courts.  Of course you would.  what's holding you back?

Hey, let's get serious here.  There is a time that prices of homes push reality to far and at other locations is wise.  There is a time when rent gets too high, and there is a look elsewhere.  It will come, so prepare.

I for one, like history to lead me.  Home prices are down some 10-12% in SF.  They are up 12% here.  I moved from SF originally and then my stock trader mind saw the prices in the peninsula, Woodside, collapse.  I bought a house in Woodside for the sale of my Flat in Pacific Heights, or at least upper Cow Hollow.  

If you are a home buyer, look around.  You're working from home with a jaunt to work once a month.  Hey..there are other places to live.  Friends...well once you left the last place the friends were farther away and apart.  You called, chatted, texted and soon...new friends came in.   All part of growing up and expanding our network.

If you are a seller, look around and get the best price now to get an underpriced property elsewhere.  Forget about waiting for the price to peak...there are no bells and whistles.  If you do, the price you pay will move up faster than your sale.  That's the way markets move.  

Not going to sell?  Going to live here until they carry you out in a box?   Sure heard that before.  When that day comes you won't know who is carrying you out and doubtful it is in a box, but your kids saying mom and pop need care.  Sell the house put them in a home.  I sure hope you enjoyed your life to the fullest, took you and your spouse on great vacations and tours before they give you boxing gloves to separate salt from sugar.

Bottom Line.  Inflation is not going away.  The FED or Wall Street and the Banks do not control the cost of living.  You do!  Start thinking about Living...Reddit does it right YOLO.