Why Invest in Los Angeles Real Estate in 2025?
Los Angeles has long been a sought-after real estate market, offering investors strong appreciation, high rental demand, and a resilient economy. As we step into 2025, several factors make investing in Los Angeles real estate an attractive opportunity.
1. Strong Market Growth and Price Appreciation
Despite economic fluctuations, Los Angeles continues to see property value appreciation. According to the California Association of Realtors, home prices in the state are expected to rise by 4.6% in 2025, driven by high demand and limited supply. With Los Angeles being one of the most desirable metropolitan areas in the country, property values are likely to continue their upward trend.
2. High Rental Demand and Strong ROI
Los Angeles has a large population of renters, making rental properties a lucrative investment. With housing affordability concerns and rising mortgage rates, many residents are choosing to rent rather than buy, leading to high occupancy rates and increasing rental prices. This creates an opportunity for investors to generate strong and stable returns on rental properties.
3. Resilient Economy and Job Market
As a major economic hub, Los Angeles is home to diverse industries, including technology, entertainment, healthcare, and international trade. The city’s economic strength helps maintain a steady demand for housing. Additionally, upcoming infrastructure projects and business expansions will continue to attract new residents and workers, further driving housing demand.
4. Limited Housing Supply and High Competition
The housing shortage in Los Angeles contributes to sustained property value growth. Due to strict zoning laws, geographic constraints, and high construction costs, the city has a limited ability to expand housing inventory. This keeps home values resilient and makes real estate investments in Los Angeles a solid hedge against inflation.
5. Tourism and Short-Term Rental Opportunities
With millions of visitors each year, Los Angeles presents profitable short-term rental opportunities, especially in tourist-heavy areas like Hollywood, Venice Beach, and downtown. Platforms like Airbnb allow property owners to capitalize on this demand, generating higher rental income than traditional long-term leasing.
6. Future-Proof Investment
Los Angeles continues to develop, with ongoing investments in public transportation, green energy, and smart city initiatives. These developments enhance the city’s livability and long-term appeal, ensuring that real estate investments remain valuable for years to come.
Conclusion
Investing in Los Angeles real estate in 2025 offers a compelling opportunity due to strong market appreciation, high rental demand, economic resilience, and future growth potential. While challenges such as affordability and regulatory changes exist, the city’s real estate market remains one of the most robust and rewarding in the country. For those looking to build long-term wealth, Los Angeles remains a prime investment destination.
Are you the kind of person who makes resolutions on New Year’s Day? Here are five steps we encourage all investors to consider taking to boost their financial fitness at any time of the year.
(SOM recommend research and consultation with professionals prior to any decision making and investing. SOM is not responsible or liable for actions taken by readers of these blogs)
Resolution 1: Create a budget
Committing to a saving and investing program during your working years is generally the best way to boost your net worth and help achieve many of life’s most important goals. Of course, first you’ll need to know how much money you’ve got to work with. That’s where a budget and net worth statement can help. Here’s how to think about them:
Budget and save. At a minimum, be sure to have a high-level budget with three things: how much you’re taking in after taxes, how much you’re spending, and how much you’re saving. If you’re not sure where your money is going, track your spending using a spreadsheet or an online budgeting tool for 30 days. Determine how much money you need to cover your fixed monthly expenses, such as your rent or mortgage and other living expenses, and how much you’d like to put away for other goals. For retirement, we suggest saving 10%-15% of pre-tax income, including any match from an employer, starting in your 20s. If you delay, the amount you may need to save goes up. Add 10% for every decade you delay saving for retirement. Once you commit to an amount, consider ways you can save automatically, such as through monthly direct deposits.
Calculate your personal net worth annually. It doesn’t have to be complicated. Make a list of your assets (what you own) and your liabilities (what you owe). Subtract the liabilities from the assets to determine your net worth. Don’t panic if your net worth declines when the market is struggling. What’s important is to see a general upward trend over your earning years. If you’re retired, you’ll want to plan an income and distribution strategy to help make your savings last as long as necessary and support other objectives.
Project the cost of essential big-ticket items. If you have a big expense in the near term, like college tuition or roof repair, put the money aside or increase your savings and treat that money as spent. If you know you’ll need the money within a few years, keep it in relatively liquid, safe investments like short-term certificates of deposit (CDs), a savings account, or money market funds purchased within a brokerage account. If you choose to invest in a CD, make sure the term ends by the time you need the cash. If you have more than a few years, invest wisely, based on your time horizon.
Prepare for emergencies. If you aren’t retired, consider creating an emergency fund with three to six months’ worth of essential living expenses set aside in a savings account. The emergency fund can help you cover unexpected but necessary expenses without having to sell more volatile investments.
Retired? Invest your living-expense money conservatively. Consider keeping 12 months of living expenses—after accounting for non-portfolio income sources like Social Security or a pension—in cash, an interest-bearing savings account, or a money market fund. Then consider keeping another two to four years’ worth of spending laddered in short-term bonds or individual CDs or invested in short-term bond funds as part of your portfolio’s fixed income allocation. You can use this money to cover expenses in the near term. Having a chunk of savings invested conservatively should allow you to invest a portion of your remaining savings for potential growth, at a level of risk appropriate for you, while reducing the chances you’ll be forced to sell more volatile investments (like stocks) in a down market.
Resolution 2: Manage your debt
Debt is neither inherently good nor bad—it’s simply a tool. It all depends on how you use it. For most people, some level of debt is a practical necessity, especially to purchase an expensive long-term asset to pay back over time, such as a home. However, problems arise when debt becomes more of a burden than a tool. Here’s how to stay in control.
Keep your total debt load manageable. Don’t confuse what you can borrow with what you should borrow. Keep the monthly costs of owning a home (principal, interest, taxes, and insurance) below 28% of your pre-tax income, and your total monthly debt payments (including credit cards, auto loans, and mortgage payments) below 36% of your pre-tax income.
Eliminate high-cost, non-deductible consumer debt. Try to pay off credit-card debt and avoid borrowing to buy depreciating assets, such as cars. The cost of consumer debt adds up quickly if you carry a balance. Consider consolidating your debt in a low-rate home equity loan or line of credit, setting a realistic budget, and implementing a schedule to pay it back.
Match repayment terms to your time horizons. If you’re likely to move within five to seven years, you could consider a shorter-maturity loan or an adjustable-rate mortgage (ARM), depending on current mortgage rates and options. Don’t consider this if you think you may live in your home for longer or struggle to manage mortgage payment resets if interest rates or your plans change. We also don’t suggest that you borrow money under the assumption that your home will automatically increase in value. Historically, long-term home appreciation has significantly lagged the total return of a diversified stock portfolio. And, for any type of debt, have a disciplined payback schedule. Create a plan to pay off the mortgage on your primary home before you plan to retire.
Resolution 3: Optimize your portfolio
We all share the goal of getting better investment results. But research shows it’s extremely difficult to always invest at the “perfect” time. So, create a plan that will help you stay disciplined in all kinds of markets. Follow your plan and adjust it as needed. Here are ideas to help you stay focused on your goals.
Focus on your overall investment mix. After committing to a savings plan, how you invest is your next most important decision. Have a targeted asset allocation—that is, a strategically proportioned mix of stocks, bonds, and cash in your portfolio—that you’re comfortable with, even in a down market. Make sure it fits your long-term goals, risk tolerance, and time frame. The longer your time horizon, the more time you’ll have to potentially benefit from up or down markets.
Diversify across and within asset classes. Diversification can help reduce risk and can be a critical factor in helping you reach your goals. Mutual funds and exchange-traded funds (ETFs) are great ways to own a diversified basket of securities in just about any asset class.
Consider taxes. Place relatively tax-efficient investments, like ETFs and municipal bonds, in taxable accounts and relatively tax-inefficient investments, like mutual funds and real estate investment trusts (REITs), in tax-advantaged accounts. Tax-advantaged accounts include retirement accounts, such as a traditional or Roth individual retirement account (IRA). If you trade frequently, do so in tax-advantaged accounts to help reduce your tax bill.
Monitor and rebalance your portfolio as needed. Evaluate your portfolio’s performance at least twice a year using a benchmark that makes sense for you. Remember, the long-term progress you make toward your goals is more important than short-term portfolio performance. As you approach a savings goal, such as the beginning of a child’s education or your retirement, begin to reduce investment risk, if appropriate, so you don’t have to sell more volatile investments, such as stocks, when you need them.
Choose appropriate benchmarks. Lastly, your benchmark to measure investment performance should match your portfolio and your goals. Don’t be tempted to compare your portfolio to what performed best in the market last year or even a portfolio invested 100% in stocks. You should have a portfolio selected to best meet your goals, with an appropriate balance of potential return and risk as well. Progress toward your goals is more important than picking the top-performing stocks each year—which, for any investor, isn’t possible to predict.
Resolution 4: Prepare for the unexpected
Risk is a part of life, particularly in investments and finance. Your financial life can be upended by all kinds of surprises—illness, job loss, disability, death, natural disasters, or lawsuits. If you don’t have enough assets to self-insure against major risks, make a resolution to get your insurance needs covered. Insurance helps protect against unforeseen events that don’t happen often but are expensive to manage yourself when they do. The following guidelines can help you prepare for life’s unexpected moments.
Protect against large medical expenses with health insurance. Select a health insurance plan that matches your needs in areas like medical and drug coverage, deductibles, co-payments, and choice of medical providers. If you’re in good health and don’t visit the doctor often, consider a high-deductible plan to insure against the possibility of a serious illness or unexpected health-care event.
Purchase life insurance if you have dependents or other obligations. First, take advantage of a group term insurance policy, if offered by your employer. Such programs don’t generally require a medical exam and can be a cost-effective way to provide income replacement for dependents. If you have minor children or large liabilities that will continue after your death for which you can’t self-insure, you may need additional life insurance. Unless you have a permanent life insurance need or special circumstances, consider starting with a low-cost term life policy before a whole life policy.
Protect your earning power with long-term disability insurance. The odds of becoming disabled are greater than the odds of dying young. According to the Social Security Administration, a 20-year-old American has a 25% chance of becoming disabled before normal retirement age and a 13% chance of dying before retirement age.1 If you can’t get adequate short- and long-term coverage through work, consider an individual policy.
Protect your physical assets with property-casualty insurance. Check your homeowner’s or renter’s and auto insurance policies to make sure your coverage and deductibles are still right for you.
Obtain additional liability coverage, if needed. A personal liability “umbrella” policy is a cost-effective way to increase your liability coverage by $1 million or more in case you’re at fault in an accident or someone is injured on your property. Umbrella policies don’t cover business-related liabilities, so make sure your business is also properly insured, especially if you’re in a profession with unique risks and aren’t covered by an employer.
Consider the pros and cons of long-term-care insurance. If you’re considering a long-term-care policy, look for a policy that provides the right type of care and is guaranteed renewable with locked-in premium rates. Long-term care insurance typically is most cost-effective starting at about age 50 and generally becomes more expensive or difficult to find after age 70. You can get independent sources of information from your state insurance commissioner. A sound retirement savings strategy is another way to plan for long-term-care costs.
Create a disaster plan for your safety and peace of mind. Review your homeowner’s or renter’s policy to see what’s covered and what’s not. Talk to your agent about flood or earthquake insurance if either is a concern for your area. Generally, neither is included in most homeowner’s policies. Keep an updated video inventory of valuable household items and possessions along with any professional appraisals and estimates of replacement values in a safe place away from your home.
Consider storing inventories and important documents on a portable hard drive. It’s also a good idea to have copies of birth certificates, passports, wills, trust documents, records of home improvements, and insurance policies in a small, secure “document safe” (the fireproof, waterproof kind that you can lock is best) that you can grab in a hurry in case you have to evacuate immediately. Make sure your trusted loved ones know about this file as well, in case they need it.
Resolution 5: Protect your estate
An estate plan may seem like something only for the wealthy. But there are simple steps everyone should take. Without proper beneficiary designations, a will, and other basic steps, the fate of your assets or minor children may be decided by attorneys and tax agencies. Taxes and attorney fees can eat away at these assets and delay their distribution just when your heirs need them most. Here’s how to protect your estate—and your loved ones.
Review your beneficiaries, especially for retirement accounts, annuities, and life insurance. The beneficiary designation is your first line of defense to make your wishes for assets known and ensure that they transfer to who you want quickly. Keep information on beneficiaries up to date to ensure the proceeds of life insurance policies and retirement accounts are consistent with your wishes, your will, and other documents.
Update or prepare your will. A will isn’t just about transferring assets; it can provide for your dependents’ support and care and help avoid the costs and delays associated with dying without one. It can also spell out plans to repay debts, such as a credit card or mortgage. Keep in mind, a beneficiary designation or asset titling trumps what’s written in a will, so make sure all documents are consistent and reflect your desires. When writing a will, we recommend working with an experienced lawyer or estate planning attorney.
Coordinate asset titling with the rest of your estate plan. The titling of your property and non-retirement accounts can affect the ultimate disposition and taxation of your assets. Talk with an estate attorney or lawyer about debts and the titling of assets, such as a home, that don’t have a beneficiary designation to make sure they reflect your wishes and are consistent with titling laws that can vary by state.
Have in place durable powers of attorney for health care. In these documents, appoint trusted and competent confidants to make decisions on your behalf if you become incapacitated.
Consider a revocable living trust. This is especially important if your estate is large and complex and you want to spell out how your assets should be used in detail, or if you have dependent children and want to detail how assets should be managed to support them, who will manage the assets, and other issues. A living trust may not be needed for smaller estates where beneficiaries, titling, and a will can suffice, but talk with a qualified financial planner or attorney to be sure.
Take care of important estate documents. Make sure a trusted and competent family member or close friend knows the location of your important estate documents.
Finally, remember you don’t have to do everything at once. There’s a lot you can do to improve your financial health by taking one step at a time and think of these resolutions as a checklist. Then use the checklist to make some real progress on your journey this year.
Tax-Smart Ways to Gift Highly Appreciated Assets
Transferring appreciated investments to family members or charity can benefit others while also potentially reducing your taxes.
If your estate-planning goals include transferring wealth to future generations or creating a charitable legacy, using highly appreciated assets to achieve those aims can help generate substantial potential income and estate tax savings in the process.
In most cases, transferring such assets to a family member or charity allows you to avoid paying capital gains taxes on the appreciation (your heirs will be subject to capital gains tax when they sell the holding) which for long-term holdings is taxed at up to 20%, plus an additional 3.8% net investment income tax if your income exceeds certain thresholds. Furthermore, gifting these assets removes any future appreciation from your estate.
Here are some popular ways to transfer highly appreciated assets for maximum tax efficiency.
- Giving to family
There’s a limit on how much you can gift to family members and others over your lifetime with no gift tax consequences. The federal gift and estate tax exemption is $13.61 million per person ($27.22 million for a married couple) in 2024 and $13.99 million ($27.98 million for couples) in 2025. However, if Congress doesn’t renew key provisions from the Tax Cuts and Jobs Act of 2017, the exemption may be cut in half starting in 2026 (with a new administration coming in, significant tax changes may be in store).
Estates that exceed the exemption limit may be subject to estate taxes up to 40%—but transferring highly appreciated assets to heirs before you pass can help reduce your taxable estate. To do so in a tax-smart manner, consider:
Outright gifting: In 2024, the IRS allows you to gift up to $18,000 per person (it increases to $19,000 in 2025) without utilizing part of your lifetime exemption or being required to complete a gift-tax return. As a couple, you and your spouse could give each of your children and grandchildren $36,000 this year with no hit to your estate tax exemption. And if you institute a regular annual gifting strategy, you could meaningfully reduce your taxable estate over time.
However, unlike assets passed down after death, assets that are gifted carry over your original purchase price (carry over basis) and holding period. If and when your heirs decide to sell the stock, they will incur capital gains on the appreciation from the date of your purchase to the date of their sale. That said, the inheritor’s taxes may be lower than yours if they’re in a lower tax bracket, so this option might be worth considering if, say, the gift is for a new graduate or other lower-income family member.
Upstream gifting: Gifting a highly appreciated position to older family members could also be an option if their estate isn’t large enough to exceed the estate tax exemption. With this strategy, known as upstream gifting, you transfer appreciated positions to your parent, who benefits from any income the assets generate before ultimately leaving the asset to your children or other selected beneficiary. When they eventually inherit the asset from your parent, they will receive the step-up in cost basis.
This strategy uses part of your lifetime estate and gift tax exemption to facilitate the transfer, but it removes future appreciation from your estate.
Establishing a trust: A grantor retained annuity trust (GRAT) is another method of removing future appreciation from your estate while passing assets to your beneficiaries tax-efficiently. They are often used for gifts to children but not grandchildren because GRATs are not necessarily exempt from generation skipping taxes.
Under this strategy, you transfer highly appreciating assets into a fixed-term, irrevocable trust, which then pays you annuity payments plus a rate of return (as determined by the IRS) for a set number of years. At the end of the term, any excess appreciation (i.e., if the investment return of the GRAT is greater than the IRS interest rate) of the assets passes to your beneficiaries tax-free and, depending on how you structure your GRAT, the gift may not count against your lifetime gift and estate tax exemption. Keep in mind that your heirs will maintain the original tax basis you had.
If you die before your GRAT term ends or the assets don’t grow as much as expected or lose value, little or no assets will be transferred and the value of the remaining assets, including any earnings, will be included in your taxable estate.
- Giving to charity
If philanthropy is a priority for you, donating long-term highly appreciated stock and other holdings directly to a charity can make your donated dollars stretch further because of both the income and estate tax advantages.
For one, doing so allows you to avoid the capital gains tax you would owe if you sold the asset first and then donated the proceeds. Plus, you may also be able to deduct the donated investment’s fair market value in the year of the donation up to IRS limitations.
To get this favorable tax treatment, you must have held the asset for longer than a year. Also be aware that the deduction for non-cash donations is capped at 30% of your adjusted gross income (AGI), versus 60% of AGI for charitable donations made in cash. If your deduction exceeds 30%, you can carry over and deduct any excess amount for up to five additional years.
Let’s say you paid $100,000 to purchase a stock that is now valued at $750,000—a gain of $650,000. Here’s how the tax savings compare for selling the asset first versus donating it directly to charity:
Donating stock directly to charity can have more tax savings than selling a stock first.
Sell stock and donate after-tax proceeds Donate stock directly to charity
Long-term capital gains taxes owed
$130,000
($650,000 x .20)
$0
Charitable gift and equivalent tax deduction
$620,000
($750,000 – $130,000)
$750,000
Tax savings
$99,400
([$620,000 x .37] – $130,000)
$277,500
($750,000 x 0.37)
Disclosure
Several vehicles can help implement this tax-smart strategy:
Donor-advised fund: These charitable accounts have no setup costs, low to no minimum contributions, and relatively low administrative fees. You can contribute your highly appreciated stock or other investments for a deduction in the current tax year, but you don’t have to immediately decide which charities will benefit from your gift.
Charitable remainder trust: You can donate your highly appreciated position to this type of irrevocable trust and you or your heirs receive an income stream for a dedicated term (not to exceed 20 years), after which the remaining trust assets go to your charity or charities of choice. You get an immediate charitable deduction on the value of the assets estimated to pass to the charity at the end of the trust term.
Private foundation: These are federally recognized charitable tax-exempt organizations that allow families and others to create and manage a legacy of charitable gift-giving for generations to come. Establishing a private foundation is a complex endeavor with differing tax deductions and implications, so be sure you’re prepared for the related time and expense involved.
Incorporating the whole picture
These are just a few of the many ways to potentially maximize your gift-giving while reducing the income and estate tax bite of your most appreciated investments. Having clearly defined giving strategy helps you manage estate tax risks, regardless of changes in estate tax limits across administrations. A financial or wealth consultant can help you approach your decision with your comprehensive financial situation in mind.
How to Cut Your Tax Bill with Tax-Loss Harvesting
Tax-loss harvesting—offsetting capital gains with capital losses—can lower your tax bill and better position your portfolio going forward.
Not every investment will be a winner. Fortunately, even losing investments come with a silver lining: You may be able to use those losses to lower your tax liability and reposition your portfolio for the future.
This strategy is known as tax-loss harvesting, and it’s one technique investors can use to make their investments more tax-efficient.
Tax-loss harvesting generally works like this:
You sell an investment that’s underperforming and losing money.
Then, you use that loss to reduce your taxable capital gains and potentially offset up to $3,000 of your ordinary income.
Finally, you reinvest the money from the sale in a different security that meets your investment needs and asset-allocation strategy.
The principle behind tax-loss harvesting is fairly straightforward, but it does involve some potential pitfalls you should try to avoid.
The basics of tax-loss harvesting
Imagine you’re reviewing your portfolio and see that your industrial stocks have dropped in value while your tech holdings have risen sharply. As a result, the industrial sector now accounts for less of your stock allocation than you’d prefer, while the tech sector is overweight.
To get your portfolio closer to your target allocation—a portfolio-maintenance practice known as rebalancing—you would sell your industrial-sector losers for a loss, as well as some of your tech stocks for a gain.
This allows you to do two things:
You can use the proceeds of these sales to buy other industrial stocks whose prospects you prefer, bringing your portfolio back to its target allocation.
You can use the value of your loss from the industrial shares to offset the taxable gains from the sale of your tech shares, thereby reducing your tax liability.
Furthermore, if your losses are larger than the gains, you can use the remaining losses to offset up to $3,000 of your ordinary taxable income (for married couples filing separately, the limit is $1,500). Any amount over $3,000 can be carried forward to future tax years to offset income down the road.
For example, let’s say you recognize a gain of $20,000 on a stock you bought less than a year ago (Investment A). Because you held the stock for less than a year, the gain is treated as a short-term capital gain and will be taxed at the higher ordinary-income rates rather than the lower long-term capital-gain rates, which apply to investments held for more than a year.
At the same time, you also sell shares of another stock for a short-term capital loss of $25,000 (Investment B). Your $25,000 loss would offset the full $20,000 gain from Investment A, meaning you’d owe no taxes on the gain, and you could use the remaining $5,000 loss to offset $3,000 of your ordinary income. The leftover $2,000 loss could then be carried forward to offset income in future tax years. Assuming you’re subject to a 35% marginal tax rate, the overall tax benefit of harvesting those losses could be as much as $8,050.
Using an investment loss to lower your capital-gains tax
Infographic illustrating the example outlined in the preceding paragraphs.
Source: Schwab Center for Financial Research.
Assumes a 35% combined federal/state marginal income tax bracket. The example is hypothetical and provided for illustrative purposes only. It is not intended to represent a specific investment product and the example does not reflect the effects of fees.
Neither the tax-loss harvesting strategy, nor any discussion herein, is intended as tax advice and Charles Schwab & Co., Inc. does not represent that any particular tax consequences will be obtained. Tax-loss harvesting involves certain risks including unintended tax implications. Investors should consult with their tax advisors and refer to the Internal Revenue Service (IRS) website at www.irs.gov about the consequences of tax-loss harvesting.
By offsetting the capital gains of Investment A with your capital loss from Investment B, you could potentially save $7,000 on taxes ($20,000 × 35%). Because you lost $5,000 more than you gained ($25,000 – $20,000), you can reduce your ordinary income by $3,000, potentially lowering your tax liability an additional $1,050 ($3,000 × 35%), for a total savings of $8,050 ($7,000 + $1,050). You could then apply the remaining $2,000 of your capital loss from Investment B ($5,000 – $3,000) to gains or income the following tax year.
Issues to consider before utilizing tax-loss harvesting
As with any tax-related topic, there are rules and limitations:
Tax-loss harvesting isn’t useful in retirement accounts, such as a 401(k) or an IRA, because you can’t deduct the losses generated in a tax-deferred account.
Long-term losses are first applied to long-term gains, while short-term losses applied to short-term gains. If you have excess losses in one category, you can apply them to gains of either type.
When conducting these types of transactions, you should also be aware of the wash-sale rule, which states that if you sell a security at a loss and buy the same or a “substantially identical” security within 30 days before or after the sale, the loss is typically disallowed for current income tax purposes.
A tax break for ordinary income
Even if you don’t have capital gains to offset, tax-loss harvesting could still help you reduce your income tax liability.
Let’s say Sofia, a single income-tax filer, holds XYZ stock. She originally bought it for $10,000, but it’s now worth only $7,000. She could sell those holdings and take a $3,000 loss. Then, she could use the proceeds to buy shares of ZYY stock (a similar but not substantially identical stock) after determining that it’s as good as or better than XYZ.
Sofia could use the $3,000 capital loss from XYZ to reduce her taxable income for the current year. If her combined marginal tax rate is 30%, she could receive a current income tax benefit of up to $900 ($3,000 × 30%). She could then turn around and invest her tax savings back in the market. If she assumes an average annual return of 6%, reinvesting $900 each year could potentially amount to approximately $35,000 after 20 years.
Harvesting losses regularly and proactively—when you rebalance your portfolio, for instance— can save you money over the long run, effectively boosting your after-tax return.
The Corporate Transparency Act and Your Small Business
What small-business owners need to know about the new Corporate Transparency Act.
If you own a small business or family office, you could soon be required to report ownership details to the federal government—or face stiff penalties and possible jail time. Here’s what you need to know.
Litigation Update: A federal district court recently ruled that the Corporate Transparency Act (CTA) is likely unconstitutional, placing a temporary ban on enforcement of the CTA. The Financial Crimes Enforcement Network (FinCEN) has agreed to suspend the mandatory reporting requirements of beneficial ownership information required by the CTA until the resolution of the ongoing litigation.
The federal government has filed an appeal to the United States Court of Appeals for the 5th Circuit, and the appeals court could decide to stay the district court’s ruling, which would mean that the CTA—including the mandatory reporting requirements—could be enforced while we await a possible future trial to decide the fate of the CTA. Because of the uncertainty, we believe business owners affected by the CTA should continue to prepare to comply with the new law’s reporting requirements.
What is it?
The Corporate Transparency Act (CTA), which goes into effect on January 1, 2024, requires otherwise unregulated companies to report information about “beneficial owners”—those who own at least 25% of or exercise substantial control over the reporting company—to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Failure to comply could result in fines of up to $10,000 and imprisonment for up to two years.
The substantial control attributed to beneficial owners could be serving as a senior officer, having the authority to appoint or remove senior officers, serving on a board of directors, having rights associated with financing arrangements, or overseeing intermediary entities that exercise substantial control over the business.
While this means a trust technically could be beneficial owner, the CTA states that beneficial owners must be individuals. Therefore, the trust document would need to be reviewed to determine whether the grantor, trustee, or beneficiaries are considered beneficial owners.
How does it affect business operations?
The immediate impact of the CTA on a small business is that owners will incur the administrative costs associated with compliance. Some business owners claim the law will affect their privacy because the FinCEN will receive their personal information.
In addition, the CTA may have implications for mergers and acquisitions. Potential buyers may require access to the beneficial ownership information as part of their due diligence process, which could make it difficult to attract buyers or negotiate favorable terms.
Why target small businesses?
The law attempts to close a loophole in corporate regulations that enables criminals to hide their identities using shell companies. However, the legislation may affect almost every small business in the U.S., including family offices, independent contractors, and the limited liability companies (LLCs) commonly used by mom-and-pop shop owners.
Family LLCs, in particular, are often used to transfer ownership of a business from one generation to the next in a tax-efficient way. By retaining a small interest, the original owner can claim certain discounts that reduce the value of the transfer for tax purposes. The CTA doesn’t prohibit this type of transaction, but new IRS rules will require these entities to report ownership information. Individuals who value privacy may forgo the use of LLCs in favor of other structures that still allow for some level of anonymity, such as irrevocable trusts.
What are the requirements?
Entities created on or after January 1, 2024, must report beneficial owner information to the FinCEN website within 90 calendar days of creation. Existing entities have until January 1, 2025, to comply with the statute, unless they undergo ownership changes—such as those triggered by a sale or minor children reaching the age of majority—in which case they have 30 days from the date of change.
The law exempts 23 types of businesses, including accounting firms, banks, charitable entities, and large operating companies that meet certain requirements.
If you’re a business owner, familiarize yourself with the CTA’s reporting requirements and meet with your accountant or attorney to discuss whether the new law affects you. Don’t wait for the government to come knocking—the stakes are just too high.
Jan 2025
A new study has revealed a few connections through which homeownership can impact longevity. The study, led by Dr. Casey Breen, Senior Postdoctoral Research Fellow at Oxford University’s Leverhulme Center for Demographic Science and Department of Sociology, examined the benefits of homeownership in the male population in the United States. It looked at 1920 and 1940 U.S. census records and Social Security mortality records to document Black-White disparities in homeownership rates and estimated the effect of homeownership on longevity using a sibling-based approach.
It found that homeownership was linked to an increased in life expectancy of 0.36 years for Black male Americans born in the early 20th century, and 0.42 years for white male Americans in the same cohort. According to the study, the connection to longevity came partly through wealth accumulation. “A home is the single largest component of nonpension wealth in the United States,” the study explains. First, homeownership likely reduces housing costs, saving owners from high rental prices and providing tax benefits such as tax deductions on mortgage interest and no capital gains tax. Second, homes will generally gain value over time. And third, monthly mortgage payments encourage savings, the study says. Another reason for longevity is that homeownership has a connection to social networks. Homeowners are more likely to feel a sense of community than renters, largely because homeowners often live in one neighborhood much longer than renters do. This helps them foster stronger ties to their communities, as well as more integration and interaction at community events. Longevity was also impacted by improved housing conditions as well as the psychological benefits of feeling a stronger sense of control and self-determinism over their lives because their environments are predictable and dependable.
LA City Council votes to boost housing development and leave single-family-home zones
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Source: MSN
The Los Angeles City Council on Tuesday voted to boost housing development in existing high density residential neighborhoods and along commercial corridors, while leaving single-family zones largely untouched. In a 15 to 0 vote, the council asked the city attorney to draft an ordinance to carry out that plan, which provides incentives to build both market rate and affordable units. Once the ordinance is drafted, it will come back to council for final approval.
The rezoning effort is in response to state housing mandates that seek to alleviate the housing crisis by requiring the city to find land where an additional 255,000 homes can be built and have the plan in place by mid-February. Last month, a city council committee approved a plan that allowed for more building in existing high density residential neighborhoods and along main streets in areas with jobs and good schools. Under the plan, developers would be able to build more than they currently can in those areas if they include a certain percentage of affordable units.
Mortgage rates dip today and refinance demand surges
Source: CNBC
Mortgage rates had been moving higher this week in anticipation of the release of the Consumer Price Index, which would reveal whether inflation were increasing. However, when the inflation numbers were released, rent inflation had its lowest gain since April 2021. According to the Mortgage Bankers Association’s seasonally adjusted index, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,650 or less decreased to 6.75 percent from 6.78 percent, with points remaining falling to 0.66 from 0.67 (including the origination fee) for loans with a 20 percent down payment.
Mortgage applications overall surged 5.4 percent last week compared with the prior week. Applications to refinance a home loan rose 27 percent week to week and were 42 percent higher than the same week one year ago. Applications for a mortgage to purchase a home fell 4 percent for the week and were 4 percent higher than the same week one year ago.
Here are five steps we encourage all investors to consider taking to help boost their financial fitness at any time of the year.
re you the kind of person who makes resolutions on New Year’s Day? Here are five steps we encourage all investors to consider taking to boost their financial fitness at any time of the year.
Resolution 1: Create a budget
Committing to a saving and investing program during your working years is generally the best way to boost your net worth and help achieve many of life’s most important goals. Of course, first you’ll need to know how much money you’ve got to work with. That’s where a budget and net worth statement can help. Here’s how to think about them:
Budget and save. At a minimum, be sure to have a high-level budget with three things: how much you’re taking in after taxes, how much you’re spending, and how much you’re saving. If you’re not sure where your money is going, track your spending using a spreadsheet or an online budgeting tool for 30 days. Determine how much money you need to cover your fixed monthly expenses, such as your rent or mortgage and other living expenses, and how much you’d like to put away for other goals. For retirement, we suggest saving 10%-15% of pre-tax income, including any match from an employer, starting in your 20s. If you delay, the amount you may need to save goes up. Add 10% for every decade you delay saving for retirement. Once you commit to an amount, consider ways you can save automatically, such as through monthly direct deposits.
Calculate your personal net worth annually. It doesn’t have to be complicated. Make a list of your assets (what you own) and your liabilities (what you owe). Subtract the liabilities from the assets to determine your net worth. Don’t panic if your net worth declines when the market is struggling. What’s important is to see a general upward trend over your earning years. If you’re retired, you’ll want to plan an income and distribution strategy to help make your savings last as long as necessary and support other objectives.
Project the cost of essential big-ticket items. If you have a big expense in the near term, like college tuition or roof repair, put the money aside or increase your savings and treat that money as spent. If you know you’ll need the money within a few years, keep it in relatively liquid, safe investments like short-term certificates of deposit (CDs), a savings account, or money market funds purchased within a brokerage account. If you choose to invest in a CD, make sure the term ends by the time you need the cash. If you have more than a few years, invest wisely, based on your time horizon.
Prepare for emergencies. If you aren’t retired, consider creating an emergency fund with three to six months’ worth of essential living expenses set aside in a savings account. The emergency fund can help you cover unexpected but necessary expenses without having to sell more volatile investments.
Retired? Invest your living-expense money conservatively. Consider keeping 12 months of living expenses—after accounting for non-portfolio income sources like Social Security or a pension—in cash, an interest-bearing savings account, or a money market fund. Then consider keeping another two to four years’ worth of spending laddered in short-term bonds or individual CDs or invested in short-term bond funds as part of your portfolio’s fixed income allocation. You can use this money to cover expenses in the near term. Having a chunk of savings invested conservatively should allow you to invest a portion of your remaining savings for potential growth, at a level of risk appropriate for you, while reducing the chances you’ll be forced to sell more volatile investments (like stocks) in a down market.
Resolution 2: Manage your debt
Debt is neither inherently good nor bad—it’s simply a tool. It all depends on how you use it. For most people, some level of debt is a practical necessity, especially to purchase an expensive long-term asset to pay back over time, such as a home. However, problems arise when debt becomes more of a burden than a tool. Here’s how to stay in control.
Keep your total debt load manageable. Don’t confuse what you can borrow with what you should borrow. Keep the monthly costs of owning a home (principal, interest, taxes, and insurance) below 28% of your pre-tax income, and your total monthly debt payments (including credit cards, auto loans, and mortgage payments) below 36% of your pre-tax income.
Eliminate high-cost, non-deductible consumer debt. Try to pay off credit-card debt and avoid borrowing to buy depreciating assets, such as cars. The cost of consumer debt adds up quickly if you carry a balance. Consider consolidating your debt in a low-rate home equity loan or line of credit, setting a realistic budget, and implementing a schedule to pay it back.
Match repayment terms to your time horizons. If you’re likely to move within five to seven years, you could consider a shorter-maturity loan or an adjustable-rate mortgage (ARM), depending on current mortgage rates and options. Don’t consider this if you think you may live in your home for longer or struggle to manage mortgage payment resets if interest rates or your plans change. We also don’t suggest that you borrow money under the assumption that your home will automatically increase in value. Historically, long-term home appreciation has significantly lagged the total return of a diversified stock portfolio. And, for any type of debt, have a disciplined payback schedule. Create a plan to pay off the mortgage on your primary home before you plan to retire.
Resolution 3: Optimize your portfolio
We all share the goal of getting better investment results. But research shows it’s extremely difficult to always invest at the “perfect” time. So, create a plan that will help you stay disciplined in all kinds of markets. Follow your plan and adjust it as needed. Here are ideas to help you stay focused on your goals.
Focus on your overall investment mix. After committing to a savings plan, how you invest is your next most important decision. Have a targeted asset allocation—that is, a strategically proportioned mix of stocks, bonds, and cash in your portfolio—that you’re comfortable with, even in a down market. Make sure it fits your long-term goals, risk tolerance, and time frame. The longer your time horizon, the more time you’ll have to potentially benefit from up or down markets.
Diversify across and within asset classes. Diversification can help reduce risk and can be a critical factor in helping you reach your goals. Mutual funds and exchange-traded funds (ETFs) are great ways to own a diversified basket of securities in just about any asset class.
Consider taxes. Place relatively tax-efficient investments, like ETFs and municipal bonds, in taxable accounts and relatively tax-inefficient investments, like mutual funds and real estate investment trusts (REITs), in tax-advantaged accounts. Tax-advantaged accounts include retirement accounts, such as a traditional or Roth individual retirement account (IRA). If you trade frequently, do so in tax-advantaged accounts to help reduce your tax bill.
Monitor and rebalance your portfolio as needed. Evaluate your portfolio’s performance at least twice a year using a benchmark that makes sense for you. Remember, the long-term progress you make toward your goals is more important than short-term portfolio performance. As you approach a savings goal, such as the beginning of a child’s education or your retirement, begin to reduce investment risk, if appropriate, so you don’t have to sell more volatile investments, such as stocks, when you need them.
Choose appropriate benchmarks. Lastly, your benchmark to measure investment performance should match your portfolio and your goals. Don’t be tempted to compare your portfolio to what performed best in the market last year or even a portfolio invested 100% in stocks. You should have a portfolio selected to best meet your goals, with an appropriate balance of potential return and risk as well. Progress toward your goals is more important than picking the top-performing stocks each year—which, for any investor, isn’t possible to predict.
Resolution 4: Prepare for the unexpected
Risk is a part of life, particularly in investments and finance. Your financial life can be upended by all kinds of surprises—illness, job loss, disability, death, natural disasters, or lawsuits. If you don’t have enough assets to self-insure against major risks, make a resolution to get your insurance needs covered. Insurance helps protect against unforeseen events that don’t happen often but are expensive to manage yourself when they do. The following guidelines can help you prepare for life’s unexpected moments.
Protect against large medical expenses with health insurance. Select a health insurance plan that matches your needs in areas like medical and drug coverage, deductibles, co-payments, and choice of medical providers. If you’re in good health and don’t visit the doctor often, consider a high-deductible plan to insure against the possibility of a serious illness or unexpected health-care event.
Purchase life insurance if you have dependents or other obligations. First, take advantage of a group term insurance policy, if offered by your employer. Such programs don’t generally require a medical exam and can be a cost-effective way to provide income replacement for dependents. If you have minor children or large liabilities that will continue after your death for which you can’t self-insure, you may need additional life insurance. Unless you have a permanent life insurance need or special circumstances, consider starting with a low-cost term life policy before a whole life policy.
Protect your earning power with long-term disability insurance. The odds of becoming disabled are greater than the odds of dying young. According to the Social Security Administration, a 20-year-old American has a 25% chance of becoming disabled before normal retirement age and a 13% chance of dying before retirement age.1 If you can’t get adequate short- and long-term coverage through work, consider an individual policy.
Protect your physical assets with property-casualty insurance. Check your homeowner’s or renter’s and auto insurance policies to make sure your coverage and deductibles are still right for you.
Obtain additional liability coverage, if needed. A personal liability “umbrella” policy is a cost-effective way to increase your liability coverage by $1 million or more in case you’re at fault in an accident or someone is injured on your property. Umbrella policies don’t cover business-related liabilities, so make sure your business is also properly insured, especially if you’re in a profession with unique risks and aren’t covered by an employer.
Consider the pros and cons of long-term-care insurance. If you’re considering a long-term-care policy, look for a policy that provides the right type of care and is guaranteed renewable with locked-in premium rates. Long-term care insurance typically is most cost-effective starting at about age 50 and generally becomes more expensive or difficult to find after age 70. You can get independent sources of information from your state insurance commissioner. A sound retirement savings strategy is another way to plan for long-term-care costs.
Create a disaster plan for your safety and peace of mind. Review your homeowner’s or renter’s policy to see what’s covered and what’s not. Talk to your agent about flood or earthquake insurance if either is a concern for your area. Generally, neither is included in most homeowner’s policies. Keep an updated video inventory of valuable household items and possessions along with any professional appraisals and estimates of replacement values in a safe place away from your home.
Consider storing inventories and important documents on a portable hard drive. It’s also a good idea to have copies of birth certificates, passports, wills, trust documents, records of home improvements, and insurance policies in a small, secure “document safe” (the fireproof, waterproof kind that you can lock is best) that you can grab in a hurry in case you have to evacuate immediately. Make sure your trusted loved ones know about this file as well, in case they need it.
Resolution 5: Protect your estate
An estate plan may seem like something only for the wealthy. But there are simple steps everyone should take. Without proper beneficiary designations, a will, and other basic steps, the fate of your assets or minor children may be decided by attorneys and tax agencies. Taxes and attorney fees can eat away at these assets and delay their distribution just when your heirs need them most. Here’s how to protect your estate—and your loved ones.
Review your beneficiaries, especially for retirement accounts, annuities, and life insurance. The beneficiary designation is your first line of defense to make your wishes for assets known and ensure that they transfer to who you want quickly. Keep information on beneficiaries up to date to ensure the proceeds of life insurance policies and retirement accounts are consistent with your wishes, your will, and other documents.
Update or prepare your will. A will isn’t just about transferring assets; it can provide for your dependents’ support and care and help avoid the costs and delays associated with dying without one. It can also spell out plans to repay debts, such as a credit card or mortgage. Keep in mind, a beneficiary designation or asset titling trumps what’s written in a will, so make sure all documents are consistent and reflect your desires. When writing a will, we recommend working with an experienced lawyer or estate planning attorney.
Coordinate asset titling with the rest of your estate plan. The titling of your property and non-retirement accounts can affect the ultimate disposition and taxation of your assets. Talk with an estate attorney or lawyer about debts and the titling of assets, such as a home, that don’t have a beneficiary designation to make sure they reflect your wishes and are consistent with titling laws that can vary by state.
Have in place durable powers of attorney for health care. In these documents, appoint trusted and competent confidants to make decisions on your behalf if you become incapacitated.
Consider a revocable living trust. This is especially important if your estate is large and complex and you want to spell out how your assets should be used in detail, or if you have dependent children and want to detail how assets should be managed to support them, who will manage the assets, and other issues. A living trust may not be needed for smaller estates where beneficiaries, titling, and a will can suffice, but talk with a qualified financial planner or attorney to be sure.
Take care of important estate documents. Make sure a trusted and competent family member or close friend knows the location of your important estate documents.
Finally, remember you don’t have to do everything at once. There’s a lot you can do to improve your financial health by taking one step at a time and think of these resolutions as a checklist. Then use the checklist to make some real progress on your journey this year.
Tax-Smart Ways to Gift Highly Appreciated Assets
Transferring appreciated investments to family members or charity can benefit others while also potentially reducing your taxes.
If your estate-planning goals include transferring wealth to future generations or creating a charitable legacy, using highly appreciated assets to achieve those aims can help generate substantial potential income and estate tax savings in the process.
In most cases, transferring such assets to a family member or charity allows you to avoid paying capital gains taxes on the appreciation (your heirs will be subject to capital gains tax when they sell the holding) which for long-term holdings is taxed at up to 20%, plus an additional 3.8% net investment income tax if your income exceeds certain thresholds. Furthermore, gifting these assets removes any future appreciation from your estate.
Here are some popular ways to transfer highly appreciated assets for maximum tax efficiency.
- Giving to family
There’s a limit on how much you can gift to family members and others over your lifetime with no gift tax consequences. The federal gift and estate tax exemption is $13.61 million per person ($27.22 million for a married couple) in 2024 and $13.99 million ($27.98 million for couples) in 2025. However, if Congress doesn’t renew key provisions from the Tax Cuts and Jobs Act of 2017, the exemption may be cut in half starting in 2026 (with a new administration coming in, significant tax changes may be in store).
Estates that exceed the exemption limit may be subject to estate taxes up to 40%—but transferring highly appreciated assets to heirs before you pass can help reduce your taxable estate. To do so in a tax-smart manner, consider:
Outright gifting: In 2024, the IRS allows you to gift up to $18,000 per person (it increases to $19,000 in 2025) without utilizing part of your lifetime exemption or being required to complete a gift-tax return. As a couple, you and your spouse could give each of your children and grandchildren $36,000 this year with no hit to your estate tax exemption. And if you institute a regular annual gifting strategy, you could meaningfully reduce your taxable estate over time.
However, unlike assets passed down after death, assets that are gifted carry over your original purchase price (carry over basis) and holding period. If and when your heirs decide to sell the stock, they will incur capital gains on the appreciation from the date of your purchase to the date of their sale. That said, the inheritor’s taxes may be lower than yours if they’re in a lower tax bracket, so this option might be worth considering if, say, the gift is for a new graduate or other lower-income family member.
Upstream gifting: Gifting a highly appreciated position to older family members could also be an option if their estate isn’t large enough to exceed the estate tax exemption. With this strategy, known as upstream gifting, you transfer appreciated positions to your parent, who benefits from any income the assets generate before ultimately leaving the asset to your children or other selected beneficiary. When they eventually inherit the asset from your parent, they will receive the step-up in cost basis.
This strategy uses part of your lifetime estate and gift tax exemption to facilitate the transfer, but it removes future appreciation from your estate.
Establishing a trust: A grantor retained annuity trust (GRAT) is another method of removing future appreciation from your estate while passing assets to your beneficiaries tax-efficiently. They are often used for gifts to children but not grandchildren because GRATs are not necessarily exempt from generation skipping taxes.
Under this strategy, you transfer highly appreciating assets into a fixed-term, irrevocable trust, which then pays you annuity payments plus a rate of return (as determined by the IRS) for a set number of years. At the end of the term, any excess appreciation (i.e., if the investment return of the GRAT is greater than the IRS interest rate) of the assets passes to your beneficiaries tax-free and, depending on how you structure your GRAT, the gift may not count against your lifetime gift and estate tax exemption. Keep in mind that your heirs will maintain the original tax basis you had.
If you die before your GRAT term ends or the assets don’t grow as much as expected or lose value, little or no assets will be transferred and the value of the remaining assets, including any earnings, will be included in your taxable estate.
- Giving to charity
If philanthropy is a priority for you, donating long-term highly appreciated stock and other holdings directly to a charity can make your donated dollars stretch further because of both the income and estate tax advantages.
For one, doing so allows you to avoid the capital gains tax you would owe if you sold the asset first and then donated the proceeds. Plus, you may also be able to deduct the donated investment’s fair market value in the year of the donation up to IRS limitations.
To get this favorable tax treatment, you must have held the asset for longer than a year. Also be aware that the deduction for non-cash donations is capped at 30% of your adjusted gross income (AGI), versus 60% of AGI for charitable donations made in cash. If your deduction exceeds 30%, you can carry over and deduct any excess amount for up to five additional years.
Let’s say you paid $100,000 to purchase a stock that is now valued at $750,000—a gain of $650,000. Here’s how the tax savings compare for selling the asset first versus donating it directly to charity:
Donating stock directly to charity can have more tax savings than selling a stock first.
Sell stock and donate after-tax proceeds Donate stock directly to charity
Long-term capital gains taxes owed
$130,000
($650,000 x .20)
$0
Charitable gift and equivalent tax deduction
$620,000
($750,000 – $130,000)
$750,000
Tax savings
$99,400
([$620,000 x .37] – $130,000)
$277,500
($750,000 x 0.37)
Disclosure
Several vehicles can help implement this tax-smart strategy:
Donor-advised fund: These charitable accounts have no setup costs, low to no minimum contributions, and relatively low administrative fees. You can contribute your highly appreciated stock or other investments for a deduction in the current tax year, but you don’t have to immediately decide which charities will benefit from your gift.
Charitable remainder trust: You can donate your highly appreciated position to this type of irrevocable trust and you or your heirs receive an income stream for a dedicated term (not to exceed 20 years), after which the remaining trust assets go to your charity or charities of choice. You get an immediate charitable deduction on the value of the assets estimated to pass to the charity at the end of the trust term.
Private foundation: These are federally recognized charitable tax-exempt organizations that allow families and others to create and manage a legacy of charitable gift-giving for generations to come. Establishing a private foundation is a complex endeavor with differing tax deductions and implications, so be sure you’re prepared for the related time and expense involved.
Incorporating the whole picture
These are just a few of the many ways to potentially maximize your gift-giving while reducing the income and estate tax bite of your most appreciated investments. Having clearly defined giving strategy helps you manage estate tax risks, regardless of changes in estate tax limits across administrations. A financial or wealth consultant can help you approach your decision with your comprehensive financial situation in mind.
How to Cut Your Tax Bill with Tax-Loss Harvesting
Tax-loss harvesting—offsetting capital gains with capital losses—can lower your tax bill and better position your portfolio going forward.
Not every investment will be a winner. Fortunately, even losing investments come with a silver lining: You may be able to use those losses to lower your tax liability and reposition your portfolio for the future.
This strategy is known as tax-loss harvesting, and it’s one technique investors can use to make their investments more tax-efficient.
Tax-loss harvesting generally works like this:
You sell an investment that’s underperforming and losing money.
Then, you use that loss to reduce your taxable capital gains and potentially offset up to $3,000 of your ordinary income.
Finally, you reinvest the money from the sale in a different security that meets your investment needs and asset-allocation strategy.
The principle behind tax-loss harvesting is fairly straightforward, but it does involve some potential pitfalls you should try to avoid.
The basics of tax-loss harvesting
Imagine you’re reviewing your portfolio and see that your industrial stocks have dropped in value while your tech holdings have risen sharply. As a result, the industrial sector now accounts for less of your stock allocation than you’d prefer, while the tech sector is overweight.
To get your portfolio closer to your target allocation—a portfolio-maintenance practice known as rebalancing—you would sell your industrial-sector losers for a loss, as well as some of your tech stocks for a gain.
This allows you to do two things:
You can use the proceeds of these sales to buy other industrial stocks whose prospects you prefer, bringing your portfolio back to its target allocation.
You can use the value of your loss from the industrial shares to offset the taxable gains from the sale of your tech shares, thereby reducing your tax liability.
Furthermore, if your losses are larger than the gains, you can use the remaining losses to offset up to $3,000 of your ordinary taxable income (for married couples filing separately, the limit is $1,500). Any amount over $3,000 can be carried forward to future tax years to offset income down the road.
For example, let’s say you recognize a gain of $20,000 on a stock you bought less than a year ago (Investment A). Because you held the stock for less than a year, the gain is treated as a short-term capital gain and will be taxed at the higher ordinary-income rates rather than the lower long-term capital-gain rates, which apply to investments held for more than a year.
At the same time, you also sell shares of another stock for a short-term capital loss of $25,000 (Investment B). Your $25,000 loss would offset the full $20,000 gain from Investment A, meaning you’d owe no taxes on the gain, and you could use the remaining $5,000 loss to offset $3,000 of your ordinary income. The leftover $2,000 loss could then be carried forward to offset income in future tax years. Assuming you’re subject to a 35% marginal tax rate, the overall tax benefit of harvesting those losses could be as much as $8,050.
Using an investment loss to lower your capital-gains tax
Infographic illustrating the example outlined in the preceding paragraphs.
Source: Schwab Center for Financial Research.
Assumes a 35% combined federal/state marginal income tax bracket. The example is hypothetical and provided for illustrative purposes only. It is not intended to represent a specific investment product and the example does not reflect the effects of fees.
Neither the tax-loss harvesting strategy, nor any discussion herein, is intended as tax advice and Charles Schwab & Co., Inc. does not represent that any particular tax consequences will be obtained. Tax-loss harvesting involves certain risks including unintended tax implications. Investors should consult with their tax advisors and refer to the Internal Revenue Service (IRS) website at www.irs.gov about the consequences of tax-loss harvesting.
By offsetting the capital gains of Investment A with your capital loss from Investment B, you could potentially save $7,000 on taxes ($20,000 × 35%). Because you lost $5,000 more than you gained ($25,000 – $20,000), you can reduce your ordinary income by $3,000, potentially lowering your tax liability an additional $1,050 ($3,000 × 35%), for a total savings of $8,050 ($7,000 + $1,050). You could then apply the remaining $2,000 of your capital loss from Investment B ($5,000 – $3,000) to gains or income the following tax year.
Issues to consider before utilizing tax-loss harvesting
As with any tax-related topic, there are rules and limitations:
Tax-loss harvesting isn’t useful in retirement accounts, such as a 401(k) or an IRA, because you can’t deduct the losses generated in a tax-deferred account.
Long-term losses are first applied to long-term gains, while short-term losses applied to short-term gains. If you have excess losses in one category, you can apply them to gains of either type.
When conducting these types of transactions, you should also be aware of the wash-sale rule, which states that if you sell a security at a loss and buy the same or a “substantially identical” security within 30 days before or after the sale, the loss is typically disallowed for current income tax purposes.
A tax break for ordinary income
Even if you don’t have capital gains to offset, tax-loss harvesting could still help you reduce your income tax liability.
Let’s say Sofia, a single income-tax filer, holds XYZ stock. She originally bought it for $10,000, but it’s now worth only $7,000. She could sell those holdings and take a $3,000 loss. Then, she could use the proceeds to buy shares of ZYY stock (a similar but not substantially identical stock) after determining that it’s as good as or better than XYZ.
Sofia could use the $3,000 capital loss from XYZ to reduce her taxable income for the current year. If her combined marginal tax rate is 30%, she could receive a current income tax benefit of up to $900 ($3,000 × 30%). She could then turn around and invest her tax savings back in the market. If she assumes an average annual return of 6%, reinvesting $900 each year could potentially amount to approximately $35,000 after 20 years.
Harvesting losses regularly and proactively—when you rebalance your portfolio, for instance— can save you money over the long run, effectively boosting your after-tax return.
The Corporate Transparency Act and Your Small Business
What small-business owners need to know about the new Corporate Transparency Act.
If you own a small business or family office, you could soon be required to report ownership details to the federal government—or face stiff penalties and possible jail time. Here’s what you need to know.
Litigation Update: A federal district court recently ruled that the Corporate Transparency Act (CTA) is likely unconstitutional, placing a temporary ban on enforcement of the CTA. The Financial Crimes Enforcement Network (FinCEN) has agreed to suspend the mandatory reporting requirements of beneficial ownership information required by the CTA until the resolution of the ongoing litigation.
The federal government has filed an appeal to the United States Court of Appeals for the 5th Circuit, and the appeals court could decide to stay the district court’s ruling, which would mean that the CTA—including the mandatory reporting requirements—could be enforced while we await a possible future trial to decide the fate of the CTA. Because of the uncertainty, we believe business owners affected by the CTA should continue to prepare to comply with the new law’s reporting requirements.
What is it?
The Corporate Transparency Act (CTA), which goes into effect on January 1, 2024, requires otherwise unregulated companies to report information about “beneficial owners”—those who own at least 25% of or exercise substantial control over the reporting company—to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Failure to comply could result in fines of up to $10,000 and imprisonment for up to two years.
The substantial control attributed to beneficial owners could be serving as a senior officer, having the authority to appoint or remove senior officers, serving on a board of directors, having rights associated with financing arrangements, or overseeing intermediary entities that exercise substantial control over the business.
While this means a trust technically could be beneficial owner, the CTA states that beneficial owners must be individuals. Therefore, the trust document would need to be reviewed to determine whether the grantor, trustee, or beneficiaries are considered beneficial owners.
How does it affect business operations?
The immediate impact of the CTA on a small business is that owners will incur the administrative costs associated with compliance. Some business owners claim the law will affect their privacy because the FinCEN will receive their personal information.
In addition, the CTA may have implications for mergers and acquisitions. Potential buyers may require access to the beneficial ownership information as part of their due diligence process, which could make it difficult to attract buyers or negotiate favorable terms.
Why target small businesses?
The law attempts to close a loophole in corporate regulations that enables criminals to hide their identities using shell companies. However, the legislation may affect almost every small business in the U.S., including family offices, independent contractors, and the limited liability companies (LLCs) commonly used by mom-and-pop shop owners.
Family LLCs, in particular, are often used to transfer ownership of a business from one generation to the next in a tax-efficient way. By retaining a small interest, the original owner can claim certain discounts that reduce the value of the transfer for tax purposes. The CTA doesn’t prohibit this type of transaction, but new IRS rules will require these entities to report ownership information. Individuals who value privacy may forgo the use of LLCs in favor of other structures that still allow for some level of anonymity, such as irrevocable trusts.
What are the requirements?
Entities created on or after January 1, 2024, must report beneficial owner information to the FinCEN website within 90 calendar days of creation. Existing entities have until January 1, 2025, to comply with the statute, unless they undergo ownership changes—such as those triggered by a sale or minor children reaching the age of majority—in which case they have 30 days from the date of change.
The law exempts 23 types of businesses, including accounting firms, banks, charitable entities, and large operating companies that meet certain requirements.
If you’re a business owner, familiarize yourself with the CTA’s reporting requirements and meet with your accountant or attorney to discuss whether the new law affects you. Don’t wait for the government to come knocking—the stakes are just too high.
More Home Buyers Expect Rosier 2025 Housing Outlook
The housing market could open up more opportunities to home buyers in the new year and lead to a housing rebound after two years of sluggish sales, housing economists said last week during NAR’s Real Estate Forecast Summit. During the virtual summit, NAR released its 2025 housing forecast, predicting stronger home sales (rebounding after hitting a 15-year low this summer), moderating but still increasing home prices, a greater number of homes coming up For Sale—both newly built and existing—as well as stabilizing mortgage rates.
Zillow’s Housing Market Predictions for 2025
Zillow predicts a more active housing market and more buyers gaining the upper hand in 2025, but those hoping to buy — or even refinance — should buckle up for a bumpy ride and stay ready to move when conditions are right. Rent affordability is on track to improve next year, as long as wages continue to grow, after a construction boom has eased pressure on rent prices.
Market Update
Despite mortgage rates remaining elevated in the past couple of months, the latest housing report offers some hope that the market will continue to get better as we wrap up 2024 and move into 2025. While home sales remained well below the pre-pandemic norm in November, market conditions continued to improve year-over-year. Inflation appears to be sticky, but it is in line with expectations for now, and the Fed will likely follow through with a reduction this week as such. Consumers are also feeling more optimistic about the housing market, which is a good sign that many potential homebuyers could be moving off the sidelines in the coming year.
Housing Market Unlikely to Thaw in 2025 Due to Affordability Challenges and ‘Lock-in Effect’
Affordability and the so-called “lock-in effect” are expected to keep housing activity subdued in 2025, with existing home sales forecast to move only slightly upward from recent multi-decade lows, according to the December 2024 commentary from the Fannie Mae Economic and Strategic Research Group. The broader economy is expected to remain on solid footing and expand at an above-trend pace through 2026 as it navigates elevated core inflationary pressures and heightened policy uncertainty.
California housing market sees largest sales increase since 2021
Source: Times of San Diego
California’s housing market recorded its largest annual increase in existing home sales since June 2021 this November, reported the CALIFORNIA ASSOCIATION OF REALTORS® on Tuesday. However, the market continues to recover slowly, with overall sales still far below pre-COVID levels. The sales of existing single-family homes climbed 1.1 percent from October’s 264,870 homes to 267,770 homes in November. Compared to November 2022, sales surged 19.5 percent from a revised 224,140 homes. C.A.R. noted, though, that this significant year-over-year growth was due to the “low-base effect,” as November 2022 sales dropped to their lowest point since late 2007.
The statewide median home price declined 4 percent month-over-month, from $888,740 in October to $852,880 in November. Despite this drop, the median price rose 3.8 percent year-over-year from November 2022’s revised $821,710. November’s price drop marked the largest October-to-November decline since 2008, following a significant price increase in the prior month. C.A.R. attributed the drop primarily to a shift in the sales mix, with higher-priced home sales pulling back more sharply than lower-priced sales.
Federal Reserve lowers interest rates but hints at fewer cuts next year
Source: NPR
The Federal Reserve lowered interest rates on Wednesday, but policy makers signaled caution about additional rate cuts next year in the face of stubborn inflation. The central bank lowered its benchmark interest rate by a quarter percentage point to a range of 4.25 percent to 4.5 percent. Rates have fallen by a full percentage point since September, making it cheaper to get a car loan, finance a business or carry a balance on your credit card.
On average, members of the Fed’s rate-setting committee said they expect borrowing costs to fall by only another half percentage point in 2025. That’s less than the projections three months ago, which predicted a full percentage point in rate reductions next year. While inflation has fallen sharply since hitting a four-decade high in 2022, progress on prices has slowed in recent months. The annual inflation rate in November was 2.7 percent – slightly higher than the month before. Fed officials say they’re determined to bring inflation down further, while acknowledging it’s been a lengthy and exhausting battle. Members of the rate-setting committee now think it will be 2027 before inflation falls to the Fed’s 2 percent target.
SoCal housing market slows for homes and rentals
Source: Los Angeles Times
The Southern California housing market is downshifting. The average home price in the six-county region fell 0.3 percent from October to $869,288 in November, according to Zillow, marking the fourth consecutive month of declines. Price are now 1.3 percent off their all-time high in July, but some economists say prospective home buyers and sellers shouldn’t expect home values to plunge – one reason behind the shift is the market typically slows in the fall and prices are still above where they were a year ago.
Still, more homes are hitting the market and mortgage interest rates remain high, creating a situation of slightly more supply and slightly less demand. As a result, annual price growth has slowed. Last month, Southern California home prices were 4.3 percent higher than a year earlier, compared to a recent peak of 9.5 percent in April. Senior economist at Zillow Orphe Divounguy said he expects annual price growth in Southern California to slow further next year, but not to turn negative. Though more homeowners are choosing to sell their home, many others still don’t want to give up their ultra-low mortgage rates they took out during the pandemic.
New California insurance rule will increase coverage in fire-prone areas
Source: CBS News
Under a new insurance regulation that just got approved last week, California Insurance Commissioner Ricardo Lara said homeowners would have an easier time buying fire insurance. The insurance crisis has been unfolding in the state for the last couple of years, with companies leaving or dropping customers, especially those who live in wildfire-prone areas.
Commissioner Lara announced on Friday that his plan to allow companies to use catastrophe models and climate change to set higher rates got the approval from the Office of Administrative Law. In exchange, he said companies promised to sell policies in areas with the greatest fire risks, such as Wine Country, the Santa Cruz Mountains, and the Oakland Hills. “This is the first time in California that there’s a requirement for insurance companies to write policies and we’re going to be enforcing that,” said Michael Soller, a deputy insurance commissioner at the state’s insurance department. He said the new regulation will require companies to try to cover 85 percent of homes in designated fire-prone zip codes.
California’s fourth-largest home insurer to drop all condo, rental policies
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Source: San Francisco Chronicle
Liberty Mutual, California’s fourth-largest home insurer, is planning to exit the condo and rental insurance markets in 2026. On the eve of a slate of reforms meant to incentivize insurance companies to write policies in California, Liberty Mutual has told state regulators it will stop offering new condo and renter policies in 2025. Existing customers will begin losing coverage in 2026, according to filings with the California State Department of Insurance.
In 2023, Liberty Mutual insured 6.75 percent of the California home insurance market, which includes homeowners, condo owners and renters insurance. Filings show Liberty Mutual currently insures just under 67,500 condos and about 102,000 rental properties under its Liberty Mutual and Safeco brands. The company hasn’t written new condo and rental policies under the Liberty Mutual brand since December 2023, according to the spokesperson. All existing customers will remain covered until at least January 2026. The company will continue offering insurance for homeowners.
November home sales surged more than expected
Source: CNBC
Sales of previously owned homes rose 4.8 percent in November compared with October, according to the National Association of REALTORS. That put them at a seasonally adjusted, annualized rate of 4.15 million units. Sales were 6.1 percent higher than November 2023. This is the third-highest pace of the year and the largest annual gain in three years. This count is based on closings, so contracts were likely signed in September and October.
According to the Mortgage Bankers Association’s seasonally adjusted index, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,650 or less increased to 6.75 percent from 6.67 percent, with points remaining unchanged at 0.66 (including the origination fee) for loans with a 20 percent down payment. Applications for a mortgage to purchase a home increased 1 percent for the week and were 6 percent higher than the same week one year ago. Refinance demand fell 3 percent for the week but was 41 percent higher than the same week one year ago.
California Experiences Largest Annual Increase in Home Sales Since June 2021
California had its largest yearly increase in existing home sales since June 2021 in November, but overall, the housing market remained a work-in-progress. Despite a double-digit growth rate from their year-ago level, sales of existing single-family homes remained well below the pre-Covid norm of 400,000 units, C.A.R. reported last week.
Existing, single-family home sales totaled 267,800 in November on a seasonally adjusted annualized rate, up 1.1 percent from 264,870 in October and up 19.5 percent from 224,140 in November 2023.
November’s statewide median home price was $852,880, down 4 percent from October but up 3.8 percent from $821,710 in November 2023.
Year-to-date statewide home sales edged up 3.1 percent
Fed Lowers Rates But Sees Fewer Cuts Next Year
The U.S. central bank cut interest rates last Wednesday, as expected, but Federal Reserve Chair Jerome Powell said more reductions in borrowing costs now hinge on further progress in lowering stubbornly high inflation, remarks that showed policymakers are starting to reckon with the prospects for sweeping economic changes under a Trump administration.
Court Grants Final Approval of NAR’s Settlement Agreement
Judge Stephen Bough last week granted final approval of the NAR settlement agreement in the class action case related to broker commissions.
C.A.R. supports the judge’s final approval as a reasonable and fair compromise that allows REALTORS® and REALTOR® organizations nationwide to move forward and serve consumers.
The agreement will resolve claims against NAR, over one million NAR members, all state/territorial and local REALTOR® associations, all association-owned MLSs, and all brokerages with an NAR member as principal that had a residential transaction volume in 2022 of $2 billion or less.
The judge’s approval of the settlement is an important step, but not the final one. It’s likely that many objectors will appeal the settlement to the Eighth Circuit Court of Appeals. While the outcome there may be unclear, the appellants would face an uphill battle in challenging the settlement and its approval.
FHFA Announces 2025 Conforming Loan Limits
The Federal Housing Finance Agency (FHFA) last week announced the conforming loan limit values for mortgages acquired by Fannie Mae and Freddie Mac (the Enterprises) in 2025. The conforming loan limit is $806,500 on one-unit properties and a cap of $1,209,750 in high-cost areas. The previous loan limits were $766,550 and $1,149,825, respectively.
The conforming loan limit determines the maximum size of a mortgage that government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac can buy or “guarantee.” Non-conforming or “jumbo loans” typically have tighter underwriting standards and sometimes carry higher mortgage interest rates than conforming loans, increasing monthly payments and hampering the ability of families in California to purchase homes by making them less affordable.
Market Update:
News on the economy and the housing market last week were mostly positive and encouraging. Black Friday kicked off the holiday shopping season and consumers were able to deliver. Retail sales on the day after Thanksgiving increased 3.4% year-over-year and more money is expected to be spent on Cyber Monday. Consumers are feeling more confident about the economy and their financial well-being was one reason for the holiday spending spree. The Consumer Confidence index which measures the level of optimism, indeed, increased for the second straight month in November. There was also good news in the housing market, as conforming loan limits were raised for 2025 and mortgage rates continued to recover after reaching their recent peak in early November. And while it was disappointing to see new home sales dropping to the lowest level in October, a separate housing market index released recently suggests that an improvement in buyers’ traffic and future sales were observed in November.
Homeowners’ wealth jumped $150,000 in 5 years
Source: Money.com
Though the housing market has been a rollercoaster ride over the past few years, homeowner wealth has surged by nearly $150,000 in the last five years. The pandemic initially caused a slowdown, but it was followed by a period of unprecedented demand, leading to sharp price increases and a competitive landscape for buyers. According to the National Association of REALTORS®, the pace of price increases has slowed down somewhat, however. The national median home price increased by 3.1 percent year-on-year in the third quarter of 2024, a slowdown from the 5 percent increase seen in the second quarter. While prices are still elevated, the deceleration suggests a potential shift toward a more balanced market.
NAR’s data shows that nearly 90 percent of major U.S. metro areas saw home price increases in the third quarter of 2024. Prior to 2024, mortgage rates had been steadily rising, reaching a peak above 7 percent, which had a chilling effect on affordability. However, the 30-year fixed-rate mortgage has since averaged in the mid-6 percent range, improving affordability. The monthly mortgage payment on a typical existing single-family home with a 20 percent down payment decreased by 2.4 percent year-over-year in the third quarter.
Unsung power players of real estate: How Gen X impacts the market
Source: Realtor.com
The real estate market seems to be constantly buzzing about baby boomers, Millennials and Gen Z, but what about Gen X? Born between 1965 and 1982, Gen X is the smallest age cohort by population, but they’re no less mighty when it comes to the housing market. Though Gen X accounts for just 19 percent of the U.S. population, a new National Association of REALTORS® report reveals that they represent 24 percent of recent homebuyers – a significant slice of the market. Around 60 percent of Gen Xers own their homes, and these properties carry some serious value.
Gen X is the second-highest-earning generation with an average annual income of $126,900 in 2023, with an average home size of 1,940 square feet. But homeownership hasn’t come without challenges. Gen X also shoulders more debt than any other generation, including an average of $45,557 in student loans and an average of $279,935 in mortgage balances. Many Gen Xers locked in historically low interest rates during the 2000s and early 2010s, with an average mortgage rate of just 4 percent, according to Freddie Mac.
Mini gold rush drives up property values in the Mojave Desert
Source: KTLA
It has been nearly 200 years since the famous California gold rush of the late 1840s, but mining property is hot once again, at least in one area of Southern California. Record-high gold prices have driven demand for mines in the Mojave Desert, the Los Angeles Times reports. “It’s a modern day gold rush,” entrepreneur Sean Tucker told the Times. “People are snapping up claims as quickly as possible.”
The physical dangers of mining remain, as do financial concerns. One might need to find only 18 ounces to make the property pay for itself. Plenty of gold is being found, but as one truck-driver-turned-miner noted, nothing about mining is simple or guaranteed. “It’s not easy,” Rudy Salazar said. “But I hope it pans out.”
Housing clash involving two mortgage giants could drive up mortgage costs
Source: Yahoo! Finance
The Trump administration’s latest push to end government conservatorship of Fannie Mae and Freddie Mac has the housing world abuzz. According to the National Association of REALTORS, these government-sponsored enterprises (GSEs) guarantee about 70 percent of U.S. mortgages. Any alterations to their structure could send shock waves through the housing market, impacting everything from mortgage rates to affordability
Fannie Mae and Freddie Mac have been under federal control since 2008 when the financial crisis pushed them into conservatorship. They are critical to the housing market because they buy mortgages from lenders, package them into securities and sell them to investors. This process allows banks to maintain the liquidity they need to continue issuing loans that help millions of Americans obtain long-term fixed-rate mortgages. Privatizing these two major lenders could remake the entire housing finance system. Advocates argue that it would reduce taxpayer risks and bring competition into the market. Critics, however, caution that it could come at a high price for borrowers. Without the implicit guarantee from the government, investors might grow more wary of mortgage-back securities, forcing up yields and, ultimately, mortgage rates.
Housing cost burdens climbed to record levels in 2023
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Source: Harvard Joint Center for Housing Studies
Housing affordability worsened again last year, as a record number of U.S. households were cost burdened. According to Harvard’s Joint Center for Housing Studies’ analysis of the 2023 American Community Survey data, an all-time high 42.9 million households were cost burdened, meaning they spent more than 30 percent of their income on housing costs. Additionally, 21.5 million households were severely cost burdened, devoting more than 50 percent of their income to housing, marking another all-time high.
The majority of the rise in burdened households was driven by an increasing number of cost-burdened homeowners, up by 3.6 million since 2019 to 20.3 million overall. Fully 24 percent of homeowners were burdened by housing costs. Median monthly costs for homeowners increased 6 percent in 2023 to $1,327. Overall costs for homeowners have risen 18 percent since 2019. At the same time, median homeowner incomes have risen 16 percent.
Homebuyer mortgage demand jumped 6% as interest rates fell
Source: CNBC
Potential homebuyers are responding to lower mortgage rates and a higher supply of homes for sale. That fueled mortgage demand last week, as consumers looking to refinance pulled back. Total mortgage application volume rose 2.8 percent compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. An additional adjustment was made for the Thanksgiving holiday.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,650 or less decreased to 6.69 percent from 6.86 percent, with points remaining falling to 0.67 from 0.70 (including the origination fee) for loans with a 20 percent down payment. Applications for a mortgage to purchase a home jumped 6 percent for the week and were 21 percent lower than the same week one year ago. Refinance demand dropped 1 percent for the week and were 7 percent lower than the same week one year ago. Conventional refinance applications declined despite the lower rates, but FHA and VA refinances rebounded from the week prior.
Reasons 2025 is the year to buy a home in California
Source: GoBankingRates.com
California’s desirable climate and geographical variety, from mountains to deserts with a mix of big cities and suburbs, contribute to housing prices that are often higher than in other parts of the country. However, things are shifting, and some experts say 2025 may be the year to consider buying a home here. Single-family home sales are expected to increase by 10.5 percent in 2025, to 304,400 units, according to data from the CALIFORNIA ASSOCIATION OF REALTORS®. If mortgage rates might ease, potential buyers previously priced out could find a more favorable environment.
While home prices will continue to rise, they are expected to do so at a slower pace than in the past few years, so getting in now will be better than waiting a few years. Unlike the rapid price hikes of recent years, this gradual appreciation rate can offer buyers more predictable investment returns.
Where economists think the housing market is headed
Source: HousingWire
Housing markets across the country have stalled since mortgage rates began to rise in 2022, but relief may be on the way. That’s according to Lawrence Yun, chief economist for the National Association of REALTORS® (NAR), whose latest forecast calls for a 9 percent increase in home sales in 2025 and a further boost of 13 percent in 2026. Underpinning these numbers are Yun’s belief that broader macroeconomic trends will boost the housing market.
Yun’s forecast came at the same time that the Mortgage Bankers Association (MBA) released a macroeconomic forecast that predicts a sluggish economy over the next few years. While gross domestic product rose 3.2 percent in 2023, MBA’s outlook is that 2024 will finish at 2.3 percent, followed by three years of growth of 2 percent or less. Residential investment, which boomed in the years following the COVID-19 pandemic, will be more mixed after hitting 2.5 percent growth in 2023. The MBA forecast shows a 0.1 percent gain in 2024, followed by more volatile growth of 1.1 percent to 3.3 percent in the next three years.
Interest rates keep going down, but mortgage rates don’t — here’s why
Source: CNC
The Federal Reserve keeps dropping key interest rates, but mortgage rates are actually going up, leaving some prospective homeowners facing a difficult reality. As mortgage rates continue to climb, potential buyers are starting to accept that they won’t come down for a while. The average mortgage rate is sitting at around 6.8 percent this week, and it has remained above 6 percent for the past two years. So why are mortgage rates remaining high? Experts blame a combination of better-than-expected growth and uncertainty over the economic impact of another Trump administration.
While the Federal Reserve has started easing interest rates, those cuts typically only impact long-term lending such as car loans or credit card debt. Mortgages are more closely tied to government bonds. Experts say that mortgage rates could push higher if the economy stays strong. Because of that, some economists expect the housing market to remain quiet through 2025.
California agencies issue alert on mortgage modification scams
Source: Calif. Dept. of Financial Protection & Innovation
The California Department of Corporations and the California Department of Real Estate jointly issued a consumer alert today warning homeowners about mortgage loan modification and home refinancing scams. Homeowners should be wary of any offer that tries to collect a fee in advance. Such practices are illegal. “Advance fees for loan modifications have been illegal in California since 2009,” said Corporations Commissioner Jan Lynn Owen. “Anyone trying to charge a homeowner upfront for such a service is violating the law and should be reported.”
Other scams include proposals to sign over your home to a third party to avoid foreclosure to stop making payments or even default on your mortgage loan as a means to gain negotiating leverage with your bank. Neither of these options will prevent foreclosure and could result in a property owner losing their home even sooner than if the bank were to foreclose.
Record number of first-time homebuyers needed inheritance to buy a home
Source: Yahoo! Finance
According to the latest data from the National Association of REALTORS® (NAR), a record share of first-time homebuyers at 7 percent are using an inheritance to finance their down payment. That’s more than double the share of repeat buyers who are doing the same. The trend highlights the growing disparity between who can buy a home in the U.S. and who can’t.
Amid higher rates and sky-high prices, the typical buyer is also older and wealthier than ever before. The median age of first-time buyers was up to 38 from 35 last year, and the median household income of first-time buyers was $97,000. At the same time, first-time buyers are putting down the largest down payments in almost 30 years to compete with the 26 percent of buyers who paid all cash for their home, also an all-time high.
Mortgage demand stalls as financial markets digest Trump presidency
Source: CNBC
Mortgage rates continued to climb last week as investors considered the future of the economy under a Trump presidency. Total mortgage application volume was essentially flat, rising just 0.5 percent last week compared with the prior week, according to the Mortgage Bankers Association’s seasonally adjusted index. While tiny, the increase marked the first rise in overall demand in seven weeks.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,650 or less increased to 6.86 percent from 6.81 percent, with points decreasing to 0.60 from 0.68 (including the origination fee) for loans with a 20 percent down payment. Refinance demand, which is most sensitive to weekly rate moves, fell 2 percent for the week but were 43 percent higher than the same week one year ago. Last year at this time, the 30-year fixed rate mortgage was 75 basis points higher. Applications for a mortgage to purchase a home rose 2 percent for the week and were just 1 percent higher than the same week one year ago. Homebuyers may be looking at lower rates than last year, but they are also seeing higher home prices while the supply of homes for sale remains lean.
Young homeowners more likely better off now than 4 years ago than young renters
Source: Redfin
Just over two-thirds (68.7 percent) of millennial/Gen Z homeowners say they are better off financially than they were four years ago. That compares to just over half (52.2 percent) of millennial/Gen Z renters, according to survey by Ipsos and commissioned by Redfin in September 2024. The survey was fielded to 1,802 U.S. residents aged 18-65. For the purposes of this report, respondents aged 18-27 were classified as Gen Z, while respondents aged 28-43 were classified as millennials. Those aged 44-59 were called Gen Xers and those aged 60-65 were baby boomers.
As recently as four years ago, millennials were considered the “unluckiest generation” given their relatively weak economic standing, saddled with debt for higher education and suffering from low wages and high costs of living. However, that started to change during the pandemic. Scores of young Americans bought their first home during the pandemic or the years leading up to it, and then benefitted from a surge in home values fueled by the 2021-2022 homebuying boom. That helped many young people build tremendous home equity, and home values are still on the rise today.
Annual inflation dips to 2.1%
Source: U.S. News and World Report
The last inflation report ahead of Tuesday’s election and next week’s Federal Reserve meeting shows prices rose at a 2.1 percent annual rate in September – a hair’s breadth away from the central bank’s 2 percent target. The personal consumption price expenditures index report last Thursday shows inflation at the lowest level since February 2021 and down from 2.2 percent in August. The core index, leaving our energy and food costs, was 2.7 percent. Analysts believe the Fed is likely to lower interest rates by 25 basis points, or one-quarter of a percent, following its surprise 50-basis-point (one-half a percent) cut in September.
The promise of lower borrowing costs appears to be cheering up consumers. Although shelter costs have remained a problem for inflation readings because rents remain high, the Conference Board’s monthly consumer confidence index surged in October, rising to 108.7 from 99.2 in September. On Wednesday, the government reported that gross domestic product increased at a 2.8 percent annual rate in the third quarter on strong consumer and government spending. Also, ADP said that employers added 233,000 jobs in October, far more than had been expected.
California sees spike in home sales falling through due to insurance
Source: Newsweek
California home sales are falling as property insurance becomes increasingly unaffordable, a new report from the CALIFORNIA ASSOCIATION OF REALTORS® has found. Based on responses from 96,000 REALTORS® in California, 13.4 percent said a sale had fallen through because of issues finding affordable insurance. That means about one in seven REALTORS® saw home insurance issues derail a sale – what was double the rate of last year, when 6.9 percent of REALTORS® said the same.
For 74.7 percent of REALTORS®, no insurance was available to a client, reflecting a growing crisis as more insurers leave the state. Meanwhile, 17.8 percent of the REALTORS said insurance premiums were simply too expensive for their client, causing the deal to collapse. While the insurance crisis might not be posing a significant problem in top markets such as the Bay Area, it can still force expensive renovations and delays in escrow, experts say.
Scammers are stealing homes using AI
Source: Business Insider
Emboldened by AI technology and immense amounts of public information, some scammers have begun more aggressively stealing deeds – also called title theft – say real-estate fraud experts. Their targets can range from mansion dwellers to owners of more modest homes and parcels of land. A May 2024 study by the American Land Title Association and economic research form NDP Analytics with 783 responses found seller impersonation fraud – when someone fakes the identities of property owners with the aim to sell their properties – is fairly common. Twenty-eight percent of title insurance companies experienced at least one seller impersonation fraud attempt in 2023; 19 percent saw attempts in April 2024 alone.
The FBI’s Internet Crime Complaint Center doesn’t specifically track deed fraud. However, in 2023, it processed a total of 9,521 real-estate-related complaints – which it defines as a loss of funds from a real-estate investment – resulting in more than $145 million in losses. Property data is readily available to the public, and in some states a simple search can unearth appraisal data, blueprints, transaction records, and even pictures of executed deeds. With AI, fake documents could be created faster and look more realistic. AI tools can also recognize vacant properties in databases faster than a human could or identify homes without mortgages attached to them (which could mark them as targets for a refinancing scheme). The amount of personal information available to fraudsters also makes impersonation easier.
Pending home sales took an unexpected leap last month, despite higher rates
Source: CNBC
Signed contracts to buy existing homes in September jumped a surprising 7.4 percent compared with August, according to the National Association of REALTORS. Analysts had been expecting a 1 percent gain. Pending sales were at the highest level since March and 2.6 percent higher than September of last year. However, mortgage rates rose last week for the fourth time in five weeks, causing a pullback in refinancing. Total mortgage application volume was essentially flat, falling 0.1 percent compared with the prior week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,650 or less increased to 6.73 percent from 6.52 percent, with points increasing to 0.69 from 0.64 (including the origination fee) for loans with a 20 percent down payment. Refinance demand dropped 6 percent for the week but were 84 percent higher than the same week one year ago. Applications for a mortgage to purchase a home increased 5 percent for the week and were 10 percent higher than the same week one year ago.
Market Minute
With mortgage rates climbing to a 3-month high, housing demand in the past few weeks has gone down as the number of mortgage applications reached its recent low since July. Home sales, as such, will likely remain soft in October and November until rates start coming down again. Meanwhile, new home sales last month reached the highest level since May 2023 as new housing markets benefited from low rates in September. However, with rates back to 7% recently, sales momentum in the new housing market will likely slow in the near future. On a brighter note, consumer short-term inflation expectations in September continued to stay at the lowest level since early 2021, which at least offers hopes that rates could gradually come down in the coming months.
October 2024
Pending home sales post biggest increase since 2021
Source: RedfinPending U.S. home sales rose 2 percent from the year prior during the four weeks ending October 6, the biggest increase in three years. Demand picked up at earlier stages of the homebuying process, too. Redfin’s Homebuyer Demand Index – a measure of tours and other buying services from Redfin agents – say near its highest level since May last week, and mortgage-purchase applications are up 8 percent month over month. New listings are also rising, with a 5.7 percent year-over-year uptick.
Pending sales improved because buyers came out of the woodwork in late September after the Fed’s interest rate cut, even though mortgage rates had already been declining for several weeks in anticipation of the cut.
Consumer confidence in housing market reaches highest level in two years
Source: Mortgage Orb
Consumer confidence in the housing market increased in September, as per Fannie Mae’s Home Purchase Sentiment Index (HPSI), which rose to a score of 73.9, the highest in two years. The share of survey respondents who say it is a good time to buy a home increased 2 percentage points (19 percent) in September compared with August, while the percentage who say it is a bad time to buy decreased from 83 percent to 81 percent. Conversely, the percentage of respondents who say it is a good time to sell a home (65 percent) remained unchanged compared with August, while the percentage who say it’s a bad time to sell (35 percent) increased 1 percentage point.
The share of respondents who say they expect mortgage rates to go down in the next 12 months increased from 39 percent to 42 percent, a new survey high – while the percentage who expect mortgage rates to go up increased from 25 percent to 27 percent.
America’s inflation is getting back to normal, but price problems persist
Source: CNN
America’s inflation continued to slow in September, reaching a fresh, three-and-a-half-year low and coming in at a pace that’s similar to what was seen in 2017 and 2018, according to data released Thursday. The Consumer Price Index, which measures price changes across commonly purchased goods and services, was 2.4 percent for the 12 months ended in September, slowing from a 2.5 percent annual rate in August, according to the latest Bureau of Labor Statistics report. This is the slowest since February 2021.
A jump in food prices – a sweeping bird flu has caused egg prices to spike – combined with ongoing, but easing, shelter-related inflation drove the overall CPI higher last month despite falling gas prices, BLS said. Stripping out food and energy costs, categories that are typically quite volatile, core CPI rose 0.3 percent in September, bringing the annual rate up to 3.3 percent after holding firm at 3.2 percent the past two months. The CPI was expected to be stubbornly high for the month, reflecting persistent housing inflation and lifts in prices for items such as insurance, lodging costs and vehicle prices.
What will happen to home prices as interest rates are cut?
Source: CBS News
Interest rates have been trending downward, with the Federal Reserve implementing its first cut of 2024 in September. Analysts predict more cuts could follow in the final months of this year and into 2025, potentially reshaping the real estate market. But lower rates don’t always mean better deals or lower home prices. In fact, rate cuts can affect the housing market in surprising ways. Some experts predict rising prices but declines and stability are also plausible under certain circumstances.
Lower interest rates typically energize the housing market. “The most likely scenario is that home prices will rise if rates cuts happen amid economic growth and limited housing supply,” says Albert Lord, founder and CEO of Lexerd Capital Management. That’s why he and other experts suggest that buyers should act quickly to take advantage of lower rates, while sellers may want to hold off to maximize offers as demand increases. While lower rates often boost home values, however, it’s not a guaranteed outcome. A significant economic downturn could lead to price drops, even with rate cuts. This less common scenario can happen when broader economic factors override the benefits of cheap borrowing. In certain cases, home prices could stay put, even when interest rates drop. High-demand areas such as Santa Barbara and other coastal cities are always popular and the limited inventory can prevent significant price fluctuations in those areas. However, buying even when rates are higher could allow home shoppers to purchase a home with less competition, and then they can refinance if rates drop later.
Do you have to tell a homebuyer if your house is haunted? What CA law says
Source: Sacramento Bee
Buying and selling a home in California requires complete transparency. However, as Halloween approaches, a spooky question haunts the real estate market: When selling a house, are California home sellers and agents required to disclose if a property is haunted? California law has no direct mention of paranormal activity when it comes to selling a house, Zillow said in a news release in October 2023. However, the law requires California residents to disclose any death that’s occurred in the home in the past three years. In addition, it’s best practice for a seller to disclose anything they know about the home, so especially if a potential buyer asks, it’s incumbent upon the seller and agent to be open about that they know.
If a buyer asks a seller or listing agent about the history of the home, the listing agent is required to answer honestly about any deaths that have happened on the property. It does not matter how long ago the death occurred. There is one exception to the law. If a person died due to HIV or AIDS, then the information doesn’t need to be disclosed to the buyer, due to a law passed in 1986 that protects the seller from disclosing details of the death when a buyer brings the topic into question. That law was intended to protect against stigmatization and discrimination, the Los Angeles Times reported in 1990.
Weekly mortgage demand drops as interest rates hit highest level since August
Source: CNBC
An abrupt turn higher for mortgage interest rates caused weekly demand from both potential homebuyers and current homeowners to drop. Total mortgage application volume fell 5.1 percent for the week compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,650 or less increased to 6.36 percent from 6.14 percent, with points increasing to 0.62 from 0.61 (including the origination fee) for loans with a 20 percent down payment. The refinance share of applications, which had been surging for several months, fell 9 percent for the week but were still 159 percent higher than the same week one year ago. Applications for a mortgage to purchase a home were essentially flat for the week, dropping 0.1 percent from the previous week and were 8 percent higher than the same week one year ago. Inventory has improved, but there is still not enough for sale on the more affordable end of the market.
Housing Confidence Inches Higher Amid Record-High Optimism Toward Mortgage Rates
The Fannie Mae Home Purchase Sentiment Index increased 1.8 points in September to 73.9, its highest level in more than two years, as consumers reported survey-high optimism that mortgage rates will decline over the next 12 months. In September, a record 42% of consumers said they expect mortgage rates to decline, up from 39% the month prior and 24% in June. This compares to 31% who expect mortgage rates to stay the same and 27% who expect rates to increase. However, a plurality of consumers also indicated that they expect home prices to increase over the next 12 months, which would offset some of the expected rate-driven improvement to affordability. Respondents’ perception of homebuying conditions ticked up slightly this month but remains not far from its all-time low, with only 19% indicating it’s a good time to buy a home. On the flip side, 65 percent of consumers think it’s a good time to sell a home.
Market Update
Although the Treasury market and interest rates were jolted by a better-than-expected jobs report two weeks ago that has kept mortgages elevated, most of the major macro indicators still point to an economy that is still trending towards target inflation with increasing signs that we will achieve the elusive “soft landing” scenario. The housing market in California continues to enjoy rising inventory and easing competition for available homes and pending sales suggest that buyers have begun to take advantage in spite of the typical seasonal slowdown that happens near the start of fall.
Hispanic Homeowners Narrow Home Value Gap to Smallest Margin on Record
New research from Zillow shows Hispanic homeowners making strides in narrowing the home value gap with white homeowners over the past two years, regaining ground lost during the pandemic. The gap is now the narrowest ever observed.
Hispanic-owned homes are currently worth 11.9% less than homes owned by non-Hispanic white households, down from 12.1% last year and a recent high of 12.4% in December 2021. The gap was as wide as 18% in 2012, following the global financial crisis of 2007–2009, when many minority communities were hit especially hard, setting back progress by several years. The slow climb back continued steadily until interrupted in 2021, but the course has now been corrected.
Big U.S. banks say consumers are still strong, despite economy fears
Source: Reuters
U.S. consumers remain resilient with solid spending in the third quarter, two of the country’s biggest lenders said on Friday, although there are signs higher inflation has stretched some Americans on lower incomes. Strong earnings from JPMorgan Chase and Wells Fargo and upbeat comments from their top executives should further ease investor worries that elevated borrowing costs were weighing on consumers and pushing the economy to the cusp of a downturn, even as JPMorgan hiked provisions for soured loans.
“Overall, we see the spending patterns as being sort of solid,” said Jeremy Barnum, chief financial officer of JPMorgan, adding that spending had normalized from a post-pandemic bounce. Barnum said that spending patterns were “consistent with the narrative that consumers are on solid footing and consistent with a strong labor market.”
Why the gap between American’s perception of U.S. economy and reality has doubled since 2019
Source: Forbes
A strange economic phenomenon is happening. By most objective measures, U.S. economic performance under the Biden-Harris administration has been superior to that under the Trump administration, and a vast majority of Americans report satisfaction with their economic situation. And yet, most Americans believe the economy is faring poorly, resulting in a large gap between their lived economic experience and perception of the state of the national economy.
Economists point to the large increase in the prices for a few major expenses, including housing – which has risen 20 to even 40 percent in some areas in just two years, and the recent rise in the price of food, both as groceries and from restaurants.
New market rate housing disappearing in Los Angeles, city reports
Source: The Center Square
Production of new market rate housing in Los Angeles has almost entirely disappeared over the last four years, according to a new report from the city. While so-called “affordable” housing is promoted as a cure for the state’s high cost of housing, research shows these homes only reduce costs for a select few and increased the time to build and cost of housing for everyone else. LACP wrote in its annual report that “in Fiscal Year 2023-24, a total of 22,623 proposed units were filed with Los Angeles City Planning for consideration. Of these, 16,458 units were proposed as deed-restricted housing, representing 73 percent of all housing units submitted to the Department for entitlement review and approval. Over the same time, a total of 17,556 housing units were approved, of which 10,588 units (60 percent) were deed-restricted affordable units. During the prior four-year period, the average share of affordable housing units was 30 percent, and the average share of affordable housing units approved was 24 percent.
Two recent changes in local policy are Los Angeles Mayor Karen Bass’s Executive Order 1, which expedites the permitting of 100 percent of affordable housing, and Measure ULA, a property transfer tax approved by voters in November 2022.
Calif. residents can expect insurance rate hikes in the coming months
Source: MSN
California residents can expect sharp increases in their condo, renter and home insurance rates in the coming months. State Farm recently requested permission from state regulators to raise rates by 30 percent for homeowners, 52 percent for renters, and 36 percent for condo owners. Allstate Insurance just received approval to raise rates by an average of 34 percent. The increase is hitting some residents hard.
While many are frustrated by the rate increases, some residents may lose their coverage entirely. State Farm, the largest insurance provider in California, disclosed its plans to drop coverage for 72,000 houses and apartments and will not issue new policies in the state. However, not all residents will be impacted – mostly those in high-risk areas. Climate change-related wildfires have increased, putting more homes at risk. From 2020 to 2023, the average area burned by wildfires each year in California was three times larger than the average in the 2010s.
Weekly mortgage demand tanks 17% after rates hit highest level since August
Source: CNBC
Mortgage interest rates rose last week for the third straight week, hitting the highest level since August. That caused demand from both current homeowners and potential homebuyers to take a big step back. Total mortgage application volume fell 17 percent for the week compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,650 or less increased to 6.52 percent from 6.36 percent, with points increasing to 0.65 from 0.62 (including the origination fee) for loans with a 20 percent down payment. The refinance share of applications, which is the most sensitive to weekly rate moves, fell 26 percent for the week but were still 111 percent higher than the same week one year ago. Applications for a mortgage to purchase a home fell 7 percent for the week but were 7 percent higher than the same week one year ago. More supply on the market now is opening up opportunities for some buyers.
Long Beach offers zero-interest loans for homeowners to build backyard housing
Source: KTLA5
The City of Long Beach is launching a pilot program that will award up to 10 residents no-interest loan financing to construct an accessory dwelling unit (ADU) on their property. The goal of the Backyard Builders Program is to incentivize and make it easier for homeowners in the city to create an affordable rental unit on their property by providing assistance with financing, designing, construction and the permitting process.
Up to 10 qualified residents will be able to secure a 30-year, 0 percent interest loan to build an ADU on their property worth up to $200,000. In exchange for the loan, the homeowners must agree to rent their ADU at an affordable rate to an individual or family who meets the program’s income limit. Priority will also be given to homeowners who rent out their new unit to those receiving housing assistance vouchers. Loan payments will be put on pause during the construction of the unit, and no interest will accrue on the loan for as long as it’s rented out at an affordable rate to income-qualified tenants.
September was a turning point for home purchase demand
Source: Redfin
Pending U.S. home sales were flat from a year earlier during the four weeks ending September 29, marking the first time since January pending sales didn’t decline. It’s worth noting that we’re comparing to a period last year when sales slumped as mortgage rates surged into the mid-7 percent range. Pending sales increased year over year in 27 of the 50 most populous U.S. metros, the most since January. They rose most in Phoenix (13 percent), followed by San Jose (12 percent), and Portland, OR (10 percent). Homebuying demand is starting to improve in those places after dropping to a low point last year but pending sales are still below pre-pandemic levels.
Homebuying demand at earlier parts of the buying process is improving, too, as mortgage rates are starting to come down. Redfin’s Homebuyer Demand Index (a measure of tours and other buying services from Redfin agents) is up 9 percent month over month to its highest level since April. Homebuyers locked in more than twice as many mortgages than they did a month earlier on September 30, according to Optimal Blue data.
REALTORS® give homebuyers out due to California’s insurance crisis
Source: ABC10
The California insurance crisis, which has seen a pause or a dramatic drop in new and renewed homeowner insurance policies, is now impacting the state’s real estate industry. The CALIFORNIA ASSOCIATION OF REALTORS®’s purchase agreement now has a specific contingency for insurance, allowing the buyer to cancel the contract if they are not satisfied with the insurance options and cost available to them.
“The landscape for insurance in California has changed quite a bit,” said Erin Stumpf, a Sacramento REALTOR® with Coldwell Banker Realty. “Usually, it was almost an afterthought in our transactions, and now I am advising my clients on day one, start trying to shop for insurance. Anywhere that is a moderate high fire hazard area, those are the areas where we see difficulty in obtaining policies. It is even becoming a little bit of a problem in our suburban and urban areas, too. If a property is older, if a property has aging plumbing, electrical, or maybe an older roof or trees that encroach on the structure, those things can be problematic when trying to get an insurance policy.” Finding a good REALTOR® and insurance agent can help consumers navigate the changing landscape. For homeowners, it is recommended to be proactive, doing repairs and trimming trees to prevent receiving a non-renewable notice from the insurance company.
California among top states in which buyers search for tiny homes
Source: Realtor.com
Tiny houses are exploding in popularity, and a new report shows where the most homebuyers are searching for diminutive dwellings. The global market for tiny homes (under 400 square feet) hit $5.61 billion in 2023, and experts predict it could rise to as much as $7.39 billion by 2031, according to research by concierge realty group Palm Paradise. “Tiny homes promote sustainability because they cost fewer resources to build and run, and they encourage minimalist living,” according to the study. “Their small spaces force homeowners to be strategic and thoughtful about what they buy, promoting the concept of mindful consumption.” However, many tiny homes do not include the land they are built on, don’t come with septic tanks, and may be too small for families or those with more storage or accessibility needs.
California ranked number two in the list of states where people were searching for tiny homes, at 32,360 per 100,000 searches. Texas was the number one state in terms of tiny home searches, at 36,200 out of every 100,000 searches. Third was Florida, with 27,310 out of every 100,000 searches, then North Carolina, with 17,470 searches out of every 100,000.
Home builder confidence rises in September amid rate cuts
Source: Yahoo! Finance
The Home Builder Confidence Index rose to 41 in September, up from August’s reading of 39. The latest print from the National Association of Home Builders (NAHB) came in line with expectations as mortgage rates continue to cool to 19-month lows. In this video, anchor Seana Smith breaks down the data and what interest rate cuts from the Federal Reserve could mean for the homebuilder category.
Red-hot refinance demand retreats after tiny bump in mortgage rates
Source: CNBC
Mortgage rates moved ever so slightly higher last week, but it was enough to take a little heat out of what had been a briefly red-hot refinance market. That caused total mortgage application volume to fall 1.3 percent for the week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,650 or less increased to 6.14 percent form 6.13 percent, with points increasing to 0.61 from 0.57 (including the origination fee) for loans with a 20 percent down payment. The rate was 139 basis points higher the same week one year ago. The refinance share of applications fell 3 percent for the week but were still a striking 186 percent higher than the same week one year ago. The vast majority of borrowers today have mortgages with rates well below 5 percent, but those who may have purchased a home in the past year or two might be able to benefit from a refinance to today’s lower rates. Applications for a mortgage to purchase a home rose 1 percent for the week and were 9 percent higher than the same week one year ago. The fall market does appear to be warming up a little bit, with real estate brokerages such as Redfin reporting more home tours in the last few weeks.
Vote NO on Prop 33!
Check your mailboxes this week. Counties across California have begun sending ballots. Voting has begun, and the stakes have never been higher. One of the most important issues on the ballot is Proposition 33, which C.A.R. strongly opposes.
Prop 33 poses a serious risk to homeownership and property rights in California. With the election underway, it’s time to stand together and protect homeowners by voting NO on Prop 33. This measure would impose extreme rent control on single-family homes, reduce the production of new rental housing and give local unelected government boards more control over rental properties. Let’s work together to defeat Prop 33 and protect homeownership rights in California!
Market Update
With the latest job growth report surpassing everyone’s expectation, financial markets now believe the central bank is not likely to cut rates aggressively in at least their upcoming November meeting. The anticipation of the Fed’s slower rate cut pace prompted a drop in bond prices and a surge in yields since late last week. Mortgage rates, as such, have jumped back to the highest level since early August. While the strong job growth in September is great news for the economy, there is still plenty of evidence to suggest that the labor market is cooling. As such, mortgage rates should begin to stabilize in the next couple of weeks and will come down before the end of the year. The eventual decline, however, is expected to be gradual and a sharp drop is unlikely.
Sep 2024
Home listings up more than 60% in some cities
Source: CNBC
The supply of homes for sale is still low by historical standards, but it is rising quickly. Nationwide, active listings in August were up 36 percent compared with the same month last year, according to a new report from Realtor.com. That was the 10th straight month of annual growth. The widely anticipated Fed rate cut has already ushered in lower mortgage rates, according the Realtor.com Chief Economist Danielle Hale, but it seems that some buyers and sellers are waiting for additional declines.
While supply is increasing in most cities, some are seeing huge gains. San Diego, California’s inventory is up 80 percent compared with a year ago. Tampa, Florida’s inventory is up more than 90 percent, Miami is up 72 percent, Seattle is up 69 percent, and Denver is up 67 percent. In the Western region, active listings rose 35.7 percent. More supply is causing homes to sit for sale loner. The typical home spent 53 days on the market in August, an increase of seven days from a year ago and the slowest August pace in five years.
Wholesale inflation slowed again last month
Source: CNN
The Producer Price Index, which measures average changes seen by producers and manufacturers, markedly slowed in August to a rate of 1.7 percent from an annual increase of 2.1 percent the month before, according to the U.S. Bureau of Labor Statistics’ data released Thursday. On a monthly basis, prices rose 0.2 percent, a faster pace than in July, when prices were flat. August’s monthly increase was driven by a 0.4 percent gain on the services side, as goods prices were unchanged, thanks in part to falling energy prices.
While producer prices overall cooled for a second straight month, a closely watched measure of underlying inflation showed that some price hikes are remaining stubbornly elevated. On Wednesday, the Consumer Price Index fell to its lowest headline rate in three-and-a-half years cut the core (excluding gas and food) reading accelerated more than anticipated.
Black borrowers’ mortgage applications denied twice as often as whites’, report shows
Source: USA Today
Mortgage applications from borrowers of color are denied significantly more frequently than those from white borrowers, a recent analysis shows. In 2023, 27.2 percent of Black applicants were denied a mortgage, more than double the 13.4 percent of white borrowers. That’s a full 10 percentage points higher than borrowers of all races according to the analysis of the Home Mortgage Disclosure Ace from the Urban Institute’s Housing Finance Policy Center.
The application data confirms deep disparities in mortgage financing that show up elsewhere in the housing market: Black borrowers accounted for only 8.5 percent of all purchase mortgage borrowers in 2023, for example – also according to the Home Mortgage Disclosure Act. Meanwhile, in 2024, the Black homeownership rate is 45.3 percent whopping 30 percentage points below that of white households, at 74.4 percent. For Latino households, it’s 48.5 percent.
City National Bank offering grants in LA after redlining settlement
Source: Inman
City National Bank is now offering grants of up to $50,000 in majority-Black or Hispanic census tracts in the metro Los Angeles market as part of a larger initiative to boost lending to underserved communities in several states following a record redlining settlement with federal regulators last year. In what was touted as the biggest redlining settlement ever reached by the U.S. Department of Justice, City National in January 2023 agreed to invest at least $31 million in majority-minority neighborhoods in Los Angeles County.
City National, a subsidiary of the Royal Bank of Canada, is offering Ladder Up Home Loan Grants of up to $50,000 within the Los Angeles-Long Beach-Glendale, California, Metropolitan Statistical Area (MSA). The Ladder Up program, which is not limited to first-time homebuyers, lets borrowers buy a home with as little as 3 percent down without taking on the added burden of mortgage insurance.
Real estate scams are on the rise
Source: Fox Business
Real estate scams are on the rise, experts warn, whether it’s empty promises of lucrative pay days from flipping houses, fake property postings or deceptive mortgage relief schemes. The issue with these types of scams is that victims are at risk of losing a sizable amount of money given the monetary value of these transactions.
Since the beginning of the year, the Federal Trade Commission (FTC) has sent refunds to consumers who fell victim to such scams. In March and July, the FTC issued more than $20 million in refunds to consumers who had paid for real estate investment training programs that allegedly made empty promises about earning significant profits from “flipping” houses in two separate schemes. In August, the FTC issued $222,000 in refunds to consumers harmed by a deceptive mortgage relief operation known as Lanier Law, which collected upfront fees from homeowners with fake promises to lower their monthly payments, according to the FTC. Another scam that’s been circulating is fraudulent wiring information sent to buyers, says David Bediz, owner of Bediz Group LLC and REALTOR® at Keller Williams Capital Properties. Another common scam is a foreclosure “bail out,” which is when a homeowner is convinced to sign away rights to their home in exchange for the promise of “catching up” a mortgage loan.
Mortgage rates hit lowest level since February 2024
Source: CNBC
Mortgage rates fell for the sixth straight week last week, but mortgage demand still seems to be waiting for something bigger. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less on average) decreased to 6.29 percent from 6.43 percent, with points falling to 0.55 from 0.56 for loans with a 20 percent down payment, according to the Mortgage Bankers Association.
Total mortgage application volume rose just 1.4 percent compared to the prior week, according to the Mortgage Bankers Association’s seasonally adjusted index. Applications to refinance a home loan only increased 1 percent from the previous week but were 106 percent higher than the same week one year ago. That may sound like a massive increase, but the numbers were so low last year, that even with that large gain, refinancing is still historically low. Applications for a mortgage to purchase a home rose 2 percent for the week but were still 3 percent lower than a year ago.
Market Update
As the market awaits for the Fed’s announcement on their upcoming rate cut later this week, latest inflation reports continue to provide mixed signals on how much the fed funds rate will be reduced in the September meeting. The market currently projects a 63% chance of a 50-basis-points (bps) rate reduction, and a 37% chance of a 25-bps rate cut. Regardless of the size of the reduction, if mortgage rates remain near the current level or dip further in the coming months, the housing market should begin to see a more consistent bounce-back as we move toward the end of the year.
Mortgage Payments Fall Lower Than Rent in 22 of the 50 Largest US Metros
The monthly cost of homeownership may be more attainable than people think. But, it depends on where they live. According to a new Zillow Home Loans analysis, a monthly mortgage payment is actually less expensive than rent in 22 of the 50 largest U.S. metros. Recent dips in mortgage rates, which have fallen to the lowest level since early 2023, have significantly reduced monthly payments.
Fed makes aggressive interest rate cut
Source: RisMedia
The U.S. Federal Reserve (Fed) has finally turned expectations into reality, making its first interest rate cuts since the start of the pandemic. Against the backdrop of a cooling job market and cooling inflation, all Fed officials opted to lower the federal funds rates by half a percentage point – 50 basis points – to 4.75 percent to 5 percent, making a milestone move for the central bank which has been trying to tame inflation for more than four years.
Wednesday’s announcement marks the start of an easing campaign that the Fed has signaled for months as inflation has trended downward. “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” according to the Fed meeting summary. The latest Consumer Price Index (CPI) – a key inflation gauge – showed a 2.5 percent annual gain in August, within striking distance of the Fed’s goal. While rate cuts suggest a favorable outlook for the economy and potentially lower borrowing costs, homebuyers may not feel the impacts of the Fed’s new easing campaign for a few months.
The average homeowner just gained another $25,000 in equity
Source: HousingWire
Home equity continued to rise in the second quarter of 2024 as residential properties with mortgages gained $1.3 trillion in equity over the past year, though growth began to slow during these three months, according CoreLogic’s Homeowner Equity Insights report. The aggregate equity gain was 8 percent year over year, bringing total equity on mortgaged properties to more than $17.6 trillion at the end of Q2 2024. These homeowners across the nation saw an average gain of $25,000 during the year ending in June.
California homeowners saw an average annual equity gain of $55,000, while New Jersey homeowners gained on average $53,000 and Texas homeowners typically lost $2,600. The average homeowner has approximately $315,000 in equity, which is nearly $129,000 higher than the average equity level per homeowner recorded at the start of the COVID-19 pandemic. “The substantial accumulation of home equity for existing homeowners has served as an important financial buffer in times of uncertainty, as some homeowners facing higher costs of homeowners’ insurance and taxes have had to tap into their equity to prevent falling behind on their mortgages,” explained CoreLogic Chief Economist Selma Hepp.
Gov. Newsom signs several new housing bills
Source: NBC Bay Area
California Governor Gavin Newsome signed into law a comprehensive bipartisan housing package, with 32 bills focused on addressing homelessness and the scarcity of housing in the state. Bills aimed at streamlining the production of housing, creating transparency, efficiency and other protections for housing, as well as some laws that focus on tribal housing. The target number of units to be built is 2.5 million by 2030. According to the Governor’s office, 181,000 Californians experienced homelessness in 2023. Roughly half, or 90,000, were unsheltered.
One of the new laws frees up Proposition 1 funding for new Homekey housing. It is set to create more than 4,000 new permanent housing units paired with mental health and other services. Half of the units are reserved for veterans with behavioral health needs.
Weekly mortgage demand surges as interest rates hit two-year low
Source: CNBC
Mortgage rates came down again last week and could fall further now that the Federal Reserve has cut interest rates. While mortgage rates don’t follow the Fed exactly, they are influenced by policy. In fact, most mortgage providers have already assumed that interest rates will come down so that the cut is “baked in” to mortgage rates. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less on average) decreased to 6.15 percent from 6.29 percent, with points increasing to 0.56 from 0.55 for loans with a 20 percent down payment, according to the Mortgage Bankers Association.
Total mortgage application volume rose just 14.2 percent compared to the prior week, according to the Mortgage Bankers Association’s seasonally adjusted index. Applications to refinance a home jumped 24 percent from the previous week and were 127 percent higher than the same week one year ago. Most of those applicants likely purchased their homes in the past two years, when rates rose sharply from the record lows seen in the first two years of the COVID-19 pandemic. Applications for a mortgage to purchase a home rose 5 percent for the week but were still 0.4 percent lower than a year ago.
California Home Sales Pull Back in August as Buyers Adopt a “Wait and See” Approach
California home sales hit a seven-month low in August, as buyers held out despite interest rates that dipped to the lowest level since spring, according to C.A.R.’s latest home sales and price report.
August’s sales pace fell 6.3 percent from the 279,810 homes sold in July and were up 2.8 percent from a year ago, when a revised 254,820 homes were sold on an annualized basis. The sales pace has remained below the 300,000-threshold for 23 consecutive months, while year-to-date home sales edged up 0.5 percent from the first eight months of 2023
August’s statewide median price was essentially flat, inching up 0.2 percent from $886,560 in July to $888,740 in August. California’s median home price was 3.4 percent higher than the revised $859,670 recorded in August 2023.
Market Update
The fed funds rate was lowered last week by half a percentage point for the first time since 2020. With the rate cut fully anticipated by the market before the announcement, mortgage rates did not show any immediate downward movement after the latest FOMC meeting. The central bank’s latest move and its plan on future rate reductions, however, will benefit homebuyers and home sellers in the coming months. With mortgage rates remaining near the lowest level in two years and home prices softening through the end of the year, housing activity could pick up in the fall as consumers seize the opportunity of lower costs of borrowing and reenter the market.
June 2024
Guide to get your home ready for marketing & sale:
Selling a house involves several steps, from preparation to closing the deal. Here’s a general guide:
Prepare Your Home: Make your home appealing to potential buyers. Clean thoroughly, declutter, and consider minor repairs or renovations to increase its value.
Set the Right Price: Research the market to determine a competitive price for your home. Consider factors like location, size, condition, and recent sales of comparable properties.
Find a Real Estate Agent (SOM): While it’s possible to sell your home yourself (FSBO – For Sale By Owner), many people choose to work with a real estate agent who can handle marketing, negotiations, and paperwork.
Market Your Home: Whether with an agent or on your own, market your home effectively. Use high-quality photos, virtual tours, and online listings to showcase your property. Consider staging to make your home more attractive to potential buyers.
Host Open Houses and Showings: Schedule open houses and private showings to allow potential buyers to see your home in person.
Negotiate Offers: When you receive offers, negotiate terms such as price, closing date, and contingencies (like inspection and financing). Your real estate agent can assist with this process.
Accept an Offer: Once you’ve agreed on terms with a buyer, sign a purchase agreement. This legally binds both parties to the transaction.
Complete Inspections and Appraisal: The buyer will likely conduct inspections and an appraisal to ensure the property is in good condition and worth the agreed-upon price.
Close the Deal: Work with a title company or real estate attorney to finalize the sale. This involves signing paperwork, transferring ownership, and disbursing funds.
Move Out: Once the sale is complete, prepare to move out of the property. Coordinate with the buyer for the transfer of keys and possession of the home.
Remember, selling a house can be a complex process, and it’s essential to understand local laws and regulations governing real estate transactions. Consider seeking professional advice from a real estate agent, attorney, or financial advisor to ensure a smooth sale.
Emotional Preparation: Understand that selling your home might evoke mixed feelings. Take the time to reminisce about the memories made there while also preparing yourself mentally for the transition.
Declutter with Care: Sorting through belongings can bring up nostalgic feelings. Take it slow, savoring the memories attached to each item, and consider keeping mementos or taking photos to preserve memories.
Home Staging with Sentiment: When staging your home, maintain elements that reflect your personal style and the warmth of your family life. Highlight special features or areas where memorable moments were shared.
Sharing Your Home’s Story: Consider creating a “memory book” or a letter for potential buyers, sharing anecdotes about your time in the home, favorite features, and the community. This personal touch can help buyers connect emotionally with the property.
Saying Goodbye: Before showing the house to potential buyers, take a moment to say goodbye. Reflect on the memories made and express gratitude for the shelter and comfort the home provided.
Open Houses as Farewells: Hosting an open house can feel like inviting guests to bid farewell to your home. Share stories about the house with visitors, creating a warm and welcoming atmosphere.
Negotiating Offers with Care: As you receive offers, consider not only the financial aspect but also how the potential buyers plan to care for and appreciate the home. Look for buyers who understand and value its unique qualities.
Closing the Chapter: Closing day can be bittersweet. Take a final walk through the house, saying goodbye to each room and expressing gratitude for the memories. Consider leaving behind a note for the new owners, wishing them well in their new home.
Moving Forward: Embrace the transition to a new chapter in your life. Remember that while you’re saying goodbye to one home, you’re also opening the door to new experiences and opportunities.
Honoring the Past: Treasure the memories made in your old home while embracing the chance to create new ones in your next chapter. Home is not just a place; it’s where cherished memories reside, no matter where you go.
Warm regards,
SOM Team
April 2024
1- State Farm Cancels 30,000 Homeowner Policies
&
2- The Spruce: (Spring 2024 Design Trends)
1- State Farm Cancels 30,000 Home Owner Policies:
State Farm will not renew some policies in California
Source: Realtor.com
Californians are facing yet another setback on the housing front after major insurer State Farm said it will not renew 72,000 existing home-insurance policies. The insurance industry’s retreat from the state could have an impact on home prices, say experts.
State Farm stopped accepting applications for homeowners insurance in California last May, due to increased wildfire risk. The most recent announcement cited rising costs. Starting July 2, State Farm will no longer cover 30,000 homes and 42,000 apartments in California that currently have policies with the company, representing about 2 percent of its policies in the state.
Source: San Francisco Chronicle
Starting this summer, 30,000 California policyholders will be told they are being dropped by California’s largest home insurer, State Farm. The decision affects homeowners policies, rental insurance and other property insurance. The company will not send official notices until July, but some customers have been notified by their State Farm agents that they will be among the 30,000. State Farm accounts for 8.7 percent of all home insurance policies in California. The company wrote that it would not renew polices “that present the most substantial wildfire or fire following earthquake hazards, or that are in areas of significant concentration.”
Please contact us. We may be able to provide referrals to insurance companies and or agents who can write traditional policies for your home. Please refer to our “contact us” page. SOM Team
2- The Spruce: (Spring 2024 Design Trends):
Spring is here, and if you’re curious as to what design trends will be majorly trending in the home interior world throughout the coming season, we’re here to give you the scoop.
We spoke with a handful of pro designers and asked them to weigh in on the looks that will be in major style in the coming months (and beyond). Based on their statements, now is the perfect time to go bold with color, purchase weathered-looking planters, and so much more.
Below, designers share 6 spring decor trends they’re excited to see in 2024.
More Color
Move over, winter whites! This spring, we can expect to see tons of vibrance in people’s homes, Jess Harrell, the founder of The Styled Domicile, says.
“People are bored of all neutral interiors,” she says. “They’re craving some excitement and want to express themselves in their homes.”
Say hello to color by experimenting with bright paint, installing patterned wallpaper, or decorating with fun furnishings and accessories, Harrell suggests. Whether you take a DIY approach such as spray painting furniture or making it over using chalk paint, there are numerous small changes you can make.
And don’t be afraid to start small. If brand new case pieces aren’t in the budget this spring, you can still certainly take part in the vibrant trend.
“Layering in smaller furnishings and accessories is a low commitment way to start embracing more pattern and color one item at a time,” Melissa Mahoney, the founder of Melissa Mahoney Design House, says.
Antique and Aged Planters
Searching for the perfect vessel in which to display your spring florals? Look no further than an antique planter or vase. These will shine both indoors and outside on the patio, Jennifer Acito, the founder of Dama & Wood, says. Whether you purchase a terracotta piece or are more partial to a gray stone-like finish, you can’t go wrong.
Don’t be afraid to group together multiple planters within one room to make even more of a statement, as Acito did in the welcoming dining space shown here. The wallpaper color that she selected plays off of the terracotta pots, too.
Glossy, Reflective Finishes
This spring, glossy and reflective finishes will be making their presence known, Mina Lisanin, the founder of ML Interiors, says.
“I just completed a project with a reflective coffee table and it helps bring in so much light into the space,” she says. “It’s perfect for longer spring days.”
Lacquered trays are also an ideal pick for those looking to bring this trend into their space on a smaller scale.
Playful Hardware
Spruce up your dull cabinet and drawer pulls by swapping them out with a different design style or colored finish to refresh your home space. Expect to see playful hardware throughout more homes this spring—choose from large-scale marble knobs or pulls that are bright and colorful, Lisanin says.
Upgraded Bookcases
This spring, take your wallpapering project to the next level by lining bookshelves with a favorite covering to give a room a little more oomph.
“Adding a wallpaper to the insides of a bookcase draws attention to your collection of books and cherished objects,” Tara McCauley, the founder of an eponymous firm, says.
In a recent project, McCauley gave existing bookcases a major upgrade by painting them blue and then lining them with metallic wallpaper for a touch of elegance.
Framed Scarves
This spring, don’t just tie a silk scarf around your neck or bag—frame a favorite so that you can admire it in your home on a day-to-day basis.
“I love, love, love to use these beautiful works of fashion as art,” Lisa Gilmore, the founder of Lisa Gilmore Design, says. “Vintage or new, you can’t go wrong.”
Whether you create an entire wall of framed scarves or display them individually, they’ll make a major statement and bring an instant pop of color into any room of the house—Gilmore has even displayed scarves in the kitchen.
If you don’t already own a drawer full of beautiful scarves just waiting to be framed, keep in mind that you can source such pieces at thrift and antique stores, estate sales, and online auctions.
(Living Spaces)
In the coming months of interior design, expect to see bold patterns, high contrast and indigo – lots of indigo! Before you go all-out on decorating, though, take a note from Courtney Marquez, Living Spaces Interior Designer, who advises that when incorporating these top 10 home decor trends for spring 2024, it’s important to remember that “less is more and more impactful.” Whatever your favorites from the interior design trends below – from the Scandinavian influence of curved designs to the splashes of retro dyes – it’s better to lean towards minimalism for the aesthetic to really pop.
Check out the full trend report below for the latest in home decor – and let your favorites inspire your spring refresh!
- Indigo
Rich and serene, indigo has always been favorited by interior designers – and this spring, it’s getting some extra love. Courtney Marquez, our Interior Designer, recommneds “playing to indigo’s moody nature with inky washes or giving it a more casual spin with a breezy neutral color scheme.” When asked why she thinks it’s trending Courtney states simply “it reminds one of May flowers, perfect for this time of year!”
- Unique and Eclectic
Unique and eclectic’ isn’t just about decorating in an unexpected way; it’s also a celebration of culture and personality. Courtney tells us “for spring, it’s important to let your furniture and decor tell a story by incorporating unique silhouettes, colors and patterns inspired by your passions.” Choosing the right furniture for this mindset, she recommends “starting with a material type that comforts you, whether it’s beachy rattan or a soft fabric that you love to touch.” After material, “think about color: what makes a design pop is depth and contrast.” Other ways to incorporate a more unique aesthetic into your space this season include sourcing souvenirs from world travels, or buying only handmade items. Courtney concludes that “the Living Spaces Elements collection is a great example of all things eclectic!”
- Curves
Branching from the umbrella that is ‘cozy and minimalist,’ curved decor emphasizes shapes and textiles from all parts of the globe. Courtney tells us to focus in on one particular region: “This spring, expect a heavy influence from Scandinavia with circular-style accessories, such as woven baskets and pops of sherpa color palettes.” She adds that “light natural colors are key in this design style, so prepare a clean base with sand, white, greige and/or cement. And because light paint colors and curved shapes are minimalist, natural materials tend to pop out more.” When asked which textures she favors for spring, Courtney emphasizes “light cotton upholstery, wood and distressed metal.” If new furniture is too big for a spring-only revamp, Courtney suggests looking to the walls, as “a new curved hanging or art piece can add just as much freshness!”
- Black
This spring, expect black in every texture and finish, from velvet and leather to natural wood and heavy rug weaves. In theory, this trend might seem a little much, but in practice, it’s actually quite simple. According to Courtney, “black is currently being used as a contrast color. It’s in lines, borders and stitching detail.” (In other words, it’s a bedding set with a hint of black — not an all-black bedding set.) Useful for grounding colors and adding depth to any space, black has proven itself a design staple that is here to stay.
- Coastal Textures
2020 saw a rise in natural wood, distressed surfaces and other marks of the coastal style – and the trend is carried through to spring ’24, stronger than ever. Courtney’s recs include thinking in terms of “neutral hues, white washed finishes and natural elements.” Greenery, rattan, reclaimed wood tones, jute, terracotta and linen all fit the latter category. For neutral hues, try greige and different shades of white, which Courtney remarks is “a light way to introduce a spring atmosphere.” As for white washed finishes, wood furniture with a thin coat of white paint will do the trick. “It should almost look as though it’s been through some wear and tear; a little chip here or scuff there makes for a laidback aesthetic.”
- Retro Colors
In discussing retro colors, Courtney describes them as “taking a cue from the mid-century and 70s interior trends.” In particular, “retro mustard and avocado green – along with ‘muted’ washes and patterns – is dominating decor.” Expect to see more and more of blended, washed-out dyes, especially “in indigo and green,” in throw pillows, blankets and other upholstered accents. To incorporate the look into your own space, Courtney recommends leaning into “green the most, as it feels like the best match for this time of year.” She also counts “wall art, rugs and drapes” as other ways to get the vibe.
- Mixed Metallics
Courtney describes another major design tactic for spring ’24 as “mixed metallics, when kept toned down in darker hues and even matte finishes.” She sees it as a mirroring of jewelry trends: “the rule of sticking to only gold or silver is out the window, and decor is catching up. Mixing and matching feels eclectic and more personal.” Courtney recommends incorporating the look via “art frames, figurines and lamp bases. You can even find some really cool metallics in wall art nowadays — there are so many options beyond just canvas.” With all that said, the designer did guide (again) toward minimalism, as “spring home decor trends come and go, and decorating with them, you want to be careful not to overdo anything; less is more and looks simpler, cleaner and better!”
- Geometrics
If Spring ’24 home design trends will teach homeowners anything, Courtney says “it’s that geometric patterns don’t have to be limited to throw pillows.” Incorporated into “wall art with bold colors, table decor and area rugs, groupings, successions and variations of squares, circles and other geometric shapes make a splash.” As to why it’s trending, well, it’s not really. According to Courtney, “geometrics have been trending for a few years now, and unlike curved furniture, which is making a huge and new splash and taking center stage in 2024, geometrics are more of a stable design aesthetic that I expect to see a couple years from now, as well.” The most common way she sees it being implemented is “though wall art and rugs. Essentially, flat things.”
15 Potential Tax Deductions for Landlords During Tax Season (source: TransUnion)
(Disclosure & Disclaimer: This content, except as otherwise indicated or stated, The information presented in this content is “as is” without warranties of any kind, and specifically is not represented to be complete and does not constitute legal advice, and is subject to change without notice. You are encouraged to check these terms from time to time for changes, and by accessing this site you agree to these terms and all terms listed. Laws and regulations may vary by state and locality. Consult your own counsel if you have legal questions related to your rental property practices and processes. Remember that this material is intended to provide you with helpful information and is not to be relied upon to make decisions, nor is this material intended to be or construed as tax and/or legal advice. You are encouraged to consult your tax professional or legal counsel for advice on your specific business operations and responsibilities under applicable law. Trademarks used in this material are the property of their respective owners and no affiliation or endorsement is implied.)
1.Long Distance Travel
If you have to travel long distances to check on your property, money site Moolanomy reports you can deduct the cost of your travel expenses. Examples of deductible expenses include things like:
Car mileage
Airfare
Hotels
Other trip costs
2.Mortgage Interest
If you didn’t purchase your rental property outright, you probably have a mortgage. If you do, you’re paying interest to a bank. According to SmartAsset, landlords can deduct their mortgage interest as a rental expense.
This well-known rental property tax deduction applies to all homeowners. Still, it’s especially important for landlords to use because it’s usually the biggest deduction you can claim.
3.Personal Property Taxes
You may be required by your local government to pay personal property taxes on equipment and furniture used for business purposes, based on the value of the property. Most landlords are aware that they can depreciate their personal property, but did you know that you can depreciate personal items used in and for your rental business at a faster rate
All Property Management explains that with the Modified Accelerated Cost Recovery System, you may save more money by fully depreciating personal property inside the rental unit over a shorter period. For example, appliances, carpeting, and furniture can be depreciated over a five-year period. Other items, like fences and driveways can be depreciated at a 15-year rate. You can check to see which asset class your property falls into on the IRS website.
4.Repairs
The IRS splits repairs into two types:
Improvements to the property (which increase the value) or
Returning things to their original condition (maintenance)
The Balance Money notes that while improvements must be capitalized and deductions taken as depreciation over time, repairs and maintenance costs can be expensed in a single year.
Nolo.com offers the helpful BAR acronym to help you decide if your repairs are simply maintaining the property or could be considered improvements:
Betterment. Does the change fix a defect in the property that existed before you bought it Does it physically enlarge or enhance the property in any way
Adaptation. Are you going to use the property in a new or different way than you originally intended when you purchased the property
Restoration. Does the change rebuild the property to a like-new condition Have you already taken a loss for the damage.
5.Local Travel
Many landlords like to routinely check in on their tenants and property. You might also need to handle maintenance, repairs, or improvements on-site. If you use your personal vehicle to make the trip, you may be able to deduct the cost of travel using one of two different methods:
Actual expenses or
IRS standard mileage rate.
FindLaw.com says there’s a caveat if you’re using the IRS standard method. In order to qualify, a landlord must use this method during the first year that the vehicle was used in rental business activity. The actual expense method allows you to deduct the actual vehicle expenses, as well as depreciation.
According to the IRS, the local travel deduction can include gas, oil, lease payments, licenses and fees, repairs, tolls, and parking. Calculate your deduction both ways to see which method benefits you most.
6.Legal Fees for an Eviction
Often a landlord’s worst nightmare, eviction proceedings are extremely stressful and can bankrupt small rental businesses. Thankfully, according to money site SmartAsset, you may usually deduct court fees and attorney costs.
However, even if some of those expenses can be deducted, such a financial hit could decimate your profits. Given that total eviction-related expenses average $3,500 how would your business fair with such hefty fees
In addition to monetary cost, there is also the intense worry of an ongoing legal battle and the pressure of not knowing what could come next. While it’s good to save money through claiming potential landlord tax deductions, it’s better to prevent evictions in the first place by thoroughly and consistently screening your tenants before they’re allowed to move in.
Bolster your tenant screening process with detailed, near-instant background checks, including:
Criminal background checks
Renter credit reports, including a ResidentScore and
Eviction history reports
Getting an in-depth look at a rental applicant’s background and track record can help you make more informed, timely screening decisions.
7.Home Office
If you use a dedicated space in your home to conduct rental business, it is a deductible expense–even if it’s not a whole room. However, according to Pathway CPA Group, there are certain criteria your home office must meet in order to deduct the expense, including:
Your property management activities must be qualify as a “trade or business”
The deductible space must be an area used regularly and exclusively for rental activity
The Balance also reminds you that any equipment must also be used exclusively for business. For instance, your work computer shouldn’t be used to play games or for other personal reasons.
There are several ways you can calculate the business portion of your house as an expense to help find the largest deduction. According to the Balance, you can:
Calculate your space’s square footage divided by the square footage of your entire house. If all the rooms in your house are roughly the same size, divide the number of rooms your business space encompassed by the total number of rooms in the house.
Use a prescribed rate multiplied by the allowable square footage used in the home. For 2023, the prescribed rate is $5 per square foot with a maximum of 300 square feet, according to the IRS.
Note that you can deduct a portion of your home repairs if they partially affect your office and the full price of the repair if it only affects your office. However, you cannot use these deductions if you have an outside office as well, or if you’re renting the space to your employer.
8.Wages for Employees and Independent Contractors
If you hire a property manager or grounds maintenance worker, you can deduct their wages as a rental business expense. This also holds true for independent contractors like carpenters or electricians.
According to Nolo, one of the benefits of hiring independent contractors is that you don’t have to withhold federal taxes out of their paycheck or pay one-half of the worker’s Social Security and Medicare taxes. However, you do need to file IRS Form 1099-MISC if you pay them over $600 during the year.
And don’t forget employee meals and entertainment expenses. Turbo Tax reminds landlords that events like holiday parties or summer outings for your staff are 100% deductible. If you incur an expense while doing business with a potential client or business associate, you can deduct 50% of the total.
9.Casualty Losses
If anything happens to your property due to an unexpected event like a natural disaster or fire, you can claim a total or partial property loss on your tax return. However, as Nolo points out, you can only claim losses to the extent that they aren’t covered by insurance.
If you do have insurance, you must reduce the amount of your claimed casualty loss by any insurance recovery you receive (or expect to receive, if you haven’t been paid yet). Losses that are fully covered by insurance are not deductible.
10.Depreciation
Depreciation is a deduction you can take for property and items that you own for over one year. The cost of qualifying items are deducted in small amounts over a set number of years. According to Investopedia, rental buildings are typically depreciated over 27.5 years. This means that you can deduct about 1/27 of your rental property annually.
According to lender New Silver, while depreciation is technically voluntary, most property owners would be foolish not to do it.. Depreciation claims don’t just possibly save you money, but they might also help keep you out of legal hot water. Also, if you sell the property for more than the depreciated value, the IRS may charge you a 25% recapture tax, whether or not you actually claimed depreciation. It makes more sense to claim the depreciation than to eventually pay taxes on a benefit you never received.
11.Insurance
According to Steadily, the premiums you pay for almost any insurance on your rental are deductible. This includes fire, theft, and flood insurance for your rental property, plus landlord liability insurance. If you have employees, you can also deduct the cost of their health and workers’ compensation insurance.
12.Capital Expenses
Nolo offers some helpful information for understanding how landlords can deduct long-term assets. In terms of tax rules, there are two different types of expenses that are incurred as a rental property business: current and capital.
Capital expenses are defined as purchases that are expected to last more than one year and generate revenue in the future. This might include equipment, land, or vehicles, but keep in mind these are not the only capital expenses. Such purchases are treated as investments by the IRS and must be deducted (or capitalized) over a number of years.
Current expenses are the day-to-day operational expenses that keep your business running, such as rent and utilities. You can deduct 100% of current expenses from your gross rental income in the year they are incurred.
13.Professional Services
In addition to the legal services mentioned above, other professional assistance can be deducted, as well. Consulting a tax professional is not only advisable, but may also a deductible expense. According to Steward Ingram & Cooper PLLC, small business owners like landlords can typically deduct expenses for services like attorneys and accountants, as long as the reason you are hiring them is related to the rental business.
Since IRS regulations are regularly updated or changed, hiring an accountant to file your taxes can keep you from overlooking any deductions available to you. If you do decide to handle your taxes yourself, the same deduction may be applicable if you use tax preparation software.
14.Operating Expenses
Many items that you purchase for your rental property throughout the year can be classified as operating expenses and deducted in the year during which you purchase them. The IRS website defines these expenses as “the ordinary and necessary expenses for managing, conserving and maintaining your rental property”. Appropriate expenses that are generally accepted as necessary for a rental business might include:
Advertising
Maintenance
Utilities
Insurance
15.Maintenance
You might be tempted to put maintenance in the repairs category, but the ongoing upkeep of your property doesn’t necessitate something being broken. For example, landscaping and pool cleaning is done on a regular basis, even when there are no major issues.
You can also deduct any tools needed for cleaning or upkeep, such as lawnmowers, weed eaters, or paint sprayers. In some cases, it may be necessary to depreciate these tools, so check with a tax professional if you have any doubts. The same holds true for cleaning supplies and janitorial items. According to H&R Block, you can even deduct Homeowner Association fees as a rental expense in most cases.
March 2024 (Interest Rates) What are the trends? Where are we headed? (Forbes)
Fixed income markets expect the U.S. Federal Reserve to hold rates steady at the conclusion of its next meeting on March 20. If so, this would continue a recent run of meetings with the Fed leaving interest rates unchanged. The last interest rate increase came in July 2023. However, markets currently expect the Fed to cut rates no later than July 2024 and perhaps as soon as May of this year.
The Trajectory For Interest Rates:
Both Fed projections and market expectations see interest rates in 2024 but weighted to the second half of the year. Currently markets expect approximately three to four cuts by December 2024. That implies short-term rates ending the year a little more than 4%.
However, at the March meeting, Fed policymakers will update their forecasts for economic variables in the Summary of Economic Projections. This includes the outlook for interest rates. Markets will watch the Fed’s update closely.
The minutes of the Fed’s January meeting which were released on February 21 stated: “In discussing the policy outlook, participants judged that the policy rate was likely at its peak for this tightening cycle.” That implies interest rates should move lower in the medium term.
However, the minutes also stated that, “Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent.” Hence Fed policymakers are not necessarily ready to cut rates yet.
Still, the Fed is starting to discuss reductions, which is a change from 2023 when language was tilted more to scenarios in which interest rates might rise further.
The Economic Data:
Inflation is clearly down from the peak levels that alarmed the Fed at the start of this tightening cycle. Nonetheless, the Fed’s annual target is 2%, and recent reports implied that inflation is still a little above that goal, and maybe no longer moving toward it.
The Fed’s preferred Personal Consumption Expenditures price index showed annual inflation at 2.4% for the year to January 2024. That figure jumps to 2.8% when food and energy trends are excluded. However, the month of January did see a 0.4% rise in prices, on PCE estimates, which is relatively high compared to recent months.
The Consumer Price Index, which offers an alternative measure. It estimates annual inflation is running at a 3.1% annual rate as of January 2024, or 3.9% when stripping out food and energy costs, but with little disinflation since October 2023. The Fed will examine the release of another CPI update on March 12 ahead of its next meeting.
Jobs data has also been reasonably strong over recent months, calming potential fears that the Fed would need to cut rates to prevent a recession. The U.S. Employment Situation Report for February will be released on March 8, providing more data ahead of the Fed’s March meeting.
What To Watch For:
Markets will be extremely surprised if the Fed changes interest rates on March 20. However, the major question is when interest cuts are coming in 2024. It is likely that comments in the Fed’s release, press conference and Summary of Economic Projections will all inform that the timing of interest rate cuts.
Currently, markets believe the first rate cut will most likely be in June, but it could be as early as May or as late as July. After the March meeting, the markets should have a more accurate view on both the timing of the first cut and how many cuts to expect in 2024.
Correction: The February employment situation report will be released on March 8, a previous version of this story stated the date incorrectly as March 9. (Forbes)
Feb 27, 2024
Fannie Mae has notified lenders it won’t accept loans from two title insurers after the two were tied to fraudulent real estate closings.
The mortgage buyer wrote in a memo that it won’t work with Riverside Abstract and Madison Title after they were linked to two closings by Boruch Drillman that the Department of Justice deemed fraudulent, The Real Deal reported.
“If you fail to comply with any requirements, including this, we may exercise additional remedies available under the Lender Contract,” Fannie Mae Deputy General Counsel Jeff Goodman wrote in a memo to lenders published by TRD.
The memo builds on rumors that some servicers and sellers have stopped doing business with Riverside and Madison after the insurers were named in the DOJ investigation, TRD reported.
“Madison Title has not been accused of any wrongdoing, and we are proud of our record of trustworthiness and integrity,” a Madison spokesperson said in a statement to Bisnow. “We remain steadfast in our commitment to transparency, telling our story, and addressing any concerns”
Riverside Abstract didn’t respond to Bisnow’s requests for comment.
Riverside reached a deal last week to sell the company to nursing home mogul Avery Eisenreich, TRD reported. At the time, the company attributed the sale to the false rumors about it being excluded from deals with Fannie Mae and Freddie Mac.
In December, the DOJ put out a press release detailing Drillman’s $165M mortgage fraud conspiracy. Riverside and Madison were tied to two of Drillman’s closings, but neither was charged.
This situation comes after Fannie Mae in November announced that all broker-involved agency loans would undergo a new pre-review rule after a Freddie Mac investigation of Meridian Capital Group. Although details of the investigation haven’t been made public, Freddie Mac has stopped working with the commercial mortgage broker while the investigation is ongoing.
One of the largest opportunistic investors in real estate is raising capital for a new fund looking to profit from the upheaval in the market, Bisnow has learned. But the new fund appears to have no love for the distressed office sector.
Lone Star Funds has raised $2B for its seventh opportunistic real estate fund, according to a filing with the Securities and Exchange Commission.
Lone Star Real Estate Fund VII has an equity target of $6B, according to a filing from the Arkansas Teacher Retirement System last year. ATRS said it planned to invest $50M in the fund. With debt, that could give the fund more than $18B to invest.
Lone Star, a private equity firm founded and owned by billionaire John Grayken, has made its name buying during times of distress. In the last downturn, it bought distressed loan portfolios from banks in the UK, Ireland, Spain and Japan, as well as taking private the UK developer Quintain.
The plan is to do the same again, according to the ATRS filing.
“For this vintage, the Manager expects over-weights to more distressed property types, retail and hotels, and to operationally intensive sectors, hotels and senior housing, where the Manager sees long term structural demand interrupted by short term factors,” the filing says, leaving out the highest-profile distressed sector: offices.
Regional weights are preliminarily expected to be between 35% and 55% in major markets in the UK and Europe, 30% to 50% in North America, and 25% to 40% in Japan, according to the filing.
Loan Star said it expected to buy from banks, developers with troubled projects, funds coming to the end of their life and open-ended funds that need liquidity.
It is targeting net returns of 16% and transactions of $750M to $1B to reduce competition.
The filing says Grayken would invest $300M of his own money in the fund, Lone Star’s staff would be putting in $120M and the company would be putting in $60M from its balance sheet.
LOS ANGELES — The City Council moved forward Friday on plans to begin a “master leasing” program in the city — picking up an approach already in use by LA County to expand the number of available units for unhoused residents.
“Master leasing is the securing of all or part of an apartment building on a long-term lease, then subleasing the units to unhoused individuals or families while providing them with supportive services,” said Councilwoman Katy Yaroslavsky, who in December 2022 first proposed the city adopt the approach.
Friday, in a 14-0 vote, council members instructed staff to prepare contract terms and other benchmarks to implement the Los Angeles Homeless Services Authority’s Master Leasing Program.
After a dip in rates spurred a boost to housing in January, the recent increase back above 7% demonstrates that the rebound will be bumpy as pending sales cooled. Still, all signs indicate that buyers have begun to adjust to more normal rates than we enjoyed during the pandemic as several key indicators of market competitiveness describe a market that is heating up as the Spring homebuying season approaches. Still, other trends show that homebuyer demand remains more depressed than it should be and buyers would do well to consider the long-term benefits of homeownership (which are well documented) alongside their short-run concerns about the market.
Feb 14, 2024
Louis Vuitton is reportedly exploring developing a site on Rodeo Drive previously earmarked for a 109-room Cheval Blanc luxury hotel by Vuitton’s parent company, LVMH, Women’s Wear Daily reported.
Sources told WWD that Vuitton commissioned architectural drawings for the site at the corner of Rodeo Drive and South Santa Monica Boulevard.
LVMH bought the building at 468 Rodeo for $245M in 2018 and spent three years working to secure approvals to build a high-end Cheval Blanc hotel there.
The Beverly Hills City Council approved the project, but a group of objectors gathered enough signatures to put the matter to an election. The election results didn’t shake out in LVMH’s favor, and the company promised it wouldn’t revive a hotel project at the site.
No development plans for the site have been submitted to the city since the hotel, a representative for the city of Beverly Hills told Bisnow by email Tuesday.
Vuitton CEO Pietro Beccari “seems to be intent on building increasingly bigger and more spectacular retail attractions,” WWD reported, adding there is a combo store and hotel in the works near the brand’s Paris flagship.
Dreams Of Lower Interest Rates Fade As Inflation Comes In Higher Than Expected
NationalEconomy
February 13, 2024 Dees Stribling, Bisnow National
Key economic indicators that for months have been moving in a positive direction for commercial real estate reversed course Tuesday. New inflation data from the Bureau of Labor Statistics showed prices rose 3.1% in January.
Most crucially for CRE, the outlook on interest rates worsened after weeks of optimism that a rate cut was coming as early as March. Interest rate futures now predict that a cut is more likely in June, The Wall Street Journal reports.
Oxford Economics, which hadn’t predicted a March cut, now expects the Federal Reserve’s first rate cut in May.
“The January CPI does not warrant a change to our assumptions around monetary policy, but lends some upside risk to the inflation forecast this quarter,” the research firm said in a statement. “Recent gains in consumer prices have been concentrated in the less volatile categories of goods and services, suggesting that inflation may be a little stickier than some Fed officials thought.”
The new data runs counter to what Fed Chair Jerome Powell said in January would be needed to bring rates down.
“We have six months of good inflation data,” Powell said at a Jan. 31 press conference. “Is that six months of inflation data sending us a true signal that we are in fact on the path, sustainable path, down to 2% inflation? The answer will come from some more data.”
The 10-year Treasury yield jumped to 4.28% on Tuesday’s news, its highest point since late November. Stocks fell, including for REITs and banks with considerable exposure to CRE.
The FTSE Nareit All Equity REIT Index fell 2.5%, highlighting investors’ retrenchment from property-related stocks.
Regional banks’ stock fell faster than their larger counterparts, according to the KBW Nasdaq Bank and Regional Banking indexes. Regional banks were off 5.1% in Tuesday afternoon trading, while the country’s largest publicly traded banks were down 3.6% compared to their opening prices.
New York Community Bank, amid an already-tumultuous month, saw its stock fall 4% on the inflation news to $4.56 per share. That is an improvement over last week’s sub-$3 position but a far cry from the $10 per share seen two weeks ago.
The 3.1% increase in the consumer price index is lower than the 3.4% recorded in December but above economists’ expectations of a 2.9% rise. The Fed’s target inflation rate is 2%.
Inflation edged up month-over-month in January, rising 0.3%. In December, the monthly increase was 0.2%.
The cost of shelter, which includes rent and mortgage costs, remains a dominant driver of overall inflation.
Shelter costs rose 6% year-over-year, one of the highest annual increases of the goods and services the bureau tracks. Only transportation costs, not including gasoline, had a bigger yearly increase in January, up 9.5%.
“That’s a bit of a mystery, since apartment rents are no longer rising and single-family rent growth is at low single-digits,” NAR Chief Economist Lawrence Yun said in a statement on Tuesday morning.
Yun said the 3.1% CPI rise “isn’t comfortable,” but he anticipates that rents will be “much more well behaved” in the second half of this year. Until then, he doesn’t expect any interest rate cuts by the Federal Reserve.
$929B In Commercial Property Loans Set To Mature In 2024
The value of loans set to come due is up 40% from an earlier $659B estimate by the MBA, Bloomberg reports. The outlet attributes the sizable increase to an uptick in loan extensions and similar delays rather than an onslaught of new deals.
U.S. commercial real estate backs about $4.7T in debt, and investors, lenders and regulators have grown antsy as building values slide and loans mature, Bloomberg reported. Prices on commercial properties have fallen 21% from an early 2022 peak. Office prices have dropped most precipitously, sinking 35%.
Particularly in the office market, borrowers have largely been playing a game of loan extensions when possible, pushing harder decision points down the road. About 25% of office loans are coming due in 2024, according to the MBA.
While uncertainty around interest rates, unclear property values and questions about real estate fundamentals have suppressed transactions of late, it’s more likely deals get done this year, Jamie Woodwell, head of commercial real estate research at the Mortgage Bankers Association, told Bloomberg.
“This year’s maturities, coupled with greater clarity in those and other areas, should begin to break the logjam in the markets,” Woodwell said in a statement.
This year could also bring more refinanced loans and fewer modifications on better-performing properties, Trepp Research Director Stephen Buschbom told Bisnow earlier this year. Still, if loan modifications continue, it is a signal that the market’s health has yet to improve, he said.
“If we do start to see some refinances happen at maturity, that would be a really nice, positive sign to see,” Buschbom said. “But at this point, I don’t think anybody’s baseline scenario would be that they’re expecting to see more refinances for office buildings than they did last year.”
The $5B One Beverly Hills development is finally under construction at Wilshire and Santa Monica boulevards at the edge of Beverly Hills.
The completed project will hold a high-end Aman hotel, the West Coast’s first, with 75 suites in a 10-story building as well as 200 condos across two towers rising 26 and 32 stories, the Los Angeles Times reported.
The project was approved by Beverly Hills in 2021.
PEOPLE
Newmark has hired Suzanne Lee away from Cushman & Wakefield, where she was an executive director. Lee joins Newmark as an executive managing director. Based out of the firm’s West Los Angeles office, Lee brings two decades of experience working with clients across the technology, financial services and nonprofit sectors for occupier and investment services.
Lee specializes in structuring and negotiating complex office transactions, particularly for corporate headquarters evaluations. Most recently, Lee led successful negotiations on significant headquarters assignments for CTBC Bank, NECU and ServiceTitan.
Cushman & Wakefield has hired Troy Pollet as an executive director in Los Angeles. Pollet will specialize in representing corporate clients and investors locally and nationally. Before Cushman, Pollet was a partner at Cruzan, a vertically integrated owner-operator focused on office and industrial assets on the West Coast.
LEASES
After a lot of back-and-forth, the city’s plan to put five departments into almost 310K SF of offices at the 52-story Gas Co. Tower in Downtown L.A. has been put into action, Commercial Observer reported.
The city’s 15-year lease with the receiver of the former Brookfield property includes two five-year options to extend, expansion rights at five and 10 years and $210 per usable SF for tenant improvements, for a total cost of $55.3M. The landlord will provide about $34M of that.
CONSTRUCTION AND DEVELOPMENT
Construction of a new Target in El Monte is underway and on track for an October 2024 completion. The retailer will occupy a former Sears Outlet building and two adjacent vacant retail buildings at 3610 Peck Road. The Target will take up nearly 128K SF with parking for 372 cars. Within the store, tenants will include Target Optical, CVS Pharmacy, Starbucks and Ulta Beauty.
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Bolour Associates Inc. secured the entitlements to build a new five-story apartment building at 2424 S. Veteran Ave. in West Los Angeles. Plans for the development include 30 studio, one- and two-bedroom apartment units ranging from approximately 475 to 975 SF.
FINANCING
DJM Capital has recapitalized Lido Marina Village, a mixed-use shopping center in Newport Beach. JLL’s Capital Markets team represented the ownership, DJM Capital and Arc Capital Partners through a partnership with Belay Investment Group, in the transaction with Redwood West joining the partnership. As part of the transaction, Arc Capital Partners and Belay Investment Group exited the original partnership. JLL also secured financing through a relationship life company. The terms of the deal were not disclosed.
JLL Capital Markets Investment Sales Advisory team was led by Managing Directors Bryan Ley, Geoff Tranchina and Gleb Lvovich, Senior Director Tim Kuruzar and Director Daniel Tyner. The JLL Capital Markets Debt Advisory team was led by Senior Managing Director Jeff Sause, Senior Director John Marshall and Director Alex Olson.
Feb 13, 2024
Fed Chair indicates no change in sight for rates
Source: HousingWire
On the news show 60 Minutes, U.S. Federal Reserve Chairman Jerome Powell indicated that will likely wait to cut interest rates, saying that a March rate cut was “unlikely.” In December, the Fed talked about three rate cuts in 2024, but some experts had suggested that four, five or even six rate cuts might be possible. However, the labor market remains strong enough that the Fed did not see a reason to lower interest rates. The idea is to give inflation a chance to lower toward 2 percent.
HousingWire lead analyst Logan Mohtashami reinforces that the Fed will cut rates this year as promised, but they don’t want their policy to restrict the market too much. He predicts no more than three rate cuts in 2024 unless jobless claims rise to 323,000 on a four-week moving average. He predicts, based on Powell’s interview and recent Fed actions, that nothing big will change over the next few months no matter what happens with inflation. The Federal Open Market Committee meets and votes every six weeks or so on the federal funds rate (that is tied to interest rates), and the next vote is in March.
Pending sales decline, dampened by rising mortgage rates
Source: Redfin
After the U.S. Federal Reserve announced this week that they will not be lowering interest rates in the next two months, pending home sales declined by about 8 percent – the biggest decline in four months. Other contributing factors included rising median sales prices, that increased by 5.4 percent year over year during the four weeks ending February 4, and harsh weather in the first half of January that delayed a lot of homebuying deals across the U.S.
However, some house hunters are dipping their toes back into the market. A measure of the number of home tours across the country has increased 16 percent since the beginning of the year, compared with a 10 percent rise at this time last year. Some sellers are jumping in, too, with new listings up 7 percent year over year.
California housing affordability at 16-year low
Source: CALIFORNIA ASSOCIATION OF REALTORS®
Elevated borrowing costs and a shortage of available homes for sale in the fourth quarter of 2023 kept California housing affordability suppressed at the lowest level in 16 years, according to the CALIFORNIA ASSOCIATION OF REALTORS®. Only 15 percent of home buyers could afford to purchase a $833,170 median-priced, existing single-family home, down from 17 percent a year ago. The fourth-quarter 2023 figure is less than a third of the affordability index peak high of 56 percent in the first quarter of 2012.
A minimum annual income of $22,800 was needed to make monthly payments of $5,570, including principal, interest and taxes on a 30-year fixed-rate mortgage at a 7.39 percent interest rate. Twenty-two percent of homebuyers were able ot purchase the $650,000 median-priced condo or townhome. A minimum annual income of $174,000 was required to make a monthly payment of $4,350.
U.S. Treasury rolls out new rules for all-cash real estate purchases
Source: Associated Press
The U.S. Treasury Department’s Financial Crimes Enforcement Network proposed a regulation on Wednesday that would require real estate professionals to report the names of people behind anonymous limited liability companies and trusts involved in all-cash sales of residential real estate. Some home buyers and real estate investors form LLCs with cryptic names when purchasing property to help protect their privacy and to help guard against lawsuits. But the Treasury says that bad actors also often use shell companies to launder money through property purchases. Paying for a purchase entirely in cash can in some cases allow a buyer to avoid scrutiny from financial institutions that are obligated to detect and report suspected incidents of money laundering.
The proposed rules would require settlement agents, title insurance agents, escrow agents and attorneys to report suspicious transactions. If the new rules are adopted, the public would have 60 days to submit comments on them after they are published.
Weekly mortgage demand flattens as interest rates rise
Source: CNBC
Homebuyers are pulling back as interest rates nudge higher. Applications for mortgages to purchase a home fell 1 percent compared with the prior week and were 19 percent lower than the same week one year ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less on average) increased to 6.80 percent from 6.78 percent, with points decreasing to 0.59 from 0.65 for loans with a 20 percent down payment. However, after the U.S. Labor Department released on Friday much higher-than-expected monthly employment numbers for January, the average rate on the 30-year fixed rate mortgage surged another 29 basis points that day and another 12 basis points on Monday after a manufacturing report also came in higher than expected.
Total mortgage application volume rose 3.7 percent last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. That rise, however, was all due to refinancing. Applications to refinance a home loan increased 12 percent for the week and were 1 percent higher than the same week a year ago. The refinance share of mortgage activity increased to 35.4 percent of total applications from 34.2 percent the week prior.
Panku, a real estate development firm run by Alex Wang, has refinanced an apartment complex in Irvine — the first project the company completed.
Western & Southern Life Assurance provided a five-year, $82 million loan on 17600 Cartwright Road, according to property records filed with Orange County. A team led by Northmarq’s David Gahagan and Chris Hammel arranged the financing and announced the deal on Thursday, but did not disclose the lender.
The loan was used to pay off outstanding debt and “reimburse cost overruns,” Gahagan said in a statement.
Panku completed the 272-unit project in 2021. The same year, Panku scored an $80 million loan from Shanghai Commercial Bank, with a floating interest rate, records show.
House Passes Bipartisan Tax Package That Includes Affordable Housing Provision
On Jan. 31, the House overwhelmingly passed H.R. 7024, known as the Tax Relief for American Families and Workers Act, with a resounding vote of 357–70. The focus now shifts to the Senate, where the fate of the bill awaits further deliberation. Over the past few months, Congress has diligently collaborated on a bipartisan tax package aimed at extending expiring business tax cuts and enhancing the child tax credit.
Crafted through negotiations spearheaded by Senate Finance Chair Ron Wyden (D-Ore.) and House Ways and Means Chair Jason Smith (R-Mo.), the proposed framework places a significant emphasis on fortifying the supply of affordable housing nationwide. A key aspect of this bipartisan agreement involves elevating the current 9 percent ceiling of the Low-Income Housing Tax Credit (LIHTC) to 12.5 percent. This strategic move aims to incentivize developers to partake in affordable housing projects, potentially amplifying the overall housing supply.
C.A.R. Weekly Market Update
Housing affordability continued to be an issue at the end of last year and will likely remain a challenge for many homebuyers in 2024. With rates expected to decline in the next 12 months, however, recent reports suggest that consumers are beginning to feel more positive about the current housing market conditions, and those on the sidelines could reenter the market if the economy remains healthy and rates continue their downward trend. Preliminary market data collected in the past few weeks also indicates that both sales and listings have been slowly improving since the end of 2023. If this market momentum continues, the California housing market could see an encouraging start for 2024.
Unlocking California Politics: Proposition 1
C.A.R. just released its latest episode of the Unlocking California Politics Podcast: Unlocking Proposition 1. In this episode, C.A.R.’s Senior Vice President of Government Affairs, Sanjay Wagle, is joined by Jim DeBoo, founder of DeBoo Strategic Affairs and manager of the Proposition 1 campaign, to discuss Proposition 1 and how it seeks to address the issues of homelessness and the unhoused, which are top priorities for Californians.
To listen to or watch this episode, go to CAR.org/advocacy/podcast, YouTube, iTunes, or Spotify. If you haven’t already, be sure to subscribe to hear the latest episodes from experts who will give you their take on California politics, housing news and policies, and other top industry matters.
Rules Committee Passes SALT
On Feb. 1, the House Committee on Rules achieved a significant milestone by approving a rule for the consideration of the SALT Marriage Penalty Elimination Act, H.R. 7160. This legislation aims to address the $10,000 cap on state and local tax (SALT) deductions, proposing an increase to $20,000 specifically for married couples with an adjusted gross income below $500,000. It’s important to note that this adjustment would apply solely to the 2023 tax year.
Feb 6, 2024
The Federal Reserve left interest rates unchanged at their recent meeting and signaled that they will be closely monitoring the data for improving signs on inflation to begin lowering, but a better-than-expected employment figures for January drove 10-year Treasury prices down and bond and mortgage rates rising this week. The resilience of the macro economy may mean the anticipated rate cuts will be slower to manifest than many had hoped. However, weekly numbers on pending sales show that consumers were taking advantage of the recent reprieve on rates we enjoyed last month, and closed sales could begin to tick up as the spring homebuying season beings in earnest over the next few months.
Fed Holds Rates Steady but Warn They May Be Slow Coming Down: The Federal Reserve’s Open Market Committee (FOMC) met last week and decided to leave rates unchanged, which was anticipated in advance by the market. The FOMC signaled that they were done raising interest rates, but that future cuts would be driven by sustained improvements in inflation. As such, many analysts have pegged May as the earliest that we might see the first cuts with deeper reductions in the Fed Funds Rate not coming until the second half of 2024. Yet despite no surprises from the Fed, the meeting was quickly followed by a very strong jobs report that sent the 10-year back above 4% and the daily reading on mortgage rates back above 7% for the first time this year.
Homebuyers Jumped Back in as Rates Came Down: The average 30-year fixed rate mortgage hit 6.61% at the end of 2023 and the beginning of 2024 and recent signs show that homebuyers responded. Mortgage purchase applications have been on the uptick for 4 weeks in a row with the overall index reaching its highest level since September 2023. In addition, pending sales data for January shows a double-digit increase over early 2023 levels with gains being reported in almost every region of the state. The number of new listings has picked up in recent weeks, but the corresponding increase in closed and pending transactions has caused the total active inventory to remain flat. Days on market has likely peaked for the year, reaching a high of 36 days in January compared to a median of 42 days last January. The ongoing competitiveness of California’s residential market suggests that the recent reduction in rates has only deepened the supply imbalance by bringing more buyers to the market with only a minimal amount of new inventory.
Strong Jobs Numbers Drive Bearish Bond Market: Last week, the nonfarm employment numbers blew past consensus expectations, which called for 180,000 new jobs in January compared with the actual tally of 335,000. Many of these new jobs were created in the state and local government sector, though many private-sector jobs were created as well. The unemployment rate held steady at 3.7% last month, but the labor force actually shrunk last month for the third time in the past 4 months suggesting that some workers have begun to get discouraged and give up on their job searches. Still, the new data on job openings shows that there are still roughly nine million open positions being advertised and the strong jobs numbers continue to reflect a solid pace of hiring.
Labor Markets may Not Be as Tight as We Think: The latest jobs report from the Bureau of Labor Statistics was well above expectations, but upcoming releases could be weaker than these headline numbers suggest. Each state is currently undergoing their annual benchmarking processes, which will bring the typical monthly estimates in line with payments into statewide unemployment insurance systems last year. These figures suggest that we may see 2023 employment levels revised downward in California. This is supported by the fact that initial claims for unemployment insurance (UI) in California have been rising since September of last year while continuing UI claims reached their highest levels since early 2022 last week.
Consumers Still Source of Concern Despite Recent Strength: Although consumers remain unflappable due to strong labor markets and ongoing wage and productivity growth, they face mounting headwinds from rising debt levels, dwindling savings, and higher interest rates. Not only have revolving debt levels (i.e., credit cards) risen by roughly $300 billion dollars since the pandemic, but delinquency on those credit cards is up nearly 130% since 2021. In addition, savings rates dipped below 4% last quarter and the Fed’s report on money supply shows M2, which represents “cash, checking deposits, savings accounts, and other types of deposits that are readily convertible to cash such as CDs and money markets” – in other words, the money U.S. households have available to spend – has been shrinking for 13 months consecutively. This may begin to crimp spending in coming quarters if labor markets soften, which may ease inflationary pressure and help the Fed to justify more rate cuts.
Keller Williams agrees to pay $70 million to settle real estate agent commission lawsuits nationwide
LOS ANGELES (AP) — One of the nation’s largest real estate brokerages has agreed to pay $70 million as part of a proposed settlement to resolve more than a dozen lawsuits across the country over agent commissions.
The agreement, filed Thursday with federal courts overseeing lawsuits in Illinois and Missouri, also calls on Keller Williams Realty Inc. to take several steps aimed at providing homebuyers and sellers with more transparency over the commissions paid to real estate agents.
“We think it’s a tremendous victory for homeowners and homebuyers across the country,” said Michael Ketchmark, one of the attorneys representing the plaintiffs in the lawsuits.
The central claim put forth in the lawsuits is that the country’s biggest real estate brokerages engage in practices that unfairly force homeowners to pay artificially inflated agent commissions when they sell their home.
In October, a federal jury in Missouri found that the National Association of Realtors and several large real estate brokerages, including Keller Williams, conspired to require that home sellers pay homebuyers’ agent commission in violation of federal antitrust law.
The jury ordered the defendants to pay almost $1.8 billion in damages. If treble damages — which allows plaintiffs to potentially receive up to three times actual or compensatory damages — are awarded, then the defendants may have to pay more than $5 billion.
More than a dozen similar lawsuits are pending against the real estate brokerage industry.
Moving Keller Williams out from under that cloud of litigation and uncertainty motivated the company to pursue the proposed settlement, which would release the company, its franchisees and agents from similar agent commission lawsuits nationwide. The company based in Austin, Texas, operates more than 1,100 offices with some 180,000 agents.
The recently released ATTOM 2024 Rental Affordability Report has unveiled that median rental prices still require a smaller portion of average wages than major homeownership expenses in most of the U.S. With more people renting instead of buying, comes more opportunity for agents to tap into the rental market. Work smarter by employing technology like RentSpree to access C.A.R. rental forms and comprehensive screening reports.
February 5, 2024
LA’s Shangri-La Industries loses Project Homekey sites to receivers
Court names managers for motel conversions as state sues firm for alleged fraud
Shangri-La Industries has lost control of six out of seven of its Project Homekey sites to court-appointed receivers, ending its goal of becoming a major operator of homeless housing sites across California.
State courts have appointed receivers on the six former motels, located in Salinas, King City, San Bernardino and Redlands, according to court records.
The receivers were appointed after Shangri-La defaulted on loans tied to the seven properties and owed about $41 million in delinquent debt as of Dec. 1, TRD reported. In separate court cases, lenders had sued Shangri-La and asked the court for receiverships, an alternative to bankruptcy.
Los Angeles-based Shangri-La had obtained $121 million in state Homekey grants from 2020 through 2022, according to state data, about 3 percent of the total funds handed out by the state program to date. After TRD reported on the defaults, the state opened an investigation into Shangri-La and found the firm had violated its operating agreements tied to six of the properties. California Attorney General Rob Bonta filed a lawsuit against the firm last month, claiming the developer breached state contracts and alleging fraud.
Receivers have the power to lease up properties, investigate financials, collect rents and put the properties up for sale.
LA Multifamily Landlords Fighting $3B In Potential Distress As Renter Protections End
Los Angeles Multifamily
February 1, 2024 Bianca Barragán, Southern California
As pandemic-era renter protections in Los Angeles come to an end, owners of the city’s distressed multifamily properties are counting down the days until a combination of rent increases and lower interest rates can help them find more solid financial footing.
Apartments accounted for about $433M of LA’s total $4.2B outstanding commercial property distress at the end of 2023, with owners fighting off another $2.9B in potential distress, according to MSCI data.
“A lot of people are waiting for that distress. They waited for it last year too, and it’s just not happening,” Colliers Mortgage Executive Managing Director Shahin Yazdi told Bisnow. “What we’re seeing is that lenders are just more amenable to helping borrowers.”
Lenders willing to work with borrowers and borrowers digging in to keep their properties are keeping potential distress in the Los Angeles market from becoming actual, outstanding distress, multifamily experts say.
There are also kernels of optimism in the market.
The Feb. 1 end of pandemic-related renter protections is one contributor to that optimism, Yazdi said.
“What’s given a lot of borrowers hope is that the Covid restrictions have finally been lifted and they can finally increase rents,” Yazdi said.
The city of Los Angeles and the county voted to resume regular rent increases in rent-stabilized units beginning in 2024, and this week was the deadline for the last of back rent accrued due to the pandemic to be repaid in the city of LA.
Another element giving owners hope is a much-awaited interest rate cut from the Federal Reserve. The increase of interest rates crunched floating-rate borrowers, but with interest rate cuts on the horizon, many borrowers can see the light at the end of the tunnel.
“You have resilient borrowers right now that are hopeful that this is a very transitory state. That the rates aren’t going to stay this way forever and that the market won’t stay this way forever,” Yazdi said.
Northmarq Regional Managing Director Vince Norris said he’s not only seeing lenders step up to work with these borrowers. He’s also seeing rescue capital flow in or recapitalizations occur.
New construction loans and bridge loans are where Norris sees distress, but bridge borrowers are not only finding their lenders willing to work with them, they are also securing rescue capital such as preferred equity or recapitalizing their properties.
“Those short-term loans are high leverage with high interest rates. And in a market like SoCal where rents are either declining or flat, that math doesn’t work anymore,” Norris said.
New construction projects that came online recently and are wading through low or no rent growth plus higher interest rates are also feeling the crunch, Norris said. But they too are finding ways to get lenders to work with them.
The phenomenon of borrowers wanting to hold on and lenders coming to the table has been one contributor to low transaction volumes in the market, both Yazdi and Norris said.
Transactions in Los Angeles County and the city of Los Angeles dropped in 2023 compared to the previous year, in step with a national trend.
Sales velocity in SoCal in 2023 was down 48% from 2022’s cumulative total and down 45% in LA County in the same period, according to data from Northmarq.
“We haven’t seen many distressed transactions yet,” Northmarq Director of Research Peter O’Neill wrote to Bisnow in an email. “Southern California doesn’t usually have the booms and busts that other markets have.”
Jan 30, 2024
Mortgage Rates Are Still Below 7%: Despite a relatively upbeat GDP report last week that had the economy expanding at a 3.3% rate to close out 2023, mortgage rates remained below 7%–continuing the rally that began in December following the Federal Reserve’s latest meeting. Inflation continues to trend down and that has bolstered hopes that the Fed is through raising interest rates and will begin to make cuts to the Fed Funds Rate later this year. This should help to bolster home sales during the spring and summer months as gradually declining rates help to slowly alleviate the “lock-in” effect that many homeowners currently feel as a result of their historically low rate on their existing mortgage. Although many homeowners are below 3%, the ones with 5% rates or higher will begin to see the financial disincentive for moving dissipate as rates slowly creep downward.
Pending Sales Rising Year-to-Year in January: Although December marked a new low for existing single-family transactions for California, pending sales through the weekend ending January 28th show pending home sales rising on a year-to-year basis for the first time since the spring of 2021. The recent reprieve on 30-year fixed-rate mortgages from over 8% to consistently below 7% over the past month has helped to bring buyers back off of the sidelines. However, new listings remain relatively depressed and the market is becoming more competitive as demand outpaces the supply response to lower rates. The percentage of active listings that have reduced prices fell for the 8th week in a row last week and prices look to be on track for their 7th increase in a row when the January numbers become finalized next week.
Fewer Sellers Locked-In Below 5%: According to data from the National Mortgage Database, the percentage of Californians with an interest rate below 4% has shrunk for the 6th consecutive quarter after peaking during early 2022. As of the third quarter of 2023, there were 67.9% of the mortgages outstanding at or below 4%–down from nearly 72% 18 months prior. At the same time, the percentage of mortgages at a 5% interest rate or higher has climbed for the 6th quarter in a row. Despite the relatively low level of transactions, the sales closed during the past two years have helped to put a growing number homeowners in rates that are closer to current market rates and that should begin to help with housing inventory as we enter the spring homebuying season.
Economy Remains Solid Despite Consumer Balance Sheets: Since the economy reopened a few years ago, consumers have been the sole engine of growth driving the recovery to, and then past, pre-pandemic levels. And despite the fact that savings rates have dwindled to very low levels while credit card debt has risen to new all-time highs, consumers continue to propel the economy forward. Of the 3.3% increase across every segment of the economy last quarter, most of that still came from growth in consumer spending. The economy did benefit from a modest improvement in the trade balance as well as an increase in government spending—mostly at the state and local, rather than federal, levels. However, the rising credit card debt does suggest that growth in consumer spending could slow in coming quarters, particularly given that a rising share of that debt is falling delinquent. Paradoxically, this could help to slow economic growth and provide cover for Federal Reserve officials to begin lowering rates, which would benefit housing supply and demand.
New Home Sales Back Up: After dropping by 9% during November, new home sales bounced back and almost erased the previous month’s decline—rising by 8%. As existing housing stock remains very tight, home builders are taking advantage of the recent reduction in mortgage rates that has brought more buyers back to the market following a quiet holiday homebuying season. Unfortunately, new home sales in California are unlikely to be leading the charge as new single-family construction has been very depressed in recent years, but it is a hopeful sign that demand for housing persists, which will help to motivate more builders to take on new projects and add much-needed supply to housing stocks across the nation.
The 30-year fixed-rate has remained within a very narrow range over the last month, settling in at 6.69% this week,” said Sam Khater, Freddie Mac’s Chief Economist. “Given this stabilization in rates, potential homebuyers with affordability concerns have jumped off the fence back into the market. Despite persistent inventory challenges, we anticipate a busier spring homebuying season than 2023, with home prices continuing to increase at a steady pace.”
News Facts:
The 30-year FRM averaged 6.69 percent as of January 25, 2024, up from last week when it averaged 6.60 percent. A year ago at this time, the 30-year FRM averaged 6.13 percent.
The 15-year FRM averaged 5.96 percent, up from last week when it averaged 5.76 percent. A year ago at this time, the 15-year FRM averaged 5.17 percent.
The PMMS® is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit. For more information, view our Frequently Asked Questions.
Freddie Mac’s mission is to make home possible for families across the nation. We promote liquidity, stability, affordability and equity in the housing market throughout all economic cycles. Since 1970, we have helped tens of millions of families buy, rent or keep their home.
Jan 26, 2024
Onni Group sues Equinox’s SoulCycle for “abandoning” LA site
Landlord claims cycling gym owes $1.2M in back rent since 2020
SoulCycle, the indoor cycling gym where a 45-minute class costs $40 a session, is accused of failing to pay rent on an “abandoned” location in Downtown L.A.
Onni Group, which owns 888 South Olive Street, sued SoulCycle last month, claiming the fitness studio owes $1.2 million in back rent, according to a complaint filed with L.A. Superior Court.
“After March 2020, defendants stopped making payments to Onni that were due and payable under the lease and have been in default of their contractual obligations,” Onni said in its complaint. SoulCycle, which is owned by high-end gym Equinox, has not responded to the suit.
Vancouver-based Onni claims that SoulCycle exited its 4,200-square-foot location in March 2020, despite having a lease through October 2031. SoulCycle also had agreed to pay $1,300 a week to use a portion of an outdoor deck at the building from August through October 2020, to host outdoor classes.
Since then, Onni has never waived nor forgiven SoulCycle’s default, the landlord alleges. Many commercial landlords went after tenants for back rent in 2020 and 2021, when the City of L.A.’s eviction moratorium on commercial property was still in effect, though these suits are not unusual.
SoulCycle signed its 15-year lease in 2016, and agreed to pay $250,620 in annual base rent for the first five years, according to documents filed with the suit.
The Securities and Exchange Commission questioned some regional banks about their exposure to commercial real estate loans, concerned that potential losses on those loans could impede their ability to do business, The Wall Street Journal reports.
The agency reached out to Mid Penn Bank, Ohio Valley Bank and MainStreet Bank, as well as Alerus Financial Corp., a publicly traded firm, among others.
The SEC asked Alerus, for example, to revise its future disclosures to specify borrower property type in its loan portfolio, as well as geographic concentrations and other information, the WSJ reported, noting that the agency made similar queries to the other banks. North Dakota-based Alerus has about $40.7B in assets under administration.
“The SEC is worried that some of the banks may not be disclosing as much of their risk or exposure as they should to their investors,” Kenneth Chin, a partner at law firm Kramer Levin Naftalis & Frankel, told the WSJ.
Such information would be useful since some property types — office in particular — represent a heightened risk in the current CRE climate. A recent report found that roughly 14% of all CRE loans and 44% of loans associated with office assets have fallen into negative equity.
Regional and community banks are particularly exposed to CRE risk, holding about three-quarters of all CRE loans.
Alerus reported its Q4 2023 results recently, posting a net loss of $14.8M for the quarter. The company reported a CRE loan portfolio of about $1.1B, and $124M in construction loans at the end of 2023, but did not break it down by property type or geography.
L.A. County looks to require rental units to stay cool in summer
This winter, renters in frigid Los Angeles apartments have some ammo when they complain to their landlord about busted heating and drafty rooms: Legally speaking, rental units aren’t supposed to dip below a balmy 70 degrees.
Come summer, there are no such protections for the reverse issue: stifling, air-conditioning-less homes. The county has no maximum temperature for rental units, an issue advocates say leaves vulnerable renters sweltering in the hot months as California grapples with the effects of climate change and extreme heat.
Los Angeles County’s supervisors want to change that. On Tuesday, the board voted to direct staff to start drafting an ordinance that would set a maximum temperature for rental units across much of the county. Supervisor Kathryn Barger cast the sole no vote.
“Tenants should have the opportunity to escape extreme heat in their own homes without fear of being evicted or burdened with additional rent fees,” said Supervisor Hilda Solis, who authored the motion along with Supervisor Lindsey Horvath. Unlike many of the motions passed by the county, the resulting ordinance could potentially apply to far more than just the roughly 1 million residents of unincorporated L.A. County.
Because the county’s looking to add the policy to its health code, other jurisdictions in L.A. County would have the chance to easily adopt it. The only exceptions are the cities of Long Beach and Pasadena, which have their own public health departments. L.A. County will be one of the biggest jurisdictions to take this on — but not the first. In Phoenix, landlords are required to keep units with air conditioning at a maximum of 82 degrees. In Clark County, Nev., units can’t get hotter than 85 degrees. In Palm Springs, units need to have air conditioning and can’t go above 80 degrees.
Horvath said increasingly deadly heat waves presented a clear public health emergency for the county.
“Setting a maximum temperature for rental units will protect our most vulnerable Angelenos, including older adults and families with young children, who deserve safety and comfort in their own home,” she said in a statement.
Owner-Occupier Acquires San Diego Retail
Marcus & Millichap arranged the sale of Plaza Kensington, a 3,388-square-foot retail property located in San Diego’s Kensington neighborhood. The sale price was $2,380,000.
“A transaction like this shows that high-demand, low-velocity markets like Kensington will have many buyers even if the retail market in general has slowed,” said Nick Totah, SVP investments with The Totah Group in Marcus & Millichap’s San Diego Downtown office.
Totah and Ross Sanchez, senior investment associate for The Totah Group, marketed the property on behalf of the seller, Scott Owen of Kensington Office Rentals. The property was on the market for a total of five days and a full price offer was accepted.
The buyer, Paul Kasawdish of Kasawdish Property Holdings, LLC, was also procured by Totah and Sanchez. “The buyer operates Clem’s Bottle house across the street, and this made an ideal, long-term opportunity to acquire,” said Totah. “He plans to lease up the property short-term and eventually move his business into the property.”
Jan 22, 2024
Alternative Assets Gaining Ground Among Investors As Old Standards Like Retail And Office Fade
Alternative real estate assets, including niche property types like self-storage, student housing and medical office buildings, have long lived on the margins of commercial real estate investing. But as historically preferred property types like offices lose value, these specialized asset classes are gaining ground as investment targets.
During the third quarter, investment in alternative property types spiked to $18.3B, making up 15% of total investment dollars, according to MSCI. Full-year data isn’t yet available, but capital markets experts say that the share of investment in alternative assets is expected to grow.
“Every time you listen to an institutional investor share their best ideas for sector strategy, all you hear is data centers, student housing, self-storage, life sciences,” Michael Gordon, a partner and global chief investment officer at Harrison Street, told the Urban Land Institute.
2023 was a difficult year for investment, but the atmosphere is likely to change in 2024 if the Federal Reserve follows through on its December commentary indicating that interest rate cuts could be in the cards this year.
“Overall, there’s an expectation that assuming the Fed does cut rates by 75 basis points over the course of 2024, which is what they alluded to at their last FOMC meeting, we will see investment activity pick up,” Moody’s Analytics Senior Economist Ermengarde Jabir told Bisnow.
That includes alternative classes, which usually include medical office, manufactured housing, life sciences, self-storage, student housing and data centers.
The most recent peak in investment in U.S. alternative real estate classes as a percentage of total investment came during the third quarter of 2022, when their share, $33.3B, came in at 17% of the total, according to MSCI data.
Although that was the highest percentage of total investment, the most recent dollar volume peak came during Q4 2021, ahead of the rapid rise in interest rates and when investors were gung-ho for every sort of real estate. That quarter, investors put about $42.4B in alternative assets, or about 11% of the overall total, MSCI reported.
As soon as the reality of high interest ratres set in, investment shrank in every asset class, including alternatives. The first and second quarters of 2023 were especially sluggish, with $8.6B and $9.5B invested in alternatives, respectively. But with overall investment down, those figures nevertheless represented 9% and 10% of total CRE investment.
ULI’s 2024 Emerging Trends report characterizes investor interest in alternatives as a “portfolio pivot” in which fund managers are now mulling a broader range of product types, including those traditionally seen as niche but that now offer more compelling returns. That is especially the case now that office buildings and malls often don’t generate the returns on investment they once did, for various social and economic reasons.
The U.S. office investment market plunged 60% to $43B between 2022 and 2023, according to JLL. That total puts 2023 roughly in line with 2010, in the aftermath of the Global Financial Crisis. Transaction volume for retail properties in Q3 2023 was down 40% compared to a year earlier, JLL reported.
Alternative assets that are tied to emergent economic activity make them especially interesting to investors because they don’t know the extent of the upside yet, MSCI Research Executive Director Jim Costello said.
“For data centers, there’s a broad secular trend moving to more clicks,” Costello said. “Those clicks need to live someplace. How many data centers do we need? How many clicks are we going to have? We don’t know yet. That creates opportunities for some of these investors to chase.”
Student housing, medical offices and self-storage, on the other hand, tend to be driven by population growth or growth of certain age groups, Costello said.
Following demographics to determine where people are moving is easier than trying to predict the market, Costello said.
But demographics aren’t necessarily destiny for alternative asset classes. Life sciences space has a demographic component that investors are chasing, but there are other reasons to be in the sector.
“Life sciences companies have been outperforming the whole stock market, and that means those companies are flush with cash, and they have to be someplace,” Costello said.
Self-storage, a slice of the alternative investment business that has seen its dollar volumes boom, also demonstrates another trend in which major companies make huge deals, including mergers and acquisitions.
“[Investment volume] has increased, but some of that is just driven by one-off deals,” Costello said. “Buying a whole other company distorts the overall trend because it isn’t every day you can buy a big self-storage platform.”
Self-storage has been a particularly robust alternative asset class. It is the only class that saw more investment in the first three quarters of 2023, at $14.3B, than all of 2022’s $12.4B, according to MSCI data. A chunk of that was the Public Storage acquisition of Simply Self Storage for $2.2B.
As an industry, self-storage grew rapidly leading up to the pandemic and during its first few years, but the sector has returned to more normal growth rates. Still, there is some uncertainty about the future of self-storage, Jabir said.
Self-storage was doing extremely well for a few years, evolving from a sector largely owned by mom-and-pop investors for decades. But in the past 20 years, it has solidified into a sector with a large institutional owner-operator presence, she said.
“Over the past two years since inflation has really picked up, households have had to reflect on where their discretionary spending goes,” Jabir said. “As the cost of necessities takes a larger chunk, for many, self-storage becomes nonessential. Are the items in their storage units worth the price they’re paying monthly? Households are being much more mindful of where exactly they’re spending their discretionary income.”
Still, as interest rates drop, that might boost self-storage, Stuf CEO Katharine Lau told Bisnow.
“I think housing activity will pick up and more people will be moving,” Lau said. “What’s really nice about storage is that it’s a pretty resilient product. So even if there is contraction or we enter a recessionary environment, people lose their jobs or homes, storage is actually one of the things that they’ll need for their belongings or furniture.”
As demand for self-storage edged downward recently, developers have responded by not building as much, which might have the longer-range impact of making the asset class more attractive, Jabir said.
The self-storage pipeline remained relatively stable nationwide in November at 3.8% of total inventory, Yardi Matrix reported, but the number of development projects halted by their developers nationwide slowly increased toward the end of the year.
“So we haven’t necessarily seen a tremendous drop in fundamentals in performance metrics in the self-storage sector,” Jabir said. “The general pullback doesn’t cancel all of the gains from the sector’s outsized growth for a few years. It’s just not necessarily growing anywhere near at the same pace.”
In another effort to shrink its footprint and pivot to a small-store format, Macy’s plans to close several department stores and reduce its overall workforce by 3.5%.
The retail chain announced it will close five stores in California, Florida, Hawaii and Virginia and lay off 2,350 employees, including 13% of its corporate workforce, The Wall Street Journal first reported. The stores are set to close early this year, and Macy’s plans to open smaller format stores in outdoor shopping centers.
“As we prepare to deploy a new strategy to meet the needs of an everchanging consumer and marketplace, we made the difficult decision to reduce our workforce by 3.5% to become a more streamlined company,” a Macy’s spokesperson said in a statement to Bisnow.
The layoffs are set to occur Jan. 26, WSJ reported. The five stores are located in Arlington, Virginia; San Leandro, California; Simi Valley, California; Lihue, Hawaii; and Tallahassee, Florida. Macy’s also plans to close two furniture stores to relocate them.
The closures and layoffs come after Macy’s has faced pressure to improve performance. In December, an investor group made up of Arkhouse Management and Brigade Capital Management submitted a proposal offering to buy the chain’s outstanding stock not owned by the company for $5.8B.
The announcement aligns with Macy’s ongoing efforts to push the smaller store format. These stores are roughly one-fifth the size of its department stores, which average 180K SF to 200K SF, WWD reported. The smaller stores are known as Market by Macy’s and Bloomie’s and average 30K SF to 40K SF.
The company has 13 smaller stores open, according to its website, with plans to triple its footprint in upcoming months. Macy’s boasts 489 department stores, furniture and fulfillment center locations as of its 2023 third quarter earnings release.
The closures of department stores across the country have allowed many mall owners to pursue redevelopments that add a mix of uses to the properties. One of the latest Macy’s closures is already teed up for that strategy: the Arlington, Virginia, location at the Ballston Mall, which was approved by the county for a 555-unit redevelopment in December 2022, ARLNOW reported.
Jan 15, 2024:
More sellers are entering the housing market
Source: CNBC
HousingWire lead analyst Logan Mohtashami says in this video that new listings are growing in 2024 as more sellers are coming to the market. Sellers are often buyers, too, so the volume of transactions should increase. He expects spring inventory data (the number of homes for sale) to look much better in 2024 than it did in 2023.
Building permits, a sign of future construction, rose two percent in December 2023, beating expectations. Permits for multifamily housing edged out permits for single-family housing, but so far building is still fairly low. Building is expected to grow some this year, but most inventory growth will come from homeowners who decide to sell.
SAN DIEGO — Some new laws are impacting real estate this year in California as well as a changing market. That was the focus of the Greater San Diego Association of Realtors annual ‘New Laws and Industry Outlook’ event, held in La Jolla on January 12th.
Hundreds of real estate professionals from all over San Diego County attended the one-day conference where topics ranged from canceled fire insurance policies to mortgage rates dropping.
“We have all the industry leaders come and speak to our realtors on how to navigate through the new laws and what’s going on,” said Frank Powell, President of the San Diego Multiple Listing Service.
AB-1033: Ability to sell ADUs
Powell says a major topic of discussion was AB-1033, a new state law that gives cities the option to allow homeowners to sell their ADUs separately from the main house.
“Before, we could just build it, somebody can rent it, but now we’re going to offer you to sell it and what that does is it incentivizes those who can’t afford housing to buy something they could afford, like a 600 square foot ADU, auxiliary dwelling unit or what’s also known as the granny flat,” said Powell.
The catch – the person selling will have to create an HOA.
So far, San Diego and its surrounding municipalities haven’t signed on to allow homeowners to sell their ADUs.
f they do, Powell says they’ll have to consider the pros and cons. “Some people don’t want an ADU because of the parking situation. Some people do want an ADU because it helps them with the rent and helps them get other additional income,” said Powell.
A change in mortgage rates
Another big shift in 2024 has to do with mortgage rates. They’ve come down in recent weeks and experts believe they’ll continue doing so, a far cry from the eight percent rates we saw in 2023.
“We’re back down in the high sixes. And then we’re looking at the Feds to make three more adjustments to the interest rates, which hopefully will keep going down,” said Powell.
Powell says that means more people will be able to afford a home but that drives up competition in a market where supply is still low.
“So, the strategy is if you buy now at a high interest rates you’ll get the house for a little lower. And you can always refinance with interest rates go down,” said Powell.
Even though I’m in the business, I want a broader perspective of that,” said Derrick Luckett, a broker with Destiny Six Financial Mortgage and Real Estate Services.
Homeownership rates for millennials rose from 52 percent to 54.8 percent in 2023, and the rate for Gen X rose from 70.5 percent to 72 percent. Meanwhile, just over one quarter of adult Gen Zers owned a home in 2023, at 26.3 percent, which was little changed from 26.2 percent in 2022, according to data from the U.S. Census Bureau’s Current Population Survey’s Annual Social and Economic Supplement from 1976 to 2023. Things are looking up for Gen Z, though, because mortgage rates are easing, which brings more listings to the market, and job growth is strong. Because job opportunities are no longer as concentrated in expensive cities, Gen Z can choose to live somewhere more affordable, says Redfin Chief Economist Daryl Fairweather.
While the homeownership rate for adult Gen Zers has stagnated (the survey only included Gen Zers between the ages of 19 and 26, which is the upper limit for Gen Z), most Gen Zers are tracking ahead of where their parents were at the same age. For example, the homeownership rate for 24-year-old Gen Zers is 27.8 percent, while only 23.5 percent of Gen Xers owned a home at age 24. This is likely because when Gen Zers bought homes during the pandemic, mortgage rates hit a record low, while when Gen Xers were in their early twenties, they were grappling with some of the highest mortgage rates in history. In 1989, when the oldest Gen Xers were 24, mortgage rates were around 11 percent.
Home builders start the year with a positive outlook
Source: HousingWire
For the second consecutive month, homebuilders have become more optimistic, according to the National Association of Home Builders/Wells Fargo Housing Market Index. The index rose seven points to 44 in January. The report attributes this sharp increase in builder confidence to mortgage rates remaining under 7 percent for the past month. “Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market after being sidelined in the fall by higher borrowing costs,” said NAHB Chairman Alice Huey. “Single-family starts are expected to grow in 2024, adding much-needed inventory to the market.”
Despite the increase in confidence and the lower mortgage rates, homebuilders still reported price cuts and other incentives. According to the report, 31 percent of builders reported cutting prices in January, with an average price reduction of 6 percent. Overall, 62 percent of builders reported providing sales incentives.
Mortgage demand surges more than 10 percent as mortgage rates lure homebuyers
Source: CNBC
Another drop in mortgage interest rates caused a run on loans last week. Total mortgage application volume jumped 10.4 percent compared with the previous week, according the Mortgage Bankers Association’s seasonally adjusted index. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less on average) decreased to 6.75 percent from 6.81 percent, with points increasing to 0.62 from 0.61 for loans with a 20 percent down payment. That was the lowest rate in three weeks.
Applications for a mortgage to purchase a home rose 9 percent for the week, but were 20 percent lower than the same week one year ago. Mortgage rates were about half a percentage point (52 basis points) higher one year ago, but buyers seemed to be enticed by the recent rate drop. Applications to refinance a home loan increased 11 percent compared with the prior week and were 10 percent higher than the same week a year ago. While the vast majority of current borrowers have rates lower than those offered today, the recent drop is still having some effect for those whose loans carry higher rates.
First-time homebuyers in Long Beach can receive a grant of up to $25,000 toward the purchase of their home.
The city’s First-Time Homebuyer Assistance Program is designed to “assist low- and moderate-income families traditionally underrepresented in homeownership with purchasing their first home and building multi-generational wealth,” officials said.
Eligible applicants must fulfill these requirements:
- Be a first-time homebuyer — defined as someone who has not owned a principal residence in the past three years
- Be a first-generation homebuyer — defined as someone whose parents or guardian never owned a home during the homebuyer’s lifetime or who lost the home to a foreclosure or short sale and does not own a home now. Anyone who lived in foster care also qualifies as a first-generation homebuyer.
- Must currently be a resident of the City of Long Beach
- Be pre-approved by a lender for a 30-year fixed mortgage loan. Cash purchases are not eligible
- Must not have more than $100,000 in liquid assets in your bank account after the close of escrow
The grant will be awarded to around 100 households. The money can only be used towards the following costs:
- Down payment
- Non-recurring closing costs, such as loan, title, and escrow fees
- Loan points or fees to buy down their mortgage interest rates
The grant can be applied toward the purchase of a single-family home, townhome, or condo
located anywhere in Long Beach. Mobile homes and multi-family homes are not eligible.
- Have an escrow period that is 30 days or longer. Qualified applicants must not have opened
escrow before applying for the grant - Agree to occupy the home as their primary residence for a minimum of five years
- Be represented by a licensed realtor in the home-buying process
City officials will review applications on a first come, first served basis, and issue a notice of Program Qualification to applicants that meet the eligibility requirements.
“Homeownership is a significant milestone and lifelong dream for many individuals and families and Long Beach is committed to making this more attainable for as many people as possible,” said Long Beach Mayor Rex Richardson. “This important Program offers an incredible opportunity, empowering first-time homebuyers to invest in their future and plant roots in our great city.”
Prince Harry and Meghan Markle are reportedly real estate shopping in Los Angeles, and these lux compounds are right up their alley.
The Duke and Duchess of Sussex have nixed their plan to move to an $8 million plot of land above the Pacific Coast Highway in Malibu and are now instead looking in LA, according to TMZ.
The pair vetoed the Malibu plot due to safety and community concerns after it became a media frenzy following reports of their visit, a source told the outlet.
The 39- and 42-year-old ex-royals bought their current nine-bedroom, 16-bathroom Montecito mansion for $14.65 million back in 2020, shortly after quitting the British monarchy.
It boasts rose gardens, a tennis court, a two-bedroom guest house and a tea house and makes Markle “feel free,” but after three years the couple is now ready to sell it — a move they’ve been reportedly considering since at least this July — and relocate closer to the bright lights, big city down the coast from their Santa Barbara County estate.
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Racing ace Sir Lewis Hamilton — a seven-time Formula 1 winner — is looking for a West Coast home to add to his global real estate portfolio, which runs from Monaco and Geneva to London and the Big Apple.
Hamilton owns a skypad at 70 Vestry, where Tom Brady owns a unit; Bill Gates’ daughter Jennifer and her family bought Hamilton’s other $51 million penthouse, via a Seattle trust, at 443 Greenwich, as Gimme exclusively reported.
One of the West Coast homes that Hamilton toured was this $14.99 million stunner at 1772 N Crescent Heights in LA.
The six-bedroom, 6½-bath home is 8,500 square feet and comes with a rare flat backyard and city views.
Developed by Oren and Noy Hayun, the new construction home sits on 0.38 acres in the Hollywood Hills above Chateau Marmont, near the Sunset Strip and West Hollywood.
Talk about drama! This old-school Hollywood home is where film director James Whale — who in the 1930s directed “Frankenstein,” “The Invisible Man” and “The Bride of Frankenstein,” and in 1998, was portrayed by Ian McKellen in the film, “Gods and Monsters” — once lived with his partner, David Lewis.
The classic four-bedroom, four-bath Mediterranean villa — modeled like a Tuscan chateau — is now on the market for $7.24 million.
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Henry Harwood Hewitt designed the 4,525-square-foot home, at 4565 Dundee Drive, in 1927.
Hewitt is also known for designing poet Alice Lynch’s former home in 1922 and the Masonic Temple in LA’s Westlake neighborhood in 1914.
Known as “Villa Collina,” the villa was originally built for Clement E. Smoot, an American golfer who competed in the 1904 summer Olympics when the Americans won the gold medal.
Details include original handmade tiles, a fireplace, and multiple French doors that lead to a terrace and a gazebo overlooking the city lights.
Hidden in the Los Feliz hills, it boasts stunning views from the Griffith Observatory to the LA skyline. The home opens with a turreted, formal entry that leads to open dining and living rooms.
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An LA home steeped in Hollywood history is hitting the market for $8.99 million — dramatically down from its $21.5 million ask in 2021.
Built on a mountaintop high above the San Fernando Valley, this midcentury-modern home is where Frank Sinatra lived for eight years, gratis, entertaining his Rat Pack pals, thanks to the benevolence of the home’s first owner, Chase Bank heiress and New York socialite Dora Hutchinson. It’s also where Lucille Ball lived, likewise gratis, when she left her husband, Desi Arnaz.
More than 500 film and TV production companies have rented the property since then for hits like “Mad Men,” “Californication,” “Dreamgirls,” “Transformers” and
“Bewitched.” Hermès even once wrapped the home in red for a party. It’s also where Miley Cyrus filmed her “Flowers” video, and where Usher shot “Burn.”
The under-the-radar, yet prolific, architect William Pereira — who created the CBS TV studios in LA, the Kennedy Center in Washington, the Transamerica Pyramid in San Francisco, Los Angeles International Airport and the LA County Museum of Art — built this residence, with a young Frank Gehry working as his apprentice, said Michael Bolla, an international property consultant with Sotheby’s Dubai, whom the sellers have hired to help restructure their global real estate portfolio.
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The Federal Housing Finance Agency’s (FHFA) new conforming loan limits for 2024 mean homebuyers can now get larger mortgages backed by Fannie Mae and Freddie Mac.
The new mortgage limit for conventional loans backed by Fannie and Freddie will be $766,550, an increase of $40,350 from 2023. In high-cost areas where 115% of the local median home value is larger than $766,550, homebuyers will be permitted to use the high-cost area loan limit, which is 150% of typical loan limits. That pushes the new limit for high-cost areas to $1,149,825.
The decision follows the exponential gain in home prices across the U.S., even as mortgage rates increased. Home prices rose 5.5% between the third quarter of 2022 and the third quarter of 2023 and were up 2.1% compared to the second quarter of 2023, according to the FHFA House Price Index.
“The new loan limits essentially mean that homeowners who have seen price appreciation can refi into a Fannie or Freddie loan,” Charles Williams, founder and CEO of real estate and mortgage behavioral data provider Percy. “Basically, with the limit raised to $766,550 from $726,200, the FHFA is keeping its lending guidelines in lockstep with home price appreciation. The same goes for the FHA. This is good news also for potential homebuyers who want to buy at the higher end of the new limit.”
If you currently have a jumbo loan that you want to move into a conventional mortgage loan, or your home price has appreciated and is now covered under the new limits, you could consider refinancing to save on your monthly payment. You can visit Credible to compare multiple mortgage lenders at once and choose the one that is the best fit for you.
California home sales remain muted in October as elevated interest rates keep homebuyers and sellers on the sideline, C.A.R. reports
- Existing, single-family home sales totaled 241,770 in October on a seasonally adjusted annualized rate, up 0.3 percent from September and down 11.9 percent from October 2022.
- October’s statewide median home price was $840,360, down 0.4 percent from September and up 5.3 percent from October 2022.
- Year-to-date statewide home sales were down 27.2 percent in October.
LOS ANGELES (Nov. 17) – California home sales were essentially flat in October, as the cost of borrowing remained elevated and housing inventory continued to be tight,
Infographic: https://www.car.org/Global/Infographics/2023-10-Sales-and-Price
Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 241,770 in October, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2023 if sales maintained the October pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.
October’s sales pace was up 0.3 percent on a monthly basis from 240,940 in September and down 11.9 percent from a year ago, when a revised 274,410 homes were sold on an annualized basis. Sales of existing single-family homes in California remained below the 250,000-unit pace for the second consecutive month. The annual decline was the 28th straight drop, but the decline was the smallest in the last four months.
“A sizable jump in interest rates kept home sales constrained in October and will likely hamper home sales for the remainder of the year,” said C.A.R. President Jennifer Branchini, a Bay Area REALTOR®. “Despite rates remaining elevated, many other factors have swung in favor of buyers recently including more properties staying on the market longer before selling and fewer homes selling over list price, which could motivate more sellers to offer concessions.”
Home prices rose again from the year-ago level for the fourth straight month, as the statewide median price recorded its largest year-over-year gain in 17 months. California’s statewide median price dipped 0.4 percent from September’s $843,340 to $840,360 in October and rose 5.3 percent from a revised $798,140 recorded a year ago. While October’s median price took a step back from the month prior, the month-to-month decline was smaller than the long-run September-to-October price adjustment of -1.5 percent observed in the last 44 years. Prices are expected to level off in the next couple of months, following the traditional seasonal pattern. Positive year-over-year price growth should remain throughout the rest of the year as housing supply is projected to be tight in the coming months.
“With the Federal Reserve pausing rate hikes at the last Federal Open Market Committee meeting and recent economic news pointing to a slowing economy, mortgage rates have been coming down in recent weeks,” said C.A.R. Senior Vice President and Chief Economist Jordan Levine. “If inflation continues to cool, we could see more improvement in mortgage rates than the Fed is currently projecting for next year, which would alleviate some pressure on both the buy and sell sides of the housing market in 2024.”
- At the regional level, all major regions except one dipped in October on a year-over-year basis, with one dropping more than 10 percent from a year ago. The Central Valley region experienced the biggest sales dip of -11.3 percent from last year, followed by Southern California (-7.4 percent), the San Francisco Bay Area (-3.9 percent) and the Far North (-2.3 percent). The Central Coast (1.9 percent) was the only region that posted a sales increase from last October.
- Thirty-six of the 52 counties tracked by C.A.R. registered a sales decline from a year ago in October, with 16 counties dropping more than 10 percent and four counties falling more than 20 percent from last October. Del Norte (-47.4 percent) had the biggest dip in sales, followed by Stanislaus (-28.0 percent), and Tehama (-25.0 percent).Fifteen counties increased in sales from last year, with Trinity (600 percent) gaining the most year-over-year, followed by Napa (49.1 percent) and Lassen (46.7 percent).
- At the regional level, home prices increased from a year ago in all except one major region in October. The Central Coast recorded the largest year-over-year gain in its median price (12 percent) and was the only region with a double-digit price increase from a year ago.Three out of four counties within the Central Coast region posted an annual price gain, with Monterey (29.8 percent) and Santa Barbara (22.9 percent) both registering price gains of over 20 percent from the prior year. The Southern California region (6.5 percent), the San Francisco Bay Area (5.7 percent) and the Central Valley (4.0 percent) also experienced modest median price increases from a year ago. The Far North region (-4.3 percent) was the only region that registered a price decline from October 2022.
- Home prices improved in many counties across the state, but 13 counties continued to register a year-over-year decline in their median prices in October. Del Norte posted the biggest price decline with a drop of -21.1 percent from last October, followed by Mendocino (-17.7 percent) and Lassen (-14.8 percent). On the other hand, 39 counties recorded an annual median price increase, with Tehama (35.8 percent) recording the biggest jump, followed by Monterey (29.8 percent) and Santa Barbara (22.9 percent).
- At least half of the homes sold above their asking price in five California counties. Four of those five counties were in the Bay Area region. Alameda (72 percent) recorded the biggest share in the entire state, followed by San Francisco (67 percent), Santa Clara (65 percent) and San Mateo (58 percent). Glenn County (50 percent) in the Central Valley region was the remaining county with half of its homes selling above the asking price.
- Housing supply in California continued to shrink from a year ago in October as mortgage rates remained elevated. The statewide unsold inventory index (UII), which measures the number of months needed to sell the supply of homes on the market at the current sales rate, was 2.7 months in October 2023 and 3.1 months last October.
- Housing inventory in California slid back in October from the prior month as the market continued to grapple with high mortgage rates. The statewide unsold inventory index (UII) decreased -3.6 percent on a month-over-month basis and fell below last October by -12.9 percent. Active listings at the state level continued to dip on a year-over year basis for seven straight months, and a further decline in each of the last six months all registered more than 20 percent year-over-year. That said, mortgage rates have been coming down in recent weeks as the Fed paused rate hikes at the latest meeting and recent economic news pointed to a slowing economy. Further decline in mortgage rates should alleviate pressures on both the supply side and the demand side of the housing market in the coming months.
- Nearly two-thirds of all counties (31) registered declines in active listings from last year, with 27 of them dropping more than 10 percent on a year-over-year basis. Mono (-40.6 percent) posted the biggest year-over-year drop in October, followed by Contra Costa (-40.2 percent) and Merced (-35.1 percent). Nineteen counties recorded a year-over-year gain, with Mariposa registering the largest yearly gain of 38.1 percent, followed by Del Norte (31.8 percent) and Amador (29.1 percent). On a month-to-month basis, over half of the counties (28) experienced a drop in active listings, while 22 counties recorded a monthly increase as the market moved into the off home-buying season.
- New active listings at the state level dropped from a year ago for the 16th consecutive month, but the rate of decline continued to decelerate. In fact, newly added for-sale properties dipped less than 10 percent for the first time in 12 months. The smaller year-over-year rate of decline was partly due to low-base effects though, as new active listings in October 2022 also recorded a sizeable drop from the prior year. Thirty-one of the 52 counties tracked by C.A.R. posted a decline in new active listings from October 2022, with Calaveras dropping the most at -35.9 percent, while new active listings in Merced (-35.5 percent) and Kings (-31.0 percent) both plunged more than 30 percent year-over-year.Twenty counties recorded a gain in new active listings from a year ago, with Mono (300 percent) adding the most, followed by Del Norte (64.3 percent) and Plumas (47.4 percent).
- The median number of days it took to sell a California single-family home was 20 days in October and 28 days in October 2022.
- C.A.R.’s statewide sales-price-to-list-price ratio* was 100 percent in October 2023 and 97.3 percent in October 2022.
- The statewide average price per square foot** for an existing single-family home was $421, up from $396 in October a year ago.
- The 30-year, fixed-mortgage interest rate averaged 7.62 percent in October, up from 6.90 percent in October 2022, according to C.A.R.’s calculations based on Freddie Mac’s weekly mortgage survey data.
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Buyers who are feeling stopped in their home shopping tracks by high mortgage rates, towering home prices that won’t budge, and a dearth of homes available for sale might be getting a respite from these challenges next month. Crunching the data and determining that the best week to buy a home in 2023 will be Oct. 1–7.
“During this seven-day period, shoppers can expect to save more than $15,000 when compared with the summer peak for a median-priced home of $445,000. Hello, bargains! Ideally, this week will offer buyers more options at lower-than-peak prices, as well as less competition from other buyers and slightly more time to deliberate,” says Hannah Jones, senior economic research analyst for Realtor.com.
In addition to potentially saving a wad of cash, buyers who’ve faced months of stale listings will likely be rewarded: 18.9% in fresh listings could come on the market this week compared with the start of the year, according to a Realtor.com analysis of historical trends. That should give a 17% boost to the total number of homes for sale (new listings and homes that have been on the market for a while).
To determine the best week to buy, Realtor.com looked at a variety of housing metrics, including list prices, inventory levels, new listings, days on the market, homebuyer demand, and price reductions in 2018, 2019, 2021, and 2022. (The year 2020 was excluded due to the COVID-19 pandemic anomalies.) Realtor.com also analyzed weekly housing data in 2023. The one hurdle the best week to buy can’t clear is stubbornly high mortgage rates. Two years ago, mortgage rates were a buyer’s key ally, hovering at about 3%. Today? Rates have recently reached a 22-year high of 7.23%, bringing the once red-hot housing market to a near freeze. (For the week ending Sept. 7, the rate for a 30-year fixed-rate mortgage was 7.12%, according to Freddie Mac.)
That unfriendly mortgage rate might make the data behind the best week to buy all that more valuable. “Buyers cannot control rates, but can set their budget based on current rates and future rate expectations,” says Jones. “Purchasing a lower-priced home or putting down a larger down payment can help buyers minimize their loan, and therefore minimize the impact of elevated mortgage rates.” Determined buyers who’ve been understandably waylaid by the onslaught of housing affordability hurdles might want to consider a critical real estate fact: High interest rates discourage competition from other buyers, especially homeowners who would like to trade up into a larger home or downsize into a smaller one. “Would-be buyers who have a sub-4% loan on their current home are out of the market,” says Bruce Ailion, lawyer and real estate agent at Re/Max Town and Country in Atlanta. Almost no one wants to trade a great rate for a high one, so many potential buyers are simply staying put. Another big group of buyers that’s mostly out of the real estate game this fall are families with children in school. “Moving is no longer convenient for this larger market sector,” adds Ailion. “And in general, we are no longer seeing huge numbers of multiple offers and those dramatically over-asking price offers. This October is a great time to buy.”