Thursday, December 8, 2016

Los Angeles Housing Bubble Is Nonsense – Even When You Include Climbing Interest Rates



 Proof in four charts

The headlines scream: “Housing Prices Unaffordable in Los Angeles” or “When Will the Bubble Burst in LA Real Estate.” A quick survey of major national economic journal articles about housing in the US, and especially in the popular urban centers, will reveal a consistent tone of fear.

The argument is something like this. Prices are almost back to 2006/7 levels that were unsustainable and resulted in a crash. Interest rates are likely to be continuing up under pro-growth Trump economy, and combined with super high prices, residential real estate is bound to head straight down.

But, there are serious problems with this logic. The following four charts should be all you need to debunk the fear mongers.

1.    The real (inflation adjusted) price of homes is not near the top in 2006/7.  The chart below shows the average prices for the US and Los Angeles over the last 30 years.





2.    The affordability issue is answered by this chart. Here you have a comparison of price to income. Substantially lower than 2016/7.



3.    Finally, we have the buy vs rent chart. If you can afford the rent, you can afford the house. Moreover, the rental value compared to the cost of the underlying property value drives investors to buy. As can be seen in this chart, there is a very long way to go to 2006/7 levels.




4.    This one is a bit more complicated; however, all of the pricing issues above are based on current interest rates. Thus, if interest rates go up, affordability goes down. What is shown in the next chart is that the last bubble had interest rates (30 year fixed) of around 6%.  Therefore the purchases during the bubble were at those levels, not current levels of around 4%. While affordability will be a factor as prices go up and interest rates go up, both can go up and still not create the kind of bubble we saw in 2006/7 any time soon.



 While there is no realistic way to incorporate all of this information into some real number that would represent a certain top in the market, it is pretty clear that prices can increase more than 20% even if interest rates increase to 6% without hitting the unsustainable levels of 2006/7.

Final note – Prices and wages are expected to go up 3% per year in the next couple of years. So housing prices can go up 3% per year from these levels in addition to the 20% slack identified above.

Caveat – Housing prices may go down next month or next year due to known reasons or reasons that will only be visible in the rear view mirror. This article only intends to demonstrate that the home buying public is not yet stretched to the extent that they were in 2006/7.

If you are in the market to purchase a home, need to sell an existing residential property, or both, please call Whit Prouty to discuss current market conditions in the area of your interest. The consultation costs you nothing. Call Whit at 310-962-6942

Tuesday, October 11, 2016

Los Angeles Real Estate Market Unique Buyer’s Window in Fall 2016

 
Some properties are already showing reductions - especially those over $1,000,000

Falling sales may provide a moment of softening prices


Are you the type of shopper who likes to get in on a great sale? Do you get an extra rush from timing markets? Do you like to buy low and sell high? If these statements describe you, the Los Angeles Real Estate Market may be offering just such an opportunity for those who are ready to take advantage of a unique set of circumstances.

First lets examine the long-term trends and underlying forces that are likely to effect housing availability and prices for the next few years in the Los Angeles Real Estate Market. The clear facts are these:

1.     No significant building of new units to absorb demand.
2.     Very low inventory currently. Under 6 months.
3.     Continued low interest rates likely. May trend higher, but not by much.
4.     Demand is understated as potential owners continue to live at home, share, or rent.
5.     New demand seems strong, but this is not certain to continue.
6.     Prices high, but not at bubble levels – may level off
7.     Recession likely, but no one expects a long one
8.     No clear major economic impact on the horizon

These trends would tend to suggest a continuation of tight supply, which should
create stable to increasing prices. These could be offset by a recession, dramatic increases in interest rates, or some big, unknown economic issue, but any downturn is likely going to be short due to limited supply and steady to increasing demand.

What about the Fall/Winter of 2016/17?


No matter what your politics may be, the looming election is the most likely reason why Los Angeles Home sales just dropped like a rock between July and September and comparing this September to the past several years. Trump, love him or hate him, represents a huge unknowable. Markets don’t like to be in the dark about the future. Hillary is less likely to shake things up, or is at least perceived that way. If she wins the White House, markets are likely to become steady or trend up. If Trump wins, we are likely to see at least short-term instability while the market makers figure out what he will or won’t, can or can’t actually do.

Thus, the window of opportunity that presents itself in the next few months. Buyers are pulling back, sales are dropping, inventories are increasing, and this will likely cause sellers to be more open to take a bit less. The Fall/Winter season is generally softer anyway. This condition merely exacerbates the situation.

The window may be short lived if it becomes clear that Hillary is winning or after a victory by her. This will be especially true if the Republicans hold the house and get at least a 50/50 split in the Senate. Markets love divided government.

The Bottom Line


From now until November 8, you may have an opportunity to make your best deal on a home in the Los Angeles Real Estate Market. That window may continue if Trump is elected. The window is likely to close by the end of January after the State of the Union Address. 

If you are interested in discussing the sale or purchase of a home in the Los Angeles Area, please call today to set an appointment. Email Whit@WhitProuty.com or call: 310-777-6302.

Saturday, August 6, 2016

21 Rooms You'll Want in Your West Los Angeles Mansion

Even if you only have three rooms, you might get ideas from this list

No matter the size of your home, decisions need to be made from time-to-time regarding the use of every room in the house. Maybe you are moving in to a new place and are considering these issues from a blank slate, or possibly you are adding one or more rooms to an existing house, or, as is commonly the case, your family is changing, therefore your needs are changing, too.

In addition to these possibilities, families are always finding a new place to create a room. It could be the attic, the basement, the garage, or even dividing up the never-used formal living room or dining room into more useful space.

21 room options that might delight your family

  1. Teenager’s bedroom – So many possibilities? Make sure they are part of the design team.  Hidden closets, built in media centers, fully wired for electronics, any color paint they want, storage for sports equipment.  You'll rock!
  2. Pantry – What a fantastic and low-cost way to transform your kitchen. Use pull out shelves, hidden cabinetry, lazy susans, and pot drawers to get organized and stay clutter free.
  3. His and/or her office – Maybe you'd like the office to be calm and minimalist. Use light woods with blues and greens on the wall. Creating a warm calm place will be great for brainstorming and creating new ideas.
  4. Another office – Maybe you both need an office.  His and Hers. Possibly the second office is more traditional with leather upholstery and dark woods.
  5. Home Theater – This idea is no longer just for the really rich. Having one room set up with top-of-the-line audio and a huge TV is a fun way to have a movie theater experience in your own home.
  6. Game Room – The game room doesn’t have to be just for kids. Include game tables, a dart board, and a bar area. Consider a pool table, foosball, video game consoles, and virtual reality equipment.
  7. Swimming Pool Room – If you live where there are harsh winters or you have no room in the yard, this may be a great idea for you. Indoor swimming pools mean you can enjoy a dip in the pool any time of year.
  8. Spa – Don’t have space for a pool. Consider a spa or “spool” (spa/pool). The neighbors will love this room.
  9. Pool House – If you have a pool and the extra space keep all things pool separate from the main house. Include a shower, tiny kitchen, and a living area with an indoor-outdoor feel for an instant resort-like experience.
  10. Grandma’s room – Or it could be grandpa or both.  Add a private entry, bath and kitchenette. 
  11. Art center – Imagine an inspirational room for create everything from paintings to crafts. Install organizing drawers, counters for your arts and crafts, and tables designed to take abuse. This is a magical space for any one with a love for creating.
  12. Music studio – Almost a necessity in Los Angeles today. Sound proof walls, acoustic panels, studio equipment, and prewired for your recording needs will help you write, compose, record, and edit your next big hit.
  13. Video production room – Consider a room that has everything you need to have the next big trending YouTube video. Green screens, lighting options, and plenty of outlets.
  14. Indoor gardening center – This room might pay for itself.  Enjoy fresh produce year round produced in your own hot house.  Also store equipment and supplies for the outside gardening.
  15. Laundry room – What a royal pain it is to try and move around in most laundry areas. No room for the supplies? Sometimes outside in the cold garage. How about having everything at your fingertips in a 6 X 8 laundry room.  Add TV.  Kids might even help.
  16. Workshop – You are not blessed to have a basement and there's no room in the garage to really build stuff?  Create a room from the ground up with places for every tool, and plenty of space to work.
  17. Vanity – Maybe there isn’t room in your master bedroom to create a master bath suite.  Create one special new room for all the ladies in the house to pamper themselves.
  18. Another bathroom – Not for guests only.  But maybe you'll let them use it. Luxury tub and showers.  Full environmental cabinet or just a steam shower.  Maybe a bidet’.  Oui Oui
  19. Toy room – The toy box is running over. The legos and Barbies alone need their own house. There is no room in the kids' room for the kids.  Set up a room for the toys with lots of storage.
  20. Homeschool classroom – Homeschool parents don’t want to have to put everything school related away after every school day; Leaving all that clutter out all the time in the kitchen or family room isn't an option.  Set aside one room and set it up like a classroom.
  21. Maids or nurses quarters – This spare bedroom could also be used for foreign exchange students, as a guest room, or quarters for a boomerang adult child.  Room and a bath is even better.
Tell us in the comments about any other great room ideas you would love to have in your home.

Saturday, July 30, 2016

Los Angeles Is Undergoing a Transportation Revolution – 4 Ways Los Angeles Will Change

 

Real Estate Is Changing as Transportation Changes


Driving the freeways or the city streets of most of Los Angeles, you might not have noticed any effects of the transportation revolution happening all around you. The summer traffic made a mess of things as usual, and back to school will clog things up in as usual.

But the revolution is upon us, and the impact on real estate is inevitable. There are fortunes to be made or lost based on anticipating the potential winners and losers. In this post, we’ll talk about the specific changes already in place and on the way. In a future post we’ll prognosticate about the impact on housing design, neighborhood, and lifestyle changes that may arise from the extraordinary changes regional leaders in government, real estate, and construction coming our way.

Who needs two cars? 


For 100 years the story line for LA has been all about cars. “You have to have a car if you want to live in Los Angeles.” Or so goes the mantra. While most may still agree with this “law” in the middle of the 20-teens, there is plenty of evidence that the future will see a major modification of this thinking.

The beginning of new ways of thinking about cars can be seen in the attitude of teenagers. For generations, getting your license at 16 and buying your first car at 17 was more important than lining up a prom date. Today, what with restricted licenses and expensive auto insurance, teens are often blasé about even getting their license. Many have discovered that a combination of friends, public transportation, bicycles, and even (God forbid) parents as chauffeurs can at least delay the need for driving and owning a car.

This preconditioning is now affecting transportation decisions among adult millennials who can often imagine a future where they would rarely need a car.

Public Transportation becomes more "acceptable"


The middle class wouldn’t be caught dead in a bus or Metro rail car last century. But with parking rates hitting $15 per day or more at downtown and beach locations if you can find parking at all, millennials are hopping on the train. The tech crowd has been eagerly waiting for the opening of the last link in the Expo Line which finally happened earlier in 2016. The loft crowd downtown can now commute to Santa Monica jobs or to the beach with ease. The Beach condo crowd will be able to commute to DTLA. Have these new transportation approaches helped to create tech on the Westside or did the planners really get it right, anticipating the future. see http://la.curbed.com/archives/2015/07/expo_line_extension_santa_monica.php

As the train system extends its reach to the airport, Hollywood, and the Wilshire corridore while spawning better feeder systems of buses, bike rentals, and even jitneys at popular stops, the trains will increase the potential for a life without a car.

The venerable bicycle’s is part of the solution


Have you driven down Abbot-Kinney or Main Street in Santa Monica recently? Bicycles rule these roads. Have you had a chance to drive along an unfettered Venice or Wilshire during Cyclavia with a hundred thousand other cyclists? Portland, San Francisco, and Davis have shown the potential for cycling as transportation in cities with weather that is far less hospitable to year round cycling. What would it take to make LA a cycling mecca?

Plans are afoot by many regional governments to dramatically improve the cycling options along hundreds of miles of streets. Santa Monica is leading the way, and could provide directions for other local communities to becoming more bike friendly.

Where 15 years ago, electric bikes were a novelty item at the huge Interbike Show in Las Vegas, they are now a major factor. Traditional bike shops are starting to show electric bikes, utility bikes, and folding bikes as alternatives to cars

Combine the potential for safer, smarter transportation options for cyclists with better and cheaper motorized bikes, and you could see a major shift to bikes as an option by themselves are in combination with public transportation, for commuting and local errands.

Public transportation + bicycles = a potent hub and spoke transport system


No pun intended, but other world-class cities, including San Francisco, have developed a hub and spoke system using busses, trains, and bicycles. You park your bike at the train station near home, ride to your destination, grab your other bike that you park at the station by your office, and ride on to work. In addition, rental bikes and bike sharing systems have cropped up at such transportation hubs.

It's here. The sharing economy – Uber, Lyft, and Turo


Don’t want to take the train, bus, or bike to the concert, but also don’t want to be thinking about driving and parking and all the other hassles? Millennials, even those who have perfectly good cars, also have Uber aps on their phones. When you need a quick lift, you hail a driver in seconds, and in no time, a car is seen approaching on the map. There is no need to honk when it arrives. The app notifies you.


For many who don’t have a car and use public transportation or a bicycle some of the time, but need to go on a longer trip or one that isn’t easily accomplished by those means, Uber is a solution. Instead of paying $200 a month on a car lease, $100 or more for insurance, and more for gas, parking, and repairs, the car-free approach now has a fallback position to shared transportation. Uber isn’t always less than a cab, but it fits the modern citizen like a hand in a glove. It works from your smart phone.

Maybe you want some real California-lifestyle personal driving time. Hit your Turo.com app and rent a car from your neighbor. Much like Air BnB, Turo.com provides a fast, convenient, and inexpensive alternative to rental car companies. Car owners who don’t need their car everyday list their car as available to rent. Commonly the car owner will even bring the car to you, and pick it up at the end of your rental period.

Autonomous Vehicles

 

All of the above would be plenty to suggest that a revolution is upon us. Ten years from now, every neighborhood from downtown to the beaches will be impacted by these changes. But no change already discussed can compare to what is almost upon us.

By 2020 numerous car companies will be offering driverless cars. Audi, BMW, Volvo, Tesla, Google, Apple, and Uber and virtually every other major automaker is planning a driverless car by 2020.Screen Shot 2015-09-11 at 9.30.53 AM

Uber makes no secret that they want to replace their independent drivers with driverless vehicles as quickly as possible. Of course, even if they were to start actively buying cars in 2020, it would take years to have a fleet large enough to displace all drivers.

But make no mistake, the billions of dollars being invested at this time will result in operational cars, busses, and trucks very soon. In fact, some reports suggest that at least one or two manufacturers are ready to ship now, but are held up by regulatory issues. Many also feel that the public needs to be introduced to fully autonomous cars slowly.

Cars today come equipped with side sensors, back up warnings, drift alarms, automatic braking, and other pieces of the final, fully autonomous product. BMW’s 7 series sedan will now be capable of hands free driving for 15 seconds at a time. Actually, it could go far longer than that, but to meet regulations, they will require the driver to retouch the wheel at 15 second intervals.

Such incremental changes will be added on top-of-the-line cars over the next 4 years. By 2020, many cities and states should have approved various cars for autonomous driving, and the public will have realized that such cars are safe and beneficial (or so goes the industry thinking.)

Thinking About the Future


If the streets were safer, many would use bikes for short trips and as spokes on another transportation hubs. As Los Angeles public transportation becomes more ubiquitous and smarter, trains and busses may become a solid transportation source for another large group of folks. Now add in the idea that a shared vehicle can come pick you up and drop you off at a very low cost (no driver = dramatically lowered cost per mile), and you may be perfectly willing to give up owning a car. Or, if you own a car, will you commonly make it available for rent on Turo.com?

In such a future where you owned no car or only one, where would you live? What would your home look like? What would be the impact on retail and service business locations? We contemplate the Los Angeles Real Estate scene circa 2025 in a future post.

Whit Prouty, a realtor with Coldwell Banker can help you with your purchase or sale of residential real estate in the West Los Angeles and Burbank area. Whit has consistently been in the top 3% of all real estate agents in the world. Call Whit at 310-962-6942