If you are planning to sell your home and then buy another
home in Southern California there is no wrong time to sell your home. If you
buy and sell in a strong market you’ll get top dollar and pay top dollar. If it
is a low point, then you will buy in a low market, but have to take a low
amount for your home.
When you sell and buy, you do have three major cost
considerations: The cost of the transaction, the differential in interest
rates, and the Prop 13 effect. The costs will include real estate fees, costs
of fixing up your home to sell it, mortgage and other fees related to
purchasing the new home, and moving expenses.
The differential in interest rates will likely still be
quite modest in 2017. If you are fortunate enough to have a mortgage at around
the lows of 3.5%, you are likely to end up paying around 1% more in 2017. Many
homeowners do not have such low rates. The real cost of that extra 1% on a $600,000
mortgage is about $375 a month. Most will not pay even that much. You could
mitigate this quite a bit by using one of the many adjustable rate mortgages
available today.
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The proposition 13 effect will depend on when you bought
your current home and how well the State of California has kept up with your
property value increases. If you purchased between 2008 and 2012 and paid a
very low price, you will likely see an increase. If you are over 55,
Proposition 60 and 90 can help you to eliminate this difference.
Are you selling, but not buying another home?
Maybe you are selling your home and thinking about living
full-time on a cruise ship or at an island resort. Or you might be retiring to
a senior living situation, or just want to rent now. Even if you are planning
to buy something else, maybe you are going to play the market, selling high,
renting for a while, then buy when things cool off.
After a thorough review of expert opinion including Zillow,
the UCLA Anderson School Report, and various others, here is a good look at the
LA forecast for housing in 2017 and beyond. We will break down the situation
into the primary factors affecting real estate prices.
Inventory – The
primary mover of housing prices for the past five years has been historically
low inventories of residential housing. Current construction underway or in the
planning phases offers no relief to this shortfall. In some areas in SoCal the
shortage is acute with days-on-market averaging 61 during all of 2016. Most
pundits see no reason for optimism in this regard even into the next decade due
to California State, regional, and local regulations, taxes, and even shortages
of places to build new housing.
Affordability –
There is little doubt that the average Angelino is having problems buying or
renting housing that fits the affordability models of the past. Over 30% of all
families are paying more than 50% of their earnings on housing expenses.
On the other hand, there continues to be an influx of new
families from Northern California and other high-tech centers that can afford
Los Angeles more readily than their current neighborhood, and/or like the
weather better. In general, salaries seem to be headed upward due to increases
in minimum wages and a tightening labor market. Affordability is an issue that
could restrain future increases in pricing, but seems more likely to be merely
a restraint, not a block.
Historical
comparisons – While pricing in LA is high, it has not yet quite reached the
historic highs of 2007. Even though overall inflation has been restrained since
then, there still has been some inflation. On an inflation-adjusted basis,
there is probably 20% more to go in most markets to return to 2007 levels.
Population and other
demand aspects – The population is still growing, though modestly, in Los
Angeles County and all of SoCal. Demographically, LA is becoming older with
more seniors and fewer young children, households are smaller, and a growing
percentage is Latino. Residential housing starts are only 50% of what is needed
to keep up.
Mortgage rates –
after almost a decade of amazingly low mortgage interest rates, the improving
economy and Federal Reserve adjustments are beginning to move interest rates
upward. At under 4.5% for a 30 year fixed loan, interest rates remain at
historic lows other than the past 10 years. However, as interest rates
increase, the cost of ownership does increase. There is no doubt that this will
impact pricing and could slow overall purchase activity. If we push past 6% in
2018 or 2019, pricing might be forced down to some degree, though with no
inventory this is unlikely to become a spiral.
The overall economy –
The bad news. We are overdue for a recession. This is the third longest
period ever recorded for the US economy to go without a correction. This may be
explained in part by the depth of the 2008 recession and the slow recovery
since. But the fact remains that something could push us into recession. Most recessions
result in significant trimming of housing prices in Los Angeles.
The other big potential negative for the World economy would
be a credit bubble crash. Governments, businesses, and individuals have been
living on credit at rates as low as 0% for a very long time. As these rates
increase, all three groups will see costs rise substantially. There is no
precedent for this type of unwinding, so we have no idea what could happen. But
it could be worse that 2008.
The good news. The stock market is generally considered to
be an economic barometer that predicts about six months out. If that is true,
the US economy is going to have a great first half of 2017. This will create
demand. In addition, most economic pundits, even those who aren’t fond of the
new POTUS feel that policies being implemented by the new government are likely
to be stimulating to the economy. Some are predicting that the current good times
may extend for another three or four years.
Government
regulations – Many are predicting that the Dodd-Frank legislation which
limited the ways that lending institutions are allowed to sell loans, will be
repealed by the new Congress. This may lead to some easing by mortgage lenders
and banks. This could result in more completion for scarce properties.
Foreign buyers –
A recent poll placed LA in the top five cities worldwide that are likely to
benefit from rich foreign buyers purchasing real estate for personal use or
investment. This has been, and is likely to continue to be, a major factor in
pushing LA housing prices upward.
If you would like to find out what your house is worth and
to discuss your options in this red hot market, call Whit Prouty today: 310-962-6942
