Thursday, December 5, 2019

Financial sacrifices bigger for younger Bay Area home buyers

Financial sacrifices bigger for younger Bay Area home buyers

Some millennial home buyers admit to dropping health insurance for a downpayment

Buying a home involves sacrifices, but younger workers are pinching budgets tighter to get into a home than their predecessors.

About 7 in 10 millennial and Generation Z homebuyers say they cut spending on everything from entertainment to health care to afford a down payment, while just 3 in 10 baby boomers admitted trimming expenses, according to a national Zillow survey.

The survey highlights the growing gap between the cost of housing for young Bay Area residents and families compared to earlier generations. Millennials, generally between the ages of 22 and 38, are finding it necessary to take more drastic steps to cut expenses.

“It’s not very affordable for young buyers,” said Zillow economist Kathryn Coursolle, adding that family help is important, too. “Generation Z and millennials are more likely to get help on their down payment.”

In 1960, the typical Bay Area family paid about twice their annual income for a home. Today, an average Bay Area family pays roughly nine times their annual income to purchase a house.

The typical starter home in the Bay Area buys a luxury home in most other parts of the country. In the East Bay and San Francisco, a typical starter house — defined as the median value for a home in the bottom third of the market — goes for $547,000, according to Zillow. In the South Bay, it’s $736,000.

Compared to older buyers, millennials surveyed are making more sacrifices to get into a home. Younger buyers admitted to cutting and saving in traditional ways: spending less on entertainment and dining out (29 percent), picking up additional work (24 percent), and postponing vacation plans (18 percent).

But they also said they made deeper cuts with potential long-term consequences: contributing less to retirement savings (14 percent), delaying doctor visits (13 percent) or reducing or canceling health insurance altogether (11 percent).

By contrast, just 3 percent of baby boomers said they had cut health insurance to pay for a home.

Not all Bay Area millennials run into problems. High-paying tech jobs and double-income families mean part of the population can afford the region’s $810,000 median sale price.

Ramesh Rao, a Coldwell Banker agent in Cupertino, has worked with tech clients through years of Silicon Valley booms and busts.

Despite high prices in neighborhoods around Facebook, Google and Apple, Rao sees strong demand. A young software engineer making $125,000 plus stock options and bonuses after college can accrue enough personal wealth by the time she reaches her late 20s or early 30s to buy a home with a partner, he said.
The competition for talent between major tech companies has driven salaries up for engineers, Rao said. Many techies can afford to stay in the region, and like the ability to shop their talents to different companies and startups, he said. “The Bay Area is the perfect place,” he said.

San Mateo agent Jeff LaMont said some Bay Area tech companies provide low-cost, forgivable loans to help employees make a down payment. The loans tie workers to a company, but many are willing to accept the deal, he said.

Others find a more traditional source, LaMont said: “They’re going to the bank of Mom and Dad.”

Tuesday, November 19, 2019

Benefits and Drawbacks of a pocket listing?

What are the benefits and drawbacks of a pocket listing? When do you recommend taking this approach?


A: There are occasions in which selling a home, “off-market” (not exposed to the wider buying public by keeping it out of the MLS) may make sense.

Sellers who do not have the time, energy and/or desire to prepare their home for presentation on the Internet and to the public may prefer the off-market route.

Sellers who prefer a higher level of privacy, wishing to limit access to their homes may choose this route as well.

The potential downsides include a more limited buyer pool, fewer offers and ultimately a lower selling price; likely more true for properties that are not located in the most sought-after locations than those that are.

Whether a pocket listing makes sense depends upon the particular property being sold and the individual needs of the seller.

A: Pocket listings take several forms, but all involve limited exposure, usually outside the MLS.

One benefit is that it protects the privacy of high-profile individuals and high-profile possessions. It also eases burdens on some households and allows sellers to stay in place—not disrupting kids, pets, ill residents, etc. These are the primary scenarios when I might recommend a pocket listing as being in the seller’s best interest. A pocket listing also creates exclusivity: Some argue buyers pay more if they think they are getting a special opportunity. It also speeds the transaction by avoiding full pre-market preparation. Finally, it does not trigger adverse days-on-market stats.

But there are drawbacks. Mainly, sellers will never know what they might have received from full market exposure and possibly multiple offers. Also, capable buyers come from many sources and pocket listings by definition limit the options. This only works in markets with low inventory relative to high demand. Limiting exposure discourages cooperation, and is “anti-consumer.” Pocket listings lack transparency, which may result in discriminatory practices. Some argue primary benefit is to listing agent or broker, who is more likely to represent both sides

This became an even hotter topic as the National Association of Realtors just voted to require all listings to be entered into the local MLS within one day of marketing to the public, starting May 2020. Will that decision be challenged? Will local MLS continue to allow sellers to waive this requirement? Stay tuned.

A: The National Association of Realtors’ board of directors approved MLS Statement 8.0, also known as the Clear Cooperation policy, at its meeting. The policy requires listing brokers who are participants in a multiple listing service to submit their listing to the MLS within one business day of marketing the property to the public. This new rule goes into effect on May 1, 2020 and will impact the number of pocket listings coming on the market.

Why is this Rule somewhat controversial? For years, “pocket” or “off-market” listings have been used in three primary scenarios, enabling sellers to test a list price for a property where relevant comparison properties are difficult to surmise, or to gauge pricing in a saturated market, or lastly the sellers are living in the house and prefer limited showings and/or more privacy during the sales process. It is common for agents to share off-market listings through their brokerages, agent networks, and other groups.

However, this can be perceived as insider-only knowledge and doesn’t always maximize the property’s exposure. This can be limiting for buyers not connected to those information sources, or those unfamiliar with the area. Sometimes the limited exposure of a pocket listing can shortchange the seller, or attach a false stigma that there is something wrong with the property.

In summary, MLS Statement 8.0 will help ensure the fiduciary duty of the agent which is to expose the seller's property to as wide an audience as possible so that they can obtain the highest possible sales price.
By SFGate

Monday, November 11, 2019

4 Things to Do with Your Home When Deciding to Downsize

4 Things to Do with Your Home When Deciding to Downsize

As they settle into retirement, many seniors begin taking a good, hard look at their homes. For some, the idea of living in a spacious house no longer holds any appeal, especially if it requires a lot of maintenance and upkeep. Enter the concept of downsizing, which involves paring down your possessions and moving into a smaller, more manageable home. For some seniors, this could mean purchasing a smaller house, finding an apartment, moving in with loved ones, or shifting gears altogether and moving into an assisted living facility. However, regardless of the reasons for your downsize or where you want to end up when all’s said and done, you’ll need to determine what, exactly, you’ll do with your old property.

Here are four options you should consider when you start thinking about downsizing.

Selling Your Home

Successfully selling your home depends on quite a bit with the current housing market, so take the time to talk to a realtor or research what the market is like in your area. It may be wise to go ahead and sell, or it might be better to wait. With the market staying relatively competitive in San Francisco (the average sale price last month was $1.43M) you could net a substantial profit that you can put toward your next living situation. Keep in mind that if you put your home on the market, you’ll need to think through the details that will set it apart. Stage your home so that it appeals to the most buyers and connect with a realtor that has experience working with seniors.

Renting Your Home

For many seniors, renting out their home can add extra cash to their bank accounts, creating a safety net for unexpected medical costs or a nest egg for adventure and travel. Just be sure you have enough set aside for any big fixes your tenants might need and to cover any costs that might occur in between renters. It’s also wise to ask a close family member to help out with repairs so you’re not left with the brunt of the responsibility.

Remodeling Your Home

Rather than a move to independent living or a smaller home, some seniors may decide to remodel their homes to accommodate their changing accessibility needs. The most common rooms to remodel are the kitchen and the bathroom, where both accessibility and safety are a huge priority. You can install non-slip flooring, raise countertops, and put handrails near tubs, toilet and sinks. The right kinds of modifications not only reduce hazards of slips and falls, but also help seniors continue to live independently.

Leaving Your Home with Family

Leaving your home with your family allows them to build on your traditions in their family home. Not only does this help your family members out, but it can also be a great way to keep your home as a financial investment, which can be an important asset in your financial portfolio. If the market temperature is too cold, leaving it with your family means it is taken care of until a time when it will get a better listing price. For some seniors, it is an easy way to maintain financial stability and peace of mind while living in a retirement center. Just make sure you know the laws in your state surrounding leaving property to a family member.

Uncertain on Where to Go?

In addition to finding a solution for their current home, many seniors feel overwhelmed when trying to settle on the ideal living situation. Should you buy a smaller house? A condo? Rent an apartment? Oftentimes, independent living can be the perfect solution as it offers the best of both worlds allowing seniors to purchase a condo or rent an apartment in a 55+ community. This alleviates expenses associated with large homes, offers a social outlet, and provides access to meals and caregiving when needed. Plus, there are reasonable financing options for people living in San Francisco. The average monthly payment for an independent living facility in the Bay Area is roughly $1,500 to $11,270 per month. This can be an intimidating option for some people, so if you’re on the fence about independent living, tour a handful of communities to see if one works for you and your lifestyle.

As you plan for a transition to a smaller living space, letting go of a house filled with memories can be bittersweet. If selling doesn’t feel right, know you have options. With a bit of planning and some help from loved ones, you can make the transition easier and allow yourself to enjoy your golden years with less worry and more time doing the things you love.
By Jim Vogel

Thursday, October 17, 2019

10 reasons to buy a California home sooner rather than later

10 reasons to buy a California home sooner rather than later

Let me take on a role usually in the wheelhouse of the real estate industry and say it feels like a fairly good time to consider buying a California home.

I do this as a public service. It seems the leadership of many statewide real estate groups is way too busy painting worst-case scenarios in order to fight political battles in Sacramento.

I’m not sure how scaring off potential California house hunters is good business for the real estate craft, in the short run or for the long haul. Is it a shock home sales languish at modest levels and homeownership is stagnant following relentless “unaffordable” and “shortage” messaging? Could you image car dealers blaming lackluster sales — and they’re now suffering a slump, too — on a poorly-priced product?

Look what Jordan Levine, deputy chief economist for the California Association of Realtors, recently told this news organization: “No one can afford houses even at lower rates. It was out of reach before. It’s not going to be more affordable now.”

 Really? Nobody? In a state with roughly a half-million homebuyers each year? You know, in other consumer-facing sales businesses — usually called “retailing” — when things are slow you have a sale! And in some ways, that’s quietly what’s ongoing in California real estate.

It’s not easy for this jaded journalist to conclude current buying conditions are favorable amid mounds of economic gyrations, partisan noise and the much-debated “affordability” issue. Yes, I’m aware that California homeownership isn’t a reality for numerous folks, especially for singles and those with dings on their credit history. And, yes, down payments are a critical roadblock.

Thus, I say “buy” knowing it’s not an easy process and there will be more bumps to come. But let me share 10 reasons you might want to buy sooner rather than later.

1. Bosses are hiring … Forget all the industry-centric real estate statistics that are too-frequently debated. Real estate is first and foremost about “Jobs! Jobs! Jobs!” And California continues to be a jobs-creation machine. In the five years through 2019’s first quarter, bosses statewide added 4.2 million jobs — No. 1 among the states. That adds up to California bosses growing their staffs by 32% in the period vs. 29% nationally. Unemployment? At record lows, nearing 4%. Dear house hunters, without a job there is no hunt.

2. Wages are up, too … Pay matters. And while not every newly created job generates homebuying cash flows, many new opportunities are coming with better pay. California’s average weekly wages in 2019’s first quarter ran at a $72,800 annual rate — No. 5 nationally. And over five years, that’s up 21% — easily topping 14% gains nationally and the third-best raises among the states. More jobs with more pay translate to more purchasing power, especially in households that have two breadwinners.

3. Low, low rates are not forever … A record-breaking drop in mortgage rates — back below 4% again — makes for historically cheap money if you’ve got the household creditworthiness to qualify. And while we’ve seen this on-and-off the past few years, don’t assume it’ll always be that way. Since 1971, when Freddie Mac started tracking mortgage costs, a below 4%, 30-year fixed-rate was available just 9% of the time. And for those folks waiting for a potential price pullback to buy, remember this: you’ll need prices to drop 11% to make up for the monthly cost of a 1 percentage-point jump in rates.

4. Lenders are lending … If you can’t get a mortgage, who cares what the terms are! And while this isn’t the easy-money days of a decade ago it also is NOT like the tight-money era after last decade’s market crash. The Urban Institute’s yardstick of mortgage availability shows lenders’ willingness to lend in the first quarter of 2019 at its highest level since 2013. Who’s eager to lend? Seek out non-traditional lenders or traditional banks building up their in-house loan portfolios.

5. Price appreciation is cooling … Yes, California home values are expensive and have risen 39% in five years vs. 33% nationally. But for those considering out-of-state purchases, the eye-catching gains are elsewhere: 11 states topped the Golden State’s five-year appreciation rate, including popular destination for ex-Californians. Nevada prices are up 63% in five years, then Idaho (60%) and Washington state (57%).

6. Multiple offers are also out of style … California bargains may be rare, especially at lower price points, but at least there’s some supply to choose from. Note a slightly above-average inventory of existing homes on the market as of Oct. 3: 34,456 listings in broker networks for Los Angeles, Orange, Riverside, and San Bernardino counties, according to ReportsOnHousing. That’s slightly above the average listing count of 33,882 for this time of year since 2012. Please note: new escrows are up 14% in a year, so certain buyers are noticing the turn in the market.

7. It’s not build-it-and-they-will-come but … Nobody’s building like yesteryear. And, yes, California builders have filed permits to build single-family homes in the past five years at a pace that’s half of the historic production. Still, homebuilding’s up 85% above the post-recession low and has run at the fastest rate in nine years. Plus, builders have had trouble selling lately, especially those fancy low-seven-figure models. So price cuts, freebies, and ready-to-move-in homes (ahem, unsold standing inventory) are available.

8. Yes, we’re having a sale … It’s amazing what “normal” inventory does. It’s no longer a seller’s market, so house hunters have room to haggle. Ponder that five of the 11 big metro areas with the steepest jumps in price reductions this year were in the Golden State, according to Zillow stats. Listings with price cuts jumped 115% in a year in the San Jose area; 67% in San Francisco; 31% in San Diego; 28% in Los Angeles and Orange counties; and 18% in the Inland Empire. So “asking” price is just that: the seller’s wish list!

9. Thus, relative “affordability” … I’m no fan of numerous “affordability” indexes that are a poor portrayal of financing conditions. Still, ponder a California Association of Realtors’ index that attempts to replicate such conditions for first-time buyers. It showed 47% of households statewide theoretically “qualify” to buy a starter home. Ignore the mathematical logic and note that this “affordability” benchmark is down from 73% in 2012 … But who was willing to bet on housing just after the Great Recession when statewide unemployment ran at 10%? Compare the latest “affordability” reading with pre-bubble conditions: In 2000-06, 43% “affordability” was the norm. So history says, on perhaps an odd scale, these are not incredibly “unaffordable” times.

10. And, finally, your landlord … California homeownership is not risk-free, nor cheap. But it can offer certain cash-flow certainties that renting cannot. So far in 2019, the cost of renting in Los Angeles and Orange counties rose at the fastest pace in 14 years — 5.5% — according to the Consumer Price Index. It’s only slightly better in Riverside and San Bernardino counties: up 4.3%. You need shelter. Do you want to make a landlord wealthy, or take your shot at home-owning success?

So if you’re “on the fence,” don’t forget one slightly discussed ownership advantage. Oh sure, most folks know a chunk of that hefty monthly house payment still can be tax-deductible — especially mortgage interest and possibly property taxes.

Yet there’s this other large slice of that check to the lender — what’s called “principal reduction” — that’s actually you paying yourself. That cash can likely be later accessed either with a second mortgage or when you sell your home.

Before I go, I will add caveats to my buy-now thesis.
Various domestic and geopolitical risks are out there. But if such anxieties vanished, you’d be fighting off crowds of eager house hunters.

And no matter what historic patterns you study, or what any snapshot of current market conditions tell you, there’s also an equally quantifiable factor: economic hiccups, market surprises, political stupidity and downright disasters can occur.

But if you want guarantees in life, here’s a few: Death. Taxes. And the rent will rise.