New Year’s resolution for many? Buy a house
Happy New Year! Now, go buy a house.
Yep, you’re still recovering from the holiday hangover — financially or physically (or both) — but January has become the new April, at least when it comes to those looking online to purchase a home, according to Realtor.com.
January had the largest number of online listing views in one of every five large markets nationwide in 2019, including three in California.
With a dramatic decline in the number of homes available and near-record-low mortgage rates, consumers are clicking now and connecting with real estate agents before April, historically the official launch of home buying (and baseball) season.
‘Search for a home is beginning earlier and earlier’
In 2015, April was the biggest month for online views for home listings, with January a significant 16% fewer views, according to data from Realtor.com. But times have definitely changed, February has become the busiest month for online views, followed closely behind by January.
“As shoppers modify their strategies for navigating a housing market that has become more competitive due to rising prices and low inventory, the search for a home is beginning earlier and earlier,” says George Ratiu, senior economist for Realtor.com. “With housing inventory across the U.S. expected to reach record lows in 2020, we expect to see this trend continue into the new year.”
January 2019 was the biggest month for online views in 20 of the largest markets nationwide, including San Francisco-Oakland, San Jose and Los Angeles.
San Francisco home listing views were up 11.9% in January compared to the second-highest month of February. San Jose home online searches increased 7.2%, also compared to second-place February.
Los Angeles had a more modest 1.7% increase in home listing views in January 2019 compared to second-place March.
Of course, California benefits from rather mild winters and is also dealing with a critical housing crunch and record-high home prices, likely prompting home-shoppers to ignore the calendar and look at listings.
Rent control (sort of) started Jan. 1, affects about 8 million Californians
California’s “rent control lite” went into effect Jan. 1, capping annual rent increases at 5% plus the rate of inflation — generally somewhere between 2% and 3% — while also requiring landlords to have “just cause” to evict someone when the lease is up.
Landlords are angry about the new law, claiming it tramples on the free market and property rights, while tenants say the law doesn’t go far enough.
The law affects about 8 million tenants, or about one of every five Californians. However, the so-called rent control law does not cover apartments built since 2005, condominiums or single-family homes owned by individuals. Also, apartments in communities with existing rent control, such as Berkeley and Richmond, are not affected by the new law.
Renters have been demanding some form of rent control for several years, especially as rents have increased with the booming economy and strong job market.
But landlords, especially multifamily property owners, say rent control only curbs the interest in building more — and much-needed — housing by cutting into profits while raising the financial risk from a slowdown. (The California Apartment Association, which opposes rent control, has a nifty explainer on the law for property owners on its website).
5 CA cities top 10 most expensive rent list in U.S.
While there are certainly examples of price gouging, primarily in high-demand areas like the Bay Area and parts of Southern California, rental increases in the state are comparable to those nationwide, and are even less than in some areas such as Detroit, Cleveland and Mesa, Ariz., according to a recent Abodo report.
Oakland was the only California city to crack the top 10 list of metros with the largest average percentage monthly rate increases in 2019, according to Abodo. The city, considered a more “affordable” choice compared to San Francisco, had the fourth-largest increase in rent in 2019 — 2.47% for one-bedroom and 2.86% for two-bedroom units.
Drive about 375 miles south and the rental scene changes. Los Angeles had the third-largest drop in average monthly rent nationwide, falling 2.27% for a one-bedroom apartment and off 3.04% for a two-bedroom unit. Long Beach was off 1.85% for two-bedroom apartments, the sixth-largest drop in the U.S.
Despite the declines in those markets, California still had five of the 10 priciest rental markets in the nation. San Francisco at $3,877, almost $800 more than second-place New York City (remember that the Big Apple has some more affordable boroughs that help offset the sky-high rents of Manhattan and other areas).
The Golden State also had the 10th-cheapest market for renters — Bakersfield at $692.
California’s five priciest cities for rent:
Fannie and Freddie less friendly in 2020
Fannie Mae and Freddie Mac have helped many Californians buy homes with little money down or even a larger-than-normal mountain of debt.
But those days could soon be over, according to a recent Wall Street Journal report (subscription required). The two publicly traded companies — often referred to simply as Fannie and Freddie — will cut back on small down payments and loans to borrowers with a lot of debt.
The Federal Housing Finance Agency, which oversees Fannie and Freddie, wants both to be prepared for an economic downturn and housing slump, though neither seem likely given the latest data from Wall Street to Main Street.
Curbing the mortgage risk could help boost profits while also making Fannie and Freddie more attractive to investors. Both companies are under government control and would likely need billions of dollars from investors to stand on their own, according to the Wall Street Journal report.
Fannie and Freddie buy loans from mortgage companies, greatly reducing the risk for lenders and opening the door to ownership for many consumers with small down payments or large debt — and, in some cases, both.
A more tightfisted Fannie and Freddie
Fannie and Freddie recently clamped down on backing mortgages to consumers with 3% down payments. Previously, borrowers could have annual incomes as high as the area median income, but Fannie and Freddie lowered the limit to 80% of the median.
Fannie and Freddie-eligible loans have allowed consumers to buy with small down payments as long as they can afford the monthly mortgage. But the changes outlined by FHFA director Mark Calabria could impact some would-be buyers.
Of course, consumers could still qualify for home loans from banks and mortgage companies, just without the guarantee of Fannie and Freddie. So, it’s uncertain how much Fannie and Freddie’s moves will have on homebuyers in the state.
And other government programs are available, including down payment assistance programs from the California Housing Finance Agency (CalHFA). CalHFA helped more than 11,000 low- and moderate-income residents buy their first home in the 2018-19 fiscal year, a record for the state agency.
And despite concerns about affordability amid record-high home prices, the median down payment for a home in California was 20% in 2018, easily the largest percentage in the U.S., according to Lodestar Software Solutions. Certainly, there are many homebuyers with single-digit percentage down payments in California, but the median — which includes consumers with all-cash offers to those with little to no money down — is about 20%.
Equity dives, California slides in national ranking
Need evidence the once red-hot housing market is cooling off?
The average homeowner in California enjoyed a rather modest $2,000 increase in equity during the third quarter compared to the same three-month period a year ago, according to CoreLogic. Sure, a couple thousand dollars is better than a decline, but far from the national average of $5,300 — or the $15,000-plus in recent quarters just a year ago in California.
The state’s equity growth is among the lowest in the nation, joining Kentucky, Oklahoma and New York. Only North Dakota had a decline, falling $1,000 during the third quarter compared to a year ago.
Underwater mortgages are so 2009
Affordability and a lack of housing are major concerns for the housing market in California, according to industry experts. And many of the would-be buyers and those disenfranchised with California are moving to nearby states in the West, where home prices — and, in turn, equity — are soaring.
Equity in Idaho skyrocketed $26,000, the biggest gain in the U.S, followed by Wyoming and Utah at $24,000 and $21,000, respectively. Arizona, another popular option for disgruntled Californians, had an equity increase of $15,000.
Despite the dramatic decline in equity, a large majority of California homeowners are sitting pretty. Only 2.1% of homeowners with a mortgage are dealing with negative equity, also known as an upside-down or underwater mortgage.
And San Francisco has the lowest negative equity rate among the 20 largest metro regions in the nation at 0.7%, while Los Angeles is close behind at 1.4%.
Flipping homes riskier, less profitable
The home-flipping craze has grabbed a lot of attention and generated some nifty profits for flippers during the past few years
But just as HGTV’s Flip or Flop stars Tarek and Christina El Moussa’s marriage crumbled, so has the home-flipping market, according to ATTOM Data Solutions.
The Irvine-based data tracking company reported 56,566 single-family homes and condos were flipped nationwide during the third quarter, a 12.9% decline from the second quarter — and off 6.8% from a year ago. Those were the largest quarterly drops since third-quarter 2014.
‘The home-flipping business settled way down over the summer’
About three of every four markets nationwide reported a drop in home-flipping rates as a percentage of overall sales. Vallejo was one of the hardest-hit at 31% from a year ago.
“After a springtime selling binge earlier this year, the home-flipping business settled way down over the summer amid a continuing scenario of languishing profits,” says Todd Teta, chief product officer for ATTOM Data. “The retreat back to more normal levels of sales comes amid broader market forces that are making it harder and harder for investors to complete the kinds of deals they were getting as recently as last year. Those forces are keeping profits way down from post-recession highs and show no signs of easing.”
Home-flippers reported a gross profit of $64,900 — the difference between the median sales price vs. the original purchase price by investors — a 3.5% increase compared to third-quarter 2018. But the return on the investment, which includes the cost of rehabbing homes, actually dipped to 40.6% during the third quarter, compared to 43.5% a year ago.
Despite the decline in home-flipping nationwide, there were a couple markets in the Central Valley where buying-rehabbing-selling still makes financial sense, especially with much-lower prices compared to the rest of the state.
Flipped homes were 13.2% of sales in Kings County (Hanford-Lemoore-Corcoran), and 34.3% of homes in Visalia with loans backed by the Federal Housing Administration were flipped properties during the July-September period, according to ATTOM Data.