Boomers Helping Kids

We were talking with some friends last night about how much financial support is going towards kids, and how it will affect real estate in the future.

On one hand, it’s the Bank of Mom and Dad, and helping to keep the market afloat when funding home purchases at these lofty prices for those kids with regular jobs.

However, for those kids who never get to the point of financial stabilization, the selling of the parents home will become the lottery ticket to solve their money issues.

I suggested that this is where the ibuyers could do the most harm by taking advantage of people who want and need a quick sale and who aren’t that familiar with the values.

When we were in Las Vegas for that one-day vacation, I saw more than one ibuyer ad on TV, and they were very enticing.  The kids who have been strapped for years and then inherit their parents’ house might jump at the chance to get their hands on quick money – and likely leave some on the table.

Will anyone step up to protect the unsuspecting?  A new challenge/opportunity for realtors!

Link to Article

Alternatives to the MLS

If the MLS goes away, then what?

It probably won’t go away, at least not until it runs out of dues-paying members.

Buyers, sellers, and agents will just choose other more-effective options instead.

Check out this one that provides an investment platform with several choices.  You can invest in cheaper houses in the midwest, throw money into their investment vehicle, or even sell your house:

www.roofstock.com

Who’s going to mind the ease of this purchase?

The ibuyers and other new-age alternatives could keep us at a permanently-high pricing plateau because they will tell you what it’s worth, and make you forget all about getting good help!

The Decline of MLS Civilization

The traditional way of selling homes has been picked apart for years now, and the players of the future are emerging. It’s shaping up to be a competition between full-service brokerages vs. Redfin vs. ibuyers.

This article describes the power play, and features Compass as Case Study #1:

https://www.linkedin.com/pulse/how-market-share-creating-competitive-superpowers-real-flachner/

An excerpt:

Compass has traded capital for rapid growth, raising a reported $1.2 billion and a valuation of $4.4 billion. With these resources at its disposal and not shy about losing money for the moment, Compass has been catalyzing growth by offering significant sign-on bonuses, investing deeply in technology, and doubling down on M&A.

Many observers have a hard time understanding how any brokerage can invest so aggressively, often complaining that “it’s not sustainable” – “it makes no sense” – “it’s not a profitable way to do business”.

It does make sense, however, if you consider the superpowers that a company gains by reaching the tipping point first and thus becoming a single, dominant company that can 1) grow by making the market and 2) differentiate and dominate through data.

For Compass, San Francisco is ground zero for this strategy, where the firm has about 36% of the market. Compass has expanded its local footprint quickly through acquisition, the latest being the March acquisition of Alain Pinel with its1,300 agents and $12.2 billion in 2017 sales volume—the third such acquisition in 8 months. According to Compass, the company is not only the biggest brokerage in the Bay Area, “it is now the largest residential brokerage in the country by sales volume, growing from $15 billion to more than $35 billion between January 2018 and January 2019.”

Compass has realized that market share makes their brokering power bigger. With more listings and more buyers, they can bolster your exclusive “coming soon,” “off-market,” and “in-house” transactions that the competition can’t match, creating a “FOMO” (“fear of missing out”) effect in both customers and agents.

If you’re a consumer or an agent looking at the screen below from compass.com, which shows Compass’ exclusive off-market and coming soon listings, how could you not work with Compass?

No alt text provided for this image

These tactics fuel the incentives for buyers to work with Compass because Compass has the exclusive listings. And that means sellers have to work with Compass because they have all the active buyers working with their brokerage. And finally, agents will have to work with Compass because that’s where the action is. Boosting agent recruitment then brings in more listings and buyers, fueling that superpower growth loop.

If you want access to the market, you now have to go to the company who has the greatest ability to make the market, and that, in San Francisco, is clearly Compass.

Compass is working off this specific strategy:

  1. Hire the top listing agents in each market area.
  2. Create a search portal that rivals Zillow and Redfin.
  3. Offer Compass Concierge to get homes in top condition prior to selling.
  4. Offer exclusive listings on compass.com for days/weeks in advance of MLS input.
  5. Use strategy to attract buyers & sellers, and recruit more listing agents.

The not-so-obvious critical step is the creation of a national search portal that intends to be the dominant real estate website in America.  The current version has a ways to go before deserving that attention, but after another year or two of development it could be worthy.

Notorious Rob explores Andrew’s article further here:

https://notorious-rob.com/2019/06/does-thanos-i-mean-realscout-want-a-war/

Google Commits to Housing

I’m glad to see a major corporation doing something for housing, though they take a beating on Twitter – many of the comments are negative.  FYI – their net income was almost $9 billion in 4Q18.

An excerpt from their press release:

Today, Google is one of the Bay Area’s largest employers. Across the region, one issue stands out as particularly urgent and complex: housing. The lack of new supply, combined with the rising cost of living, has resulted in a severe shortage of affordable housing options for long-time middle and low income residents. As Google grows throughout the Bay Area—whether it’s in our home town of Mountain View, in San Francisco, or in our future developments in San Jose and Sunnyvale—we’ve invested in developing housing that meets the needs of these communities. But there’s more to do.

Today we’re announcing an additional $1 billion investment in housing across the Bay Area.

First, over the next 10 years, we’ll repurpose at least $750 million of Google’s land, most of which is currently zoned for office or commercial space, as residential housing. This will enable us to support the development of at least 15,000 new homes at all income levels in the Bay Area, including housing options for middle and low-income families. (By way of comparison, 3,000 total homes were built in the South Bay in 2018). We hope this plays a role in addressing the chronic shortage of affordable housing options for long-time middle and low income residents.

Second, we’ll establish a $250 million investment fund so that we can provide incentives to enable developers to build at least 5,000 affordable housing units across the market.

In addition to the increased supply of affordable housing these investments will help create, we will give $50 million in grants through Google.org to nonprofits focused on the issues of homelessness and displacement. This builds on the $18 million in grants we’ve given to help address homelessness over the last five years, including $3 million we gave to the newly opened SF Navigation Center and $1.5 million to affordable housing for low income veterans and households in Mountain View.

Multi-Gen

Twenty percent of Americans is a good-sized group, and with the cost and difficulty of senior care being so high, it is natural for more people to consider multi-generational living. Home sellers who can present their home as multi-gen friendly could really benefit.

PNC is one of several banks and lenders paying more attention to “the sandwich generation,” people with dependent children and with elderly parents for whom they need to care. While not everyone in the sandwich generation has parents living with them, it is a growing phenomenon: Today, 20% of Americans live in multigenerational homes, where at least two adult generations live under one roof, accounting for 64 million people. In 1980, only 12% of Americans lived this way, according to the Pew Research Center.

“This has been on our radar for the last couple of years,” said Todd Johnson, Wells Fargo Home Lending’s Division Sales Manager, Pricing and Products Lead. In January, Wells Fargo lowered the down payment requirement for duplex buyers to 5% from 15% to 20%. This program is only available for loans that conform to Fannie Mae and Freddie Mac guidelines, but Mr. Johnson noted that loan limits for duplexes in costly areas can be relatively high.

For example, in San Diego a conforming duplex loan can reach $883,300, and in San Francisco, $930,300, Mr. Johnson said. Such loans can have as many as four borrowers, so a couple plus a set of elderly parents can all take out the loan together, Mr. Johnson said.

The program, however, comes with homework: It requires borrowers to take a four- to six-hour online course about being a landlord. What if your own mom and dad are going to be your tenants? You’ve still got to take the class, Mr. Johnson said. It covers issues such as getting insurance and landlord deductions and depreciation.

A common approach is for the older couple to sell their own home and use the equity to help make the down payment on the multigenerational home.

If a loan doesn’t allow gift funds to be used as a down payment, Ms. Graziano said, “the older couple may need to become a co-borrower on the mortgage loan as well as an owner named on the title to the property.”

When those older parent co-owners pass away, it can get complicated, especially if the parents have other heirs, says Ms. Graziano. “It may require refinancing the property to cash out the [parents’] equity, or selling the property.” For loans that PNC Bank treated as a single-family home at origination, the borrowers can rent out their extra unit to someone else without penalty if renting parents die or move, Mr. Boomer said.

Link to WSJ Article

Millennial Homeowner Stories

Hat tip to Eddie89 for sending in this article that includes 14 stories of how millennials purchased homes:

An excerpt:

Homeownership, like other forms of participation in the American dream, increasingly resembles an exclusive country club, with membership predicated on who your parents are and your race. To wit: A millennial’s likelihood of owning a home increases 9% if their own parents were also homeowners. While 39.5% of white millennials own homes, the black homeownership rate is just 13.4%, the Asian ownership rate is 27.2%, and the Hispanic ownership rate 24.6%. “Left unchecked,” the Urban Institute study declares, “current trends will result in even greater wealth disparities among white, black, and Hispanic millennials.”

The trends we’re seeing right now in homeownership will reverberate for generations to come — and accentuate the 21st-century parameters of privilege. The difference between people whose family can afford to help with a down payment and people who have no choice but to rent might mean the difference between who can live within 15 minutes of their job and who has to commute two hours, between who’s employed full time and those who depend on contingent work, between who can presume safety in public spaces and whose skin color makes them a perceived threat, between who can pay for college independently and whose children — and grandchildren — will eventually take out their own massive student loans.

I wanted to talk to people within this new reality about how they actually managed to make homeownership work. So I created a survey, and asked readers and Twitter followers and friends of friends of friends: Tell me everything. Tell me how you found the house, how you pulled together the down payment, and how you feel about all of it. Being transparent about this stuff won’t necessarily make buying a home easier for others. But it will hopefully demystify what it takes to make it happen, and help make clear that millennials who don’t own homes aren’t failures. They’re just young people who have faced a dramatically different financial and real estate reality than the generations that came before — a reality that has impacted some more than others.

What follows are 14 stories chosen from over 500 submissions, and they all exemplify, in some way, themes I saw again and again. (Stories have been lightly edited for length and clarity; some names have been changed to protect people’s privacy.) Many people received money from family for a down payment; they chose to buy in an area of the country where homes are markedly cheaper; their parents were homeowners or felt very strongly about homeownership as a mark of adulthood; others are ambivalent about their own homeownership and the way it excludes so many others their age.

Link to Article

More on Carlsbad Village Develpoment

Thanks bode for sending this in from the Reader:

At least eight businesses in Carlsbad’s downtown Village area have been told they must prepare to move out as their buildings make way for a sleek new restaurant/retail complex.

In what seems to cement the notion that Carlsbad is indeed morphing into Manhattan Beach, the popular Mas Fina Cantina and the Carlsbad Village Art & Antique Mall have been told their days are numbered. Their buildings will either be bulldozed or reformatted to make wake way for an upscale retail center. Their exit date could come as soon as October 2020 but possibly may not arrive until mid 2021 based on permit approvals.

Plans circulating with drawings for a new development called State Street Commons show there are no plans to retain two automotive repair shops, two hair stylists, a yoga center, an insurance office and an apartment complex. All will be displaced by a new complex that fronts the 2700 block of State Street and backs up to Roosevelt Street. Calls to Solana Beach-based Retail Insite who generated the drawings did not return requests for comment.

“I was very unhappy when I heard the news” says Andy Davis, co-owner of the Mas Fina Cantina who says he spent months hearing from customers that his building had date with a bulldozer. Since the 50s the Mas Fina building has been home to an appliance repair store, a laundromat, and an Italian restaurant. Mas Fina arrived in 2000. “My landlord told me: ‘We don’t have any plans, but we’ll let you know if it changes.'”

But the customers kept coming with more details. When Davis heard that the city had actually gotten involved, “I met with them and they told me they had sold the property.”

Davis says he has no animosity against his landlord or the incoming developer. “But I am worried the Village area will lose its charm as everything seems to be getting bigger. I get it that this is happening. My problem is that it is moving a little too fast and all the new designs seem to be similar. It’s all big boxes. There is nothing beautiful about these new buildings. People don’t want Orange County in coastal North County.”

Davis wouldn’t get specific about Mas Fina Cantina’s future, “But you can say we will stay in the Village [at a new location].”

Calls to Karlsbad Realty and the Don Dewhurst family about the sale of the property were not returned.

Meanwhile Bonnie Imperiali, manager of the Carlsbad Village Art & Antique Mall, says she was unclear about specific dates when her 15,000-square-foot collectible bazaar must close or relocate. The mall hosts mini shops for some 100 individual artists and vendors. It has been on State Street for almost 30 years.

Link to Full Article

Gentrification is Everywhere

Many will lament the redevelopment of downtown Carlsbad, but it is happening everywhere as big money takes over.  It’s not just the look that’s changing either.

The old Sears at UTC is being completely re-purposed, and new companies that never existed before are coming in to provide services we didn’t even know we needed.

Carmel Valley’s Del Mar Highlands is adding 120,000sf of upscale retail tenants to compete with the One Paseo mixed-use project across the street.  Horton Plaza is getting re-worked, Mission Valley has already transformed, and surely other old parts of town will get upgraded in the near future.

There doesn’t seem to be any way to stop it either.  Let’s make the best of it?

Link to Article

The Future of ibuyer

There was a good summary of the ibuyer business published yesterday:

https://www.curbed.com/2019/3/21/18252048/real-estate-house-flipping-zillow-ibuyer-opendoor

An excerpt:

But as more players jump into the space and markets are saturated with various competing platforms, profit margins that are already paper thin get squeezed even more. Zillow says it’s making $1,723 per home flip at a minuscule 0.6 percent profit, which leads one to wonder if this space is really worth getting into if you don’t have multiple modes of monetization.

That’s where the concept of a one-stop shop for home buying and selling becomes especially attractive. If one company can seamlessly integrate each individual component of the real estate transaction—buying, renovating, insuring, and selling—and optimize operational efficiencies along the way, there’s a path to becoming the truly dominant real estate company.

Being the one-stop shop has been the goal of most large real estate operations, where the owners can make profits on every related service – escrow, title, loans, etc.  It’s why these outside companies all jumped in to the ibuyer space – the cumulative profits look very enticing, and making as little as $1,723 per home flip doesn’t look bad as long as they get the other fee income too.

I think they will be able to dominate in the homogenized lower-priced tract neighborhoods where there isn’t much variance in values. They can make their own market too, because a first-time homebuyer won’t balk over paying a few extra thousand in price to get an easy entry into a renovated home.  If great salespeople are employed, the ibuyers could make a killing.

It will also enable the ibuyers to dabble in the higher-priced areas, where losses can pile up quicker.  No need to risk big money when there is no pressure on them to buy anything.  I would expect their purchase quotes in the higher-end areas will be well under retail, to give them plenty of cushion.

How will sellers, buyers, and realtors react?

Sellers usually have a price in mind, and tend to be a little uncomfortable with interviewing several candidates/options. If ibuyers advertise effectively and get the first call, then all they have to do is get close to the seller’s price-in-mind, and convenience will be what decides it.

If a realtor gets the first call, and comes in with seller’s price-in-mind or higher, they will get the listing.  Realtors will feel the need to quote higher-than-ever list prices.

Sellers who want quick money and convenience won’t worry about leaving a little money on the table, and take the ibuyer deal.  Those sellers who want top dollar will list with a realtor.

With everything being high-priced, buyers will probably gravitate to the homes in top condition, and just pay what it takes.  Hopefully we won’t run out of buyers.

Crafty agents might offer third-party reviews of the options.  Sellers will already be getting biased opinions from ibuyers and realtors, and they could use a consultant to help sort out the best option.  But sellers would have to be deliberate and analytical to resist winging it themselves.

The Big Question?  With sellers having more equity than ever, will they mind leaving some on the table?

The successful ibuyers doing volume could smooth out any bumpy markets, because they will be determining the home values to suit their bottom line. If they can’t sell, they can always rent instead.

We’ll have even fewer motivated sellers!

2019 Bubble Report

Doesn’t it feel like we’re in another bubble?

Home prices have been on a tear for ten years straight, and are at their highest levels ever.

Is this bubble going to pop too?

Let’s look at the statistics first. I took the most recent 45 days to get the latest scoop, plus the MLS prefers to calculate the smaller sample sizes.

NSDCC Detached-Home Listings and Sales, April 1 – May 15 (La Jolla to Carlsbad)

Year
# of Listings
# of Sales
Avg $$/sf
Median SP
Median DOM
2012
640
415
$377/sf
$805,000
41
2013
788
464
$419/sf
$968,750
17
2014
791
376
$474/sf
$1,017,000
24
2015
785
448
$479/sf
$1,065,000
22
2016
774
439
$513/sf
$1,170,000
19
2017
726
445
$529/sf
$1,250,000
17
2018
749
394
$567/sf
$1,298,000
17
2019
712
379
$579/sf
$1,360,000
23
YoY Chg
-5%
-4%
+2%
+5%
+29%

It is remarkable that all-time-high prices aren’t causing more people to sell!

In previous markets, once prices started reaching new highs, homeowners would jump at the chance to move.  The inventory would grow and cool things off, and/or we’d hit an economic downturn and foreclosure sales would direct the market. But not today!

Other Factors:

We are a mid-level luxury market. The more-expensive areas like Los Angeles, Orange County, and the Bay Area feed us downsizers who think we are giving it away.

Homebuying has de-coupled from jobs. We do have substantial employers like Qualcomm, bio-tech, etc. but not near enough to justify these lofty prices. How do we keep afloat? It’s the big down payments; either from previous home sales, successful business ventures, or the Bank of Mom & Dad.

They changed the rules. Banks have to give defaulters a chance to qualify for a loan modification before they can foreclose. With everyone enjoying their equity position, they will find a way to hang onto their house or sell it for a profit, instead of lose it.

Mortgage rates around 4% are ideal.  Not likely to go up much either.

Reverse mortgages are an alternative for those who need money. They might crank down the amount of money you can tap, but as long as homeowners are flush with equity, they will be able to get their hands on some of it via reverse mortgages or the typical equity line.

Buyers have been full of money, and willing to blow it. I’ve seen sales close for 10% to 25% above the comps this year, so it doesn’t seem like people are worried about a bubble. Those sales could be creating unsustainable comps, and be short-lived values, but will the next buyer question them enough?

Coming Soon vs. ibuyer. We need a gimmick to transition us to the ibuyer era, and the ‘Coming Soon’ off-market sales will be the sexy distraction.  The price of an off-market sale isn’t necessarily lower than retail, and in some cases they can be higher when the buyers get jacked up about the opportunity.

The ibuyer era could be the last hurrah for open-market real estate.  If the big-money corporate buyers can build enough credibility and begin to dominate the space, they will be able to dictate the prices paid for their flips, and control the marketplace.  If so, they will make sure we won’t have another down market!

In the meantime, we might see prices start to bounce around, instead of the constant trend higher.  But if it gets harder to sell, then many will just sit tight instead.

If you think a bubble pop will happen, ponder this question.  Who is going to give away their home now?

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