Move now or move later?

A number of potential homebuyers are currently waiting for the market to go down. This is absolutely understandable as we’ve seen unprecedented gains over recent years. Some buyers are expecting (or hoping for) a pricing correction, but per my previous video on “Predicting the Peak”, we can’t reasonably forecast a peak for another 4 or 5 years.

Now of course, this forecast may be incorrect, however, the other issue is that even when the market does dip, it’s incredibly rare for a price drop as aggressive as it was in 2008. This chart from almost 60 years of median national house prices displays that:

1280px-Median_and_Average_Sales_Prices_of_New_Homes_Sold_in_United_States_1963-2016_annual.svg.png

So even if the peak arrives, the market probably won’t fall too far, as there are so many buyers waiting to jump on any downturn, particularly with such widely available financing options today. Buyers might be waiting for a long time before seeing a significant downturn, especially in the South Bay where land is so finite, population consistently increases and prices are insulated long term.

Regardless, house prices are quite obviously the greatest single deterrent for potential buyers from a financial standpoint. However, the larger point is that there is another financial factor that many people are overlooking, and that is mortgage rates.

Mortgage rates are still historically low and we’re getting quite comfortable with that. But sooner or later that rug will be pulled from under us. Rates quite literally only have one way to go, and we need to take notice of the average mortgage rates from the last ~60 years:

average mortgage_contract_rate.gif

Rates have sustained themselves under 5% in recent years but have spent the majority of their lives over 6% with an average of around 7 or 8%.

Let’s take a scenario where we are purchasing a house for $850,000 with one of the popular 10% down programs…

Rate differences.png

Even with a modest rate increase of 1% from the current ~3.5% to 4.5%, the buyer will pay almost $159k more over the life of the loan. That’s 19% of the purchase price. At a closer to historically average rate of 6%, the difference is a whopping $414k, almost 50% of the purchase price! These numbers don’t even consider a historical average of ~7.5% that would of course be even higher.

It’s quite possible that the buyer would sell the property after 10 years for instance, in which case, these numbers could be cut by about a third. However, when the buyer sells, they can’t take their rate with them and will have to finance the new purchase with the new market mortgage rate, which is of course likely to be much higher than today.

If a buyer’s current fear is that they’re paying near the top of the market, they ought to weigh up the fact that they’re buying the known bottom of the mortgage market. In the long run, they’ll still quite probably pay less for their house than somebody that buys at a later date, even with a lower purchase price. (If that’s even possible, there’s every chance that prices continue to climb.) In the scenario above, they have between 19 and 49% of downside baked into their purchase price versus a conservatively projected future mortgage rate.

So the question becomes, do you think that the local housing market will fall by at least 19% in the next few years? All things considered, it seems highly unlikely to me.

Note that this logic also applies to sellers as they can lock their new property into a low rate and exist more comfortably, expressly if they think they’ll move in the next ~5 years and are moving up the ladder.

So if you’re considering a move and focusing solely on purchase price, please also contemplate that the mortgage rate is almost just as important. Even though you feel like you’re overspending on one hand, you’re definitely saving on the other, most likely to a greater extent.

Thank you for reading, as always, please feel free to reach out to me if you have any questions: nick@greenbeltteam.com

2019 Market Update

A lot of people are asking what the South Bay housing market will do next. The top end continues to slow down, creating more inventory and rates have dipped again, giving buyers more flexibility. With that said, activity is still strong and the market is still relatively high, helping those that wish to sell. These opposing forces have created some confusion in the market and with this comes opportunity. My goal right now is to help my buyers take advantage of this by hunting for properties where the sellers are in a position where they must sell or have a dim view of the market in the future. Buyers can seize this market dip and save thousands under the asking price in many situations. For my sellers, patience is key right now as it's taking a little longer to find the right buyer. The escrow period is also more important for them as buyers are asking for more updates or repairs as part of the deal. This is all part of the ongoing negotiations and a reminder that the work is only just beginning when escrow is opened.

Why use a Realtor when purchasing a home?

Why use a Realtor when purchasing a home?

It pays to have an experienced Realtor in your corner and here are some of the reasons why…

  • Realtors understand the local market and use their experience to properly value the homes in your search, ensuring that you don’t overpay.
  • When negotiating a purchase, listing agents prefer to deal with another agent who is objective, unemotional and professional. A good Realtor will gather information and data to negotiate the best possible price for their clients.
  • A Realtor will guide you through the minefield of potential problems associated with the appraisal, inspection and financing process. This will help ensure that you find flaws in the house and request funds from the seller for repairs or other issues that need to be completed before closing.
  • Commission is paid by the seller upon completion of a real estate transaction and is split between the buyer’s broker, buyer’s agent, sellers’ broker and seller’s agent. This income also helps the agents cover their fees to remain a licensed Realtor, continue their real estate education and belong to property listing services.
  • Your Realtor will walk you through the plethora of legally binding contracts required in a real estate exchange. They will also organize the necessary insurance and warranties to give you peace of mind and ensure that you don’t stumble in to any expensive pitfalls.
  • A buyer without an agent may end up being represented by the agent selling the house. That agent will now represent both the buyer and the seller, which can be a difficult position to be in. As a buyer, you may wonder if the agent has your best interests at heart given that they have a pre-existing relationship with the seller. This is known as dual agency and though legal in California, is illegal in a number of states.
  • It may well be the largest or most important purchase of your life so you want to be sure that you're in good hands.

 

Should I use Zillow, Redfin etc.?

When looking for a new home, using sites such as Zillow can be misleading. They often leave sold or expired properties under their active listings to increase the property pool and chances of you contacting one of their agents. The agents that are listed next to the property are typically not the listing agent, but a different agent that pays a fee to advertise on the site. Some sites even employ agents as full time staff members and assign buyers or sellers directly to them. As a result, these agents are incredibly busy and typically aren’t able to give their clients the time they deserve. Agents on the other side may even have trouble liaising with your agent and will therefore avoid doing business with them. Quite often these employees are not from the area, which severely hinders their knowledge of the property in question. When your lead agent is too busy, you’ll be working with a number of different agents for scheduled showings that don’t have any experience of what you may be looking for. Building a relationship with your Realtor gives you confidence in their abilities as you have a professional in your corner with your best interests in mind. Finally, these sites use a lot of quantitative data to price homes, which don’t take into account character, updates or eyesores for instance. This, along with your lack of dedicated representation will often cost you at the negotiating table.

 

Why use the Greenbelt Team?

We have laid out what you can expect from a proficient Realtor, but our team of economically minded, college educated real estate professionals go beyond these expectations. We are honest and hard working, always putting our clients first to ensure that they have the best real estate experience possible and in the most seamless manner. We have a fantastic understanding of the local market but also appreciate micro and macroeconomic factors that help us strategize and negotiate. We also work closely as a team, pooling our knowledge and resources to offer unparalleled service levels, making the Greenbelt Team the intelligent choice when buying or selling property in the South Bay. 

#1 Team Award

We're grateful to say that our realty team was #1 last year at 3 Leaf Realty, the #1 brokerage in the South Bay per "Best of the Beach". Thank you to all of those who helped make it possible!
We believe that success is best when it's shared, so we made giving back to the community a key function of our business last year. If you have any local causes close to your heart that need our support in 2018, please shoot me a message. Hopefully we can be a part of something bigger than ourselves and that this award is just the beginning. Thank you!

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Trying to buy your first home in the South Bay?

So the market keeps going up and the goalposts keep moving. It’s really hard to give up your rental and buy a house around here.

The issue is, the local population is growing, “Silicon Beach” is spreading and our World class beaches aren’t going anywhere.

The good news is, buying in this area is one of the safest Real Estate investments you could make. We live in an insulated market with increasing demand and diminishing land supply. The other good news is that mortgage lenders are making it easier to borrow money. Previously, 20% was the benchmark for a down payment necessary to avoid the dreaded PMI (private mortgage insurance), which is no longer tax deductible. Now, many banks and brokers are waiving the PMI with as little as 10% down.

Your other option is to go the FHA route and put just 3.5% down and those loans have been increased to a maximum of $679,650 for 2018. Just know that you will be on the hook for PMI and you can only purchase Single Family Homes unless the Condo or Townhome you want has been FHA approved which is somewhat rare in this area. Therefore, if you can scratch the 10% together, that seems to be the way to go right now as you’ll have a lot more options. Your rate will be a little higher than somebody putting down more money but we’re talking around 5% APR which is still historically low.

Okay, so what’s it going to cost you? More than what you’re probably spending on your rent right now, but as we touched on earlier, this is an investment. We can’t guarantee that the market will keep going up, but it’s difficult to envisage a notable depression in prices across the South Bay. Although your monthly costs will be higher, you will be able to deduct the interest on your home loan (now capped at $750,000) and your state and local taxes up to $10,000.

If you have less than $25,000 available to you it’s probably best to stay where you are and keep on saving. Check out our article here on the matter;

http://www.greenbeltteam.com/blog/2017/1/18/how-the-hell-am-i-going-to-afford-a-house

Let’s take a look at some scenarios based on:

·      A theoretical current rent of $2,500

·      Assumed interest rate of 5% APR

·      Assumed PMI rate of 1.15% where applicable

·      Assumed tax savings of 30%

 

Scenario 1:

You have around $25,000 ready to put down…

Purchase a single family home for around $500,000 using an FHA loan.

Scenario1.png

Remember, it has to be an SFR for an FHA loan, so look in to emerging areas such as Gardena, Hawthorne or East Torrance. It’s worth noting that schools are improving in these areas and it may just be a stepping-stone for you to a more established area. You are on the hook for PMI here but you can refinance once your loan to value ratio improves.

 

Scenario 2:

You have around $40,000 ready to put down…

Purchase a single family home for around $700,000 using an FHA loan.

Scenario2.png

For a house in this price range your closing costs might begin to add up a little so talk to your lender ahead of time to get a Loan Estimate. Note that you are also right at the FHA limit for qualifying purchases.

 

Scenario 3:

You have around $60,000 ready to put down…

Purchase a single family home, condo or townhome for around $550,000 using a 10% conventional loan.

Scenario3.png

In this situation you’re now most likely saving money against the assumed $2,500 per month rent and you’re avoiding paying the fearsome PMI.  Just remember to include the monthly HOA payment in your numbers when shopping for a condo or townhome.

 

Scenario 4:

You have around $90,000 ready to put down…

Purchase a single family home, condo or townhome for around $800,000 using a 10% conventional loan.

Now things are getting a little more interesting as you can potentially purchase a home in or close to your ideal neighborhood. Perhaps it’ll be smaller than you’d like, but it could be important to get you foot on the ladder in that area.

Of course there are many more scenarios that may be applicable to you and we’re always available to discuss your options or answer any questions you might have. It's never too early to start talking through your options. Thank you for reading.

 

Please note that all rate are approximate and subject to change, please consult a CPA for tax advice. Closing costs must also be considered and vary depending on title company, lender, city of purchase and escrow company.

Merry Christmas 2017

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Wow! It has been an incredible year here at the Greenbelt Team! We added a new member to the team (Pamela), more than TWENTY families have a new place to call home this Holiday Season and the Greenbelt Team welcomed its first baby! (Well, it’s really Nick’s son, Callum, but we claim his as team property).

With all that we have to be grateful for, we found it only appropriate that we give back to the community that we call home. This Holiday Season, we were able to work with local charities of the Boys and Girls Club of the South Bay and the Harbor Pregnancy Center in Wilmington. With guidance from the charities and the generosity of many of you, we were able to provide countless resources to new mothers in the community that needed help getting on their feet and provide gifts to many South Bay families that would otherwise not have had something to open on Christmas morning.
Thank you so much for your support!

From our families to yours, Merry Christmas!

 

 

 

Aug-tember Action

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It's been a busy month or so here for the Greenbelt Team with 8 transactions closed. Congratulations to all of our buyers and sellers, we wish them all the best in their new homes... Looking forward to a great fourth quarter.

Please scroll to check out our latest activity and local housing market data.

Thanks for reading.

01

Recently Closed



420 S San Pedro St. #220, Los Angeles, CA 90013
$625,000.00

 

1431 10th Street, Manhattan Beach, CA 90266
$3,600,000.00

 

1424 Post Avenue, Torrance, CA 90501
$865,000.00

 

2204 Alma Avenue, Manhattan Beach, CA 90266
$2,725,000.00

 

4200 Via Arbolada # 206, Los Angeles, 90042
$470,000.00

 

400 Bungalow Drive, El Segundo, CA 90245
$1,412,500.00

 

2295 Termino Avenue, Long Beach, CA 90815
$676,000.00

02

In Escrow


27838 Palos Verdes Drive East, Rancho Palos Verdes, CA 90275
Beautifully updated, mid-century modern home.
Asking $2,242,000.00

 

19 Ranchview Rd, Rolling Hills Estates, CA 90274
Asking $1,399,000

 

24444 Hawthorne Blvd # 3, Torrance, CA 90505
Asking $628,800.00

 

 

 

Summer Concert Schedule

Summer is in full swing so that means that the beach cities free concerts are upon us. Here's the schedule...

 

Redondo Beach

2017 Summer of Music

6pm-8pm, Thursdays & Saturdays, July 1st-August 31st
Redondo Beach Pier, 100 Fisherman's Wharf, Redondo Beach, CA 90277

 

Manhattan Beach

Summer Concerts in the Park

5pm-7pm, Sundays, July 9th-September 3rd
Polliwog Park Amphitheater, 1601 Manhattan Beach Blvd, Manhattan Beach, CA 90266

 

Hermosa Beach

Summer Concerts on the Beach

5pm-8pm, Sundays, August 6th-August 27th
On the Sand, South Side of Hermosa Beach Pier, Hermosa Beach, CA 90254

 

We hope to see you there. Happy 4th of July!

How the hell am I going to afford a house?

It's a good question, with no easy answer. Standing on the sidelines watching house prices continue to rise, seemingly out of reach, only makes things harder.

The fact of the matter is, prices in general are only going to keep rising through our lifetimes. Sure, we may be reaching a peak and prices may cool for a little while, but we live the South Bay... Awesome year round weather, in proximity to a number of economic hubs, thriving local industries and perhaps most importantly, close to some of the best beaches in the World. It sure sucks to live somewhere so great, right?! Well, obviously not, it just sucks that it's so darn expensive. But, you get what you pay for in this life and think of it this way, when you manage to get on the property ladder, and you will, it's the safest investment out there. Real Estate in a desirable area, with no more room for builders to increase the supply? Where do I sign up? Okay, so that brings us back to our initial question, how do I get aboard this little South Bay property merry-go-round as it spins furiously in front of me?

1. It's obvious, but.... Start saving money now. I know, you're already saving. But I mean really saving. Try and spend a little less on eating and drinking out, vacations and new clothes. Okay so you love your BMW, it's super powerful which is very important if you get caught up in an impromptu street race, but maybe it's time to cruise the mean streets in something cheaper. Automating your savings so that it comes straight out of your account can help you be more diligent too.

2. Your first home will not be your dream home. Sorry to just keep on crushing your hopes and dreams today but you'll probably move at least 2 or 3 times before you reach that end goal. But that's perfectly normal and you'll need to make a little money in equity on the way. So start off small. Perhaps look at townhomes or condos (just watch the HOA costs) or start looking a little further from your ideal neighborhood. Renting out one of the rooms in your new place may also be a good option for reducing your monthly outgoings.

3. Put less money down. It's no secret that the hardest part of buying a home is coming up with the 20% down payment. As the market keeps going up, that 20% mark also keeps rising in dollar terms. So if you're keen to get on the ladder, you may be able to find a financing solution that lets you put 10% down instead, for instance. Just know that you will be charged PMI (Private Mortgage Insurance) until your equity stake reaches 20%. Obvious tip: Keep your credit clean and this side of the process will be much easier.

4. Government financing. The FHA (Federal Housing Association) has programs that lets buyers put even less down, as low as 3.5% in fact. The rub with such financing is that the loan limit in California for a single family home is $625,500. However, you may find approved townhomes or condos that may also be purchased using an FHA loan, which we can help you hunt down.

5. Contact a professional. We would be happy to talk through your situation to figure out the best course of action for you right now. We'll also put you in touch with loan professionals that will let you know exactly what you can afford. With tax implications taken into account, you may find that you could afford to purchase more quickly than you anticipated. Knowing what you need for a down payment will also help you save as you have a fixed goal to work towards. Don't worry, we won't pressure you to actually buy something that you can't afford... Knowledge is power and we'll still be here when you're ready.

Even though prices are reaching new highs in certain areas, with a lack of supply, another crash is unlikely. And with rates still very low, this still may end up being a good time to buy. Check out the posts below for more information on these subjects.

Please let us know if you would like to open the discussion about your real estate needs. Find our contact details here, keep saving hard and remember that street racing is illegal in most counties.