Glen’s East Bay Real Estate Market Update for August 31, 2018

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August 31, 2018 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

Zillow_July_2018

Here are some highlights for the 38 East Bay Cities that I track:

 

  • We typically hit the summer “lull” mid June when many buyers take a break and begin their vacation seasons once children are out of school. However, this summer seems to be slower than normal. In fact, as has been reported, June was the slowest for that month in four years in terms of sales. July was more of the same. There will be some concerns about August as well. There’s a 38.6% increase in inventory and a about a 14.3% drop in pendings compared to last year’s August numbers. This creates a pending ratio of .83, the lowest we’ve seen since January of 2011. This is also the 5th straight month this ratio has dropped, but more importantly the second month in a row that it falls under 1.00. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (more inventory with less pending) favors sellers. A number below 1 favors buyers. 75% of the cities I track now have a ratio of below 1.00. However, trends are usually determined based on at least a three month period or more. So, the jury may still be out on this one. I suspect that this summer’s sluggish start may be more than typical, in part due to a the normal summer “lull” coupled with a possible market change. We may be moving from a strong seller’s market towards a more normal and balanced market.
  • Many economists are predicting a recession in 2019 or 2020 and although the Real Estate Market will not be the trigger as it was in our last recession, it will be a factor. For many buyer’s there may be some opportunities to be realized, but keep in mind that for whatever modest corrections we may see, much of it may be offset by rising interest rates.
  • As anticipated, we repeated the dramatic drop off in inventory at year end, following our normal pattern for December, typically our low point. As expected, we’ve increased our available housing inventory by 236% since the beginning of the year, now 38.6% higher than where we were last year at this time.
  • Our monthly supply is now 42 days. Last year, our months’ supply, at this time, was 30 days. As a reminder of what we mean by “months’ supply;” If no more homes come onto the market, and homes continue to sell at the same pace as they have been over the last 12 months, then the “months’ supply,” (in this case 42 days), tells us that’s how many days it would take to sell the remaining number of homes we currently have available for sale in any given market.
  • It’s hard to predict how much tax reform will play into this but see the article below, Is California facing a tax exodus? Thanks to Trump’s tax law, more may start to flee.” We are seeing interest rates starting to go up. Prices continue to rise. More and more, affordability, the high cost of living and our traffic woes are coming into play for those, especially in the “middle class,” who may now be considering leaving the Bay Area.
  • Typically, we see a steady increase in inventory on a month by month basis to occur before finally peaking in September.
  • The number of pendings, (homes that are in contract), decreased again. The pending active ratio decreased to .83, now at the lowest point we’ve seen since January of 2011. This compares to last year at the same time of 1.34. This supply and demand ratio signals whether we’re in a sellers’ or buyers’ market. Typically, a number well above 1, (more inventory with less pending) favors sellers. A number below 1 favors buyers.
  • The percentage of homes “sitting” has increased to 42% of the homes listed now remaining active for 30 days or longer, while 17% have stayed on the market for 60 days or longer. This is similar to what we saw last year at this time with 42% of the homes listed remained active for 30 days or longer, while 21% stayed on the market for 60 days or longer.
  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

Months_Supply

  • The month’s supply for the combined 39 city area is 42 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. We are higher when compared to last year at this time, of 30 days.

Active_&_Pendings

  • Our inventory for the East Bay (the 39 cities tracked) is now at 2,914 homes actively for sale. This is higher than last year, at this time, of 2,102 or (38.6% higher). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 2,413, less than what we saw last year at this time of 2,816, or 14.3% lower.

Pending_Active_Ratio

  • Our Pending/Active Ratio is .83, now at the lowest level since January 2011. Last year at this time it was 1.34.
  • Sales over the last 3 months, on average, are 4.9% over the asking price for this area, higher to what we saw last year at this time, 4.3%.

 

Recent News

 

Bay Area’s runaway housing market taps the brakes. Will the lull last?

Market shifts prompts celebration from buyers, worry from sellers

By , Bay Area News Groups, September 16, 2018

When Sean Cook put his family’s San Jose home up for sale for more than $3 million this summer, he assumed it would fly off the shelf in a week or two. A similar house in his neighborhood took just three days to sell for $3.3 million in the spring.

But two months after Cook’s four-bedroom home in the desirable Willow Glen neighborhood hit the market, he still hasn’t received a single offer — even after he shaved $200,000 off the price last month. “Given the way the market has been,” he says, “you feel a wee bit disappointed.”

After a record-setting run-up, the Bay Area’s red-hot housing market appears to be cooling. “For sale” signs are lingering longer in homeowners’ front yards, and alerts of price reductions — sometimes for hundreds of thousands of dollars — are cropping up on Zillow. And an array of market data — including sale prices, inventory numbers and tallies of discounted listings — supports the notion that the market has shifted in some counties.

Local agents blame an increase in inventory, buyer fatigue, rising mortgage interest rates and over-eager sellers inflating their prices higher than even the region’s turbo-charged market can support.

Even at a cooler pace, the Bay Area’s market continues to generate a heat that would be described as scalding anywhere else in the country. But the recent slowdown has left sellers scratching their heads, and potential buyers breathing sighs of relief.

“This is a market shift of sorts,” said Oakland-based agent Kerri Naslund-Monday of Keller Williams Realty. “For the Bay Area it won’t be dramatic; it will just be a pause.”

Wannabe buyers, discouraged after getting outbid again and again, are pulling back, said Sean Manning, a San Jose-based real estate agent with Sereno Group.

“They kind of got fed up and threw their hands up in the air and said ‘OK, we’ve got to take a break here,’” Manning said.

An increase in inventory also is allowing buyers to be more selective. More homeowners — unaware that the market has cooled slightly, and excited by the high offers their neighbors scored in previous months — are deciding to list their own properties, Manning said.

In Oakland, for example, the number of single-family homes for sale last month jumped 18 percent over the year before, according to MLS data from the Bay East Association of Realtors. Meanwhile, the number of homes sold decreased 11 percent.

Housing_Market_Lull

Agents say buyers aren’t willing to pay quite as much as they were several months ago. In Alameda County, 27 percent of homes sold for less than their asking price last month, up from 21 percent in August 2017, according to the Contra Costa Association of Realtors. Sixty-four percent sold for more than their asking price last month, down from 70 percent in August 2017.

In Santa Clara County last month, 25 percent of homes sold for less than their asking price, up from 19 percent in August 2017, according to MLSListings. Meanwhile, 68 percent of Santa Clara County homes sold above their asking price last month, down from 75 percent in August 2017.

That trend didn’t show up in San Francisco or San Mateo counties.

And more sellers — disappointed with a lack of interest in their properties — are offering discounts in an attempt to attract buyers. A recent Zillow report found that sellers in 9.5 percent of San Jose area listings slashed their prices in June, up from 7.2 percent a year ago. Rates of price cuts remained steady in the Oakland and San Francisco areas.

Janet Negrete, 37, has noticed the price cuts while browsing homes for sale online, but she’s not letting herself get too excited.

“It gives you some hope that maybe there will be a point where you can afford something,” she said. “But at the same time, you’re like ‘ahh I don’t think they’ll go down enough.”

Negrete, who rents an apartment in Santa Clara with her husband and two children, started trying to buy a home in 2011. She made at least seven offers — searching from Fremont to Concord to Gilroy, but kept getting outbid. Eventually, she gave up.

For 31-year-old Jasmine Porter, who recently started looking for a home to buy in Richmond, the price cuts are great news. She feels like she can take her time picking out her dream home, rather than rushing into a contract before prices climb any higher.

“It’s exciting,” Porter said, “because I was getting a little discouraged.”

The housing market is still extremely strong — it’s just not quite as strong as it once was, Manning said. He sold a house in San Jose this month for $1.36 million, after receiving three offers. Four months ago he sold the house next door — which was the same size — for $1.5 million, with eight offers.

The season likely is partly to blame. August is traditionally a slow month for real estate transactions, because few families want to buy a house so close to the start of the school year. But the recent slowdown feels like more than the usual summer slump, said Naslund-Monday.  And this summer has been slower than last summer, said San Mateo County-based realtor Debbie Wilhelm.

Median sale prices for single-family homes have been falling since March in Santa Clara County, according to MLSListings. Last year, prices didn’t start dropping until May. Meanwhile, homes spent a median 13 days on the market last month, marking the slowest sale time since January 2017.

Real estate agent Joel Garcia, who recently slashed the price of a house in Oakland — twice — said those price cuts are the first he’s made since 2009.

“It’s been sitting on the market for two months now,” Garcia said of the five-bedroom home, now priced at just under $1 million. “Normally it only takes a week, two weeks, and it’s gone.”

The seller tried to drum up interest by offering to cover the buyer’s closing costs — paying for the realtor and other transaction fees — but to no avail, Garcia said.

Diane Whitney, 55, put her San Jose condo up for sale in early July, hoping to cash out at the peak of the market and use her windfall to buy a cheaper home outright in Oregon or Washington. Two months later, after dropping the price $45,000, Whitney worries she missed the peak.

“I wasn’t prepared for it, I’ll be honest,” Whitney said, of the disappointing reception her home has received. “I’m revisiting why I’m moving, and what my feeling is.”

Four months ago, Whitney’s condo would have sold in days with multiple offers, said Mike Gaines, her real estate agent.

Whitney listed her two-bedroom condo for $735,000, and after seeing no offers, reduced the price to $690,000 at the end of August. But even with the discount, Whitney, who paid $115,000 for the home in a foreclosure sale 22 years ago, will walk away with a hefty profit.

Cook, the owner of the San Jose that’s been on the market for two months, is in a similar position — he and his wife paid $1.9 million in 2012 for the house now listed at $2.995 million.

“We’re still quite a healthy market,” said Jim Harrison, CEO of MLSListings. “It’s just instead of bringing 50 offers to the seller, it might be five now. It’s not quite the bidding war it was before.”

Bay Area real estate gains highest in country since recession

By LOUIS HANSEN, Bay Area News Group, September 13, 2018

If you bought a Bay Area home in 2012, pat yourself on the back.

You almost certainly doubled your investment, just by sleeping in your own bed.

Home values across the country have stepped up since the aftermath of the Great Recession a decade ago, but nowhere have values vaulted higher than in the Bay Area.

New research released Thursday by real estate website Trulia shows homes in the San Jose, Oakland and San Francisco metro areas have more than doubled in value since 2012.

The cities ranked three of the top four in the country for appreciation: San Jose (122 percent) led the way, followed by Las Vegas (114 percent), Oakland (108 percent) and San Francisco (101 percent). By comparison, the S&P 500 index during that stretch rose 87 percent.

Nationally, home values have grown 45 percent since 2012, when they hit bottom across the country.

“Things are considerably different in the Bay Area,” said Trulia housing economist Felipe Chacon, author of the report.

The rocket fuel for rising Bay Area home values has been a mixture of booming job growth — more than 14 percent — and few building permits issued for new homes. Depending on the city, one new building permit was issued for every two to four new people moving into the area during the period. That’s far below the national average of roughly one permit for every 1.6 new residents.

The median sale price for a Bay Area home in August was $890,000 for the nine-county region, according to real estate data company CoreLogic. Sale prices have been on a record tear, climbing every month, year-over-over, since April 2012.

Homes in Santa Clara, San Mateo and San Francisco counties had median sale prices over $1.3 million in August.

Chacon believes the Bay Area’s population growth would have been even more rapid if not for the high cost of living driven by a dearth of new housing. He added that building permits had recently started to rise in the Bay Area, but still remain far below the national average.

The populations in San Jose, San Francisco and Oakland grew by between 5 and 6 percent, well behind fast-growing Austin, Texas (15 percent), Houston (11.5 percent), Dallas (10.9 percent) and Seattle (9.1 percent).

But while the growth in home values has been a boon for owners, the business community and some state lawmakers believe the shortage has reached a crisis. They are pushing for more permissive zoning and faster approvals for affordable housing.

he Silicon Valley Leadership Group has set housing as a top priority, and is supporting a campaign to pass a $4 billion bond aimed at creating affordable housing for low-income residents and veterans.

State lawmakers expect to introduce more bills in the coming session promoting higher density around transit hubs and more construction of affordable housing.

Is California facing a tax exodus? Thanks to Trump’s tax law, more may start to flee

By Mark Calvey, San Francisco Business Times, Aug 30, 2018, 

Naveen Jain, a 37-year-old entrepreneur and lifelong Bay Area resident, last month put his San Francisco home up for sale and moved to Nashville.

The reason was simple: taxes.

“Tennessee has no state income tax and generally has lower property taxes,” said Jain, who is co-founder of cryptocurrency startup Tari. “I was born in San Francisco and have lived in the Bay Area for over 30 years. It is deeply unfortunate that we cannot seem to figure out our chronic housing challenge and overall cost-of-living challenge.”

To be sure, from CEOs to entrepreneurs to middle-class families, a lot of people have grumbled for years about California’s heavy tax burden and high cost of living. Some have almost certainly left as a result.

What’s different now is this year’s federal tax legislation that caps the amount of state income tax and property taxes that can be deducted from the federal bill. It could hit this state’s high earners and owners of expensive properties particularly hard — and there are fears it will kick a California tax exodus into overdrive.

A tax exodus centered on the economically successful would have profound implications for the Bay Area, given the region’s dependence on its entrepreneurs, investors and other business leaders to fuel the region’s growth and job creation.

“The pace of departures in our social circle is accelerating,” Jain said. “The goal for any early stage startup is to not die before you are able to find product-market fit and scale to a point where you are sustainable or able to raise money.

“This is becoming harder and harder to do in Silicon Valley,” Jain said. “I believe the early-stage-startup ecosystem is at risk in Silicon Valley.”

‘Final Straw’

Even one of the most iconic figures of Bay Area business, Charles Schwab founder and Chairman Chuck Schwab, sees more people leaving California as a result of the tax changes, and not just at the upper end of the income scale.

“A lot of companies will be moving their people out of here, unless something happens,” Schwab told the Business Times after his company’s annual meeting in May. “They can move to Nevada or other places with a lower cost of living. That’s really important if you’re raising a family.”

Others are eager to see whether solid numbers reflect that a more upscale out-migration is actually underway. California saw an estimated net loss of almost 138,195 residents to other states in 2017, but that figure was more than offset by foreign immigration into California, according to the Census Bureau’s data on state-to-state migration. That’s a long-running trend involving California out-migration.

At this point, most evidence on who is now leaving California is largely anecdotal. Bay Area wealth managers, accountants and others say they expect the pace of relocations to rise as the full impact of the new tax law becomes apparent next spring.

“Some clients have moved out of California and others are considering a move to a lower-tax or no-tax state,” said Christine Leong, market manager for J.P. Morgan Private Bank in Northern California. While the limit on tax deductions “is certainly a factor, it’s arguably more of a final straw for some taxpayers as opposed to the sole reason for their move.”

The early adopters

But others see signs that a tax exodus is looming — or already underway.

Jeff Pera, regional managing partner for Northern California at the accounting firm Marcum, estimates that 20 percent of his California clients are considering moving out of state.

“I often have to dampen their appetite for moving,” said Pera. Marcum bought another firm in Texas last month, following clients who’d already moved there from California.

A U.S. Trust survey of business owners found that half the respondents want to sell their companies in the next three years. One way these business owners can save on taxes is to move out of California before selling.

Marcum’s Pera said some clients, whom he dubs “early adoptors,” are selling their Bay Area homes now and renting, believing that home prices will tumble when the full impact of lower federal subsidies for homeownership, especially in pricey urban areas, becomes more apparent next year.

Their concerns aren’t baseless.

“It’s clear that the way we view our home will change over the next few years. Buying a bigger house won’t reduce your taxes,” said Diane Kennedy, an accountant with US TaxAid Services in Sparks, Nev., who has several Bay Area clients. An estimated 80 percent of Americans will no longer itemize deductions, meaning that deductions for mortgage interest, property taxes and charitable deductions will be irrelevant for them, Kennedy writes in her new book, “Taxmageddon 2018: How to Brace for the Trump Tax Plan.”

Even the California Association of Realtors is warning today’s Bay Area home buyers that they may see a drag on prices appreciating over the next four to five years as the market absorbs the tax changes.

Moody’s Analytics predicts that Bay Area counties will see less appreciation than if the tax overhaul had not been approved, ranging from 3.6 percent less price appreciation in San Mateo and Alameda counties to 5.8 percent less in Contra Costa County. Those percentages translate into some rather hefty sums, given the Bay Area’s high home prices.

In addition, many Bay Area residents will hit the $10,000 cap on the deduction for state and local taxes with their property-tax bill alone. Presumably, these residents are also paying taxes on their substantial incomes needed to pay those property taxes.

Almost 25 percent of residential taxpayers in San Francisco and San Mateo counties have property-tax bills exceeding $10,000, according to a report by Attom Data Solutions. It’s almost 35 percent in Marin County and nearly 29 percent in Santa Clara.

The full impact on these taxpayers will not be evident until next year as they file their taxes.

The full impact on these taxpayers will not be evident until next year as they file their taxes.

“There’s going to be a rude awakening next spring,” predicted Vanessa Bergmark, owner and president of Red Oak Realty in Oakland.

Goodbye, California. Hello, Arizona

Those selling homes in the Bay Area might be among the growing number of Californians that are shopping for houses in Nevada and Arizona.

“We’re seeing more Californians looking to buy in Incline Village, Nev.,” said Peg Augustus, an agent with Incline Village Real Estate Experts. “Another change that we’re seeing this year is that more people from California are shopping for a primary residence rather than a second home.”

In Arizona, Rod Cullum, CEO of Scottsdale-based Cullum Homes, said he’s also seeing more Californians this year, with more of them actually buying. He saw a similar lift in California buyers following the state’s 2012 tax hike on big earners.

Adding to a prospective tax exodus is the fact that high earners are often the decision makers on where their job, or their company, will be located.

Marcum’s Pera said his clients are often owners of private companies that have long been courted by other cities and states, often willing to pay generous incentives for the jobs these business owners will bring with them.

But it’s senior executives, including chief executives, who may feel the most pain, given how much of their income is taxed as ordinary income, with far fewer deductions than before the tax overhaul.

Some see these executives placing pressure on their employers to move them, and sometimes the entire company, out of state. Such talk is likely to escalate during next year’s tax season.

Accountants express little hope that California will respond by easing the tax burden on its wealthiest residents.

Steve Mayer, founder and managing partner of the San Francisco accounting firm SD Mayer & Associates, relayed a conversation he had with a California legislator on what steps the state might take to lighten the tax burden on wealthy Californians.

“He didn’t seem to understand the question. I asked three times, without getting an answer,” Mayer said.

Other accountants are even more blunt.

“California lawmakers are going to drive this bus until the wheels fly off and it goes over a cliff,” said EisnerAmper’s Bleeg.

Bay Area home prices dip below record as summer slowdown takes hold

Kathleen Pender, SF Chronicle, Aug 31, 2018

The median Bay Area home price fell from June to July but was still up double digits over last year, according to a CoreLogic report issued Friday.

The median price paid for a new or existing Bay Area home or condo in July was $850,000, down 2.9 percent from June but up 11.4 percent from July 2017, the property data company said. All nine counties showed annual price increases, ranging from 4.2 percent in Sonoma to 17.1 percent in Santa Clara, which has been this year’s appreciation leader. The median price in Santa Clara County has outpaced the Bay Area average every month since October, often by a wide margin.

Core_Logic_July_2018

It’s not unusual for home sales and prices to dip from June to July, as buyers and agents get tied up with graduations and then vacations. But some agents, at least in the pricier parts of the Bay Area, say this summer seemed slower than last year and wonder whether rising interest rates, less-favorable tax laws and the affordability crunch are finally taking their toll. “We are all having discussions about whether this is a typical summer slowdown or is this an indicator of something to come,” said Mary Ann Montano, a Coldwell Banker Realtor in San Francisco.

The number of homes sold in July fell to 7,547, down 10.2 percent from June and 0.3 percent from 2017. These are home sales that closed in July. Many went into escrow in June or even May. Some agents say the market cooled considerably in July and August.

“July was really slow compared to last year,” said Denise Liew, an agent with Sotheby’s International Realty who was showing a newly constructed house in San Mateo, one of two built into a steep hillside.

CoreLogic analyst Andrew LePage said it’s not unusual to see prices slip back after hitting a peak. The Bay Area median set a record of $875,000 in May and June. “Last year, the median hit a new high of $775,000 in June and then remained below that level until rising to a 2017 peak of $784,000 in November,” he said in a press release. “The 11.4 percent year-over-year increase in last month’s median marked the lowest annual growth in 11 months and was a further sign of eroding affordability.”

Although spring is the busiest season for real estate, new listings typically rise after Labor Day as sellers try to take advantage of a short burst of activity that lasts until mid-November, when things slow down for the holidays. “Come October we will have a better indicator” of where the market is going, Montano said.

Zillow Report: A Buyer’s Market in 2020?

By RISMedia Staff, August 29, 2018

In a recent survey conducted by Zillow with Pulsenomics LLC, over 100 real estate economists and industry experts shared their predictions about the U.S. housing market in relation to buyer or seller leanings.

While annual home-value appreciation was faster in 2018 than 2017, inventory shortages over the past 42 consecutive months have created a market environment that favors sellers. However, recent data suggests buyers and sellers may soon be switching roles. Price reductions are becoming more commonplace with home value growth slowing down in over half of the largest U.S. metros.

A large group of survey respondents (43 percent) believe buyers will control the market in 2020. The shift may be sluggish, however, as appreciation even in slowed markets is above historic averages, signaling that the sellers’ market may endure for a short while longer. In fact, U.S. home values are expected to increase 5.9 percent in 2018.

“For the past several years, home sellers held all the cards at the negotiating table, fielding multiple offers while buyers faced stiff competition and a fast-moving market,” said Zillow Senior Economist Aaron Terrazas in a statement. “Conditions are starting to show signs of easing up, but the effects of years of limited construction still linger. Inventory is still falling on an annual basis, and home values are growing well above their historic pace. Although these trends are starting to lose their edge, it is far too soon to call it a buyer’s market.”

“While ongoing supply constraints are reinforcing the floor on home prices right now, the experts’ forecasts still imply the joists will start to crack sometime next year, and result in sub-three percent annual home-value appreciation in 2020 and beyond,” said Pulsenomics® Founder Terry Loebs, who noted that another indicator from the latest survey is consistent with a shifting market. “For the first time, a majority of the experts said that there is downside risk to their long-term outlook for home values nationally––and they outnumber experts who assigned upside risk to their forecasts by more than a three-to-one ratio.”

June Case-Shiller Results and July Forecast: Shifting Winds

By Aaron Terrazas, Zillow, Aug. 28, 2018

It’s hard not to notice the winds beginning to shift in the housing market. But those changes have yet to reach the point where they’ve fully transitioned from home buyer headwinds into tailwinds, and likely won’t until at least the end of the decade.

Still, the signs of change are here: The U.S. National Case-Shiller Home Price Index climbed 6.2 percent in June from a year earlier, slightly slower than the 6.4 percent annual growth recorded in May. June prices rose 0.3 percent from May – slightly below expectations.

And annual home price appreciation was slower in June than in May in 14 of the 20 cities in Case-Shiller’s 20-City Composite Index. Las Vegas, Seattle and San Francisco continued to report the highest year-over-year gains at 13 percent, 12.8 percent and 10.7 percent, respectively.

But the slowdown, and the changes it brings, will be gradual. Inventory, when it begins to rise, will be coming up from incredibly low levels. Home value growth remains well above historic norms, even as it slows in some markets – and that rapid growth still makes saving an adequate down payment a challenge for many buyers. And while sellers are seemingly more open to cutting their initial asking price than in recent months, that trend is more prominent at the upper end of the market where there is more selection.

Buyers at the lower end of the market, including many first-time buyers and buyers of limited means, will still face intense competition and a fast-moving, difficult environment. The truth is, we aren’t witnessing a rapid shift in market power, but rather a slowly unfolding evolution in which things are changing from extremely competitive for buyers to only somewhat competitive.

Sellers, for now and for the foreseeable future, are still in control in this market.

Housing Predictions Ahead: REALTORS® Chief Economist Provides Market Insights

By RISMedia Staff, August 29, 2018

Nearly a decade after the Great Recession, Lawrence Yun, chief economist for the National Association of REALTORS® (NAR), says concerns that the housing market has peaked and is headed toward another slowdown are purely speculative, regardless of recent sales declines in some regions.

What’s in store for the future? Markets should slow down; however, this is due in part to insufficient supply and swiftly rising home prices instead of weak buyer demand. Yun predicts existing-home sales will drop 1 percent to 5.46 million in 2018 (down from 5.51 million in 2017). Home price growth, however, should remain strong, increasing an estimated 5 percent nationwide. And with an anticipated hike in inventory supply come 2019, home sales should stay afloat—existing home sales are predicted to rise 2 percent with home prices estimated to increase by 3.5 percent, according to Yun.

“Over the past 10 years, prudent policy reforms and consumer protections have strengthened lending standards and eliminated loose credit, as evidenced by the higher than normal credit scores of those who are able to obtain a mortgage and near record-low defaults and foreclosures, which contributed to the last recession. Today, even as mortgage rates begin to increase and home sales decline in some markets, the most significant challenges facing the housing market stem from insufficient inventory and accompanying unsustainable home price increases,” said Yun in a statement.

Low inventory levels, which have fallen for three consecutive years, along with bidding wars, are prevalent across the country. And while homebuilding has jumped 7.2 percent year-to-date to July, Yun says new construction is sorely needed to continue filling the gap. Carefully considered policy decisions should help alleviate the shortage.

“The answer is to encourage builders to increase supply, and there is a good probability for solid home sales growth once the supply issue is addressed,” Yun said. “Additional inventory will also help contain rapid home price growth and open up the market to perspective homebuyers who are consequently—and increasingly—being priced out. In the end, slower price growth is healthier price growth.”

“Rising material costs and labor shortages do not help builders to be excited about business,” added Yun. “But the lumber tariff is a pure, unforced policy error that raises costs and limits job creations and more home building.”

The Oakland We Knew is Not Going to Remain’: Massive Building Boom Tears Through City

By, TNJ Staff, August 16, 2018

Sleek new condos rise up amid the graffiti-covered warehouses, artist’s studios and homeless encampments of West Oakland. Construction cranes dot the downtown skyline, and scaffolding-shrouded towers march down Broadway into Temescal.

An extraordinary residential building boom is shaking up Oakland, part of a transformation sweeping the Bay Area as market forces and political initiative combine to address the region’s desperate housing crisis.

“The city is being radically reconfigured — the whole Bay Area is,” said urban geography expert and UC Berkeley professor emeritus Richard Walker. “The Oakland we knew is not going to remain.”

The change is particularly stark in Oakland, where developers and investors began clamoring to build after decades of dismissing the city as dangerous and crime-ridden. Oakland has permitted a staggering 9,710 new homes since 2016, more than twice as many as during the prior nine years. But the construction of those new dwellings — creating hip, trendy neighborhoods for newcomers while pricing out old-timers — is exacerbating the divide between the city’s haves and have-nots.

Other cities are struggling with the same tensions.

In East Palo Alto, long thought of as the blue-collar cousin to ritzy Palo Alto, the median sale price of a home has risen 80 percent since 2015, according to Zillow. In parts of downtown San Jose, low-income residents fear the proposed Google campus of 20,000 employees will price them out. And in San Francisco, an influx of tech companies and their workers has helped push rents into the stratosphere, driving some residents to Oakland in search of cheaper housing — which in turn inflates rents in the East Bay city.

Adam Kleinberg, who moved from San Francisco eight years ago in search of cheaper housing, has enjoyed watching his new town change around him.

“The moment I moved here, the nightlife downtown started to take off,” said 47-year-old Kleinberg, who runs an advertising agency in San Francisco and owns a home in the Oakland Hills. “No one goes to the city anymore, because there’s so much going on in Oakland. It’s definitely becoming hipper and cooler.”

The building boom is altering Oakland’s skyline, ushering in a new wave of high-rise apartment buildings. Towers in the works include a 33-story building at Broadway and 17th Street, a 40-story building at 1314 Franklin St., and a 23-story building on Webster Street. Construction crews broke ground in May on the 24-story Skylyne at Temescal tower next to the MacArthur BART station.

Those developers have a big incentive to build — Oakland rents have spiked nearly 25 percent since 2015, according to RentCafe, and home prices have jumped almost 40 percent, according to Zillow. But as projects are completed, supply should go up and prices could come down.

“Over the next three years we’re finally going to see more balance between tenants and landlords, because there’s going to be so much more supply coming online,” said Michael Ghielmetti, president of Signature Development Group and Oakland director of city planning and research association SPUR.

Cities throughout the Bay Area are struggling to keep up with the demand to live here, and to make up for years of failing to build enough housing, but the amount of construction they are willing or able to approve varies widely. Oakland permitted 4,284 new homes in 2017, up from 2,121 in 2016. San Jose permitted 2,712 new homes in the 2016-2017 fiscal year, down from a five-year high of 4,724 in the 2013-2014 fiscal year. San Francisco permitted 6,731 new homes last year, a 20-year high.

But permitting is just the first step — projects a city approves may not get built right away, or ever, if the developer runs out of funds or faces other delays. To keep pace with the demand in Oakland, developers need to build an average of 2,125 homes a year for the next eight years, according to a 2017 report by the city’s Housing Cabinet. As of July 31, there were 884 homes completed so far this year.

In 2016, Oakland Mayor Libby Schaaf promised to build 17,000 new housing units in the next eight years — 28 percent would be subsidized, low-income housing — and preserve another 17,000 existing homes as low-income rentals. So far, Oakland is on track to meet its overall goal, but is falling short in its affordable housing mandate. Of the 6,982 new units under construction as of July 31, less than 6 percent were reserved for low-income residents.

Oakland officials say they have to work harder to find money for affordable housing. In 2011, the state axed redevelopment agencies, depriving Oakland of about $37 million a year in affordable housing funds, said Housing and Community Development Director Michele Byrd.

The city has found new sources of funding — including a real estate fee approved by state legislators last year, affordable housing bonds and an affordable housing impact fee that took effect in Oakland in 2016 — but has yet to come up with a “cash cow” to replace redevelopment agency funds, Byrd said. The city also has expanded its focus to include buying existing buildings and keeping them affordable, working with organizations like Oakland Community Land Trust, in addition to building new units.

Oakland needs affordable housing now perhaps more than ever, as high prices push more families out of their homes and onto the streets. Last year there were 2,761 homeless people counted in Oakland, up more than 25 percent from 2015, according to EveryOne Home’s point-in-time survey.

“I go from a block where there are tents lining the sidewalk, to a block where there are Teslas and Mercedes lining the sidewalk,” said Osha Neumann, a staff attorney with the East Bay Community Law Center. “It’s almost like we’re dividing into two species. And it’s increasingly difficult for people to move from the streets, from the bottom, anywhere up away from there.”

While some people worry their neighborhoods are changing too quickly, others fret the city’s building boom will slow down before it can make a dent in the housing shortage. As construction costs soar, some builders already are hitting the brakes. Three years ago, it cost about $350,000 per unit to build a residential project in downtown Oakland, said real estate developer John Protopappas, president and CEO of Madison Park Financial Corporation. Now it’s closer to $585,000. And impact fees — the amount developers of market-rate units pay toward Oakland’s affordable housing budget — are rising. Developers of multi-family buildings paid $7,000 per downtown unit in 2016, which rose to $13,000 last year and jumped to $24,000 in July.

Meanwhile, though rents are still high, the speed at which they are increasing has slowed. That discrepancy can leave developers struggling to make their buildings profitable.

“We are putting projects on hold,” Protopappas said. “We’re not taking on any additional debt. We’re being very cautious.”

Other developers say they’re doing the same, which could jeopardize the mayor’s goal of 17,000 new units.

“It’s probably going to be closer to 6-7,000 units,” Protopappas said.

That creates more unknowns for Oakland residents who find themselves at the mercy of the housing market, the construction industry, the city’s Planning and Building Department, and other factors outside their control.

Editorial: Prop. 10 would exacerbate California’s housing crisis

East Bay Times Editorial, August 25, 2018

Rents in California, especially the Bay Area, are soaring. Decent housing is unaffordable for far too many.

But the solution is to build more housing, not restrict rents. That’s why voters should reject Proposition 10 on the Nov. 6 ballot.

The initiative would lift state limitations on local rent control laws, allowing cities to impose restrictions on more housing. That’s the last thing we need. It would only make the situation worse.

Rent control is a feel-good idea. A quick fix to a complicated problem. But it is  very effective at protecting poor or vulnerable tenants. And, more significantly, rent control discourages new rental home construction, the very thing we need to ease the state’s housing crisis.

Most economists agree that rent control reduces the quality and quantity of housing. “The analysis of rent control is among the best-understood issues in all of economics and — among economists, anyway — one of the least controversial,” liberal economist and New York Times columnist Paul Krugman wrote in 2000. It’s just as true today.

It’s politically easy to demonize developers. But that won’t make them build more housing – and they certainly won’t if we cap future rents and, in turn, devalue the units they’re considering building.

The solution is not to impose price controls, which is exactly what rent control is. The solution is to encourage development so that supply can meet demand.

“Rent is high in California because the state does not have enough housing for everyone who wants to live here,” the state’s Legislative Analyst’s Office wrote when reviewing Prop. 10. “People who want to live here must compete for housing, which increases rents.”

The problem is only getting worse: From 2007 to 2017, only 24.7 housing permits were filed for every 100 new residents in California — much lower than the U.S. average of 43.1 permits, according to Next 10, a non-partisan group that studies the state’s future. To increase supply, we must streamline the application process and control permitting costs to incentivize new construction. Instead, Proposition 10 would chase away developers.

To understand how the measure would work, first consider the current limits on rent control in California. Currently, at least 17 cities, including 10 in the Bay Area, have some form of rent control.

But California has a two-tier system. Under the state’s Costa-Hawkins Rental Housing Act, local governments can only apply rent controls to multi-unit apartment buildings constructed before Feb. 1, 1995. And they must allow landlords of those older buildings to reset rents to market rates for new tenants.

Prop. 10 would do away with those restrictions. Cities would have free rein to expand price controls to all types of units, including those built before 1995, and to limit how much landlords could increase rents for new tenants.

discourage new construction,” the state Legislative Analyst’s Office wrote in 2016, when the ballot initiative was being contemplated.

In other words, it would not fix the state’s housing crisis; it would exacerbate it.

Taxes on a home can be confusing: Here’s how to keep them straight

Kathleen Pender , SF Chronicle, Sep. 1, 2018

In response to my Aug. 19 column on the California law that lets parents transfer homes to their children without a property tax reassessment, several readers asked questions similar to this one from Hal Louchheim.

“If parents transfer their home to a child, she can keep the current assessed value and annual property tax. That transfer can be while the parents are living or in their will. If the transfer is an inheritance and the child keeps the low property tax base, does the child still get the stepped-up basis and avoid a substantial capital gain when the home is eventually sold? In other words, if parents give their home as an inheritance, can the child achieve BOTH the continued low property tax, and the stepped-up basis?”

The answer is yes, as long as the property is transferred upon the parent’s death, said David Hellman, a San Rafael estate-planning attorney. If it’s transferred while the parent is alive, the child gets the property tax break but loses the step-up in basis, missing out on an enormous tax break for highly appreciated homes.

It’s worth elaborating on this because people often mix up the terms “property tax base” and “cost basis,” and property taxes with income taxes. They are entirely separate systems.

It helps to remember that property taxes are governed by state law. Cost basis, capital gains and the step-up in basis are part of the income tax system. Knowing how they each work could save homeowners a pile of money.

In California, your property tax base — also called your assessment — is generally what you paid for your house, plus an inflation factor not to exceed 2 percent a year, plus the value of major improvements. Normally when property changes hands in California, it’s reassessed at current market value. This can cause a sharp jump in property taxes, because home prices in California have generally gone up way more than 2 percent a year over long periods.

Proposition 58, the state law I wrote about previously, lets parents and children transfer a primary residence — and a generous amount of other property — between each other without triggering a property-tax reassessment. The transfer can be by gift, sale or When you die with appreciated assets including a home, their cost basis is raised or “stepped up” to their market value on your date of death. Your children or other heirs inherit the assets with their new, stepped-up cost basis, which wipes out the tax on the appreciation that occurred during your lifetime. If your heirs sold these assets immediately, they would owe little or no capital gains tax.

Unlike the property tax break, this capital gains tax break is bestowed only on inherited property. If you give your home to a child while you are still alive, your child takes over your cost basis and loses the chance for it to be stepped up.

Some parents put their child on title as a joint owner while they are still alive, mainly to keep the home out of probate when they die. This “is generally a bad idea,” said Terri Lyders, an estate planning specialist with Fidelity Investments in Burlingame.

If you put your child on title as a 50 percent owner, when you die, your half of the home will be stepped up, but your child’s half will not.

This tax break is most commonly claimed when a parent dies and leaves a home to a child or children, but parents can also transfer the home while they’re still alive without triggering a reassessment. The child can later transfer the inherited home, and its low property tax base, to the next generation.

Under the income tax system, the cost basis in your home — assuming you’ve never rented it out — is generally what you paid for it, plus the cost of major improvements. (Don’t confuse it with the property tax base.)

If you sell your home for more than its cost basis, the profit is taxed as a capital gain. If you have used the home as your primary residence for at least two of the past five years ending on the sale date, the first $250,000 in capital gains, or $500,000 for married couples, is tax free.

If you hold onto your home until death, your heirs could get an even bigger capital gains tax break.

Also, “if the child has creditor problems or hits someone and gets sued, her half of the house is now subject to her creditors,” Lyders said.

If you give your child all or part of the home while alive, you will have to file a gift-tax return for the value that exceeds the annual gift tax exclusion. (This exclusion lets any person give $15,000 to an unlimited number of other people each year without gift-tax ramifications). You probably won’t owe gift tax on the home’s value, but it will be subtracted from your combined lifetime gift and estate tax exemption, which is $11.18 million for any person who dies in 2018, or $22.36 million for a couple. (People receiving gifts usually are not subject to gift tax.)

Lyders notes that if a married couple owns a home together as community property and one spouse dies, the entire house is stepped up to the date of death value. When the surviving spouse dies, it’s stepped up again.

Several readers asked how many times you can use the $250,000/$500,000 capital gains tax exclusion on a primary residence. There is no limit, as long as you have lived in the home at least two of the past five years. Hypothetically, you could use it as often as every two years.

There is an exception if you bought the house as part of a 1031 exchange, a federal law that lets you defer the tax due on the sale of business or investment property if you reinvest the proceeds in another property. “If the house is acquired through a 1031 exchange and you convert rental property to a primary residence, then you still have to live in it two of the last five years, but also own it for the last five years,” Hellman said.

If you give a home to your kids, your kids can use this exclusion if they meet the primary-residence requirement.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net

Glen’s East Bay Real Estate Market Update for July 31, 2018

East_Bay_Banner

July 31, 2018 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

 

Zillow_June_Numbers

Here are some highlights for the 38 East Bay Cities that I track:

  • We typically hit the summer “lull” mid June when many buyers take a break and begin their vacation seasons once children are out of school. However, this summer seems to be slower than normal. In fact, this has been the slowest June in the Bay Area in four years in terms of sales. We’ll be hearing more from the news media later this month once they get a hold of July numbers. Compared to last year, there is a 13% increase in inventory and a 13% drop in pendings. This is a supply and demand issue, more supply, less demand. We have a pending/active ratio of .92, the lowest I’ve seen since April of 2011. This pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Numbers over 1 indicate a seller’s market, while numbers under one favor buyers. However, trends are usually determined on a basis of at least a three month period or more. So, the jury may still be out on this one. I suspect that this summer’s sluggish start may be more than just the typical summer “lull,” and could be coupled with a possible change in our market. We may be moving from what has been a very long strong seller’s market towards a more normal and balanced one. The article below may further support this as well; “Mortgage applications hit a near four-year low in July dropping for the third month in a row with a 1.8% decrease in applications during July.” Also, consider the article below on Housing Affordability in the Bay Area, having fallen again to a low of only 18%, a number we haven’t seen in years.
  • Many economists are predicting a recession in 2019 or 2020 and although the Real Estate Market will not be the trigger as it was in our last recession, it will be a factor. For many buyer’s there may be some opportunities to be realized, but keep in mind that for whatever modest corrections we may see, much of it may be offset with rising interest rates.
  • As anticipated, we repeated the dramatic drop off in inventory at year end, following our normal pattern for December, typically our low point.  We’ve increased our available housing inventory by 222% since the beginning of the year, now 13% higher than where we were last year at this time. We’re now sitting on a 39 day supply of homes. Last year, our months’ supply at this time was 36 days. As a reminder of what we mean by “months’ supply;” If no more homes come onto the market, and homes continue to sell at the same pace as they have been over the last 12 months, then the “months supply,” (in this case 39 days), tells us that’s how many days it would take to sell the remaining number of homes we currently have available for sale in any given market.
  • It’s hard to predict how much tax reform will play into this. That impact may not be felt until when taxes are due next year. We are seeing interest rates starting to go up. Prices continue to rise. More and more, affordability, the high cost of living and our traffic woes are coming into play for those, especially in the “middle class,” who may now be considering leaving the Bay Area.
  • Typically, we see a steady increase in inventory on a month by month basis to occur before finally peaking in September.
  • The number of pendings, (homes that are in contract), decreased again. The pending active ratio increased to .92, now at the lowest point we’ve seen since April of 2011. This compares to last year at the same time of 1.19. This supply and demand ratio signals whether we’re in a sellers’ or buyers’ market. Typically, a number well above 1, (more inventory with less pending) favors sellers. A number below 1 favors buyers.
  • The percentage of homes “sitting” has slightly increased to 35% of the homes listed now remaining active for 30 days or longer, while only 15% have stayed on the market for 60 days or longer. This is slightly lower than what we saw last year at this time with 37% of the homes listed remained active for 30 days or longer, while 17% stayed on the market for 60 days or longer.
  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

Months_Supply

  • The month’s supply for the combined 39 city area is 39 days. Historically, a 2 to 3 months supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. We are slightly higher when compared to last year at this time, of 36 days.

Actives_&_Pendings

  • Our inventory for the East Bay (the 39 cities tracked) is now at 2,796 homes actively for sale. This is higher than last year at this time of 2,474 or (13% higher). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 2,573, less than what we saw last year at this time of 2,944, or 12.6% lower.

Pending_Active_Ratio

  • Our Pending/Active Ratio is .92, now at the lowest level since April or 2011. Last year at this time it was 1.19.
  • Sales over the last 3 months, on average, are 5.6% over the asking price for this area, higher to what we saw last year at this time, 4.5%.

Glen's Numbers pg 1

Glen's Numbers pg 2

 

Recent News

 

Only 18% of Bay Area households could afford a median-priced home

By Kathleen Pender, SF Chronicle, August 9, 2018

Housing affordability in the Bay Area fell sharply in the second quarter, as record home prices and rising mortgage rates more than offset rising incomes.

In the Bay Area, only 18 percent of households could afford to buy a median-priced single-family home, down from 23 percent from the first quarter and 21 percent in the first quarter of last year, according to a California Association of Realtors quarterly affordability survey released Wednesday.

The survey calculates the annual household income needed to make the monthly payment (including mortgage, taxes and insurance) on a median-priced single-family home with a 20 percent down payment and a 30-year fixed-rate mortgage at prevailing rates. It then estimates what percent of households in an area earn that much. The result is the affordability index.

A Bay Area household would have needed at least $219,380 in annual income to make the $5,480 monthly payment on a $1.035 million home, with mortgage rates at 4.7 percent. The association figured that 18 percent of Bay Area households earned at least that much.

By comparison, in the first quarter the association estimated that 23 percent of Bay Area households earned at least $186,300, the minimum needed to make the $4,660 monthly payment on a $900,000 home, with mortgage rates at 4.44 percent.

San Francisco and San Mateo once again tied as the region’s least-affordable counties. Only 14 percent of households could afford a median-priced home, down from 15 percent in the first quarter.

In San Mateo County, a household would need at least $349,750 to make the $8,740 payment on a $1.65 million home. In San Francisco, the minimum income would be $344,440 to make the $8,610 payment on a $1.625 million home.

The only California counties with equal or worse affordability were Mono and Santa Cruz, where 14 and 12 percent, respectively, of households could afford a median-priced single-family home.

These figures understate affordability somewhat because they exclude condos, which cost less. Statewide, only 26 percent of households could afford a single-family home whereas 36 percent could afford a median-priced condo or townhome. The report does not break out condo affordability for regions or counties.

Also bear in mind that the median is the point at which half of the homes in an area cost more and half cost less. Many people who could not afford a median-price home could buy a lower-priced one.

As bad as it is now, affordability was worse at the peak of the last housing boom. In the second half of 2005, only 9 percent of households in San Francisco and 12 to 13 percent in San Mateo County could afford a median-price home. Back then, 30-year mortgage rates averaged 6 percent.

But as we approach those levels, it’s important to remember that home prices can go only so high before buyers drop out.

“I think we are going to see some price softening at some point in the future. I don’t think we will see a crash,” said Jordan Levine, chief economist with the Realtors association. “In an ideal world, we would see price growth slow down so incomes have a chance to catch up.”

Statewide, Levine said he’s seeing some signs that demand for lower-priced homes is starting to wane. In recent weeks, the biggest growth of active listings is in the million-dollar-or-less range. Despite that, the largest decline in home sales is below $1 million.

“I think it’s a sign that affordability has gotten to the point where a lot of people either can’t afford to own or don’t want to jump into the market.”

Redfin CEO warns of slowing national real estate market, as frustrated buyers are sitting out

BY , GeekWire, on 

Redfin CEO Glenn Kelman has been known for making some strong statements about the housing market, and last week he issued his latest proclamation, warning of a slowdown that is beginning to develop across the country, even more so in expensive markets like Seattle and San Francisco.

Kelman, on the company’s quarterly earnings call with investors, said he expects sales to decline in August and September over figures from a year ago. Not only is a consistently low supply of homes for sale to blame, but frustrated buyers tired of getting beaten out on offer after offer are deciding to sit out.

What’s striking about this change is that it seems to have been driven by dissident demand from homebuyers, not just a low supply of homes for sale. Nationwide, there were still 5 percent fewer homes for sale in July 2018 than in July 2017. But in Seattle, Portland and San Jose where prices have increased the most, the percentage of homes selling in the first two weeks on the market declined in June from 61 percent to 52 percent.

And the percentage of listings that dropped their prices increased from 31% to 33%. June sales were down in these markets by double-digits and inventory was up also by double-digits. The trend is continuing in July and reports are now coming in from Washington D.C., Boston, Virginia and parts of Chicago as well, that homes there are getting harder to sell.

As U.S. home prices have increased faster than wages for 70 straight months, buyers in markets like these have finally had enough, at least for now. There are still plenty of markets where homebuyer demand is strong. But for the first time in years, we are getting reports from managers of some markets that homebuyer demand is waning, especially in some of Redfin’s largest markets.

Kelman added that in July the percentage of homes nationwide that sold above list price declined on an annual basis for the first time since March 2015.

In addition to the slowing home market, Kelman took the wind out of investors sails, lowering the company’s targets for revenue and profits in the next quarter. Redfin’s stock then went into free fall, dropping 25 percent by end of day Friday to the lowest price since its 2017 IPO with slight up and down movements Monday morning.

The slowing real estate market comes as the company is doubling down on its direct home sales business, Redfin Now. Kelman said that the company is making Redfin Now a permanent part of its long-term strategy. As Redfin Now expands to more markets the company is being “very beady-eyed about which homes Redfin Now buys,” with the potential of a slowdown looming.

Redfin is in a unique position to see the trends on the horizon in the housing market, with a huge network of agents in a variety of markets and lots of sales data. Kelman noted that this trend has only taken hold recently, with sales in three out of the last four weeks slowing dramatically, though still rising over a year ago.

But what’s different is that if your real estate agents saying, I put a home on that normally would have sold in a week, and it’s still on the market a month later. I expected to get eight competing offers, I got one and it was below the asking price. And then when you look at the data to see if that supports the anecdote, it does, and this is a nuance point. But days on market isn’t changing that much that how long sold homes take to sell. But the percentage of listings to sell within two weeks is decreasing. What that means is that for the homes that sell, they’re still selling reasonably fast, but more and more there are homes that we thought would sell that don’t.

And I would say that’s concentrated in some of our larger markets. One of the things that we’re sensitive to is whether this is a decline in the overall sales volume in the United States or a shift. So for example, if Seattle or San Francisco has just gotten too expensive and now everybody’s buying in Phoenix and Denver, that doesn’t really affect U.S. sales volume. And we think some of that is happening, a place like Pittsburgh still has strong sales growth.

But we also think that there is probably going to be a slowdown in U.S. sales growth, if not a reversal in August or September. And there’s a case to be made that the whole market will get better there’s a case to be made that it won’t. I’m not presenting this as a fact, but if you want to know what we think is the most likely outcome that’s our view of it.

Local reports bear out Kelman’s observations. The Northwest Multiple Listing Service reported earlier this month that the “days of multiple offers are days of the past.” Inventory was up in July, while pending and closed sales are down on annual basis.

NWMLS doesn’t mention frustrated buyers sitting out, but the numbers show that might be the case in Seattle. Should these buyers see the news of a slowdown and decide to jump back into the market, this trend could be but a blip as inventory still remains 38 percent below historical averages across the U.S. Kelman said.

As the clock continues to tick forward, millennial buyers will make up an even greater share of the market. The struggles faced by the generation, in addition to the challenging housing situation suggests a need for major changes to the market.

“The postwar explosion in new construction and transit infrastructure to accommodate baby boomers hasn’t happened for millennials, who are coming of home-buying age with lower wage growth, higher credit, more congested roads and more student debt than previous generations,” Kelman said. “This younger generation of would-be homebuyers is bewildered, many are living in their parents basement. Until the market becomes more balanced, it will take longer and be harder for these folks to find a home.”

Bay Area home prices keep climbing, but sales slow

By LOUIS HANSEN, Mercury News, July 27, 2018

Bay Area home buying slowed in June, as the busy summer home shopping season was chilled by scarce inventory and yet another month of near record-setting prices.

Median prices last month for existing homes in the nine-county region rose double digits over the previous year to $920,000, just short of the record high set in May, according to a report released Wednesday by real estate data firm CoreLogic.

Home sales dropped 9.2 percent from the previous year, suggesting many house-hunters are finally fed up or priced out of the Bay Area. The median re-sale price of single family homes in the region increased 12.1 percent from last June.

“It’s obviously a combination of affordability and inventory constraints,” CoreLogic analyst Andrew LePage said. “We’re seeing it statewide and nationally.”

Home_Prices_Bay_Area

Bay Area home sales last month dipped to the lowest level for a June in four years. San Francisco was the only Bay Area county to see an uptick in sales — and only by an additional 17 homes.

The Bay Area housing shortage has driven up home values, creating personal wealth for homeowners, while leaving renters and newcomers grasping to get into the market.

The streak of year-over-year sale price increases began in April 2012, when the median Bay Area home price was $425,000. But the days of half-million dollar homes have long passed, with seven-figure cash offers becoming the norm.

About 80 percent of homes sold last month topped $500,000. More than 4 in 10 Bay Area homes sold for more than $1 million.

Home sales historically increase from May to June, as families decide on purchases after the end of the school year. But Bay Area sales dropped 2.2 percent over the last two months.

Sales also slowed in Southern California, with Los Angeles purchases falling 1.1 percent over the previous month. The greater Los Angeles region saw nearly a 12 percent drop in transactions from last year, according to CoreLogic data.

LePage called the decrease in June home sales significant, adding that coming months may give a better picture of whether the super-charged market is slowing.  “It’s hard to say what comes next in terms of volume,” he said.

In the Bay Area, high prices are knocking some families out of the market, local brokers said. Rising interest rates have also slowed purchases.

Southern California home sales crash, a warning sign to the nation

By Diana Olick, CNBC, July 24, 2018

  • Sales of both new and existing houses and condominiums dropped 11.8 percent year over year, as prices shot up to a record high, according to CoreLogic.
  • The median price paid for all Southern California homes sold in June was a record $536,250, according to CoreLogic, a 7.3 percent increase compared to June of 2017.
  • In the past, California, one of the largest housing markets in the nation, has been a predictor for the rest of the country.

Southern California home sales hit the brakes in June, falling to the lowest reading for the month in four years. Sales of both new and existing houses and condominiums dropped 11.8 percent year over year, as prices shot up to a record high, according to CoreLogic. The report covers Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties.

Sales fell 1.1 percent compared with May, but the average change from May to June, going back to 1988, is a 6 percent gain.

The weakness was especially apparent in sales of newly built homes, which were 47 percent below the June average. Part of that is that builders are putting up fewer homes, so there is simply less to sell.

“A portion of last month’s year-over-year sales decline reflects one less business day for deals to be recorded compared with June 2017,” noted Andrew LePage, a CoreLogic analyst. “But affordability and inventory constraints are likely the main culprits in last month’s sales slowdown, which applied to all six of the region’s counties and across most of the major price categories.”

LePage points to the rise in mortgage rates over the past six months, increasing significantly a borrower’s monthly payment. Rates haven’t moved much in the past month, but are suddenly going higher again this week, pointing to even further weakness in affordability.

In the past, California, one of the largest housing markets in the nation, has been a predictor for the rest of the country. Home prices have been rising everywhere, amid a critical housing shortage. Prices usually lag sales by several months, and sales are beginning to crumble, even as more inventory comes on the market. The supply of homes for sale increased annually in June for the first time in three years, according to the National Association of Realtors, but sales fell for the third straight month.

Lay it on me: Bad news abounds for potential homebuyers

Mortgage applications nearing 10-year low

By Jeremiah Jensen, Housing Wire, August 1, 2018

Mortgage applications hit a near four-year low in July dropping for the third month in a row with a 1.8% decrease in applications during July.

So, what’s behind the dwindling demand for mortgages? Lots of things.

First and foremost, it’s just really, really expensive to buy a home right now.

Interest rates have been on the rise for a long time, and while the Federal Reserve did not raise rates in its July-August meeting, experts expect that it will raise rates twice more by the end of the year. At the same time, inventory is painfully tight, which is driving home prices way up and putting a chill on buyers’ opinion of the housing market.

A recent study from Trulia shows that the profitability of buying a home has fallen to a six-year low, meaning that for many Americans it is making less and less financial sense to buy a home.

All of this adds up to a home buying sentiment that is drooping close to a 10-year low, and many Millennials say they’ve lost hope in the idea homeownership.

Despite growth in employment numbers and employers going on hiring frenzies, people still can’t afford homes. Wage growth has remained stagnant while the costs of living have been steadily climbing.

Many of the jobs being created are entry-level with wages unable to absorb the cost of a home. Wages are growing, posting a 2.8% gain in the last year, which is the biggest pay and benefit increase Americans have seen in nearly 10 years. The problem is, it’s just not enough to counter the rapidly increasing cost of buying a home.

“Unfortunately, home price and rent growth above incomes – driven primarily by a severe shortage of housing supply – have been too high of a hurdle for many would-be buyers to clear,” Freddie Mac Chief Economist Sam Khater said.

The rate of rent growth is now tapering off, but rents are still climbing, and home prices have yet to find their ceiling. The average person with one hand on the first rung of the property ladder is clinging for dear life to his or her lease and struggling to save up for a home.

“At a time when rising home values continue to build housing wealth for most homeowners, these weaker affordability conditions have led to a missed opportunity for the interested young buyers who are unfortunately priced out of the market,” he added.

Long story short, homebuyers need some good news– a drop in interest rates, relief from climbing home prices or a significant wage increase, maybe all three– in order to turn the tide on these homebuying blues.

California gearing up for big battle over rent control

Kathleen Pender, SF Chronicle, July 21, 2018 

Battle lines are forming over what could be one of the most contentious fights about housing in California in decades.

I’m talking about Proposition 10, the November ballot initiative that would overturn California’s Costa-Hawkins Rent Control Act and let local governments impose any form of rent control on any type of rental housing within their jurisdictions.

“The future of California is at stake here,” said Ken Rosen, chairman of the Fisher Center for Real Estate and Economics at UC Berkeley and a fierce opponent of the measure.

What the measure boils down to is whether housing “is an essential, like a human right — something that everyone needs and deserves, or whether one views housing as just another commodity that should be bought and sold and rented without limits,” said Prop. 10 supporter Dean Preston, executive director of Tenants Together, a statewide nonprofit for renters rights.

The Legislature passed Costa-Hawkins in 1995, after some cities had enacted aggressive rent control rules in response to housing shortages and affordability issues. The law said cities (and counties for their unincorporated areas) could limit rent increases — what we think of as rent control. But it said rent control could not apply to single-family homes or condos of any age or to multifamily buildings first occupied after Feb. 1, 1995 (or earlier if a city already had rent control with a previous cutoff date).

It also said owners of rent-controlled properties could charge whatever they want after a tenant moves out, but once the new tenant moves in, rent increases would be subject to the annual limit. This is known as vacancy decontrol.

If Prop. 10 passes, local jurisdictions could impose rent control on all property types, including single-family properties and new construction. They also could prevent landlords from charging whatever they want when a unit turns over. This is known as vacancy control.

If voters approve the measure, most local governments — or their citizens through the initiative process — would still have to adopt rent control, or modify an existing program to tighten their rules. However, some cities that had strict rent control ordinances before 1995 still have them on the books and just stopped enforcing provisions that Costa-Hawkins struck down. If Prop. 10 passes, “they wouldn’t have to pass a statute, they could just flip a switch” and start enforcing the old provisions, said Debra Carlton, senior vice president with the California Apartment Association.

Richmond’s rent control ordinance, passed in 2016, would automatically apply to single-family and new construction homes if Costa-Hawkins is overturned, Carlton said.

Richmond’s rent program attorney, Charles Oshinuga, said he’s researching what impact Costa-Hawkins repeal would have on the ordinance and hasn’t reached a conclusion.

Tenant organizations and other groups got enough signatures to place Prop. 10 on the ballot after recent legislative attempts to strike down Costa-Hawkins got nowhere.

Last weekend, the California Democratic Party voted to support Prop 10. Its main sponsors are the AIDS Healthcare Foundation and its president, Michael Weinstein, and the Coalition for Affordable Housing. Other backers include the Service Employees International Union, the California Teachers Association, the California Nurses Association and the American Federation of State, County and Municipal Employees. Backers have raised $2.36 million.

The Republican Party is against it. Other opponents include the California Apartment Association and the California Rental Housing Association, which represent landlords, the California Chamber of Commerce, the State Building and Construction Trades Council of California (a labor union), the California Realtors Association and the NAACP. Opponents have raised $15.3 million, much of it from large apartment developers.

Costa-Hawkins does not prevent cities from imposing eviction controls on any type of rental housing — including single-family homes and apartment buildings of any age. Most cities with rent control, and a few without, have adopted some type of eviction controls on some or all types of rental units. They typically say landlords cannot evict tenants, even after their lease has run out, except for certain reasons. These can include the tenant failing to pay rent or dealing drugs on the premises; the owner or a relative moving in; or the owner taking the unit off the rental market. Prop. 10 will not impact eviction controls.

In California, 55 percent of households are occupied by owners and 45 percent by renters. Nationwide, that ratio is 64 percent owners and 36 percent renters, according to U.S. Census Bureau data.

Opponents say abolishing Costa-Hawkins will aggravate the state’s housing shortage by discouraging new construction and encouraging some landlords to take existing units off the market.

But Prop. 10 proponent Daniel Saver, senior attorney with Community Legal Services in East Palo Alto, said California cities generally have not applied rent control to new construction and are not likely to if Costa-Hawkins dies.

However, some cities with rent control are talking about applying it to units built since 1995 but before a certain date, or to newly built units after they reach a certain age. Berkeley’s Rent Stabilization Board has recommendedexempting new construction from rent control for the first 12 to 15 years if Costa-Hawkins is repealed.

This approach “is the equivalent of putting it on new construction. It’s a confidence issue. No one will ever trust a locality again,” Rosen said. “I’ve had 30 calls from people thinking about investing in (existing) units or new construction. They are putting their plans on hold” pending the outcome of Prop. 10.

Michael Schall, the CEO of Essex Property Trust — a big apartment developer and Prop. 10 opponent — discussed Costa-Hawkins in a May earnings call. He said the measure did not seem to impact transactions (the purchase or sale of apartment buildings) in the first quarter. “As we get closer to November, perhaps (it will) a little bit.”

About 37 percent of California’s rental stock is single-family homes, Rosen said, and most of those are owned by mom-and-pop landlords who own one or a few properties.

If Prop. 10 passes and San Francisco put single-family homes under rent control and implemented vacancy controls, it would “devastate” the city’s rental market, Richen added. “It would make it almost impossible to make needed upgrades and would encourage people to take units off the market. In my neighborhood, all kinds of units used to be rental, now they are tenancies in common or condos. Some are just sitting vacant awaiting their next life.”

Saver argues that most property owners are better off financially than most renters. “If you are having a really hard time and you have a multi-family building in San Francisco, you can sell it,” he said.

Prop. 10 opponents point out that virtually every economist in the country opposes rent control. And because there is no means testing, it benefits rich people as well as poor ones. If vacancy decontrol goes away, “We have suggested that means testing be part of anything going forward,” Carlton said. “The tenants organizations don’t like to talk about means testing.”

Preston, the tenant advocate, agrees that rent control “certainly protects everyone who rents. But really rich people in our society tend not to rent property. They tend to own it.”

Most tenants “cannot and will not ever be able to afford a home,” he said. “They deserve the security of being able to live in a community, pay reasonable increases and not be threatened with massive increases or displacement for no reason.”

As for the argument that rent control tramples on property rights, Preston said it’s just one way that governments limit what property owners can do. Homes are subject to zoning laws and landlords must follow many laws, such as when they can enter a home. The courts, he added, have established that investors are entitled to a “fair return” on rent-controlled units.

What that fair return is could become the subject of much litigation if Costa-Hawkins is overturned.

Opinion: Berkeley could be about to unleash a disaster regarding ADUs

By Dan McDunn, Berkeleyside, July 24, 208

I have been involved in the Accessory Dwelling Unit (ADU) Task Force since its very beginning. First, as an enthusiastic participant, then as a cynical observer, recently back as an enthusiastic participant, and now as a completely demoralized resident of the City of Berkeley upon realizing the disaster the City Council is prepared to unleash.

During the nearly two years that the task force has been in existence, I have been fortunate to observe some of the most passionate people in our community working selflessly and tirelessly to advance the cause of ADUs in our city.

As a builder, I can’t make the claim that my involvement was selfless, as it has led to new professional relationships from which I have benefited.

This task force was called to order by Councilmember Ben Bartlett, at the encouragement of many community members, including Kathleen Crandall, former city planning manager Deb Sanderson, Loni Gray, Greg San Martin and many others. Thankfully, their enthusiasm trumped my cynicism about the ability of the council to get out of its own way and put the necessary policies in place to encourage ADU development. These folks have spent thousands of hours coming up with suggestions for policy to increase ADU production, thereby doing some small part to ease the housing crisis in the Bay Area.

I had a feeling this was going to go sideways at that very first meeting when I realized political expediency rather than grounded economic arguments were more important to many members of the city council (shocker, right? I know!).

Councilmembers eliminated the Short Term Rental option for Accessory Dwelling Units, which insures that only wealthy people will be able to build them when their primary motivation is to house a family member. (STR is ideal to subsidize construction costs and increased taxes when grandma travels.)

They eliminated the most likely segment of the market to build ADUs for long-term rental use by not allowing the non-owner-occupied segment of the market to participate. Most owner-occupied homes do not want a stranger in their back yard, whereas owners of rented single family homes have proven their willingness to rent to the long-term market. So, 0 for 2 in the economic reality check.

I attended the next few meetings, but quickly became disillusioned by the writing on the wall that the council, in the process of sprinting to be a leader in ADU innovation, was going to shoot itself in both feet trying to get out of the gate.

The only remaining bastion of sense seemed to be that the council was going to keep the Rent Board out of the ADU market completely. This claim was made on Sept. 28 at councilmember Ben Bartlett’s town hall; on Nov. 16 at councilmember Lori Droste’s town hall; on Nov. 29 at councilmember Kate Harrison’s town hall; and on Jan. 25t  at Mayor Jesse Arreguín’s town hall.

These politicians made claims that the ADU market would be treated as golden duplexes, and owners of units with ADUs and future owner-developers of ADUs would enjoy the property rights that come with the golden duplex designation.

At the mayor’s town hall, and at Kate Harrison’s town hall, there were members of the Berkeley Rent Board who also stated that ADUs would be treated as golden duplexes. Now, just a few months after these proclamations, made in front of more than 200 community members, some of whom have made significant outlays in time and money to start planning their ADU development, City Council is set to vote tonight, July 24 to give purview over the tenant/landlord relationship for ADUs (both existing and new units) to the Rent Board.

This would stop most, if not all, ADU development that was getting constructed for the rental market in its tracks. I don’t care who you are or what your politics are, it is very unlikely that you will go through the effort and expense to construct a new ADU and allow the Rent Board to govern the relationship you have with your tenant (be it in the ADU or the main dwelling). Unless you really hate yourself, you just would not do it.

So, I have to ask the council, will they be 0 for 3 for setting policy that can spur housing supply? Or will they do the right thing and stand by the claims that they made to the community at large on four different occasions in the last 12 months?

Council will vote tonight to give purview over the tenant/landlord relationship for ADUs to the Rent Board. This would stop ADU development being built for rentals in its tracks.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net

Glen’s East Bay Real Estate Market Update for June 30, 2018

East_Bay_Banner

June 30, 2018 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

 

Zillow_May_2018

Here are some highlights for the 38 East Bay Cities that I track:

  • As anticipated, we repeated the dramatic drop off in inventory at year end, following our normal pattern for December, typically our low point. As expected, we’ve increased our available housing inventory by 189% since the beginning of the year, now slightly higher than where we were last year at this time by 7.1%. We’re now sitting on a 36 day supply of homes.
  • Our monthly supply is now 36 days. Last year, our months’ supply at this time was also 33 days. As a reminder of what we mean by “months’ supply;” If no more homes come onto the market, and homes continue to sell at the same pace as they have been over the last 12 months, then the “months supply,” (in this case 36 days), tells us that’s how many days it would take to sell the remaining number of homes we currently have available for sale in any given market.
  • It’s hard to predict how much tax reform will play into this. That impact may not be felt until when taxes are due next year. We are seeing interest rates starting to go up. Prices continue to rise. More and more, affordability, the high cost of living and our traffic woes are coming into play for those, especially in the “middle class,” who may now be considering leaving the Bay Area.
  • Typically, we see a steady increase in inventory on a month by month basis to occur before finally peaking in September.
  • The number of pendings, (homes that are in contract), decreased slightly. The pending active ratio increased to 1.16. This compares to last year at the same time of 1.30. This supply and demand ratio signals whether we’re in a sellers’ or buyers’ market. Typically, a number well above 1, (more inventory with less pending) favors sellers. A number below 1 favors buyers.
  • The percentage of homes “sitting” has slightly increased to 30% of the homes listed now remaining active for 30 days or longer, while only 12% have stayed on the market for 60 days or longer. This is lower than what we saw last year at this time with 37% of the homes listed remained active for 30 days or longer, while 17% stayed on the market for 60 days or longer.
  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

Months_Supply

  • The month’s supply for the combined 39 city area is 36 days. Historically, a 2 to 3 months supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. We are at about the same supply levels compared to last year at this time, of 33 days.

Active_&_Pendings

  • Our inventory for the East Bay (the 39 cities tracked) is now at 2,505 homes actively for sale. This is slightly higher than last year at this time of 2,339 or (7.1% higher). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased slightly to 2,909, slightly less than what we saw last year at this time of 3,035.

Pending_Active_Ratio

  • Our Pending/Active Ratio is 1.16. Last year at this time it was 1.30.
  • Sales over the last 4 months, on average, are 6.2% over the asking price for this area, similar to what we saw last year at this time, 6.4%.

Glen's Numbers Pg 1

Glen's Numbers Pg 2

 

Recent News

 

Soon-to-open Richmond ferry terminal could revive shoreline, usher in gentrification

Rachel Swan  I SF Chronicle, July 6, 2018

Construction cranes loom over the Richmond shoreline, a briny landscape of weeds and eucalyptus trees that’s on track to become a transportation hub.

Come fall, passengers will board ferry boats from a new $20 million terminal at Harbour Way South, an industrial strip of roadway that spills onto the Bay Trail. From there it’s a half-hour commute by water to downtown San Francisco.

Officials, business owners and real estate developers see the terminal as a trigger for economic development. They say it could spur the revival that Richmond leaders have talked about for years, although it’s always seemed just a little out of reach.

It will probably bring new shops and restaurants to the area around the former Ford assembly plant, now a gleaming brick-and-windowed showroom called the Craneway Pavilion. It may draw tourists to the Rosie the Riveter WWII Home Front National Historic Park Visitor Center or lure tech workers into shoreline housing developments — including a planned apartment building on a weed-choked lot at Harbour Way South, which could hold as many as 600 units.

The developer of that building, Todd Floyd, whose firm, New West Communities, is also planning a 200 unit mid-rise on nearby Seacliff Drive, said he picked those sites because they are near the ferry terminal.

“That’s what got our attention,” he said. “I mean, it’s an absolute game changer.”

Most importantly, it could change outside perceptions of Richmond, a scrappy East Bay city long known for crime, the Chevron oil refinery, struggling schools and boarded-up storefronts downtown.

“As far as Richmond is concerned, perception is everything,” said Mayor Tom Butt, who believes negative stereotypes about blight and violence have slowed economic development.

But the possibility of an economic boom on the shoreline worries members of Richmond’s progressive political wing. Some are concerned that the ferry will speed up tenant displacement in one of the Bay Area’s least costly places to rent that is connected to a BART station.

If a new mass transit option entices newcomers and there isn’t enough housing to accommodate them, they will compete for Richmond’s existing housing stock, said the city’s vice mayor, Melvin Willis.

Alternatively, Willis said, the ferry could lead to prodigious development but also bump up property values.

“If rents go up in certain areas around the ferry, that would cause rents to go up in other parts of Richmond,” Willis said. He worries that longtime residents will get priced out.

Such fears prompted Richmond voters to approve a rent-control ballot measure two years ago. Since, then, the median rent for a two-bedroom apartment has climbed marginally, from $2,381 a month in November 2016 to $2,500 a month in April 2018, according to real estate tracking site Zillow.

Willis said the ferry is “something to be very vigilant about.”

To transportation and housing experts, the ferry service is a form of smart urban planning. Up to 1,000 apartment and condominium units are planned for the vicinity of the terminal, and the people who live there would have easy access to San Francisco — with no need to drive.

“So they’re not creating congestion or exacerbating air quality issues,” said Nick Josefowitz, a board director for BART and the San Francisco Bay Area Water Emergency Transportation Authority, which oversees ferry service throughout the region.

When East Bay cities build dense housing near transit nodes, they help ease the housing crisis in San Francisco, Josefowitz noted.

Eli Moore, a researcher at UC Berkeley’s Haas Institute for a Fair and Inclusive Society, expressed guarded optimism. He speculated that many low-income residents may miss out on the convenience and job opportunities provided by the ferry because they won’t be able to afford tickets.

The proposed fare is $9 one way for adults, $6.75 with a Clipper card, which is more expensive than BART. It will probably be half price for seniors and those ages 5 to 18, $2.90 for those in school groups and free for children younger than 5.

Yet when a city adds a new transit service — even a service that only a slice of the population can afford — it helps alleviate congestion for everyone, said Matt Lewis, an environmental consultant in Berkeley. Officials from the Water Emergency Transportation Authority predict that the boats from Richmond will carry 500 to 1,000 passengers per day during their first year.

That number will probably go up. Data from the authority show that in the past six years, ridership nearly tripled on the ferry boats between Oakland’s Jack London Square and San Francisco— from about 40,000 people in April 2012 to more than 108,000 in April 2018. The number of passengers riding ferries between Vallejo and San Francisco jumped from about 100,000 to more than 236,000 over the same time interval.

If commuters use the service in Richmond, fewer cars will jam the interlocking streets and boulevards that feed the Interstate 80 and 580 freeways, Lewis said.

The area around the ferry is already starting to change, with the addition of Assemble Restaurant, a popular brunch spot next to the Craneway, and the R&B Cellars winery.

Park Ranger Betty Reid Soskin hopes that small crop of businesses will mushroom with the addition of the ferry service in October.

“My fantasy is that we’ll make this the East Bay entrance to Alcatraz, which gets a million visitors a year,” said Soskin, arriving to work at the Rosie the Riveter Center on a recent weekday morning.

Nearby, Mohan Ram was walking along the Bay Trail. He stopped by the soon-to-be-developed lot at Harbour Way South and craned his neck to look at the ferry construction site.

“Do you know anything about this ferry opening?” asked Ram, who owns a condo in the Marina Bay area — an outcropping of town houses and wraparound streets near the waterfront.

He said the condo will be vacant soon, and he’s hoping the ferry will attract prospective tenants. He also anticipates that it will raise his property values.

Kevin Brown, owner of R&B Cellars — one of several wineries to open along Richmond’s waterfront in the past few years — said the former shipyard is “on an upswing.”

When Brown opened his business three years ago, restaurants and tech companies were already moving into the ramshackle warehouses that dot Richmond’s waterfront. He sees the addition of the ferry as part of that evolution.

“The nice thing is that now it will be easier for people to get to us from San Francisco,” he said.

 

Housing shortage could be turning, signaling a price bubble

By Diana Olick, CNBC, July 12, 2018

The most competitive and tightest housing market in decades may finally be loosening its grip, and that could put pressure on overheated home prices. The supply of homes for sale in the second quarter of 2018, the all-important spring market, rose at three times the rate of the same period in 2017, according to Trulia, a real estate listing and research company.

The inventory jump was the largest quarterly improvement in three years and could be signaling a slight thaw in today’s very hot housing market. But it is just a start.

“This seasonal inventory jump wasn’t enough to offset the historical year-over-year downward trend that has continued over 14 consecutive quarters,” according to Alexandra Lee, a housing data analyst for Trulia’s economics research team.

Thirty of the nation’s 100 largest cities, including New York City, Miami and Los Angeles, now have more supply than a year ago.

Historically, prices lag sales by a few months, and sales have been slowing this year in most major markets. This housing cycle, however, has so far been unique. The drop in sales is due to the tight supply, and that just pushes prices higher. The tight supply is due to very high demand and still below-normal construction, as the market continues to recover from the worst housing crash in history almost a decade ago.

Home sales in Southern California fell in May by 3.4 percent annually, according to CoreLogic, but the median price of a home sold in May was up over 8 percent to a record $530,000. This even with the slightly increased inventory.

“With inventory tight and affordability worsening, the number of Southern California homes sold has fallen on a year-over-year basis during three of the last five months,” said Andrew LePage, a CoreLogic analyst. “Total sales during the first five months of this year fell about 2 percent from the same period last year, reflecting limited inventory particularly in more affordable price ranges.”

While home builders are slowly ramping up production, they are doing so largely in the move-up and luxury market. Sales of newly built homes have been rising in Southern California, easing the inventory shortage somewhat, but not enough.

“New-home sales continue to run well below historically normal levels, with the sales through May of this year 37 percent below the average number sold during that five-month period over the past three decades,” noted LePage. “Also, most of the new homes sold this year were aimed at mid-market to high-end buyers, with almost two-thirds selling for $500,000 or more and 15 percent selling for less than $400,000.”

Mortgage applications to purchase a newly built home plummeted nearly 9 percent in June compared to June 2017, according to the Mortgage Bankers Association. This suggests lower new home sales going forward, despite higher prices.

 

Map: It may take centuries to reach housing goals in Bay Area

By ERIN BALDASSARI | Bay Area News Group, June 28, 2018 

At its current level of housing construction, it would take the East Bay city of Concord until 2984 — almost the next millennium — to reach its 2040 housing goals, according to a new map from the Metropolitan Transportation Commission (MTC).

Oakland residents would have to wait until 2295 before enough housing is built for its projected 2040 population. San Jose and San Francisco residents have it better off; residents’ grandchildren would see an adequate supply of housing for its 2040 population in 2066 and 2063, respectively.

The map, released last month, highlights the continued challenges of building housing in the Bay Area. Comparing Department of Finance housing production data from January 2010 to December 2017 with the state-mandated housing goals outline in MTC’s Plan Bay Area 2040 forecast, it shows the year in which each city or town would meet its housing goal for 2040 if it continues at the current pace of construction.

Housing_Targets_2040

“It’s a sobering reminder of how far we have to go to get the Bay Area’s red-hot economy and its anemic residential sector into better balance,” Steve Heminger, the MTC’s executive director, said in a report to the commission.

Perhaps not surprisingly for most Bay Area residents, the majority of cities — and all Bay Area counties — are lagging behind their 2040 housing goals while at the same time continuing to add jobs. That imbalance between the number of jobs and the housing that’s available does two things, said Matt Regan, the senior vice president of public policy for the Bay Area Council: Force working and middle-income people to move further away in search of affordable housing and make commutes a lot longer and highways more congested.

“Development follows the path of least resistance,” Regan said. And, the evidence is in the map.

The cities that are actually on track to add housing are the ones furthest from the job centers in the Bay Area and are places with fewer public transit options, which forces more people to drive: Dublin, Pleasanton and San Ramon in the Tri-Valley; Pittsburg and Brentwood in east Contra Costa County; Fairfield in Solano County; and Gilroy and Morgan Hill in Santa Clara County.

“That means we are building homes on virgin land and open space … far away from the job centers in the urban core, where housing production is anemic,” Regan said. “Almond orchards don’t file CEQA lawsuits or show up at council to fight new housing, but angry neighbors do.”

That might seem counter-intuitive to some residents, especially in the Bay Area’s three largest cities, where cranes dot the skyline, said Pilar Lorenzana, deputy director for Silicon Valley at Home, an affordable housing advocacy nonprofit. In other cases, such as Marin or San Mateo, which have historically resisted development, the stereotypes are confirmed, she said.

“We are churning out a massive number of jobs,” she said. “So, even though community members are up in arms against development, because they feel like too much development is happening, it’s actually not enough. Or at least, it’s not enough for the number of jobs we are creating.”

The map doesn’t distinguish between affordable or market-rate housing, said David Vautin, a principal planner at MTC, who helped create it. But, other data from the MTC shows the gap between what is being built and what is needed when it comes to affordable housing is even wider, he said.

Still, Lorenzana is hopeful this trend can be reversed, or at the very least, slowed. Housing bills approved by the legislature last year removed some of the control cities have over approving new housing projects if they aren’t meeting their targets. Cupertino, a city historically resistant to development, allowed a 2,400-unit housing development to move toward approval, which is expected to be finalized in September, after years of delays because it was lagging far behind its 2040 housing goals.

“We have more tools now to hold cities accountable and more tools to make housing production happen in a much quicker time-frame,” she said.

And, Vautin said, there has been an acceleration of growth in recent years, even if the pace of housing construction was particularly sluggish following the Great Recession. The MTC, which primarily focuses on transportation planning, is paying close attention to housing data because it has such a big impact on traffic congestion, he said.

“It’s a primary driver of all our transportation problems,” he said.

Plan Bay Area is a roadmap to long-range planning in the Bay Area. It sets goals for reducing greenhouse gas emissions, providing adequate housing, preserving open space and improving health, along with creating a plan for needed transportation infrastructure, to accommodate projected population growth.

 

Steady rise in Bay Area rents fuels debate over November measure

By LOUIS HANSEN | Bay Area News Group, July 3, 2018

Bay Area rents have yet to hit a ceiling, fueling the debate over a November ballot measure to allow price controls on more California properties.

Rents increased in June across the region, led by a 2.5 percent median increase in Oakland from the same time last year, a 1.7 percent increase in San Jose and 1 percent growth in San Francisco, according to a study by Apartment List released this week.

Rents across the state are up 2.1 percent from last year, continuing a trend that makes California home to some of the most expensive communities for renters.

Housing affordability is “absolutely a major issue in the Bay Area,” said Chris Salviati, housing economist for Apartment List. He noted that new construction has not met the growing demand for housing in the region. “Overall, we need to increase the supply of all housing.”

Voters will consider lifting restrictions on rent control by local cities — a  law known as Costa Hawkins. The law generally bans cities from imposing controls on single family homes, condominiums and new construction, depending on when a city enacted rent control. Cities are barred from capping rents on properties built after 1995, and cannot limit rent hikes on empty units.

The ballot proposal would allow cities to apply rent control to new apartment buildings.

Renter rights advocates say the measure would help stabilize the runaway housing market, and prevent families and middle class workers from being forced out of their homes.

“The most critical thing that rent control can do is drastically slow down displacement,” said Stephen Barton, former director of the City of Berkeley’s housing department and adviser on the campaign to repeal Costa Hawkins.

Barton believes cities will be able to balance the needs of property owners and renters with changes to Costa Hawkins.

Property owners are fighting the repeal of Costa Hawkins, saying it will hurt their businesses, discourage new construction and make affordable housing even more scarce.

The California Apartment Association has been lining up allies to defeat the measure. The State Building and Construction Trades Council of California last week announced it opposed the proposition, joining the state NAACP, Chamber of Commerce and several veterans organizations.

Rents have risen steadily since 2011 across the country, although the trend is more pronounced in the Bay Area.

The median rent in June for a two-bedroom apartment was $2,610 in San Jose, $2,200 in Oakland, and $3,070 in San Francisco, according to Apartment List. San Francisco and San Jose were the two priciest major cities in the country for renters, followed by New York and Oakland.

Several Silicon Valley cities remain red-hot. The median price for a two bedroom in Sunnyvale was $2,910, an increase of 4.4 percent. The price for a similar apartment in Santa Clara went up 4.8 percent to $2,760, according to Apartment List.

In the East Bay, the median price in June for a two bedroom in Fremont was $3,750, a 5.7 percent jump from the previous year, while a two bedroom in Richmond went for $2,690, a 3.7 percent increase.

Monthly prices have gone up year-over-year in San Jose for the last 15 months, Salviati said. He added that growing wages have blunted some of the impact of the higher prices.

 

Oakland, Berkeley consider real estate tax ballot measures

By ALI TADAYON | Bay Area News Group, June 29, 2018

People selling Oakland properties for more than $2 million would have to pay more in taxes if voters approve a measure being proposed for the November ballot.

Berkeley also is considering asking voters to increase the taxes levied when people sell property, called a real estate transfer tax.

The tax rate in both cities currently is 1.5 percent.

The proposed Oakland ballot measure would reduce the rate to 1 percent for properties selling for $300,000 or less and increase it to 1.75 percent for properties selling for more than $2 million and 2.5 percent for properties selling for more than $5 million.

A ballot measure proposed in Berkeley would increase the rate to 2.5 percent for properties selling for more than $1 million.

Oakland Councilmember Dan Kalb, who is proposing that city’s measure, said in a statement the tiered approach would keep things fair for Oakland property owners looking to sell.

“There is nothing fair about all property transfers being taxed at the same rate, since it disproportionately places the tax burden on the middle class,” Kalb said.

“Changing the structure of this tax will not only create a system that is both progressive and fair, but also will allow Oakland to increase funding for important city services,” he said.

Money generated from the Oakland transfer taxes goes to the city’s general fund, which is not earmarked for any specific purpose but can be spent however the council feels best. Had this proposal been in effect since the 2012-13 fiscal year, Kalb said, the city would have raised an average of more than $9 million a year.

Berkeley’s proposed transfer tax increase would pay for homeless services, including shelter, rental subsidies, supportive services and staffing for those programs, according to the recommendation from Berkeley City Manager Dee Williams-Ridley to the City Council to put the measure on the ballot.

The tax increase would raise about $6 million to $8 million each year, the city administrator’s office estimated.

The Berkeley measure was supposed to be considered at Tuesday’s council meeting, but was postponed to July 10.

The Oakland measure will be discussed at the council’s July 10 council meeting.

Dozens of millionaires fled California after 2012 tax increase, study says

Kathleen Pender, SF Chronicle, July 6, 2018

California lost a very small but statistically significant percentage of high-income residents after voters approved Proposition 30 — the 2012 ballot measure that raised the top state income tax rate to 13.3 percent, the highest in the nation — according to a new working paper from three researchers.

The state lost an estimated 138 high-income individuals, or about 0.04 percent of the roughly 312,000 people subject to the tax increase, said co-author Charles Varner, associate director of the Stanford Center on Poverty and Inequality.

The research comes at a time when more Californians are at least threatening to leave the state because of high taxes and housing costs. The rumblings have escalated since the federal tax law that passed in December capped the previously unlimited federal itemized deduction for state and local taxes at $10,000.

“It remains to be seen what kind of effect (that change) might have, and we will be looking at that as the numbers come in,” said Varner, adding that he expects any effect on migration to be small.

The new paper updates a study on migrating millionaires that Varner and Stanford sociology Professor Cristobal Young published in 2012. That report looked at the movement of millionaires into and out of California after voters in 2004 approved a 1 percent tax on income over $1 million to fund mental health services.

Contrary to expectations, they found that the net migration of millionaires into California — millionaires moving in minus those moving out — increased slightly after that tax increase.

“In other words, the highest-income Californians were less likely to leave the state after the millionaire tax was passed,” their report said.

The tax increase approved in November 2012, however, was much larger than the mental health surcharge.

“One reason we wanted to update our previous paper is that this tax change in 2012 is the largest state tax change that we have seen in the U.S. for the last three decades,” Varner said.

For singles, Prop. 30 raised the rate by one percentage point on income between $250,000 and $300,000; by two points on income between $300,000 and $500,000; and by three points on income over $500,000. The income thresholds are doubled for married couples and indexed to inflation.

This brought California’s top rate, including the mental health tax, to 13.3 percent. (These increases were supposed to expire in 2019, but in 2016 voters extended them to 2030.)

The new working paper looked at taxpayers who were and were not subject to those rate hikes and found that in the two years before the increase (2011 and 2012), net in-migration for both groups “was positive and roughly constant.”

However, after 2012, net in-migration declined for those facing an effective tax increase of 0.5 percent or higher. The drop was largest for the group facing the highest effective tax increase, wrote the authors, who included Allen Prohofsky of the California Franchise Tax Board.

They noted that domestic migration accounts for a tiny portion of the change in the state’s millionaire ranks. That population fluctuates by more than 10,000 people from year to year, and migration accounts for 50 to 120 people, or about 1 percent. The remaining 99 percent “is due to income dynamics at the top — California residents growing into the millionaire bracket, or falling out of it again.”

The millionaire population is highly correlated to the financial markets. The researchers found that the median person who earned at least $1 million in a given year earned at least $1 million in only seven of the 13 years before and after that year.

That could be one reason people don’t pull up stakes after a tax increase. Another reason: It’s hard to move when you have a high-paying job, a spouse who may work and kids. The report found that married people with children are less sensitive to the tax increase than married people without children.

One thing that tends to make people of all income levels leave the state is divorce.

“In the year of divorce, the migration rate (for all taxpayers) more than doubles, and remains slightly elevated for two years after the event,” the report said.

The “core question” of both studies “is whether raising taxes on the rich reduces their net migration into the state,” the paper said.

Although the first study showed a counterintuitive result (more rich people coming than leaving), after the 2012 tax increase, “we observe a statistically significant effect in the expected direction,” albeit a small one, the authors wrote. “We estimate that California lost 0.04 percent of its top earner population over the two years following the tax change.”

The latter result was “consistent with what we found” in a 2011 study that examined the migration response to a tax increase in New Jersey, which raised its top rate by 2.6 percentage points, Varner said.

This year, Massachusetts voters will decide whether to increase its tax on income over $1 million by 4 percentage points. Its current rate is 5.1 percent.

The Pioneer Institute, a free-market think tank in Massachusetts, published a paper citing eight reasons why it thinks Young and Varner’s previous paper underestimates millionaire migration. Young published a rebuttal to those assertions.

Among other things, Young noted that only 11 percent of millionaires in the study made their money primarily from capital gains and that most “are the working rich.” He found no difference in tax flight among the two groups but is still doing research on capital gains.

“What we found is that net migration of millionaires to California was positive over the whole period we studied,” from 2007 to 2014, Varner said. “This suggests that the state has consistently become a more attractive place for top income earners to live.”

That echoes the results of another recent study conducted by Beacon Economics for San Francisco think tank Next 10. It tried to explain why California lost nearly 1.1 million more people to other states than it gained between 2006 and 2016.

It concluded that “the main driver for net out-migration appears to be high housing costs,” not high state income taxes. That’s because the “vast majority of people who moved out of California were concentrated in lower-skilled, lower-paying fields.” People moving out probably paid little or no state income tax because California’s tax structure is highly progressive, it said.

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Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net

Glen’s East Bay Real Estate Market Update for May 31, 2018

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May 31, 2018 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

Zillow_April_2018

Here are some highlights for the 38 East Bay Cities that I track:

  • As anticipated, we repeated the dramatic drop off in inventory at year end, following our normal pattern for December, typically our low point. As expected, January through May began the normal trend of adding on new inventory. We increased our available housing inventory by 170% in the first 5 months of the year. We’re now slightly more than where we were last year at this time by 5.4%. We’re now sitting on a 33 day supply of homes. This still makes for a very competitive market for many buyers that have been looking since the beginning of the year.
  • Our monthly supply is now 33 days. Last year, our months’ supply at this time was also 33 days. As a reminder of what we mean by “months’ supply;” If no more homes come onto the market, and homes continue to sell at the same pace as they have been over the last 12 months, then the “months supply,” (in this case 33 days), tells us that’s how many days it would take to sell the remaining number of homes we currently have available for sale in any given market.
  • It’s hard to predict how much tax reform will play into this. That impact may not be felt until when taxes are due next year. We are seeing interest rates starting to go up. Prices continue to rise. More and more, affordability, the high cost of living and our traffic woes are coming into play for those, especially in the “middle class,” who may now be considering leaving the Bay Area.
  • Typically, we see a steady increase in inventory on a month by month basis to occur before finally peaking in September.
  • The number of pendings, (homes that are in contract), increased as inventory levels began to rise. The pending active ratio increased to 1.26. This compares to last year at the same time of 1.42. This supply and demand ratio signals whether we’re in a sellers’ or buyers’ market. Typically, a number well above 1, (more inventory with less pending) favors sellers. A number below 1 favors buyers.
  • The percentage of homes “sitting” has slightly increased to 27% of the homes listed now remaining active for 30 days or longer, while only 12% have stayed on the market for 60 days or longer. This is lower than what we saw last year at this time with 34% of the homes listed remained active for 30 days or longer, while 15% stayed on the market for 60 days or longer.
  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

Months_Supply

  • The month’s supply for the combined 39 city area is 33 days. Historically, a 2 to 3 months supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. We are at about the same supply levels compared to last year at this time, of 33 days.

Actives_and_Pendings

  • Our inventory for the East Bay (the 39 cities tracked) is now at 2,348 homes actively for sale. This is slightly higher than last year at this time of 2,226 or (5.4% higher). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales increased to 2,970, similar to what we saw last year at this time of 3,035.

Pending_Active_Ratio

  • Our Pending/Active Ratio is 1.26. Last year at this time it was 1.42.
  • Sales over the last 4 months, on average, are 6.5% over the asking price for this area, greater than what we saw last year at this time, 4.8% indicating a stronger market for sellers.

Glen's Numbers 5.31.18 Pg 2

Glen's Numbers 5.31.18 Pg 1

Recent News

 

Frustration spikes in Bay Area house-hunting

By MARISA KENDALL, Bay Area News Group, June 6, 2018

Frustration with the Bay Area’s housing market has surged in 2018, hitting a four-year high, according to new data that reveals just how widespread the struggle to afford lodging really is.

Fifty-three percent of voters said it’s “much harder” to find a place to live compared to a year ago — up from 36 percent of voters in 2017, according to a poll released Wednesday by business-backed public policy advocacy group the Bay Area Council. The data quantifies the unsettling trend residents have been experiencing for months — the housing shortage has expanded to impact nearly everyone in the Bay Area, from fast-food workers to tech employees.

“It’s a classic supply/demand mismatch, and it’s having societal impacts,” said Matt Regan, senior vice president of public policy for the Bay Area Council. “Far too many people are considering leaving the Bay Area, which is tragic, and those who are staying are having to pay higher prices than ever before.”

The data comes on the heels of a Bay Area Council poll released Sunday that showed nearly half the region’s residents said they are likely to move away in the next few years, largely because of the high cost of housing.

In the poll released Wednesday, 76 percent of voters surveyed said it’s gotten “much” or “somewhat” harder to find housing — up from 64 percent last year. The poll, conducted online by Oakland-based EMC Research from March 20 through April 3, surveyed 1,000 registered voters in the nine-county Bay Area.

As housing woes intensify, more residents say they’re willing to do something to fix the problem. Seventy-three percent of voters said they supported policies that would make it easier to build housing near transit hubs and commercial centers, compared to 68 percent in 2016. Meanwhile, 29 percent of homeowners said they would consider adding an in-law unit to their property, up from 25 percent last year.

Regan hopes politicians will see those numbers, realize there is broad support for additional residential development, and craft policies to help make that construction happen. There’s no way to end the region’s dire housing shortage, and the sky-high prices that go with it, without building more housing, he said.

“There’s definitely a willingness … of the Bay Area’s residents to see more homes built,” Regan said. “Unfortunately when it gets to the political arena, it’s generally those 25 percent of opponents who tend to show up at meetings and make their voice heard.”

On the other hand, the share of residents willing to welcome that new development into their own neighborhoods dropped — from 62 percent in 2017 to 59 percent this year.

 

The San Francisco Bay Area’s housing crisis is so out of control, a median-priced home costs $820,000 — here are 5 ways to help fix the problem

By Leanna Garfield, Business Insider, June 6, 2018

The San Francisco Bay Area has become the epicenter of California’s affordability crisis.

Largely drawn by high-paying tech jobs, people have flocked in recent years to the Bay Area at rates that the housing market cannot keep up with. In April, the median price of a home in the Bay Area shattered records at $820,000.

A new report from the Bay Area Council Economic Institute (BACEI) explores a few ways to tackle the region’s affordable housing crisis.

The researchers focus specifically on reducing housing prices in Alameda County, where residents need to make at least $181,130 to afford a median-priced home (at around $875,000), according to the California Association of Realtors. The median rent in the East Bay county, which includes Oakland and Berkeley, is around $3,020— lower than the San Francisco metro median of $3,300, but still expensive compared to other major metro areas.

The report proposes 20 policy solutions. The most promising ones include:

  • Extend the BART subway line to Livermore, a city that’s cheaper than some other parts of the Bay Area.In late May, the Pleasanton Weekly reported that BART voted against expanding subway service to Livermore, but the regional rail authority could still pursue the proposed project.
  • Build a new affordable housing development near Fremont’s second BART station.In 2014, the City of Fremont called for the development of a mixed-use neighborhood in an area surrounding the station that’s largely vacant parcels and industrial buildings. Fremont is a hub for high-tech manufacturing, and building more housing in the area could allow residents to live closer to work. The city’s plan includes up to 4,000 apartment units, and multiple developers have already had their master plans for developments approved.
  • Pass more legislation that encourages housing developments near public transportation.There’s current legislation in the works that could encourage this kind of development in the future.
  • Enforce building targets that require California counties to create enough housing to meet resident needs.In 2017, two bills passed that will make it harder for developers to reduce the density on their housing projects unless the surrounding county has met its targets.
  • Complete Oakland’s four existing housing megaprojects.These include the Brooklyn Basin Development of 3,100 housing units, and a market-rate townhome project at the former Oak Knoll Naval Hospital Site.

These recommendations focus on investing in transit-oriented developments, which the researchers believe would reduce housing prices in the Bay Area. The BACEI reasons that if there were more affordable housing developments near subway and bus stops, it would grow the region’s economy.

The influx of housing would not only create density, but also give residents more income to spend on rent since they wouldn’t need to drive a car every day.

Commuting by car can be expensive. According to a 2017 study from AAA, owning and operating a new vehicle costs drivers an average of $8,469 annually, or $706 each month — which is almost like paying a second rent.

In the same vein, the report encourages local legislators and developers to prioritize high-density housing developments, rather than sprawling neighborhoods with high-cost homes.

Some policies — like strict rent-control measures and occupancy taxes on Airbnb rentals— could make the Bay Area’s housing shortage worse, according to the report. The BACEI argues that enacting strict rent-control policies can deter developers from building more rental properties. (This idea is highly debated among economists and housing experts.) The researchers added that banning or adding taxes on short-term rentals in Oakland would also deprive some homeowners of an income source.

Several other American cities are planning transit-oriented, affordable housing developments.

Over the next two decades, Sound Transit — the transit agency serving the greater Seattle area — will buy land as it builds out its light rail expansion. On the agency’s surplus property, it may build affordable housing developments, Next City reportsThe Los Angeles Metro is also providing $9 million to developers at a low-interest rate to construct affordable housing within a half mile of transit lines.

The Council recommends that the Bay Area moves quickly on at least a few of their proposed solutions.

“Solving the housing affordability crisis is not an Oakland issue, and it is not a Berkeley issue. It is an every city, every neighborhood issue,” the report says.

What does a ‘decent standard of living’ cost in California? 1 in 3 households can’t afford it

By ANNIE SCIACCA, Bay Area News Group, June 5, 2018 

One in three households in California — about 3.3 million families — are struggling to reach a decent standard of living, even though most of those households include full-time workers, according to a report from nonprofit coalition United Ways of California.

In its statewide report released this week, Struggling to Stay Afloat: The Real Cost Measure in California 2018, United Ways used an approach it calls the “real cost measure” to determine the local costs of living that go beyond food and housing.

The real cost measure changes across different cities, areas and even neighborhoods in the state, depending on childcare, healthcare and transportation, in addition to the high cost of food and housing — all of which it takes into effect to determine what the United Ways team calls a “decent standard of living.”

Perhaps unsurprisingly, the cost of housing weighs heavy on Californians, the report found. About 38 percent of households spend more than 30 percent of their income on housing, and families below the federal poverty level spend as much as 79 percent of their income on their homes.

Despite the high cost of living in the Bay Area, the area actually sees a lower percentage of households struggling to meet their Real Cost Measures, according to the report. About 35 percent of households in the Greater Los Angeles and Inland Empire areas fall below the Real Cost Measure, and 37 percent of the Central Valley do.

The Bay Area’s low unemployment and high wages could contribute to the lower percentages of struggling families, but there is a worrying trend: the percentage of households falling below the measure in Alameda and Contra Costa counties have increased since 2015, which is the last time United Ways conducted this study. In Contra Costa County, the percentage jumped from 24 percent in 2015 to 27 percent in this study, while in Alameda County, the percentage increased from 25 percent in 2015 to 28 percent.

Certain communities of people are more impacted by the high cost of living than others, the report suggests.

A high proportion — 72 percent — of single mothers in California fall below the Real Cost Measure. And 45 percent of households led by a person born outside the U.S. live below the Real Cost Measure — 63 percent of households where that leader is not a U.S. citizen.

While being unemployed or underemployed could certainly contribute to affordability issues, researchers found that 90 percent of the households living below the Real Cost Measure for their area included at least one working adult. In Alameda and Santa Clara counties, that number jumped to 98 percent, and in Contra Costa and San Mateo counties, it was 97 percent.

“They are earning less than it takes to meet decent standard of living, and most of those people are working full time,” Pete Manzo, CEO and President of United Ways of California, said in a call with reporters about the report. “The challenge isn’t so much, ‘get a job’ or ‘get employed.’ The challenge is how to earn more — how can we increase income for those families.”

Nearly half of Bay Area residents say they want to leave

By MARISA KENDALL, Bay Area News Group, June 3, 2018 

Despite the Bay Area’s natural beauty and booming job market, nearly half of its residents now want to get out, citing a creeping disillusionment with the high cost of housing.

Forty-six percent of Bay Area residents surveyed said they are likely to move out of the region in the next few years — up from 40 percent last year and 34 percent in 2016, according to a poll released Sunday by business-backed public policy advocacy group the Bay Area Council.

The numbers show a disturbing trend in one of the nation’s most expensive housing markets: Workers desperate for a better quality of life and without housing options will go elsewhere, potentially plunging the region into a financial downturn.

Fleeing_the_Bay_Area

“They couldn’t be more clear what the big problems are — and it is exclusively about the cost of housing,” said John Grubb, chief operating officer for the Bay Area Council. “They don’t see…enough action coming, and so they’re looking at taking matters into their own hands. And unfortunately, what they’re going to take into their hands is the steering wheel of a U-Haul to go somewhere else where there’s a better combination of salary and lower housing costs.”

Bay Area home prices have been climbing for six years, setting another record in April, when the median sale price hit $850,000 — up 13 percent from a year ago, according to real estate data firm CoreLogic. Rents are soaring too, and workers are forced to move farther away to find affordable housing and commute on already crowded Bay Area roads and freeways to get to their jobs.

Meanwhile, recent efforts by policy makers, affordable housing organizations, developers and others apparently have yet to make a dent in residents’ concerns.

The Bay Area Council has thrown its support behind several housing-focused bills that it says will help, including SB 831, which eliminates some fees for building in-law units; SB 1227, intended to increase the supply of affordable student housing; and SB 828, which would force cities to rezone land to allow more homes to be built.

Researchers have been worrying about the Bay Area exodus for some time. A recent report from Joint Venture Silicon Valley found more people left Silicon Valley in both 2016 and 2017 than in any year since 2006. Still, Silicon Valley is gaining more residents than it’s losing — the region welcomed 44,732 newcomers between July 2015 and July 2017, and lost 44,102. But the ominous new data from the Bay Area Council suggests that could change quickly, as the out-migration shows no sign of slowing down.

When asked to pinpoint the most important problem facing the Bay Area, 42 percent of those surveyed said housing — a dramatic jump from 28 percent last year. Meanwhile, 18 percent said traffic and congestion, 14 percent cited poverty and homelessness, and 12 percent said the cost of living.

Those problems spell serious disillusionment for Bay Area residents. Fifty-five percent of residents polled said they feel the Bay Area has “gotten pretty seriously off on the wrong track,” compared to 42 percent last year.

Of those who are likely to move out in the near future, 24 percent of the 1,000 registered voters surveyed in the nine-county Bay Area said they plan to stay in California, including 5 percent who said they would head to Sacramento. Texas, Oregon and Nevada were the most popular out-of-state destinations, capturing 10 percent, 9 percent and 8 percent of potential movers, respectively.

With such a large gap in prices, it’s no wonder Bay Area residents — particularly young people, who are less likely to have bought a home before prices spiked — want to leave. Fifty-two percent of millennials said they will be attempting to leave the region in the next few years, up from 46 percent in 2017. That’s particularly troubling because it means the young people who should be driving the region’s workforce for decades to come instead are seeking opportunities elsewhere, said Grubb.

“Losing our youth is a very bad economic strategy,” Grubb said, adding that if housing prices continue to soar, the Bay Area could be in for a recession.

Just 16 percent of residents think there will be no downturn, with 35 percent expecting one in the next three years.

Already, the local businesses that back the Bay Area Council are struggling to recruit young people, Grubb said. The region has become a tough sell, and those who do want to work here demand high salaries to compensate for the exorbitant cost of living. As a result, companies increasingly are opening offices outside the Bay Area.

Of course if the economy tanks, housing prices will go down. But that, Grubb said, conjures up images of mass layoffs and families struggling to make ends meet — a sacrifice no one should want to make.

Is the Bay Area rental market cooling off?

By MARISA KENDALL, Bay Area News Group, May 31, 2018 

For Bay Area renters struggling to afford apartments that keep getting more expensive, the latest numbers could seem too good to be true — the region’s runaway rent prices finally may be starting to level off.

San Jose is looking at the slowest start to the summer rental season in years. Rents in San Francisco are flat-lining. And Oakland saw a minuscule increase in rent prices last month.

That’s according to a new study by apartment search website RentCafe, which found the Bay Area is part of a nation-wide trend — while rents continue to increase, they’re doing it at a significantly slower pace. Experts say the slowdown suggests that in the near future, renters may finally find relief from the sky-high prices that are forcing people to flee to the Central Valley and beyond in search of cheaper housing.

John Protopappas, president and CEO of Oakland-based real estate development company Madison Park Financial Corporation, predicts this is the start of a major slowdown in the Bay Area’s rental market. It’s all about supply and demand, he said. In Oakland alone 7,000 housing units are under construction, and as those finished units flood the market, Protopappas expects the city’s rents to drop 20 or 30 percent in the next two or three years.

“It’s going to become a renter’s market instead of a landlord’s market,” he said.

But the broader Bay Area continues to add more jobs than houses, and until that changes, prices won’t drop enough to have a significant impact on residents, said Mathew Reed, policy manager of SV@Home, an organization dedicated to supporting the creation of affordable housing in Silicon Valley.

“I think it’s nice to see us returning to a sane level of increase,” he said, “but we’re so out of whack and so many people are paying such a high proportion of their income already, I don’t see anything in the market right now that says housing is becoming more affordable.”

Nevertheless, the recent numbers are good news, Reed said. A 2 percent annual increase in rent prices is healthy, as it mirrors the rate of inflation, he said.

Meanwhile, flat-lining rents could impact real estate developers with plans for new buildings.  As construction costs continue to rise — some say a whopping 50 percent in the past five years, due largely to a shortage of workers driving up wages for skilled labor — new buildings won’t be erected if rents don’t keep pace with rising costs.

“It will slow down development until we get back to an equilibrium,” Protopappas said. “But it will take years … in the meantime it’s going to be a renter’s market for a long time.”

Bay Area home prices soar to new record

By Kathleen Pender, San Francisco Chronicle, April 24, 2018 

The median Bay Area home price surged to an all-time high of $820,000 in March, up 9.3 percent from February and up 14.7 percent from March of last year, research firm CoreLogic reported Tuesday.

Rising mortgage rates and shrinking tax breaks for mortgages were expected to put a damper on home prices, but so far that has not proved to be true in the Bay Area.

People “are trying to desperately buy something before it becomes completely unaffordable,” said Scott Anderson, chief economist with Bank of the West. “Six months, a year from now, you will see more of the downside from rising rates.”

That increase “is significant, and it stands out statewide and nationally, but there is a mix issue,” he said. The median price is the halfway point between the highest and lowest prices homes sold for in a particular month. In recent months, “there has been a shift toward more mid- to high-price homes selling and less in the lower end,” LePage said. That tends to raise the median price.

The_Surge_Continues

The California Association of Realtors reported this week that the median time a home in the Bay Area sat on the market before an offer was accepted was just 12 days in March, down from 13 in February and 14 a year ago. At the current pace of sales, it would take just 1.9 months to sell every Bay Area home on the market, down from 2.6 months in February and 2.2 last March.

Home prices haven’t been hurt by rising mortgage rates because at 4.5 percent, they are still low by historical standards, said Aaron Terrazas, chief economist with Zillow, a real estate website. He expects mortgage rates will peak at 5.5 to 6 percent in a year or two.

“We think mortgage rates can go up to 5 percent or a little above before we see any headwind on the housing market,” Terrazas said. When that happens, “I don’t think it will cause a decline in prices; it will cause a slowdown (nationwide). The risks are bigger in the Bay Area because home prices are so high.”

On a $650,000 mortgage, going to 5 percent from 4 percent would add $386 to the monthly payment.

Anderson predicts that the new tax law eventually will depress home prices — by about 4 percent nationwide over two years — by raising the after-tax cost of homeownership. “In higher cost areas, the impact would be greater,” he said.

People have been leaving California for other states, but its population has continued to grow thanks to immigration from other countries and the natural increase from births minus deaths. But “we expect more out-migration from the Bay Area and the state as a result of high housing costs,” Anderson said. “I think by the end of this year,” the state’s population will decline for this first time in this economic expansion.

2018 Mid-Year California Housing Market Forecast by Leslie Appleton-Young, C.A.R.

Some key slides from her forecast released in June:

Bay_Area_Peak_v_Current_Price

Not_Building_Enough

Sellers_Not_moving

Revised_Ca_Market_Outlook

 

Glen’s East Bay Real Estate Market Update for April 30, 2018

East_Bay_Banner

 

April 30, 2018 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

Zillow_March_2018

Here are some highlights for the 38 East Bay Cities that I track:

  • As anticipated, we repeated the dramatic drop off in inventory at year end, following our normal pattern for December, typically our low point. As expected, January through April began the normal trend of adding on new inventory. We increased our available housing inventory by 132% in the first 4 months of the year. However, as early of a start as this has been and with such a large increase in supply, we’re still lagging slightly behind where we were last year at this time by 9.4%. We’re now sitting on a 30 day supply of homes. This makes for a very competitive market for many buyers that have been looking since the beginning of the year.
  • Our monthly supply is now 30 days. Last year, our months’ supply at this time was 30 days. As a reminder of what we mean by “months’ supply;” If no more homes come onto the market, and homes continue to sell at the same pace as they have been over the last 12 months, then the “months supply,” (in this case 30 days), tells us that’s how many days it would take to sell the remaining number of homes we currently have available for sale in any given market.
  • It’s hard to predict how much tax reform will play into this. That impact may not be felt until taxes are due. We are seeing interest rates starting to go up. Prices continue to rise, but at a slower pace. More and more, affordability, the high cost of living and our traffic woes are coming into play for those, especially in the “middle class,” who may now be considering leaving the Bay Area.
  • Typically, we see a steady increase on a month by month basis to occur before finally peaking in September.
  • The number of pendings, (homes that are in contract), increased as inventory levels began to rise. The pending active ratio increased to 1.39. This compares to last year at the same time of 1.28. This supply and demand ratio signals whether we’re in a sellers’ or buyers’ market. Typically, a number well above 1, (more inventory with less pending) favors sellers. A number below 1 favors buyers.
  • The percentage of homes “sitting” has slightly decreased to 26% of the homes listed now remaining active for 30 days or longer, while only 13% have stayed on the market for 60 days or longer. This is similar to what what we saw last year at this time with 29% of the homes listed remained active for 30 days or longer, while 14% stayed on the market for 60 days or longer.
  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

Months_Supply

  • The month’s supply for the combined 39 city area is 30 days. Historically, a 2 to 3 months supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. We are at about the same supply levels compared to last year at this time, of 30 days.

Actives_&_Pendings

  • Our inventory for the East Bay (the 39 cities tracked) is now at 2,013 homes actively for sale. This is below last year at this time of 2,222 or (9.4% lower). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales increased to 2,790, similar to what we saw last year at this time of 2,847.

Pending_Active_Ratio

  • Our Pending/Active Ratio is 1.639. Last year at this time it was 1.28.
  • Sales over the last 4 months, on average, are 6.2% over the asking price for this area, greater than what we saw last year at this time, 3.4% indicating a much stronger market for sellers.

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Recent News

 

5 Reasons California’s Housing Costs Are So High

By Matt Levin, Calmatters, May 4, 2018

Why are California housing costs so high? At its most basic level, it’s a story of supply and demand — lots of people want to live here, and there aren’t enough homes to go around.

But there are lots of uniquely California factors — from the shape of our coastline to Proposition 13 — that have attached a painfully expensive price tag to the California dream.

The median price of a home is now well over half a million dollars. That number is about $240,000 nationally. More than 20 percent of Californians pay more than half their income for housing.

Here are five reasons the state’s housing market got so out of whack.

1. We Haven’t Built Enough Housing

Experts who study California’s housing crisis argue about lots of things. Is rent control good or bad? Will that new shiny high-rise going up in your neighborhood help or hurt housing costs? How much should we blame “not in my backyard” NIMBYs for our problems?

But there is one principle the vast majority of housing experts agree on: Over the past few decades, California hasn’t built enough housing to keep up with the number of people who live here.

The state housing department estimates that we need to build 180,000 new housing units a year to keep prices stable. Over the past 10 years, we’ve averaged less than half of that.

Doesn't_Build_Like_it_Used_To

Even when new construction was booming in the early and mid-2000s, new homes and apartment buildings weren’t being built in coastal cities where the vast majority of Californians work. While places like the Inland Empire and Central Valley saw a building craze, places like San Francisco and Los Angeles basically flatlined.

We’re also not keeping up with other states.

Places like New York and Massachusetts have built a lot more housing per capita than we have in recent years. That hasn’t made those places cheap, but it has helped to alleviate some cost pressures.

California_Trails

2. Demand to Live and Work and Own in Urban California Has Reached a Breaking Point, and Part of That Demand Is Global

Over the last decade, Californians have increasingly tried to cram themselves into major urban centers that are already jammed with residents.

The Bay Area is the poster child here.

Between 2000 and 2007, Bay Area cities accounted for only 4 percent of the state’s total population growth. Between 2010 and 2017, nearly 20 percent of all new Californians were either being born in or moving to the Bay.

Calif_bands_together

While the tech industry certainly bears much of the responsibility for that trend, the increased demand to live in California’s urban cores extends beyond Silicon Valley. The urban parts of L.A. and San Diego have all seen a major increase in people wanting to live and work there, which means increased competition for rental housing.

And we’re not just talking about apartment rentals. Here’s a pretty amazing graph.

Rise_of_Rentals

The number of single-family homes occupied by renters grew by more than 400,000 over the last 10 years, while the number of owner-occupied units dropped during the Great Recession and has yet to recover.

So who owns these houses? The vast majority are “mom and pop” investors and wealthy individuals buying one or two additional properties. Foreign buyers, primarily from China, have also become increasingly enamored with California real estate. Last year, nearly one in four California single-family homes were sold in all-cash transactions, an indication of investor appetite for California real estate.

Overall, investors are a relatively small part of the housing market, especially when viewed from a statewide lens. But in certain local markets, investors compete directly with California families for homes.

3. Proposition 13 Dilutes a City’s Incentive to Build New Housing

Why hasn’t California built enough housing to keep up with its population?

Most housing researchers agree that part of the reason is Proposition 13, the landmark 1978 ballot initiative that capped how much local governments could collect from property taxes. While intended to protect California homeowners from unmanageable property tax bills, Proposition 13 has produced a host of unintended consequences.

Imagine you’re a city, sitting on a huge plot of vacant land. You could zone that land for housing or for commercial use, like a hotel or a Target. Your city obviously needs more housing — prices are sky high.

Easy decision, right? Nope.

Proposition 13 has made development decisions much more complicated. Because property taxes are capped, local governments have become increasingly reliant on other revenue sources. That vacant land is much more valuable to the city’s coffers if a big box retailer gets built on it, as opposed to a multifamily apartment building.

Housing nerds call this the “fiscalization of land use.”

There’s debate about just how much Proposition 13 is to blame for the state’s housing shortage. But talk to local elected officials, and you’ll see the issue isn’t just a hypothetical dilemma.

4. In Most Parts of California, the Process to Get New Housing Approved Is Difficult, Time-Consuming and Expensive

It can be hard to be sympathetic to developers.

From time immemorial, it feels like they’ve complained about rules and regulations they say make it harder to build their projects. The builder who designed Stonehenge probably thought there was too much bureaucracy involved.

While it may be tough to trust developers, that doesn’t necessarily mean that they’re wrong. The process by which a piece of land is approved for new construction can be incredibly cumbersome, time-consuming and risky. While good data on exactly how much this adds to housing costs is hard to come by, typical approval time for projects in San Francisco is over a year, while in L.A. it’s eight months. That doesn’t include when land needs to be “rezoned” for residential development, which can take even longer.

Why the lag? Here’s the laundry list.

  • Multiple Layers of Government Review: A housing project often must go through multiple government agencies, including the planning department, health department, fire department, building department and perhaps most importantly, a city council.
  • Lots of Avenues for “Not In My Backyard” Voices: The review process for new developments gives ample opportunity for local residents to express their opposition. Locals may fear that new housing projects will change the character of their neighborhoods, increase traffic and hurt their property values. If a city councilmember votes for new housing, he or she may have to face dissatisfied voters.
  • An Often Misused Environmental Law: The California Environmental Quality Act, or CEQA, requires that local agencies consider the environmental impact of a new housing development before approving it. That sounds like a worthy goal, but the law has often been abused to prevent new developments — even environmentally friendly ones with high-density housing and bike lanes. According to the nonpartisan Legislative Analyst’s Office, CEQA appeals delay a project by an average of two and a half years.
  • Local Growth Controls: Two-thirds of California coastal cities and counties have adopted policies that explicitly limit the number of new homes that can be built within their borders or policies that limit the density of new developments. Subtler growth controls include not zoning enough land for new development or requiring supermajorities to approve new housing.

5. Land, Labor and Raw Material Costs Are Higher in California Than the Rest of the Country. And Those Costs Are Rising

Unfortunately, California’s coastline topography makes it more expensive to build here than most other places. Also, there’s the ocean. You can’t expand into the ocean.

Limited land plus tons of demand means high land prices. In many markets in California, the bulk of a single-family home or apartment building’s value is in the land it is built on.

But while the land itself is what typically eats up most of a developer’s budget in California’s hottest markets, it’s not the only cost-driver. Construction labor and the cost of the raw materials have been rising over the last five years, and are higher in California than other parts of the country. According to the Legislative Analyst’s Office, construction labor is about 20 percent more expensive in major California cities than in the rest of the country.

On the labor side, a shortage of skilled construction workers bears much of the blame. When the housing market crashed in the late 2000s, construction workers left the industry in droves. And those same workers haven’t come back.

Constructions_Jobs

Construction today just doesn’t seem to have the same appeal to younger workers. Firms are struggling to recruit younger workers to supplement and eventually replace a graying workforce.

Building codes and environmentally friendly design requirements in many California cities require different types of raw building materials to be used, some of which can be pricier than elsewhere in the country. And nationwide, the cost of vital resources like lumber and concrete are on the upswing.

There are plenty of reasons beyond the five we’ve mentioned here that help explain why California housings costs have gotten so out of control. The task of making California affordable again — or at least relatively affordable again — defies a simple silver-bullet solution.

If people are fleeing the Bay Area for cheaper housing, why is it still so costly?

By Kathleen Pender, San Francisco Chronicle, May 4, 2018

So which is it: Are people fleeing California and the Bay Area for cheaper housing, or swarming here for high-paying jobs?

The answer is: both. A flurry of recent population reports have painted a confusing picture.

If you look just at domestic migration — people moving around the country — the Bay Area lost about 46,000 people more than it gained during the year that ended July 1, according to U.S. Census Bureau estimates released March 22. That net loss was nearly twice as big as the previous year and marked a turnaround from earlier years, when more people were coming to the Bay Area than leaving.

The national media pounced on this data — throw in some one-way U-Haul prices and dubious survey results — and declared that the Bay Area is losing its appeal, and fast. “They made it sound like the highways are jammed with people trying to get out of the Bay Area right now,” said Patrick Carlisle, chief market analyst with Paragon Real Estate Group. He summarized the coverage in a report, “Will the Last One Leaving Please Turn Out the Lights?”

So if people are leaving the Bay Area in droves, why are home prices still soaring and why aren’t there more houses for sale?

One thing these stories mostly failed to mention is that net immigration — people coming from and leaving for other countries — is still positive in the Bay Area. About 58,000 more people came here from abroad than left last year, surpassing the nearly 46,000 who decamped for other states. (The census estimates included the nine-county Bay Area and three neighboring counties.)

Another reason is that people moving here tend to have higher incomes than people moving out, and so are better able to absorb the ridiculous cost of housing.

Linda Crowe moved from the Bay Area to Boston for a job three years ago, but moved back in December because she missed her friends and community. “I worked my entire career in technology, and a lot of my professional network was here,” she said. And the weather “is so much nicer here.”

She landed a job with IBM, and bought a home in San Francisco’s Cole Valley. It helped that she sold her home in San Carlos a year and a half ago, after renting it out the first year and a half she was gone.

Crowe said housing is somewhat cheaper in Boston, but “I make more money here. Salaries are significantly higher in the Bay Area, particularly in the technology sector. They have to be.”

Coming_and_Going

California has had net domestic out-migration for a much longer period. Since at least 1991, it has lost more people to other states than it has attracted almost every year, according to the California Department of Finance.

Net immigration over that period has been consistently positive — in the hundreds of thousands per year — but it wasn’t always big enough to outweigh domestic out-migration. In 2005 through 2010, the state lost more people to other states and countries combined than it gained each year. But its total population has still grown each year since at least 1991, thanks to “natural” increase — births minus deaths.

It’s impossible to say definitively why people move out of the area, since there’s no exit poll. A report released last week tried to explain why California, by its calculation, lost nearly 1.1 million more people to other states than it gained from 2006 to 2016.

The report, prepared by Beacon Economics for San Francisco think tank Next 10, looked at housing, migration and employment trends.

It concluded that “the main driver for net out-migration appears to be high housing costs,” not high state income taxes. That’s because the “vast majority of people who moved out of California were concentrated in lower-skilled, lower-paying fields, namely sales, transportation and food preparation.” People moving out probably paid little or no state income tax because California’s tax structure is highly progressive.

People moving into the state are higher-income and better educated. They’re much more likely to pay state income tax and better able to afford a home in California, which had the nation’s highest median price in 2016.

“California has seen a net inflow of residents who earn more than $50,000 annually, have bachelor’s or advanced degrees, and work in high-skilled occupations. This is especially true for the Bay Area, where high salaries and abundant job opportunities outweigh the high cost of living,” the report said.

Most places want their working-age population to expand, because economic growth is the sum of growth in the labor force plus productivity growth, said economist Mike Englund of Action Economics.

California benefits from an inflow of younger people (thanks largely to immigration) because they have a future in the labor force. But if a region’s infrastructure does not match the population, problems ensue.

In the Bay Area, housing creation has lagged far behind population growth, which is why home prices and rents are skyrocketing and people are commuting longer distances to work.

But it can also go the other way. “If you build an infrastructure for 1 million and the population drops by half, you still have all the infrastructure to maintain but fewer people to pay for it,” Englund said.

Detroit, he said, “was a classic example of a city designed for one population and ending up with another.” During the recession you could pick up homes in Detroit for $1.

It’s enjoying something of a resurgence now. LinkedIn, based in Mountain View, said last week that it has leased a historic 74,500-square-foot building in Detroit and will expand its workforce there from about 40 to 120 over the next two years.

Although California and the Bay Area still have growing populations, the recent spike in domestic out-migration is raising concerns. The federal tax law passed in December could encourage people to move from California and other higher-tax states to lower-tax states, because the new law severely limits the federal deduction for state and local income and property tax.

In addition, “changes to (federal) immigration policy would likely reduce the growth we get from international migration,” said Jed Kolko, chief economist with job site Indeed. A big drop in immigration, however, “might be offset by less domestic out-migration” because fewer people would be competing for housing, and home prices and rents might drop.

The top five states for outbound Californians in 2016 were Texas, Arizona, Nevada, Oregon and Washington, according to Next 10. These states created an average of 231 new housing units for every 1,000 new residents from 2011 to 2016. California added just 209.

“California is permitting roughly the same number of housing units as Florida, despite having approximately 18 million more residents,” the report said. It added that “the housing shortage would be even worse” if there were no domestic out-migration.

After retiring from a career in technology, Jim DeStefano, 71, sold his San Jose home in December and moved to Fort Myers, Fla. He said he wanted a “better quality of life” and a “less liberal environment.”

Property taxes are higher in Florida, he said, but housing costs about one-third what it does in the Bay Area.

Moving was stressful, and expensive, but worth it, he said. “I haven’t seen one iota of graffiti, no litter on the streets. I haven’t seen a homeless person.”

 

Why the Bay Area is the epicenter of California’s housing crisis

By KATY MURPHY, Bay Area News Group, May 4, 2018 

The same story is playing out, over and over: People are flocking to the Bay Area for high-skilled, highly paid jobs, while cashiers, teachers and construction workers are, increasingly, saying goodbye to a place they no longer can afford.

A new study released Thursday points to why the California housing crisis is so acute, particularly in the Bay Area — where a home destroyed by fire sold for more than $900,000 and it would take four minimum wage jobs to afford an apartment: More people are moving in from other states than moving out. No other region in California has experienced such explosive growth of high-paying jobs. Statewide, between 2011 and 2016, California added just 171 homes for every 1,000 people.

Coming_and_Going_Bay_Area

“The boom is so ferocious that it exaggerates the driving up of the rents and the cost of living,” said Richard Walker, a geography professor emeritus at UC Berkeley and author of a new book, “Pictures of a Gone City: Tech and the Dark Side of Prosperity in the San Francisco Bay Area.”

The study, commissioned by the San Francisco public policy group Next 10, documented a growing economic divide. While pay for California’s low-wage earners grew by just 17 percent over the past decade, wages rose by 29 percent for middle-income workers and nearly 43 percent for high-wage earners.

The key question for California is, “How do you manage the effects of success?” said Michael Storper, an economic geographer at UCLA’s Luskin School of Public Affairs. “At the moment we are a winner economy. California is amazing in how much it attracts high-wage, high-skill industries. Who wouldn’t want to be like that?”

At the same time, he said, how do you preserve housing for the majority of residents who don’t command high salaries? Or find a way to pay them more?

Carmelita Reyes, principal of Oakland’s International High School, said that when she started teaching in the city in 2001, many of the young teachers rented apartments by Lake Merritt.

“No one was getting rich being a teacher, but you could afford to live in Oakland,” she said. The narrative back then, she said, was “teachers are never going to buy a house. And now it’s `teachers can’t afford an apartment.’ ”

One of her teachers commutes from Napa County, where she found a cheap place to rent. A fellow Oakland principal has decided to open her home to travelers, renting out a bedroom on Airbnb.

Fed up with housing costs, some Californians are leaving the state altogether. The study found that between 2006 and 2016, more than 1 million more people left California for other states than moved in from the rest of the U.S.

“These high home prices and high rents are forcing more low and middle-income Californians to leave the state for more affordable housing in states like Texas and Washington and Arizona,” said Noel Perry, Next 10’s Founder.

Researchers found similar patterns for international migration: Higher-skilled migrants from other countries are replacing lower-skilled migrants in California.

And though the Bay Area has grown in recent years, that pattern may be shifting. The new study, along with a recent report from the Joint Venture Silicon Valley think tank, found that nearly as many people are leaving Silicon Valley as are coming in. The think tank found the biggest drops were for residents between the ages of 18 and 24, and between 45 and 64.

The Bay Area always has been a high-wage economy, Walker notes, but the latest boom has attracted such an enormous level of investment in tech and other lucrative sectors that “the whole thing has gotten out of hand.”

“You can’t keep that economy going — you can’t feed people, you can’t get them the things they want, you can’t deal with the tourists, you can’t drive buses — without lower and middle-income workers to do those kinds of jobs,” he said.

The Next 10 report did not include recommendations. Perry, its founder, said the study was intended to help state and local policymakers try to solve some of these challenges.

“In order to support long-term, sustainable economic growth in California, our state needs to support a diverse economy — that means jobs and housing for people at all income levels,” he said.

The insatiable demand for housing that has uprooted so many Californians is forcing an 80-year-old Pleasanton resident to leave the house he has rented for 46 years, his daughter said. Tricia Davis said her father and stepmother got a letter in April saying that they could stay in the home — if they agreed to a $1,000 rent hike. They considered moving to Montana, where Davis lives, and then to Fresno, near another relative, before discovering an apartment for people over 62, in town, that they could afford.

“For them to have to try to just move, it’s been pretty traumatic,” Davis said.

Davis, an agent for Delta Air Lines, said she long ago gave up on living in the East Bay city where she grew up. “Pleasanton, as great of a town as it is, even with a college degree I couldn’t afford to live there.”

As Bay Area rents soar, many can’t keep up

By KATY MURPHY, Bay Area News Group, May 1, 2018 

A new report highlights the grim reality of renters struggling to keep a roof over their heads in the midst of a tech-fueled economic boom: Many are losing the battle with the housing crisis.

Sobering, county-level figures compiled by the nonprofit California Housing Partnership and released Tuesday show startling increases in homelessness and a widening chasm between wages and housing costs throughout the Bay Area and elsewhere in the state.

 

As lawmakers wrangle with one other and the governor over the best use for California’s $6 billion budget surplus, the group behind the report — a nonprofit the state created 30 years ago to advocate for affordable housing — recommends that $2 billion be used to build apartments for low-income Californians.

“This is a housing emergency,” said Matt Schwartz, the partnership’s president and CEO. “The state should declare this a housing emergency, and some of the budget surplus needs to be made immediately available to get the homeless off the streets and into affordable housing.”

The report found that workers in core Bay Area counties would need to earn four or more times the minimum wage to afford a Bay Area apartment — and that the lowest-income renters in Alameda, Santa Clara and Contra Costa counties spend well over half their income on rent, leaving little for other needs.

“We’re seeing rents and housing prices go up to a level where people who never thought they would have to worry about housing stability are having to worry,” said Gloria Bruce, executive director of East Bay Housing Organizations, a coalition of affordable housing advocates. “I think sometimes people think of homelessness and housing affordability as two separate issues, but they are really one and the same.”

Counties are doing more than ever to coordinate services for people who have lost their homes, Bruce said, but they are struggling to keep up with the need. When it comes to finding permanent housing, she said, “there is literally no place for them to go that they can afford. We see a market that is just not serving people at the bottom.”

The California Housing Partnership is recommending the state spend $2 billion of its surplus on affordable housing funding to cities and counties, similar to two pending legislative proposals. Senate Bill 912 from Sens. Jim Beall, D-San Jose, and Nancy Skinner, D-Oakland, would direct $2 billion in affordable housing funding to cities and counties. Assembly Bill 3171, a bipartisan bill from Assemblyman Phil Ting, D-San Francisco — who heads the Assembly budget committee — and backed by Republican Assemblyman Brian Maienschein of San Diego, calls for a one-time infusion of $1.5 billion in matching funds for cities.

 

The Legislature has until June 15 to approve the state budget. Gov. Jerry Brown, who has the authority to veto individual expenditures in the budget plan, has proposed saving most of the surplus to guard against the next economic downturn. He comes back with an updated proposal later this month.

The housing partnership also calls for changing the law to allow local affordable housing measures to pass with just 55 percent support, rather than 67 percent; bringing back redevelopment agencies for low-income housing; and an aggressive campaign for a $4 billion affordable housing and veterans’ housing bond that will appear on the November statewide ballot.

 

“Until the voters pass it, it’s not real,” Schwartz said of the bond measure. “And we can’t afford for that bond to not become a reality, because it will be a crushing blow for us to get veterans and homeless people off the streets of California.”

 

Are Bay Area residential towers too costly to build?

San Jose study session reveals troubling new trend in housing development

By GEORGE AVALOS, Bay Area News Group, April 27, 2018

Soaring construction costs could hobble efforts in San Jose and other Bay Area cities to speed development of high-density housing such as apartment towers, according to a foreboding assessment being circulated in the South Bay.

Even worse, while ordinary individuals already face dire financial obstacles when they buy or lease housing, residential rents likely would have to spiral even higher to render the vast majority of Bay Area apartment towers economically viable for developers, experts warned the San Jose City Council at a study session last week.

“This is a housing crisis and a housing catastrophe, but if I’m going to kick off a new project, rents have to go higher,” Drew Hudacek, chief investment officer for development firm Sares Regis, told the San Jose council’s study session last week.

Luxury apartment rents in San Jose now range from $3.25 to $3.75 a square foot, Hudacek estimated during his presentation to the council. However, he added, to justify new luxury apartment development based on current construction costs, rents would have to rise to $4.25 to $4.75 a square foot. That means renters would be forced to endure an eye-popping 25 percent increase in rents before most new residential towers could be built.

“We have more than 6,000 units that are fully entitled and ready to be built,” San Jose Mayor Sam Liccardo told this news organization following the study session. “But developers can’t get shovels in the ground because the development costs are scaring away the financing.”

The mayor indicated that he might seek City Council approval to slash the fees that San Jose charges developers for their projects.

“I don’t know that City Hall can do that much to change market forces, but at the very least,” Liccardo said, “we need to take a hard look at reducing our fees and reducing our red tape.”

Sharply rising costs for construction and labor have added a fresh complication in the market, developers and experts told the City Council study session.

“Construction costs have increased dramatically, especially in the last 18 months,” Don Peterson, senior managing director Northern California for Mill Creek Residential Trust, said during a presentation to the council.

Developers and industry experts say commercial construction costs are rising primarily due to more expensive materials such as lumber and rising labor costs.

According to Hudacek, construction costs are rising about 1 percent to 1.5 percent each month — which is far above the general rate of inflation, as measured by the consumer price index. Construction expenditures represent 60 percent to 75 percent of the total cost of developing a high-density residential project, Hudacek estimated.

These difficulties and obstacles in financing and project profitability have occurred at a time when the Bay Area economy overall — and Silicon Valley in particular — is booming. It’s unclear if, or when, the economy in the Bay Area might cool off.

“We never know when the perfect time is” to develop a project, Elizabeth Seifel, a principal executive with Seifel Consulting, told the study session.

San Jose officials should still support housing development as a priority, even in the face of uncertainty, Erik Schoennauer, a San Jose-based land-use and planning consultant, said Friday.

“The council should be bullish about housing,” he said. “Yes, the city has a jobs-first general plan. But you cannot achieve job growth without new housing. Employers want to be where there is an adequate supply of housing. And if you want expanded retail services, you need more customers going into that area.”

The Hottest Markets for U.S. Real Estate: Is California’s Reign Over?

By Cicely Wedgeworth, Realtor.com, Apr 26, 2018

How the mighty have fallen! For the first time in years, California markets aren’t fully dominating our monthly list of the hottest markets on realtor.com®.  In fact, the Golden State has even ceded its long-held No. 1 spot!

Each month at realtor.com®, we rank the top metro areas where homes sell the fastest, and where eager house hunters are clicking up a storm on our listings. And each month, California reliably hogs the greatest share of the top 20 spots of any state. But while 11 of the top 20 markets in March could be found in the Golden State, in April, that tally had fallen to only six.

That’s the lowest number since we started doing this ranking, in 2013.

Nine other states were represented on the top 20 list: Texas (2), Massachusetts (2), New York (2), Michigan (2), Colorado, Washington, Ohio, Idaho, and Wisconsin.

Longtime top dog San Francisco fell to No. 3 in April, ceding the throne to … Midland, TX, which had previously been at No. 5. Second place went to Boston, which just hosted its famous marathon.

(The definition of big-city markets often include neighboring towns. For example, the San Francisco market includes nearby Oakland and Hayward, and the Boston market includes Cambridge, Newton, and a tiny slice of New Hampshire.)

The top movers for the month are Racine, WI (up 28 spots from March); Rochester, NY (up 14); and Detroit (up 13). Columbus, OH, moved up five spots to reach No. 4, the highest it’s ever reached in our ranking.

Realtor.com’s hottest markets receive 1.6 to 2.7 times the number of views per listing compared to the national average. These markets are seeing homes move off the market 17 to 40 days more quickly than the rest of the United States.

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Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net

Glen’s SF East Bay Area Real Estate Market Update, March 31, 2018

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March 31, 2018 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

Zillow_2.18

 

Here are some highlights for the 38 East Bay Cities that I track:

  • As anticipated, we repeated the dramatic drop off in inventory at year end, following our normal pattern for December, typically our low point. As expected, January through March began the normal trend of adding on new inventory. We increased our available housing inventory by 87% in three months. However, as early of a start as this has been and with such a large increase in supply, we’re still lagging behind where we were last year by 13.2%. We’re now sitting on an 24 day supply of homes. This makes for a very competitive market for many buyers that have started to come back into the market.
  • Our monthly supply is now 24 days. Last year, our months’ supply at this time was 27 days. As a reminder of what we mean by “months’ supply;” If no more homes come onto the market, and homes continue to sell at the same pace as they have been over the last 12 months, then the “months supply,” (in this case 24 days), tells us that’s how many days it would take to sell the remaining number of homes we currently have available for sale in any given market.
  • It’s hard to predict how much tax reform will play into this. That impact may not be felt until taxes are due. We are seeing interest rates starting to go up. Prices continue to rise, but at a slower pace. More and more, affordability, the high cost of living and our traffic woes are coming into play for those, especially in the “middle class,” who may now be considering leaving the Bay Area.
  • Typically, we see a steady increase on a month by month basis to occur before finally peaking in September.
  • The number of pendings, (homes that are in contract), increased as inventory levels began to rise. The pending active ratio increased to 1.62. This compares to last year at the same time of 1.42. This supply and demand ratio signals whether we’re in a sellers’ or buyers’ market. Typically, a number well above 1, (more inventory with less pending) favors sellers. A number below 1 favors buyers.
  • The percentage of homes “sitting” has slightly increased to 31% of the homes listed now remaining active for 30 days or longer, while only 14% have stayed on the market for 60 days or longer. This is similar to what what we saw last year at this time with 31% of the homes listed remained active for 30 days or longer, while 16% stayed on the market for 60 days or longer.
  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market with only.

Months_Supply

 

  • The month’s supply for the combined 38 city area is 24 days. Historically, a 2 to 3 months supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. However, we are below supply levels compared to last year at this time, of 27 days.

Active_&_Pendings

 

  • Our inventory for the East Bay (the 39 cities tracked) is now at 1,623 homes actively for sale. This is below last year at this time of 1,870 or (13.2% lower). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales increased to 2,634, similar to what we saw last year at this time of 2,648.

Pending_Active_Ratio

 

  • Our Pending/Active Ratio is 1.62. Last year at this time it was 1.42.
  • Sales over the last 4 months, on average, are 5.3% over the asking price for this area, greater than what we saw last year at this time, 2.5% indicating a much stronger market for sellers.

 

Glen's Numbers Pg 1

Glen's Numbers Pg 2

 

Recent News

 

Bill pushing apartments and condos near public transit loses crucial vote

By Melody Gutierrez, San Francisco Chronicle, April 17, 2018

A San Francisco state senator’s bill to limit cities’ ability to block large apartment and condominium construction in residential neighborhoods near public transit lost a key legislative vote Tuesday, killing it for this year.

State Sen. Scott Wiener’s SB827 became one of the most hotly debated housing bills in the country, even before its first committee hearing. That hearing was Tuesday, and the Senate Transportation and Housing Committee— of which Wiener is a member — voted 5-4 to prevent the bill from moving forward.

“There will be a path in the future,” Wiener said when the vote appeared to be going against him. He promised to make changes in the measure and bring it back before the Legislature in 2019.

Wiener spent weeks lobbying to get the bill through its first committee, but conceded last week that it probably needed another year of work to build a coalition to support it.

The bill would have prevented cities from applying density and height limits to block apartments and condo buildings of up to five stories if they were within a half-mile of major transit hubs, such as a BART or Caltrain station. It would also have removed density restrictions on such buildings within a quarter-mile of highly used bus and light-rail stops.

Wiener’s measure achieved a kind of ideological symbolism as California struggles with soaring rents and home prices, caused in part by a shortage of available housing. Supporters, who included Democrats and Republicans, said it would counteract NIMBYs who refuse to entertain any development near where they live. Opponents, who also included partisans on both the left and right, called it a massive overreach by Sacramento that could destroy local neighborhoods.

Who caused the Bay Area’s housing shortage?

Hint: It’s not just tech

By Marisa Kendall, East Bay Times, April 8, 2018

EVERYONE HAS A THEORY about who’s to blame for the housing shortage that’s driving up prices and chasing Bay Area families out of the region.

A new poll offers surprising insights into where most of us point the finger: not at the government officials who control what homes are built where, but at the tech companies that have flooded this region with jobs and the real estate developers trying to maximize profits.

Experts say finding someone to blame is not that simple. The real answer, they say, lies entangled in a complicated web that implicates everyone involved, from businesses to local elected officials to your next door neighbor. And the stakes are high for policy makers trying to untangle that web as the housing crisis intensifies. To solve the problem, it’s crucial to understand the factors that turned the Bay Area’s real estate market into one of the country’s most dysfunctional.

“There isn’t one single sector to blame for the housing crisis,” said Pilar Lorenzana, deputy director of pro-affordable housing organization SV@Home, “and consequently there isn’t one single sector that’s responsible for fixing it.”

In a five-county poll conducted for the Silicon Valley Leadership Group and this news organization, 48 percent of those surveyed pointed to tech companies as a major contributor to the region’s housing shortage. Only developers ranked higher, with 57 percent of residents saying they were a major factor.

Who is to Blame

“Before ‘Silicon Valley’ got here, it was more affordable,” said 46-year-old microbiologist Megan Moore, who has lived in La Honda her whole life. “It’s great that there are so many jobs available… but the lack of housing kind of unbalances it all.”

But some experts say city and state officials have far more control over the region’s supply of homes.

“People are not focused on the source of the problem when it comes to our housing shortage — if they’re blaming tech companies and developers, then they’re not showing up at our city council meetings,” said Ethan Elkind, director of UC Berkeley law school’s climate program and an expert in land use and infrastructure policy. “That’s where their attention should be focused.”

Just 38 percent of survey respondents said local governments opposing new construction played a major role in the problem, while 28 percent pointed to the state government adding burdensome taxes and regulations to residential projects, and 19 percent blamed environmental groups attempting to block development.

It’s city officials who permit and approve, or reject and delay, new housing projects — and new housing is what the Bay Area needs to pull itself out of this crisis, most observers agree. Santa Clara and San Mateo counties together added about 47,000 jobs in 2017, while permitting just 12,000 new residential units, according to the Silicon Valley Index, an annual report released by Joint Venture Silicon Valley’s Institute for Regional Studies.

But while tech leaders might disagree, it’s hard to argue that their industry — which accounted for 29 percent of new jobs from the second quarter of 2016 to the second quarter of 2017, according to the Silicon Valley Index — hasn’t also played a major role in the housing crisis.

Part of the problem, said 58-year-old Mark Himelstein, is that the tech industry for years grew unchecked in Silicon Valley.

“We didn’t have balance,” said Himelstein, a management consultant who owns a home in unincorporated San Mateo County and responded to the housing poll. “There was no relationship between the tech companies’ hiring practices and hiring goals and funding lower-income housing opportunities.”

Himelstein would like to see companies work more closely with local cities and counties to fix the problem. For starters, he said, large companies should release data on their hiring plans — including how many people they are hiring, and their pay ranges — and then work with officials to plan housing for the new employees.

Even the techies themselves are quick to blame their employers for the housing shortage: Of the tech workers polled, 47 percent said technology companies are a major reason for the shortage, compared to 49 percent of nontech workers.

More tech companies are stepping up as they realize the problem is impacting their bottom line, Lorenzana said. With the prohibitive cost of housing making it harder to recruit and retain workers, companies including Google, Facebook, LinkedIn and Cisco are contributing money and clout to building more housing. Another 100 tech leaders recently signed a letter supporting SB 827, which would lead to more housing development near transit hubs.

There’s plenty more that tech companies can do, Lorenzana said, from donating money, to spearheading residential construction projects, to simply speaking out in favor of housing development.

“I think what you’re seeing right now is tech and the private sector are finally understanding that this is an issue that is affecting their consumer base, and it’s affecting their employees,” Lorenzana said. “And whether it’s their job or not, there is a role for them to play.”

But tech companies can’t conjure up more housing without city officials, who experts say can be reluctant to approve large-scale residential development projects, or can otherwise limit construction with rules that govern where projects can be built, how tall they can be and how much parking they must provide.

Brisbane city officials, for example, for years have resisted plans by Universal Paragon Corp. to build nearly 4,500 housing units on the Baylands former industrial site, only recently agreeing to consider allowing a fraction of that. In Cupertino, which approved Apple’s massive new campus for 12,000 employees without any additional homes, housing advocates recently criticized Mayor Darcy Paul for saying the region’s housing shortage was “not dire.” Fed up with Cupertino’s approval process, Sand Hill Property Company recently used a new law, Senate Bill 35, to go over city officials’ heads and propose a redevelopment plan for Vallco Mall that includes six times the number of housing units the city originally intended.

“They’ve been green-lighting office projects like crazy,” Elkind said of Bay Area cities, “but they don’t care about where those workers are supposed to live.”

Some cities are making an effort to build more housing. Mountain View recently approved a Google-backed plan to build 10,000 new homes in North Bayshore, and San Jose Mayor Sam Liccardo has proposed a plan to build 25,000 homes over the next five years.

Cupertino Vice Mayor Rod Sinks says city officials shouldn’t shoulder all the blame for the Bay Area’s housing shortage.

“I recognize that the cities have a major responsibility for this, and we haven’t generated enough housing,” he said. “On the other hand … it takes two to tango.”

Once the city approves housing, it’s up to a developer to build it, Sinks said. And it can be challenging to find developers willing or able to step up. Housing projects are getting more expensive to build as construction costs rise, Sinks said, and it’s more lucrative for developers to build office space or market-rate housing instead of affordable housing.

It’s also important to remember that cities’ housing policies are largely a reflection of their constituents, including long-term residents with a “not in my backyard,” or NIMBY, attitude toward development, said Gary Painter, an economics professor at the University of Southern California who studies housing markets.

“Current residents are probably the source of a lot (of) blame,” Painter said. “They don’t want newcomers to come in and change their quality of life, because they’ve already been here and established that.”

In the poll, just 25 percent of respondents said NIMBY groups play a major role in the Bay Area’s housing shortage.

State regulations have a hand in the problem too, experts say, by creating incentives for cities to favor commercial development over residential.

Many developers also blame the California Environmental Quality Act, a statute that imposes strict requirements on real estate projects to limit their environmental impact. Developers say residents also use CEQA to file lawsuits purely to delay projects and jack up construction costs. In the poll, 19 percent of people said environmental groups play a major role in the Bay Area’s housing issues.

“CEQA has become an evil, five-headed, fire-breathing dragon with respect to housing production,” said Mark Rhoades, president and CEO of Bay Area real estate developer Rhoades Planning Group.

Environmentalists disagree. Lawsuits are filed in fewer than one out of every 100 projects covered by CEQA, with an average of 195 suits filed per year since 2002, according to a study commissioned by the Rose Foundation for Communities and the Environment.

As for the other major scapegoat — tech companies — Matt Regan, senior vice president of public policy for the business-backed Bay Area Council, points out that blaming them doesn’t solve the problem.

“Tech companies are not developers,” he said. “They build and design algorithms and technology and code and phones and computers.”

Homebuyers face ‘most competitive market in recorded history’

Low inventory, demographic shifts, and rising prices will cause frustration this spring and summer

By Patrick Sisson, Curbed, Apr 16, 2018

Rising real estate costs, demographics shifts, and low inventory have hamstrung homebuyers for years. But according to Danielle Hale, chief economist for Realtor.com, this spring buying season may bring buyer frustration to a boil.

“I think it’s fair to say this is the most competitive housing market we’ve seen in recorded history,” says Hale. “There’s record low inventory and strong interest from buyers in getting into the housing market. There are a lot of buyers, and not a lot of sellers.”

According to Hale and other economists and real estate industry observers, many factors have created this “imperfect storm” of high demand and low supply. Underbuilding had been a key factor, due to cost, labor shortages, and zoning and regulatory barriers to new construction.

“We’ve been paying the bill for underbuilding for some time, and every year, it gets worse,” she says. “We’re not only not keeping up, we’re falling further behind.”

This shortage—inventory has decreased for 42 consecutive months and is down 8.5 percent from last year, according to Realtor.com data—comes as demographic trends conspire to create even more competition.

Millennials are reaching prime homebuying age—in 2020, the greatest proportion of that generation will be turn 30—just as baby boomers are looking to downsize. This has created especially fierce competition for smaller homes, the type of starter homes that most first-time buyers desire.

This dynamic can be especially frustrating for young adults because they may be bidding for the same smaller home as someone from an older generation who can lean on the accumulated wealth of decades of homeownership.

Things are better further up the housing market. Hale says the high end of the housing market, above $450,000, has seen a 1 to 2 percent increase in inventory over the past year.

Realtors are seeing listings move off the market as “quickly as they’ve ever seen them,” Hale says. In March, homes stayed on the market an average of 63 days, a 7 percent drop year-over-year from 2017. Inventory is predicted to move even faster in the summer, as it usually does, and Hale expects many markets to set records.

She also expects aggressive tactics from buyers. A Realtor.com survey of potential buyers found that 40 percent plan to put more than 20 percent down, and 26 percent are willing to pay above asking price. A survey in early March by Toluna Research found that 40 percent of current buyers have been searching for more than seven months.

“Buyers right now are staying informed and signaling they’re serious, that’s how they’re staying competitive,” she says.

Recent mortgage data reinforces the difficulty in achieving affordable homeownership.

More borrowers with conventional home loans are spending a greater percentage of their income servicing these loans, according to data from CoreLogic. This December, more than 20 percent of borrowers were spending more than 45 percent of their income on mortgage payments each month, a percentage not seen since the buildup to the Great Recession.

Analysis from Arch Mortgage Insurance Company found that the size of a monthly mortgage payment needed to afford a home rose 5 percent in just the last three months, and may rise an additional 10 to 15 percent by year’s end. Mortgage rates hit 4.42 percent last week, according to Freddie Mac. That’s low compared to traditional rates, but an increase from the recent run or rock-bottom rates.

California Could Have Avoided a Housing Crisis—if It Had Built 3.4 Million More Homes

By Sissi Cao, Observer, 04/16/18

California’s housing shortage, primarily in the tech-centric San Francisco Bay Area, is believed to have contributed to the area’s skyrocketing home prices and an exodus of its top talent.

A new study by an urban planning industry coalition quantified the shortage for the first time: The Golden State has built 3.4 million too few homes between 2000 and 2015 to keep up with the area’s economic growth.

That’s nearly equal to the total housing shortage in the rest of the country combined, according to the study conducted by Up for Growth National Coalition, a cross-industry advocate group aiming to address urban planning issues. The study was first reported by The Wall Street Journal.

Over the 15-year period, the country should have built 7.3 million homes, or 5 percent of the current total housing inventory, to keep up with the growth in population and jobs over the time period, the study found. A majority of the shortage is concentrated in coastal areas and sunbelt states.

In particular, the alarming shortage in California is a result of the state’s complex environmental and land-use regulations, which date back to the 1970s, and a lack of political incentives to rewrite outdated rules to boost new home construction.

“There is no coordinated regional policy to push housing production to match job growth,” said Kim-Mai Cutler, a partner at Initialized Capital, a San Francisco-based venture capital fund, and a columnist for TechCrunch.

“There are a number of reasons behind California’s significant housing challenges, but the primary drivers are the uncertain approval processes and zoning restrictions that favor single-family homes over more dense, transit-oriented communities,” Mike Kingsella, executive director of Up for Growth National Coalition, told Observer. “Such requirements make it nearly impossible to build the type of walkable and vibrant communities required—and frankly, desired—in rapidly growing job centers in California.”

San Francisco, for example, has zoning laws that limit residential buildings to no taller than 40 feet, or four stories. (In some “sunset zones,” buildings are subject to stricter rules that require their height not to cast a shadow on any city parks or public squares for more than an hour after sunrise or an hour before sunset.)

“It’s in the interest of individual municipal governments, which are all facing long-term structural liabilities like unfunded pension obligations and retirement health benefits, to continue to approve office spaces over housing, because it’s a net tax revenue generator,” Cutler told Observer.

“As an elected leader, you get to bump your tax collection upward [by favoring office spaces over residential housing] but don’t have to convince your constituents to pay for schools or services for additional residents,” she explained. “The existing voting constituents, many of whom are homeowners in the suburban jurisdictions, also like to see their property values—often the most significant part of their net worth—protected or enhanced.”

On top of that, California’s tax law encourage homeowners to hold on to their properties rather than putting them on the market, which exacerbate the housing shortage.

Unlike most states in the U.S., homeowners in California pay property taxes based on what they originally paid for their homes rather than a home’s current market value. As a result, due to the dramatic increase in property values in recent years, selling off a current home and moving to a new one means a significant rise in property tax for homeowners.

“A tax assessment can also be passed down to children, so one could pass a home valued at $2 million to $3 million in present value but only pays 1981-era tax rates to their kids,” Cutler said. “So basically, very few people sell their homes in California and the state only builds a fraction of what it needs to match existing population growth,”

 

Work in tech? Want to own a home? Here’s an idea

A playful billboard off Highway 101 has a message that hits close to home

By MARISA KENDALL, Bay Area News Group, March 30, 2018

For commuters sitting in traffic on Highway 101, heading home to tiny apartments that eat up most of their paychecks, a new bright-green billboard offers yet another reason to pack up and leave the Bay Area.

“Own a home. Work in tech. Move to Pittsburgh,” the ad teases.

The billboard was erected last week by Pittsburgh, Pennsylvania-based startup Duolingo — the maker of a popular online language-learning platform and mobile app — to lure tech talent away from Silicon Valley and into the Steel City. It’s a unique campaign that capitalizes both on the Bay Area’s notorious housing shortage, and the ongoing exodus of local residents searching for cheaper homes and a better quality of life.

And it appears to be working.

“There’s just significantly less traffic here,” Duolingo CEO Luis von Ahn said. “Being able to buy a home and actually walk to work, which is unheard of in Silicon Valley, is actually pretty common here.”

Half of Duolingo’s 110 employees walk or bike to work, von Ahn said, and about the same number own a home.

The median home value in Pittsburgh is $132,400 — compared to $1.3 million in San Francisco, $1.1 million in San Jose and $755,600 in Oakland, according to Zillow.

Those out-of-sight prices, unaffordable even for many Bay Area workers with high-paying jobs, seem to be playing a role in encouraging residents to leave in numbers higher than the region has seen in 10 years. Last year, for the second year in a row, the droves of people leaving the valley nearly equaled those moving in — 44,102 people left between July 2015 and July 2017, and 44,732 moved in, according to the 2018 Silicon Valley Index report published by Joint Venture Silicon Valley.

That’s because no one can afford to live here anymore — not even Google employees or doctors at Stanford, said Joint Venture president and CEO Russell Hancock.

“It used to be the California dream,” he said, “and now it’s turning into this Silicon Valley nightmare.”

Development without gentrification? Oakland’s Fruitvale is the model, report says

By ERIN BALDASSARI , Bay Area News Group, March 29, 2018

The cluster of shops, community service organizations and apartments at the Fruitvale BART station may not seem all that different from other commercial plazas, but to some economists and urban planners, it’s the grand prize of development — at least, for now.

Researchers from UCLA’s Latino Policy and Politics Initiative say the transit village has been a boon to the surrounding neighborhood without resulting in gentrification. As many low-income and working class residents across the state are forced to leave urban areas due to rising rents and home prices, the UCLA researchers said Oakland’s Fruitvale neighborhood has held onto its existing residents, along with its signature Mexican-American culture.

“It’s the holy grail of urban planning,” said Alexander Quinn, an economist with Hatch, who reviewed the study’s findings, “to say we improved the place and the people who live there are better off.”

But long-time residents, academics and elected officials question whether Oakland’s Mexican-American mecca can continue to withstand the pressure of the region’s booming economy.  And, to them, the tide may already be turning.

It’s often considered one of the country’s first “transit-oriented developments” — a catch phrase that’s become the gold standard for building in dense urban areas and is the subject of a new state bill to encourage these types of projects  across the state.

Today, the village is home to a charter high school, senior center, public library, pediatric clinic, union office and Clinica de la Raza, along with a number of restaurants and retailers. There’s also a weekly farmers market, vendors pushing carts who set up in and around the village daily and the annual Dia de los Muertos festival, which draws 70,000 visitors. By all accounts, the village is a success, luring urban planners and economists from across the globe to study and replicate it elsewhere, said Chris Iglesias, Unity Council’s CEO.

But, the researchers wanted to know if it was also a success for residents in the surrounding community.

To do that, they identified 12 other census tracts in the Bay Area and 12 elsewhere in California that had a similar demographic composition, household income and average rent in 2000, before the transit village was constructed. Then, using census data, they looked at how those neighborhoods changed in the subsequent 15 years.

Fruitvale saw higher growth in household incomes compared to similar neighborhoods in both the Bay Area and California, along with more residents graduating high school and going on to earn a bachelor’s degree. Across the state and the Bay Area, the proportion of residents buying their homes fell, while in Fruitvale, the number of home buyers actually increased.

At the same time, Fruitvale lost only 1 percent of its Latino population, 4 percent of its black residents, less than one percent of its white residents and gained 6 percent of new Asian residents. Similar Bay Area and California neighborhoods actually saw an increased concentration of its Latino populations, which grew 5 percent and 6 percent, respectively, while they lost less than one percent and 4 percent of their white residents.

“We were interested in whether or not residents of certain ethnic groups were able to stay,” said UCLA researcher Sonja Diaz. “It’s surprising … the community stayed Latino, even with all these benefits.”

But, the data also revealed higher rising rents in Fruitvale than in the Bay Area or across the state. Rents in Fruitvale rose a whopping 83 percent, compared to 71 percent in similar Bay Area neighborhoods and 66 percent in similar California neighborhoods outside the area. Carolina Reid, a faculty research adviser at UC Berkeley’s Terner Center for Housing Innovation, cautioned that the data, which goes up to 2015, misses some of the recent years of growth, when the pressures on rents and home values only increased.

“Fruitvale is not immune to the larger forces impacting the Bay Area, and some of the results they are finding in this study might be partly a timing problem,” she said.

Nor is it clear the existing residents are the ones benefiting from higher incomes and better educational attainment, and not new, wealthier residents with a similar demographic profile, who are displacing their low-income counterparts, said Robert Cervero, professor emeritus of city and regional planning at UC Berkeley.

And, to many long-time Fruitvale residents, it does feel like their community is changing. Noel Gallo, an Oakland city councilmember whose district includes Fruitvale, sees affluent white and Asian families buying homes on his block.

A lot of us in the Fruitvale area … have left Oakland altogether” for cheaper rents in the Central Valley, he said. “Within the last 10 to 15 years, it’s changed a lot, and it’s quite evident and visible.”

That’s why affordable housing and tenant protections are all the more critical, Reid said. The Unity Council recently broke ground on a 94-unit affordable housing tower at the Fruitvale transit village with plans to construct another 181 market rate units and retail businesses in the near future, Iglesias said.

“Even though we’re making strides, we’re still playing catch-up” from decades of disinvestment in the neighborhood, he said. “Investments are starting to come in and stuff is starting to happen, but we’re still making up for lost time, and it’ll take time to see the fruits of some of this work.”

Bay Area’s air quality near nation’s worst, climate change to blame: Report

By Sophie Haigney, San FranciscoChronicle, April 17, 2018

California has some of the worst air quality in the nation, both in terms of ozone and particle pollution, and perhaps the biggest factor appears to be climate change, according to a new report.

The Bay Area ranked sixth worst in the nation from 2014 to 2016 in terms of short-term particle pollution in a new “State of the Air 2018” report, which the American Lung Association released Tuesday. The region ranked 13th worst in the country for ozone pollution, which scientists say is due to climate change and warming temperatures across the globe, and several Bay Area counties experienced more unhealthy ozone days than previous years.

“We are improving air quality, but the impacts of climate change are interfering with progress,” said Bonnie Holmes-Gen, senior director of air quality and climate change at the American Lung Association in California.

Poor air quality has been associated with numerous health risks, including asthma, lung cancer, and heart disease.

 

Though ozone pollution has generally been falling since 2000, it worsened in cities across the nation compared with the previous report.

“California retains its historic distinction with 11 of the 25 most polluted cites in that state,” the report said.

The metropolitan areas of San Jose-San Francisco, San Diego, Sacramento, Redding-Red Bluff, Chico and Los Angeles all saw more unhealthy air days on average in this report than last year’s report. In addition to the nine counties traditionally considered to make up the Bay Area, the report also included San Joaquin, Santa Cruz and San Benito counties.

The report specifically attributed increasing ozone pollution to climate change, noting that in 2016 scientists measured “the second warmest temperatures on record in the United States.”

“Ozone doesn’t come out of tailpipes or smokestacks. The more heat, the more likely ozone is to form,” said Janice Nolen, assistant vice president of national policy for the American Lung Association.

Particle pollution, meanwhile, improved in most places nationally, including San Francisco. This reflects a long-term trend: California has seen an 80 percent drop in unhealthy particle pollution days since 2004.

“Particle pollution dropped, especially for year-round averages,” Nolen said. “There were lower averages during 2014 to 2016, fewer days when it spiked, and that has to do with cleaning up major sources of pollution, replacing old dirty diesel engines, and transitioning to zero-emission vehicles.”

This drop didn’t affect every location equally, though.

San Joaquin and Santa Cruz counties both got F grades for short-term particle pollution, while San Francisco, San Mateo, Sonoma and San Benito counties all received A grades.

“The coastal parts of the San Francisco Bay Area benefit from coastal breezes, but all the pollution created by freight traffic, daily gridlock and ports is reflected inland in Alameda, Contra Costa County, near Sacramento and in San Joaquin Valley,” said Holmes-Gen.

Natural disasters such as wildfires were noted as contributing factors to poor air quality, but the report released Tuesday did not include data from 2017, when wildfires in the North Bay resulted in “extremely high levels of particulate matter, levels that were comparable to those you might experience in Beijing,” said Jack Broadbent, chief executive officer of the Bay Area Air Quality Management District.

“The fires and the resulting pollution point to an ongoing theme in our national and California state of the year report,” Holmes-Gen said. “Climate change represents a significant challenge to air quality, and the public needs to understand climate impacts are happening now.”

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net

Glen’s SF East Bay Area Real Estate Market Update, December 31, 2017

East_Bay_Banner

December 31, 2017 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

Zillow_11.30.17

Here are some highlights for the 38 East Bay Cities that I track: 

  • As anticipated, we repeated the dramatic drop off in inventory at year end, following our normal pattern for December, typically our low point. However, our current inventory is even lower than last year’s. I’ve been tracking SF East Bay real estate markets since 2006. This market is the tightest I’ve ever seen it. I’ve haven’t seen our market dip below a two week supply. We’re now sitting on a 12 day supply of homes. Furthermore, considering that 63% of the active homes are sitting for 30 days or longer, fresh new inventory is hard to come by. This makes for a very competitive market for many buyers that are starting to come back into the market.
  • Our monthly supply is now 12 days. Last year, our months’ supply at this time was 15 days. As a reminder of what we mean by “months’ supply;” If no more homes come onto the market, and homes continue to sell at the same pace as they have been over the last 12 months, then the “months supply,” (in this case 12 days), tells us that’s how many days it would take to sell the remaining number of homes we currently have available for sale in any given market.
  • It’s hard to predict how much tax reform will play into this. We are seeing interest rates starting to go up. Prices continue to rise, but at a slower pace. More and more, affordability, the high cost of living and our traffic woes are coming into play for those, especially in the “middle class,” who may now be considering leaving the Bay Area.
  • Typically, we see a steady increase on a month by month basis to occur before finally peaking in September.
  • The number of pendings, (homes that are in contract), decreased as well, also reaching a low level that I have not seen before. The pending active ratio increased to 2.11. This compares to last year at the same time of 1.73. This supply and demand ratio signals whether we’re in a sellers’ or buyers’ market. Typically, a number well above 1, (more inventory with less pending) favors sellers. A number below 1 favors buyers.
  • The percentage of homes “sitting” has increased to 63% of the homes listed now remaining active for 30 days or longer, while 37% stayed on the market for 60 days or longer. This is roughly what we saw last year at this time.
  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market with only.

Months_Supply

  • The month’s supply for the combined 38 city area is 12 days. This is the lowest level that I’ve seen since I started following SF East Bay real estate markets, (going back to 2005). Historically, a 2 to 3 months supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. However, we are below supply levels compared to last year at this time, of 15 days.

Actives_&_Pendings

  • Our inventory for the East Bay (the 38 cities tracked) is now at 868 homes actively for sale. This is below last year at this time of 1,241 or (30% lower). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 1,830, lower than where we were last year at this time of 2,147 or (14.8% lower).

Pending_active_ratio

  • Our Pending/Active Ratio is 2.11. Last year at this time it was 1.73.

Sales

  • Sales have decreased from the last (4 month period) now at 8,295 for the 38 cities tracked. This is slightly lower than what we saw last year at this time (8,319).

 

  • Sales over the last 4 months, on average, are 3.8% over the asking price for this area, greater than what we saw last year at this time, 2.3%.

Glen's Numbers Pg 1

Glen's Numbers Pg 2

 

Recent News

 

The 3 Best Reasons to Buy a Home in 2018 (but You’d Better Hurry)

By Holly Amaya, Realtor.com, Jan 4, 2018

Figuring out when to plunge into the real estate market can be quite intimidating—especially when prices are high, choices are limited, and history urges restraint.

“We’ve seen two or three years of what could be considered unsustainable levels of price appreciation, as well as an inventory shortage that resulted in a record-low number of homes for sale across the country,” says Javier Vivas, director of economic research for realtor.com®. “When you factor those together, you have a market that has to either explode or see some relief.”

Comforting, right? Well, take heart: Experts agree that relief is indeed on the horizon.

New predictions for 2018 forecast more moderate gains in home prices and rising inventory levels, while low unemployment and record levels of consumer confidence mean more buyers are feeling good about their finances.

A lot depends on where you live (and how much you plan to finance), but these factors combined could mean 2018 will be your year to take the buying plunge.

1. Rates are going up

After years of record-low interest rates (hello, 3%!), the Fed is finally making some noticeable increases: The rate for a 30-year fixed mortgage broke the 4% mark last year. And with economic growth continuing to carry momentum, Vivas predicts we’ll see at least two to four more rate increases throughout 2018. Rates are anticipated to hit 5% by the end of the year.

“The big story there is that those increases will further constrict affordability,” Vivas says. “The more buyers wait, the more expensive it will get to buy—not just because of home prices, but because of inflationary pressure.”

In other words, if you want in on the American dream, now might be the time.

2. Prices are climbing, but not crazily fast

Home prices have soared over the past few years, pricing otherwise well-positioned buyers out of high-cost areas and leading some experts to cry “bubble”. But in 2018, price increases are expected to moderate.

Vivas forecasts a home price increase of 3.2% year over year, after finishing 2017 with a 5.5% year-over-year increase. Existing-home sale prices are predicted to increase 2.5% year over year.

Of course, it all depends on where you live. While red-hot markets such as San Francisco are predicted to finally lose some steam, sales numbers and home prices are poised to climb in Southern states such as Texas and Florida, where economic momentum continues chugging along and new construction is happening in the right price points.

So what does that mean? Basically, home prices will still increase, but not at the same pace as they have over the past few years.

3. Inventory levels will begin to increase

An inventory shortage has plagued the U.S. housing market since 2015, forcing some buyers to settle (a tiny house with linoleum floors for $1 million, anyone?) and keeping others out of the buying game entirely. But by fall 2018, the tides will begin to turn, with markets such as Boston; Detroit; and Nashville, TN, recovering first.

The majority of inventory growth will happen in the middle- to upper-tier price point, in the ranges of $350,000 and $750,000 and above $750,000, Vivas predicts.

New home construction is also expected to expand. But that will happen slowly, thanks to a constricted labor market, limitations on the amount of lots and land that’s available, tight bank financing for building loans, and a run-up in building material prices, says National Association of Home Builders chief economist Robert Dietz.

“It’s been a slow climb back from the recession, and now we’re confronting all of these limiting factors and supply-side constraints,” Dietz says.

It’s particularly tough, he says, for builders to break ground at the entry level for first-time buyers, particularity in high-cost coastal markets such as California. That means it will take longer for those inventory levels to recover.

But there’s a bright spot: Builder confidence is at its highest level since 1999, according to the NAHB. And that means hope is on the horizon.

“As we head into 2019 and beyond, we expect to see the inventory increases take hold and provide relief for first-timers and drive sales growth,” Vivas says.

The wildcard: Taxes and politics

When the Republican tax plan was introduced, the proposed elimination of the mortgage interest deduction was all anyone could talk about: While the new limitations on the deduction will affect only 2.5% of all existing mortgages in the U.S., it will have a disproportionate effect on Western markets, where 20% to 30% of mortgages are above the new threshold, according to Vivas.

Across the board, experts agree that the new tax plan decreases incentives for homeownership and reduces the tax benefits of owning a home—particularly in highly taxed, expensive markets such as California, Illinois, New York, and New Jersey. But on the flip side, that means that if fewer folks are motivated to buy, then there’s less competition for those who want in the game. Plus, some taxpayers—including renters—will see a tax cut. That increase in buyers’ disposable income could spur demand from folks who are looking to build equity as a homeowner, rather than flushing away their savings in rent.

“Buying remains the more attractive option in the long term—that remains the American dream, and it’s true in many markets where renting has become really the shortsighted option,” Vivas says. “As people get more savings in their pocket, buying becomes the better option.”

2018 house prices and rents will keep growing with no end in sight, economists say

By Jeff Collins, Orange County Register, January 5, 2018

After nearly six years of rising home prices, what’s next?

Will 2018 be the seventh year home prices go up? Or the year the market stalls? Will this be the year that tenants get the upper hand over landlords? Or will rent hikes just keep coming?

In other words, will the seller’s market of the past 69 months continue in 2018?

We interviewed 10 economists and reviewed nine forecasts to find an answer to that question. It can be summed up in one word.

Yes.

Yes, home prices and home sales are projected to keep rising in the year ahead, although the gains will be smaller.

Yes, the supply of homes for sale will fail to keep pace with demand, fueling more cutthroat bidding wars.

And yes, rents will keep rising while apartment vacancies stay near all-time lows.

The economists all cite the same reason: “As long as the economy keeps growing, that’s going to give a push to the housing market,” said Anil Puri, director of the Woods Center for Economic Analysis and Forecasting at Cal State Fullerton.

Jerry Nickelsburg, director of the UCLA Anderson Forecast, put it this way: “When you have increases in employment, you have increases in household formation, and that increases demand for housing. That’s what we’ve been seeing.”

To get a grip on the year ahead, we highlighted five topics: Prices, sales, mortgage rates, number of homes for sale and rent.

The picture that emerges shows a market that still has more room to grow.

Ultimately, we ask the question on the minds of those still seeking to buy a home but are worried they missed their chance: How long will this crazy, runaway train of a market last? Is it too late to buy a home?

Here’s what we learned.

Home prices still rising

Synopsis:

  • Southern California home prices are expected to rise at about the same pace as California: 4.2 percent, according to the California Association of Realtors. That would put next November’s median price of an existing house at about $525,000.
  • Orange County home prices are projected to rise 5 percent to 6 percent, according to forecasts by Chapman University and Cal State Fullerton. Metrostudy, a market intelligence and research firm, foresees a 3.2 percent gain in Orange County home prices. By comparison, Orange County house prices were up 6.9 percent in the year ending in November, according to CAR.
  • Los Angeles County home prices will rise 3.1 percent, according to Metrostudy. UC Riverside’s Center for Economic Forecasting and Development has a more optimistic forecast, predicting gains of 5 percent to 10 percent. CAR reported L.A. County house prices up 9 percent in the year ending in November.
  • Inland Empire home prices will rise 3.9 percent, Metrostudy predicted. UC Riverside forecast a price gain of 8.9 percent in Riverside County and 7.3 percent in San Bernardino County, with prices possibly getting back to record levels set before the 2007 housing crash. By comparison, Riverside County prices rose 8.7 percent in the year ending in November, and San Bernardino County prices rose 12 percent.

Home price gains will continue in the year ahead, just not as fast as in 2017, economists said.

On the one hand, rising demand and a shortage of homes for sale create upward price pressure. On the other, those are offset by an expected increase in mortgage rates and fewer buyers who can afford today’s home prices (called “low affordability” by economists).

“It’s slowing down,” economist and former Chapman University President Jim Doti said of price appreciation. “The main reason is (low) affordability.”

Some also worry the new tax overhaul will slow home sales and sap prices.

A county-by-county analysis by Moody’s Analytics shows home prices in Orange, Riverside and San Bernardino counties will be at least 3.6 percent lower than where they would have been in 2019 without the tax law. In Los Angeles County, prices will be nearly 5 percent lower than previously expected growth rates. The National Association of Realtors projected the tax law will curtail California home price growth by nearly 1 percent.

Sales flattening out

Synopsis:

  • Southern California home sales rose 2 percent to 208,250 transactions through October 2017, according to CoreLogic. But 2018 sales likely will only rise about 1 percent in California and the region, Realtor forecasters said.
  • Orange County sales are projected to increase 2.7 percent this year, according to Chapman.
  • Sales forecasts were unavailable for Los Angeles, Riverside and San Bernardino counties.

Sales have plateaued across the state and region, said California Association of Realtors Chief Economist Leslie Appleton-Young.

Which is a bit of a mystery, given the state’s robust job growth and still-low mortgage rates in 2017.

“You have to wonder why aren’t we seeing more sales activity,” said Robert Kleinhenz, executive director of research at the UC Riverside Center for Economic Forecasting and Development. “The population is much bigger, and all else being equal, you would expect to see a larger number of sales.”

The answer to that riddle, said CAR’s Appleton-Young, is a lack of inventory and prices starting to get out of reach for some.

“The lack of inventory and affordability are really … keeping a lid on the California housing market,” Appleton-Young said. “We have fewer transactions … today than when we had 10 million fewer people living in California.”

The nation also has become less mobile, said Richard Green, director of USC’s Lusk Center for Real Estate.

“That’s depressing sales,” he said. “I don’t expect sales to go down. I don’t expect them to go up either.”

Headwinds from rising mortgage rates

Synopsis:

  • Interest for the benchmark, 30-year fixed-rate mortgage will average between 4.3 percent to 4.6 percent in the year ahead, according to CAR, Chapman and CoreLogic.

Mortgage rates have averaged 3.8 percent over the past three years, with just two brief periods when rates got above 4 percent.

Now, economists say, rates are heading up again, and likely will stay above 4 percent for the coming year.

Federal Reserve hikes in short-term interest rates will directly impact adjustable-rate mortgages and home equity lines of credit, CoreLogic said. They also will drive up long-term rates, to which fixed mortgages are tied.

Combined with higher prices, that translates to a 15 percent increase in monthly principal and interest payments for first-time homebuyers, said CoreLogic Chief Economist Frank Nothaft.

Buyers will have too few homes to choose from

Synopsis:

  • With just 27,550 Southern California homes for sale, 2018 started with the lowest for-sale inventory in five years.

The lack of homes for sale that has plagued the region and the nation for the past five years will continue in the year ahead. Southern California’s for-sale listings fell to 27,550 in December, the lowest number since the spring of 2013, according to ReportsOnHousing.com.

Why are there so few homes?

People are staying put longer between sales — 11 years, twice the 2009 average, according to CAR. Homeowners also are reluctant to sell because they can’t find another home in which to move.

Homeowners also stay put to avoid capital gains taxes or higher property taxes on a new home. Those who got mortgages when 30-year rates averaged 3.5 percent also are “locked in” because they don’t want to give up their lower house payments.

Because of the newly passed tax legislation, homeowners with home loans greater than $750,000 will stay put to keep their mortgage interest tax deductions.

“For-sale inventory will stay lean because homeowners are not going to move, (and) that’s going to limit the inventory that’s for sale,” CoreLogic’s Nothaft said.

Renters to pay more, too

Synopsis:

  • Orange County rents are projected to rise 3 percent to 3.6 percent in 2018, according to apartment data firm RealPage and the USC Casden Multifamily Forecast.
  • Los Angeles County apartment rent will rise 3 percent, both forecasts show.
  • Inland Empire apartment rents will rise faster: Up 4.1 percent to 4.4 percent, according to the two forecasts.
  • Most Southern California apartments will be full. Vacancy rates in the region will be around 3.5 to 3.6 percent, according to RealPage.

Low vacancy rates will keep apartment rents high, economists said.

“As long as the buildings are full and the new development fills up, that’s going to allow rent growth to continue,” said Greg Willett, RealPage chief economist.

Rent hikes will continue so long as vacancy rates stay at 4 percent or lower, added USC’s Green.

“Most places, usually at 5 percent is when rent flattens out,” he said.

When will rent go down?

“We don’t have that in the near-term forecast in the Southern California market,” Willett said. “Usually, you’re talking about a recession and big job cuts for rents to go down.”

Should you buy a home?

Synopsis:

  • Yes, but only if you plan to live there awhile to ride out any potential downturns.

After almost six years of home-price gains, people are asking how much longer will this trend last? Is it too late to buy a home?

Southern California single-family home prices have risen $239,000 or 91 percent over the past 69 months, according to CAR.

How much longer can this go on? How soon will prices start falling? Is it safe to buy a home today?

Most economists say this bull market still has some legs, lasting a year or two more at least, if not five.

“It’s debatable whether we’re in a bubble,” said Chapman economist Doti. “(But) is it a bubble that’s about to burst? No.”

First, economists note the last crash was preceded by a buildup of homes sitting on the market without selling. Currently, few homes stay on the market long, and as mentioned earlier, Southern California listings are at a five-year low.

Demographics also could keep the housing market afloat since millennials are expected start reaching first-time homebuying ages over the next five years, CoreLogic’s Nothaft said.

“We have a demographic tailwind going forward,” he said.

So, is it a good time to buy a home?

“Yeah,” Doti said. “The sooner the better. Get it while interest rates are low. If you can afford a home, now is a good time to buy.”

But there are some precautions you should take first, added USC’s Green.

“If you like the house, if you could afford it, and would live there five years, yes. Otherwise, no,” he said. “In the long run, you’re fine. But if you have to sell (in the short term), you could be in trouble.”

Bay Area home prices hit record

Real estate brokers waiting to see whether new tax law alters trend

KATHLEEN PENDER, San Francisco Chronicle, December 29, 2017

The median price paid for a new or existing Bay Area home or condo hit a record $787,000 in November, up 1.5 percent from a revised $775,000 in October and up 12.6 percent year over year, according to a CoreLogic report issued Thursday.

Some say that could turn out to be a high-water mark until buyers and sellers sort out the impact of the federal tax overhaul, which eliminates some tax benefits of homeownership. Others say the bill won’t put enough downward pressure on the seemingly insatiable demand for Bay Area homes to cause prices to fall.

“I think it’s going to be wait and see in January and February,” said Michael Barnacle, managing broker of the Zephyr Real Estate office in Pacific Heights. “We have had some evidence in recent weeks of people deciding they weren’t going to sell as a consequence of the new taxes.” They might be worried that they will have to pay higher property taxes on a new home, yet be able to deduct less of them, if any.

Buyers, especially first-timers, “are probably going to hold off until they can entirely figure out the whole rent-versus-own situation as a consequence of the tax changes,” Barnacle said.

Ultimately, most people he talks to expect “lower but steady appreciation,” but in the short term, prices may plateau “until people figure this out,” he said.

President Trump signed the tax bill only a week ago and almost all of the changes don’t take effect until 2018.

The new law generally lowers tax rates, but some people could still pay higher taxes if the loss of deductions and exemptions pushes their taxable income higher.

There are two big changes directly affecting homeownership. Under the new bill, homeowners can deduct interest on up to $750,000 in mortgage debt used to buy or improve one or two homes. That’s down from $1 million under the old law. The new rule applies to mortgages taken out after Dec. 14, 2017. Older loans are grandfathered in under the old limits. (Homeowners can refinance these older loans up to $1 million and still deduct interest as long as the balance on the new loans is not bigger than the balance on the old one — in other words, if you’re not doing a cash-out refinance.)

In addition, the final bill repeals the itemized deduction for up to $100,000 in home-equity debt not used to buy or improve a home, including existing home-equity loans and lines of credit.

Starting next year, taxpayers who itemize can deduct a total of $10,000 in all state and local taxes combined. This includes state income and property taxes. Today, taxpayers who itemize can deduct all of their state and local taxes, unless they are in Alternative Minimum Tax, which disallows the deduction.

People who can afford to buy a home in the Bay Area could easily pay more than $10,000 a year in state and local income and property taxes combined. The tax on a newly purchased $1 million home would be more than $10,000 by itself.

In a win for homeowners, the final bill preserved the existing rules that apply to capital gains tax on a primary residence. Homeowners pay no tax on the first $250,000 of capital gains ($500,000 for married couples) as long as they have lived in the home as their primary residence for at least two of the past five years before the sale date. The Senate version of the bill would have changed that to five of the past eight years, but it was stricken from the final bill.

If the tax bill has an impact, it’s most likely to be on homes priced between $900,000 and $2 million, said Andrew LePage, a CoreLogic research analyst.

Above $2 million is speculation, but below $900,000, the loan amount with 20 percent down would be less than $750,000 and the interest would be fully deductible.

For each California county, LePage looked at what percent of home-purchase mortgages taken out in the first 11 months of 2017 exceeded $750,000. The counties with the largest shares were San Francisco (54.3 percent), San Mateo (51.5 percent), Marin (43.9 percent), Santa Clara

(40.2 percent), Alameda

(22.1 percent) and Contra Costa (16 percent). The average for all counties was 10.6 percent.

From this it’s clear that the tax bill could hit some counties harder than others. “We might be seeing a high point for the foreseeable future,” LePage said.

He added, however, that the Bay Area’s record high price posted in November could go still higher if there is a change in the market

mix. A median price is the point at which half of homes sold went for more and half went for less. If more sales in a particular month take place at the higher end of the market than in the previous month, this shift can cause the median price to go up even if prices overall have not changed.

Almost 40% of working adults in the Bay Area are ‘doubled up’ with roommates in order to afford rent

By Riley McDermid  –  San Francisco Business Times, Jan 8, 2018

Close to 40 percent of working adults in the Bay Area have a roommate in order to afford the region’s increasingly high rent, a study from housing site Zillowhas found, raising more questions about California’s housing crisis and the viability of living locally in the long term.

The East Bay Times has chronicled the stories of multiple renters at various income levels across the Bay Area, and all repeat the same theme: The housing stock they’ve found is limited, what is available is usually too expensive for them to afford on their own and many are enduring brutal commutes just to find places to live that are still within driving range of their jobs.

A separate study from housing tracker Apartment List found that rents across the area range from $2,550 for a two-bedroom in San Jose up to $3,080 for a two-bedroom in Walnut Creek to $4,910 for the same sized apartment in Cupertino. That high cost of rent and limited housing stock has forced many renters to add roommates to households to afford a place to live — and pushed many others to give up entirely on the dream of owning a home in the Bay Area, the paper reports.

‘[I feel] trapped,” Gabriel Rodarte, who grew up in San Jose, told the paper. “That’s where I’m at — I feel like I’m the working poor. It’s just ridiculous when you can’t afford to live in the place where you grew up.”

5 things a Californian should know now about rent control

By Matt Levin | Jan. 2, 2018 | CalMatters, DATA POINTSHOUSING

One way or another, two words are likely to dominate the complicated politics of California’s housing crisis in 2018: rent control.

Next week state lawmakers will hear a proposal from Assemblyman Richard Bloom, Democrat from Santa Monica, that would allow cities to dramatically restrict what landlords can charge tenants year-over-year. The bill couldn’t even get a hearing last year amid intense opposition from landlords.

But looming over legislators’ heads this time around is a potential ballot initiative supported by tenants’ rights groups that would do much of the same. If the bill stalls, experts say there’s a good chance you’ll see rent control on your November ballot.

What should your average Californian know about a rent control debate poised to gobble up so much political oxygen? Here are five key points:

1.  Under current state law, a wide swath of California’s housing stock can’t be placed under rent control.

Rent control or rent stabilization policies come in different shapes and sizes depending on the city you may find them in. Some place a hard cap on how much a landlord can raise rents year over year, others may be indexed to inflation. Currently 15 California cities have some form of rent control on the books, including major population centers like San Francisco, Los Angeles and Oakland.

But current state law prohibits any locality in California from imposing rent control on properties built after 1995. That’s the year the state passed the Costa-Hawkins Act, which also prohibited cities that already had rent control laws on their books from updating them for new properties. Thus in Los Angeles rent control only applies to buildings constructed before 1978, and in San Francisco, rent control only applies to buildings built before 1980.

Bay_Area_Rent_Control_Law

A bit of background: After some cities responded to tenants’ concerns about rising rents in the 1970s and 80s by adopting rent control ordinances, real estate interests first tried to stop them in the courts. Unsuccessful there, they focused on the Legislature. Bills to preempt local rent control would routinely pass the Assembly and then die in the Senate, held up by then-Senate President Pro Tem David Roberti, a West Hollywood Democrat. The year after he was termed out of office, Costa-Hawkins passed by a one-vote margin.

Both Bloom’s bill (as it is currently written) and the initiative would fully repeal Costa Hawkins, massively expanding the number of properties on which cities could impose rent control. That includes single-family homes, which Costa-Hawkins also excluded from rent control protections.

2. Most economists—left or right—think rent control is bad

Economists have a hard time agreeing on most things. But regardless of partisan leaning, most economists would say rent control is not great policy. Even prominent progressives like Paul Krugman have expressed opposition to it.

Rent control is quite literally the textbook example of a “price ceiling”– undergrad economics textbooks will often feature problem sets with questions about what’s wrong with rent control. The classic microeconomic downsides include killing the incentive to build more housing, causing landlords to neglect maintenance and repair, and inflated prices for non rent-controlled units. A poll of ideologically diverse economists found that only 2 percent agreed with the statement that rent control had had a positive impact on housing affordability in cities like New York and San Francisco.

3. Scholars in other fields are generally bigger fans. And if you took away rent control, the results could be disastrous for affordability.

Many urban planners and other scholars studying gentrification and displacement cite rent control as an effective policy to keep long-time residents in the communities in which they live and work. And because rent control has become so deeply embedded in the housing markets of some cities, taking it away—no matter how economically inefficient it may be–could spell disaster for current residents.

Rent_Control_Key

The Bay Area Council Economic Institute–a business-aligned policy think tank–ran a simulation of 20 policy changes that could improve or worsen housing affordability in San Francisco. The policy that would make things worst? Getting rid of rent control, which they found would plunge 16,000 households into an unaffordable housing situation.

4. One of the best studies of rent control shows that it primarily benefits older households at the expense of households without rent control

There actually aren’t a ton of empirical studies looking at how rent control plays out in practice. But a groundbreaking Stanford University study released last year on San Francisco’s rent control experience has shed new light on who wins and who loses from the policy.

Looking at a roughly 20-year span of proprietary rental and migration data, the study authors found that rent-controlled tenants age 40 or over saw average savings of nearly $120,000 from rent control; by contrast, younger rent-controlled tenants only saved an average of $40,000.

That’s because younger households were more likely to move out of rent-controlled apartments because of various life milestones—a new job, a new family, buying a house in the suburbs, etc.

5. The study also found that rent control paradoxically fueled gentrification, as landlords converted units to condos

The Stanford study also found that rent controlled buildings were 10 percent more likely to be converted to a condominium or some other type of non-rental property, as landlords searched for ways to evade the law. Those units being drawn off the market partly drove up rental prices for tenants searching for apartments in San Francisco. In this sense, the study authors argue, rent control paradoxically contributed to the well-publicized gentrification the city has experienced over the past few decades.

Keep_community_togther

While the study also found that rent-controlled tenants were more likely to stay in the city than tenants without rent control, the gap may not be as wide as you think. After 10 years, about 11 percent of tenants without rent control were living at the same San Francisco address. Tenants with rent control? Thirteen percent stayed put.

How to participate in the debate: The rent control bill will be heard by the Assembly Housing and Community Development Committee on Thursday, Jan. 11 at 9 a.m., and will include a public comment period. You can watch the hearing—which should be pretty lively as far as legislative hearings go—here.

Tax Reform Side-By-Side Comparison, Current Law to New Tax Law

 

I wanted to share an article that does a good job of introducing the new tax reform.

By Lee Reams, EA, TaxBuzz, December 18th, 2017

tax-reform-640-426

On Friday, December 22, 2017, the “Tax Cuts and Jobs Act” (H.R. 1) was signed into law by President Trump. Almost all of these provisions go into law January 1, 2018.

We have put together a side-by-side comparison of current law and the “Tax Cuts and Jobs Act” (H.R. 1) changes. There are numerous tax planning issues facing both individuals and business owners. Seek out a tax professional before making any decisions.

TAX CUTS AND JOBS ACT OF 2017

This table compares the predominate changes made by the “Tax Cuts and Jobs Act of 2017” to the tax law as it was during 2017 for individuals and small businesses.

2017 

TAX CUTS & JOBS ACT (2018)

Exemptions
$4,050 Suspended through 2025 (effectively repealed)
Standard Deductions
Single: $6,350

Head of household: $9,350

Married filing joint: $12,700

Add’l Elderly & Blind

Joint & Surviving Spouse: $1,250

Others: $1,550

Single: $12,000

Head of household: $18,000

Married filing joint: $ 24,000

Add’l Elderly & Blind

Joint & Surviving Spouse: $1,300

Others: $1,600

Itemized Deductions
Medical – Allowed in excess of 10% of AGI Retained for 2017 and 2018 with an AGI threshold of 7.5% regardless of age. Threshold increases to 10% after 2018. 7.5% threshold also applies for AMT purposes for ’17 and ’18.
Taxes – Property taxes, and state and local income taxes are deductible. Taxpayers can elect to deduct sales tax in lieu of state income tax. The deduction for taxes is retained but capped at $10,000 for the year. Foreign real property taxes may not be included. The Act prohibits claiming a 2017 itemized deduction on a pre-payment of income tax for 2018 or other future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017.
Home Mortgage Interest – Allows interest on $1M of acquisition debt on primary and second home and interest on $100K of home equity debt. Allows interest on $750K of acquisition debt on primary and secondary home.  Grandfathers interest on up to $1M of acquisition debt for loans prior to 12/15/2017. Repeals the deduction for home equity debt.
Charitable Contributions – Allows charitable contributions generally not exceeding 50% of a taxpayer’s AGI. Continues to allow charitable contributions and increases the 50% of AGI to 60%.  Bans charitable deduction for payments made in exchange for college athletic event seating rights. Also repeals certain substantiation exceptions.
Gambling Losses – Allows a deduction for gambling losses not exceeding gambling income. Continues to allow a deduction for gambling losses not to exceed the gambling income. Clarifies that “gambling losses” includes any deduction otherwise allowable in carrying on any wagering transaction.
Personal Casualty & Theft Losses – Casualty and theft losses are allowed to the extent each loss exceeds $100 and the sum of all losses for the year exceeds 10% of the taxpayer’s AGI. Suspends personal casualty losses through 2025, except for casualty losses attributable to a disaster declared by the President under Sec 401 of the Robert T Stafford Disaster Relief and Emergency Assistance Act.
Tier 2 Miscellaneous – Includes deductions for employee business expenses, tax preparation fees, investment expenses and certain casualty losses. Suspends all tier 2 (those subject to the 2% of AGI threshold) itemized deductions through 2025.
Phase-out of Itemized Deductions – Itemized deductions are phased out for higher income taxpayers. The phase-out is suspended through 2025.
Above-The-Line Deductions
Teachers’ Deduction – Allowed up to $250 (indexed) for classroom supplies and professional development courses. Continues to allow this deduction.
Moving Deduction & Reimbursements – Allows a deduction for moving expenses for a job related move where the commute is 50 miles further and the individual is employed for a certain length of time. Qualified moving expense reimbursements are excluded from the employee’s gross income. Deduction is suspended through 2025 except for military change of station.  Employer (other than military) reimbursement would be included as taxable wages.
Alimony – Allows the payer of alimony to claim an above-the-line deduction for qualified payments; recipient reports the income. For divorce agreements entered into after December 31, 2018 or existing agreements modified after that date that specifically include this amendment in the modification, alimony would no longer be deductible by the payer and would not be income to the recipient.
Performing Artists Expenses  – An employee with an AGI of $16,000 or less who receives $200 or more from each of two or more employers in the performing arts field can deduct their performing arts expenses that exceed 10% of AGI as an above-the-line deduction. Retained – The House Bill would have repealed this deduction but the conference agreement retains it in its current form.
Government Officials’ Expenses  – An official who is paid on a fee basis as an employee of a state or local government and who pays or incurs expenses with respect to that employment may claim the expenses as a deduction in calculating AGI.  Retained – The House Bill would have repealed this deduction but the conference agreement retains it in its current form.
Employee Fringe Benefits
Bicycle Commuting – Allows reimbursement of $20 per month as tax-free compensation Suspended through 2025
Employer Provided Housing – Allows an exclusion from income for the costs of housing provided an employee for the convenience of the employer Retained – The House Bill would have limited the excludable amount, but the conference agreement retains the exclusion in its current form.
Dependent Care Assistance – Allows an exclusion from gross income of up to $5,000 per year for employer provided dependent care assistance. Retained – The House Bill would have repealed the excludable amount, but the conference agreement retains the exclusion in its current form.
Adoption Assistance – An employee can exclude a maximum of $13,570 (2017) for qualified adoption expenses paid or reimbursed by an employer. The exclusion is phased out for higher-income taxpayers. Retained – The House Bill would have repealed the exclusion, but the conference agreement retains the exclusion in its current form.
Tax Rates
There are seven tax brackets: 10, 15, 25, 28, 33, 35 and 39.6%. There will continue to be seven tax brackets but at different rates and thresholds.  The rates are: 10, 12, 22, 24, 32, 35 and 37%
Identifying Shares Sold
Under current law a taxpayer who disposes of part of his shares in a corporation that were acquired at different times or for different prices is allowed to choose which shares are considered sold if they are adequately identified. The Senate version of the bill would have required using the first-in first-out (FIFO) method of selection for which shares were sold. However, the final bill does not include that requirement.
Child Tax Credit
Allows a credit of $1,000 per qualified child under the age of 17. The credit is reduced by $50 for each $1,000 the taxpayer’s modified gross income exceeds $75K for single taxpayers, $110K for married taxpayers filing joint and $55K for married taxpayers filing separate. Taxpayers are eligible for a refundable credit equal to 15% of earned income in excess of $3,000. There is also a special refundable computation when there are 3 or more qualifying children. Retains the “under age 17” requirement and increases the child tax credit to $2,000, with up to $1,400 being refundable per qualified child. The credit phases out for taxpayers with AGI over $200,000 ($400,000 if married joint). Thresholds are not inflation-indexed. Child must have a valid Social Security Number that is issued before the due date of the return to qualify for this credit.
Non-child Dependent Credit
No such provision Allows a $500 non-refundable credit for non-child dependents. Same phaseout rule as for Child Tax Credit.
Alternative Minimum Tax (AMT)
Individuals – 2017 Exemption amounts are $84,500 for married taxpayers filing jointly, $42,250 for married filing separate, and $54,300 for single and head of household.

The exemption phase-out thresholds are:

$160,900 for married taxpayers filing jointly, $80,450 for married filing separate, and $120,700 for single and head of household.

Retained, but the exemption amounts are increased to:

$109,400 for married taxpayers filing jointly, $54,700 for married filing separate, and $70,300 for single and head of household.

The exemption phase-out thresholds are increased to: $1 Million for married taxpayers filing jointly and $500K for others.

Corporate Repealed
Education Provisions
American Opportunity Credit (AOTC) – The AOTC provides a post-secondary education tax credit of up to $2,500 per year, per student for up to four years. 40% of the credit is refundable. The credit has a phase-out threshold of $160K for MFJ filers (no credit allowed for MFS) and $80K for others. Retained – The House Bill would have extended the credit to a fifth year, but the conference agreement retained the credit in its current form.
Lifetime Learning Credit (LLC) – LLC provides annual credit of up to $2,000 per family for post-secondary education. The credit has a phase-out threshold of $112K for MFJ filers (no credit allowed for MFS) and $56K for others. Retained – The House Bill would have repealed the LLC, but the conference agreement retains the credit in its current form.
Coverdell Education Accounts – An annual non-deductible contribution of up to $2,000 is permitted and with tax-free accumulation if distributions are used for grammar school and above education expenses. Retained – The House Bill would have barred any further contributions to Coverdells, but allowed a rollover to a Sec 529 plan. However, the conference agreement retains Coverdell accounts in their current form.
Sec 529 Plans – These accounts allow non-deductible contribution and provide for tax-free accumulation if distributions are used for post-secondary education expenses. Amended to allow tax-free distributions of up to $10K per year for grammar and high school education tuition and expenses.
Discharge of Student Loan Indebtedness – Excludes from income the discharge of debt where the discharge was contingent on the student working a specific period of time in certain professions and for certain employers. Modified to exclude income from the discharge of indebtedness due to death or permanent disability of the student.
Higher Education Interest – Allows an interest deduction of up to $2,500 for interest paid on post-secondary education loans. Retained – The House Bill would have repealed the higher education interest deduction, but the conference agreement retains the deduction in its current form.
Tuition Deduction – Allows an above-the-line deduction for tuition and related expenses in years before 2017. The amount of the deduction is limited by AGI and the maximum deduction for any year is $4,000. Retained – The House Bill would have repealed the tuition deduction, but the conference agreement retains the deduction in its current form. This means that the termination date of December 31, 2016 still applies, so this deduction would not be allowed for 2017 and later.
Employer Provided Education Assistance – An employer is permitted to provide tax-free employee fringe benefits up to $5,250 per year for an employee’s education. Retained – The House Bill would have repealed employer provided education assistance, but the conference agreement retains the assistance in its current form.
Exclusion of Qualified Tuition Reduction – Employees of educational institutions, their spouses and dependents may receive a nontaxable benefit of reduced tuition. Retained – The House Bill would have repealed the exclusion from income of tuition reductions, but the conference agreement retains the benefit in its current form.
Exclusion for Interest on U.S. Savings Bonds used for Higher Education Expenses – Interest earned on a qualified United States Series EE savings bond issued after 1989 is excludable from gross income to the extent the proceeds of the bond upon redemption are used to pay for higher education expenses. The exclusion is phased out for higher income taxpayers. Retained – The House Bill would have repealed the exclusion from income of U.S. savings bond interest used for higher education expenses, but the conference agreement retains the benefit in its current form.
Sec 529 – Able Account Rollovers Distributions after 2017 from 529 plans would be allowed to be rolled over to an ABLE account without penalty, provided that the ABLE account is owned by the designated beneficiary of that 529 account, or a member of the designated beneficiary’s family.
Home Sale Exclusion
Generally, where a taxpayer owns and uses a home as his principal residence for 2 out of the 5 years prior to its sale, the taxpayer can exclude up to $250,000 ($500,000 for a married couple) of profit from the sale. Both the Senate and House bills would have changed the qualifying period to 5 out of 8 years, and the House bill would have phased the exclusion out for higher income taxpayers.  The conference agreement retains the current law.
Roth Conversion Recharacterizations
Permits, within certain time limits, a Traditional to Roth IRA conversion to be undone. The Act repeals the special rule that allows IRA contributions to one type of IRA (either traditional or Roth) to be recharacterized as a contribution to the other type of IRA. Thus, for example, under the provision, a conversion contribution establishing a Roth IRA during a taxable year can no longer be recharacterized as a contribution to a traditional IRA (thereby unwinding the conversion).
Estate & Gift Taxes
$5.49 Million (2017) is exempt from gift and/or estate tax. This is in addition to the annual gift tax exclusion, which for 2017 is $14,000 per gift recipient. The exclusion is increased to $10 Million adjusted for inflation since 2011, which is estimated to be approximately $11.2 Million. The annual gift tax exclusion is retained. The House Bill would have repealed the estate tax for decedents dying in 2025 or later, but the conference agreement did not include this provision.
Entertainment Expenses
A taxpayer who can establish that entertainment expenses or meals are directly related to (or associated with) the active conduct of its trade or business, generally may deduct 50% of the expense.

 

No deduction is allowed for (1) an activity generally considered to be entertainment, amusement or recreation, (2) membership dues with respect to any club organized for business, pleasure, recreation or other social purposes, or (3) a facility or portion thereof used in connection with items (1) and (2). Also disallows a deduction for expenses associated with providing any qualified transportation fringe to the taxpayer’s employees. Employers may still deduct 50% of the food and beverage expenses associated with operating their trade or business (e.g., meals consumed by employees on work travel).
Tax Credits
Electric Vehicle Credit – Provides a non-refundable credit of up to $7,500 for the purchase of a qualified electric vehicle. Retained – the House Bill originally repealed this credit, but the credit is retained in the conference agreement.
Adoption Credit – Provides a credit of up to $13,570 for child under the age of 18 or a person physically or mentally incapable of self care. Retained – the House Bill originally repealed this credit, but the credit is retained in the conference agreement.
Sec 1031 Exchange
There is non-recognition of gain when taxpayers trade properties of like-kind that are used for business or investment. For exchanges completed after December 31, 2017, only real property will qualify for Sec 1031 treatment.
Real Estate Recovery Periods
Currently real property has a MACRS recovery period of 39 years for commercial property and 27.5 years for residential rental property. The Senate version would have shortened the recovery period for real property.  However, the conference agreement retains the 27.5 and 39-year recovery periods.
Net Operating Loss (NOL) Deduction
Generally, a NOL may be carried back 2 years and any remaining balance is then carried forward until used up or a maximum of 20 years unless the taxpayer elects to forego the carryback and carry the loss forward only. The 2-year carryback provision is generally repealed after 2017 except for certain farm losses.

Beginning after December 31, 2017, the NOL deduction is limited to 80% of taxable income (determined without regard to the NOL deduction) for losses arising in taxable years beginning after December 31, 2017.

Sec 179 Expensing
A taxpayer can elect to expense up to $510,000 of tangible business property, off the shelf software and certain qualified real property (generally leasehold improvements). The annual limit is reduced by $1 for every $1 over a $2,030,000 investment limit. The Sec 179 deduction for certain sport utility vehicles is capped at $25,000. For property placed in service after 2017: The annual expensing and investment threshold limits are increased to $1,000,000 and $2,500,000, respectively, with both subject to inflation indexing. SUV cap to be inflation-adjusted.

Definition of Sec 179 property expanded to include certain depreciable tangible personal property – e.g., beds and other furniture, refrigerators, ranges, and other equipment used in the living quarters of a lodging facility such as an apartment house, dormitory, or any other facility (or part of a facility) used predominantly to furnish lodging or in connection with furnishing lodging.

Expands the definition of qualified real property eligible for Sec 179 expensing to include any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems.

Unlimited Expensing
For 2017 current law allows 50% of the cost of eligible new property to be deducted with the balance of the cost depreciable. This is commonly termed “bonus” depreciation. The bonus rate is scheduled to decline to 40% for 2018, 30% for 2019 and 0% thereafter. Allows 100% unlimited expensing of tangible business assets (except structures) acquired after September 27, 2017 and through 2022. Applies when a taxpayer first uses the asset (does not need to be new).
“Luxury Auto” Depreciation Limit
Annual limits apply to passenger autos used for business on which depreciation is claimed. For vehicles placed in service in 2017 the limits are $3,160, $5,100, $3,050 and $1,875, respectively, for years 1, 2, 3, and 4 and later. If bonus depreciation is claimed, the first-year limitation is increased by an additional $8,000. For passenger autos placed in service after 2017 the maximum amount of allowable depreciation is increased to the following amounts if bonus depreciation is not claimed: $10,000 for the placed-in-service year, $16,000 for the 2nd year, $9,600 for the 3rd year, and $5,760 for the 4th and later years. Amounts will be indexed for inflation after 2018.
Listed Property
To claim a business deduction for certain types of property, referred to as listed property, enhanced substantiation requirements must be followed and deductions are only allowed if business use of the property is more than 50%. Computers have been included in this category. Computers and peripheral equipment placed in service after 2017 have been removed from the definition of listed property.
Deduction For Pass-Through Income
No such provision. The Act provides a 20% deduction for pass-through income, limited to the greater of (1) 50 percent of wage income or (2) 25% of wage income plus 2.5% of the cost of tangible depreciable property for qualifying businesses, including publicly traded partnerships, but not including certain service providers. The limitations (both caps and exclusions) do not apply to joint filer’s with income below $315K and ratably phases out between $315K and $415K, For other filers the threshold is $157K and phases out between $157K and $207K.
Excess Business Losses For Individuals
Losses, other than passive losses, were allowed, and if a net loss was the result, a NOL deduction was created and carried back 2 years and then forward 20 years until used up. A taxpayer other than a C corporation would not be allowed an “excess business loss.” Instead, the loss would be carried forward and treated as part of the taxpayer’s net operating loss (NOL) carryforward in subsequent taxable years.  Excess business loss for a taxable year is defined in the Act as the excess of the taxpayer’s aggregate deductions attributable to the taxpayer’s trades or businesses for that year, over the sum of the taxpayer’s aggregate gross income or gain for the year plus a “threshold amount” of $500,000 for married individuals filing jointly, or $250,000 for other individuals. The provision will apply after taking into account the passive activity loss rules.

Glen’s SF East Bay Area Real Estate Market Update, November 30, 2017

East_Bay_Banner

November 30, 2017 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

 

Zillow_10.17

 

Here are some highlights for the 38 East Bay Cities that I track:

 

  • Following a dramatic 60% drop at the end of last year, inventory began its usual seasonal trend upward. Typically, we see a steady increase on a month by month basis to occur before finally peaking in September. This year has taken a slightly different course. Inventory has been fairly flat over the summer and fall months fluctuating slightly up and down. We did see a decrease in the available housing inventory since last month. However, we are 24% below where we were last year at this time. That’s concerning considering last year was a very “tight” market. There was an 11.5% decrease in pendings compared to the previous month, (October). Our monthly supply is now 21 days. Last year, our months’ supply at this time was 30 days. As a reminder of what we mean by “months’ supply;” If no more homes come onto the market, and homes continue to sell at the same pace as they have been over the last 12 months, then the “months supply,” (in this case 21 days), tells us that’s how many days it would take to sell the remaining number of homes we currently have available for sale in any given market.
  • The number of pendings, (homes that are in contract), decreased in comparison to last month, but is still below where we were last year by 16.5%. The pending active ratio increased to 1.57. This compares to last year at the same time of 1.44. This supply and demand ratio signals whether we’re in a sellers’ or buyers’ market. Typically, a number well above 1, (more inventory with less pending) favors sellers. A number below 1 favors buyers.
  • The percentage of homes “sitting” has increased slightly with 48% of the homes listed now remaining active for 30 days or longer, while 26% stayed on the market for 60 days or longer. This is lower than what we saw last year at this time.
  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market with only .02% of the active listings and .02% of sales over the past 4 months.

Months_Supply

  • The month’s supply for the combined 38 city area is 21 days. Historically, a 2 to 3 months supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern that we’ve seen over the past four years. However, we are well below supplies levels compared to last year at this time, of 30 days. However, this year the inventory level on the graph is shallower.

Actives_&_Pendings

  • Our inventory for the East Bay (the 38 cities tracked) is now at 1,547 homes actively for sale. This is still above the December 2012 low of 1,086 and well less than last year at this time of 2,028 or (22% lower). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased slightly to 2,433, but lower than where we were last year at this time of 2,911 or (16.5% lower).

Pendings_Active_Ratio

  • Our Pending/Active Ratio is 1.57. Last year at this time it was 1.44.

Sales

 

  • Sales have decreased slightly from the last (4 month period) now at 8,981 for the 38 cities tracked. This is slightly higher than what we saw last year at this time (8,836).
  • The one factor that has changed this year is that we had a very late start to the spring season due to the heavy amount of rain received compared to very little in the preceding 3 years. The rains more than likely delayed many sellers from putting their homes up for sale early. They simply got a late start because they couldn’t work on the exterior of their homes during this time. Also, on average, homes are closing in fewer days than before. It seems that inventory is still being gobbled up but at a slightly faster pace than is being replenished. Inventory seemed to flatten out over the summer and fall months and remains at a lower level when compared to last years numbers.
  • Sales over the last 4 months, on average, are 4% over the asking price for this area, greater than what we saw last year’s at this time, 2.8%.

Glen's Numbers pg 1

Glen's Numbers pg 2

 

Recent News

 

No housing bubble in sight — and other predictions for 2018

A real-estate site’s predictions for 2018 offer yet more disappointing news for would-be first-time homebuyers in California hoping that the New Year might bring some relief.

“The outlook for next year is rising prices, rising rates and rising property taxes,” said Redfin’s chief economist, Nela Richardson. “I wish I could have better news.”

Here is how Redfin’s housing market team predicts that the new year will shake out:

  • California exodus: Buyers in high-tax states such as California will move elsewhere if federal tax reform takes away deductions for state and local taxes — one of the more controversial aspects of the proposals pending in Congress. Redfin surveyed 900 homebuyers about this question last month; 37 percent of those from California said they would consider leaving the state as a result, compared to 33 percent nationally.
  • Waiting to sell: Proposed federal tax code changes relating to tax breaks and how long sellers must live in their homes to qualify — if passed — will make some people wait for another few years to list their homes, making the inventory shortage worse.
  • Urban suburbs: “Wealthier millennials” will drive the development of a new, denser kind of suburb with modest-sized homes built close to transit, complete with walkable neighborhoods, some urban amenities and good schools. But they won’t necessarily be affordable. Mountain View, where the median price for 2-bedroom home is over $1 million, was Redfin’s Bay Area example of an urban suburb. Regardless, Richardson says, far-flung, sprawling homes known to those who don’t live in them as “McMansions” are simply not what this generation wants.
  • Sellers market: Homes will sell even faster than they did this year, when nearly one in five sold within a week.
  • Mortgage rates will climb from below 4 percent to 4.3 percent or higher for a standard, 30-year loan. And because of high demand, home prices are expected to keep climbing, pushing the monthly payments 15 to 20 percent higher.
  • Housing bubble? Even in impossibly hot markets like the Bay Area, analysts aren’t seeing a bubble. They drew that conclusion partly because people are making larger down payments or paying all cash, and partly because sellers are getting their asking price — and then some. Richardson found that in cities such as Oakland, the average buyer has less debt relative to the value of their home — 80 percent — than they did in 2006, before that infamous bubble burst.
  • Roommates: More people will be doubling or tripling up to afford these skyrocketing rents and prices — a la the 1990s TV show “Friends,” Redfin predicts. Finding a compatible roommate of any age will get easier with real-estate startups like Nesterly, which matches younger renters with baby boomers, and CoBuy, which helps people go in on a house together. “We love the innovation,” Richardson quips in her report, “not to mention the new sitcom possibilities.”

Bay Area home prices rise by double digits year-over-year, again

By Kathleen Pender, SF Chronicle, December 6, 2017 

The median Bay Area home price rose 10.9 percent to $765,000 in October from the previous October, the third consecutive month it posted a double-digit year-over-year gain.

The October median price was up 2.6 percent from September but 1.3 percent below the region’s all-time high of $775,000 set in June 2017.

Those sales closed before the House introduced a bill on Nov. 2 that would strip away some tax benefits of homeownership. Many in the real estate and housing industry say that bill, which passed the House Nov. 16, and a somewhat different one that passed the Senate on Friday would bring down California home prices.

Still Climbing

In a press release, California Association of Realtors President Steve White called the House bill “a direct attack on California housing and homeownership. Eliminating the incentive for people to buy homes and raising taxes on hundreds of thousands of California homeowners only puts the American dream further out of reach.”

The big jump in Bay Area home prices last month was mainly a result of “low inventory, affordability constraints and market disruptions caused by the destructive and deadly North Bay wildfires that began in early October,” CoreLogic spokesman Andrew LePage said in a press release.

The impact of the fires and tax bills will be more strongly felt in coming months.

Both tax bills would eliminate the federal itemized deduction for state and local income or sales tax and limit the property tax deduction to $10,000 per year.

Under the House bill, homeowners could deduct interest on up to $500,000 in debt used to buy or improve a primary residence. Today they can deduct interest on up to $1 million in mortgage debt used to buy or improve a first and second home. That would not change under the Senate bill, but both bills would eliminate the deduction for up to $100,000 in home-equity debt not used to buy or improve a house.

Both would also extend the holding period needed to qualify for the capital gains tax exclusion — up to $500,000 for married couples and $250,000 for singles — break on a primary residence. House and Senate leaders are trying to reconcile those bills and hope to pass a final one by Christmas.

Will the GOP tax bill lower home prices in California?

An updated look at how the current tax overhaul plans will impact housing

By MARISA KENDALL, Bay Area News Group, December 4, 2017

As Republicans worked Monday to reconcile conflicting versions of their tax plans, a prominent group of realtors is warning that both the Senate and House proposals will slash home prices and values in California and beyond.

The proposed cuts to real estate-focused tax deductions could cause prices in the Golden State to drop between 8 and 12 percent, leading to a loss in home value of between $37,710 and $56,550 for the typical home owner, according to the National Association of Realtors, which continued to oppose the bills as Republicans moved closer to a final plan over the weekend.

While a price drop may sound like good news to Bay Area residents bemoaning the region’s soaring housing prices, the trade group says plummeting prices could bring new troubles — including a reluctance to sell that could further squeeze an already tight supply of homes. The strain is expected to be greatest in regions like the Bay Area, where home prices are already high.

“The tax incentives to own a home are baked into the overall value of homes in every state and territory across the country,” association president Elizabeth Mendenhall wrote in a news release over the weekend condeming the proposed tax overhaul. “When those incentives are nullified in the way this bill provides, our estimates show that home values stand to fall by an average of more than 10 percent, and even greater in high-cost areas.”

Affordable housing advocates also worry the tax overhaul will gut California’s efforts to house its low-income residents.

It’s not yet clear what the final tax plan will look like. Republicans still have plenty of work to do to iron out the differences between the House and Senate proposals. They reportedly expect to pass a final version before Christmas.

So how would the tax proposals affect our housing market?

One of the key provisions is the mortgage interest deduction — the tax break homeowners get for the interest paid on a mortgage. Under current law, homeowners can deduct interest on purchases of up to $1 million for a primary residence and one other home, plus an extra $100,000 for equity debt. The Senate bill would keep the former cap in place, but eliminate the equity debt deduction, Forbes reports. The House plan would grandfather in existing mortgages, but would cap new mortgages at $500,000. In addition,  homeowners would get no deductions for a secondary residence.

Halving that deduction cap could impact as many as half of Californians who have a mortgage, according to the National Association of Realtors. Last year 49 percent of housing units with a mortgage were worth more than $500,000. Homeowners who claimed the mortgage interest deduction saved an average of $3,070, the association said.

Another controversial housing-related item in the tax proposals is the capital gains provision. Under current law, homeowners can exclude up to $250,000 (or $500,000 for married couples) in capital gains on the profit from the sale of a home — if they have lived in the house for two of the last five years. Both the House and Senate proposals would change that — homeowners must have lived in the house for five of the past eight years to qualify for the savings.

Last year, 13 percent of homeowners in California had lived in their home for between two and four years, meaning they won’t be eligible for that tax exclusion, according to the National Association of Realtors. Some housing experts worry the GOP tax plans will encourage Bay Area homeowners to stay put instead of selling, exacerbating the region’s housing shortage.

Both the House and Senate tax plans would also cap the property tax deduction at $10,000.

A recent White House analysis of the tax proposals attempted to put homeowners’ fears at ease. Last month, researchers with the Council of Economic Advisers estimated a “muted” drop of less than 4 percent in housing prices as a result of proposed changes to the mortgage interest deduction. Meanwhile, the researchers wrote, the rate of home ownership may rise “modestly.” The researchers noted that while itemized tax deductions would be reduced under the proposals, the standard tax deduction would be increased.  The current standard deduction of $6,350 for single tax payers would jump to $12,000, and the deduction of $12,700 for married tax payers would jump to $24,000.

Bay Area accountant on tax reform: ‘It’s almost malpractice not to talk to clients about leaving California’

By Mark Calvey  –  San Francisco Business Times, Dec 7, 2017

Tax reform under consideration in Washington that would eliminate the deduction for state income taxes could spur more wealthy Californians to move to low-tax states.

California’s status as having one of the highest levies on income already makes a move out of state a frequent point of discussion between the wealthy and their financial advisers. But the loss of a federal deduction for state income taxes paid will only provide more evidence that high-income taxpayers could be better off moving to Texas or another state with less burdensome taxes, Edward Hanley, a principal at San Francisco accounting firm Shea Labagh Dobberstein, told the San Francisco Business Times.

Asked whether he’s had conversations with any of his clients about leaving the Golden State, Hanley responded, “Yes. All of them. It’s almost malpractice not to talk to clients about leaving California.”

Several of Hanley’s clients are looking at possible moves out of California when they retire in five to 10 years, with Washington state and Wyoming among the destinations often under consideration since the two states are among the seven with no income tax. (The other states with no income tax are Alaska, Florida, Nevada, South Dakota and Texas.)

Many of California’s wealthy own businesses or real estate, so they can save millions in taxes by moving to Texas or Florida before selling those assets.

Wealthy individuals, as with companies, are often more mobile than lawmakers realize.

Some California tax preparers say they’re having painful conversations with clients about how much more tax they’ll pay under tax law changes now under consideration.

Hanley said he’s advised many of his clients, who aren’t subject to the Alternative Minimum Tax, to be prepared to pay their California income and property taxes this month, rather than waiting till they are due next year, to avoid the risk that payments made next year for 2017 taxes owed become a non-deductible expense in 2018.

On Thursday, San Francisco-based Paragon Real Estate Group took a closer look at Census data tracking migration to and from California in 2016. The report highlighted that more California residents are moving to other states than other states’ residents are moving into California, although that can be hard to believe for Bay Area residents finding their favorite restaurants and roadways increasingly crowded.

Paragon noted that foreign immigration into California has more than offset state residents leaving for other states, so the Golden State’s population has been rising.

But President Trump’s efforts to stem immigration may “dramatically curtail foreign influx numbers into California and the Bay Area in 2017 and subsequent years,” Patrick Carlisle, chief market analyst at Paragon, said in his report on Bay Area demographics.

“Secondly, changes to the tax code currently contemplated by the Republican-dominated Congress — the deductibility of mortgage interest costs and local and state taxes in particular — would almost certainly make living in the Bay Area, which already has either the highest or close to highest cost of living in the country, more expensive for many residents, but also increase the cost difference in cost of living between it and other parts of the country,” Carlisle said. “This could exacerbate the outflow of companies and residents to lower-cost states.”

Carlisle says the outflow of residents breaks into two groups: Those relocating for jobs in lower-cost states and those moving after retiring, often cashing out of California’s pricey housing market to help make their golden years shine.

Fewer immigrants coming to California from other countries coupled with more people leaving the state “might have substantial ramifications for state and local economies and housing markets,” Carlisle warned.

Home prices nearly doubled in this surprising California city

Prices shot up 92 percent over the past five years

By MARISA KENDALL, Bay Area News Group, December 3, 2017 

As home prices skyrocket across the state, there’s one California city where they’ve shot up more than anywhere else in the U.S. — nearly doubling in the past five years.

No, it’s not San Francisco, San Jose or Oakland. It’s not even in the Bay Area.

It’s Stockton, the Central Valley community twice dubbed America’s “most miserable” city by Forbes Magazine because of its high rates of housing foreclosures, unemployment and violent crime.

The jump in home prices in Stockton and neighboring Lodi — up about 92 percent over the past five years — is dramatic evidence of the ripple effects of the Bay Area’s tight housing market and the increasingly out-of-reach cost of living here. As people flee San Francisco and Silicon Valley in search of cheaper housing — heading to places like Stockton, Oakland and Sacramento — prices in those second-tier markets are rising.

“There’s flight away from areas where it’s expensive, to areas where it’s relatively cheap,” said Andrew Leventis, deputy chief economist at the Federal Housing Finance Agency, which first noted Stockton’s dramatic rise. “It would be just incredibly improbable if that wasn’t driving up prices in the west by some magnitude.”

The federal agency analyzed housing markets in the country’s 100 largest metropolitan areas. Oakland came in second, boasting an 86 percent jump in prices, according to the report released this week. Sacramento, also a major destination for Bay Area expatriates, is number six, seeing its home prices climb 74 percent.

The San Francisco/South Bay area is high on the list too, coming in at number four with a 77 percent increase — far above the national average of 35 percent.

Cities where home prices are soaring

Of the country’s 100 largest metropolitan areas, these saw the biggest increases in home prices over the past five years:

  1. Stockton/Lodi — 91.94 percent
  2. Oakland/Hayward/Berkeley — 85.71 percent
  3. Las Vegas/Henderson/Paradise — 85.21 percent
  4. San Francisco/Redwood City/South San Francisco — 77.07 percent
  5. Seattle/Bellevue/Everett — 74.66 percent
  6. Sacramento/Roseville/Arden/Arcade — 74.03 percent
  7. North Port/Sarasota/Bradenton, Florida — 72.5 percent
  8. Riverside/San Bernardino/Ontario — 70.82 percent
  9. Cape Coral/Fort Myers, Florida — 70.1 percent
  10. West Palm Beach/Boca Raton/Delray Beach, Florida — 69.19 percent

Source: The Federal Housing Finance Agency 

 

Seasonal chill cools rents in hot Bay Area apartment market

By LOUIS HANSEN,  Bay Area News Group, December 1, 2017

Apartment prices in the Bay Area dipped last month, but renters, don’t breathe a sigh of relief — analysts expect prices to continue to climb in 2018.

Rental market watchers noted slight declines in apartment prices in November, attributing it to routine seasonal swings in a month where fewer people are searching for housing.

The Bay Area remains home to the highest rental prices in the country, with San Francisco topping the charts with a median price of $3,050 per month for a two bedroom, according to rental website Apartment List. A typical two bedroom in San Jose listed for $2,550 in November, while a similar Oakland pad went for $2,170.

“Even when rents dip a little bit, they’re still more than twice the national average,” said Sydney Bennet, a researcher for Apartment List. Nationwide, apartment prices fell in two-thirds of the major cities last month, she said.

Prices fell month-to-month in San Jose, San Francisco and Oakland, but still have shown a net rise over the last year. Prices in the East Bay dropped 1.4 percent, while San Jose rents fell about 1 percent, according to Apartment List.

The hottest market this year has been Sacramento, as Bay Area residents flee high prices for more affordable housing. Rent prices have increased almost 10 percent in the last year. But Bay Area escapees can still find better deals in Sacramento, where the median price for a two bedroom was $1,190 a month.

“Jobs are a big factor for rent growth in the whole area,” Bennet said. Apartment List researchers expect prices to climb in 2018, she said.

Nationally, rents have risen about 2.7 percent in the last 12 months. California has led the way, averaging a 4.3 percent increase.

A report by real estate website Zumper also found dips in San Francisco, but monthly increases in San Jose and Oakland. The website tracks apartments in the U.S. and Canada.

Zumper analysts also are bullish on demand for Bay Area apartments, as new apartments are being built across the region. “I don’t think the tech market is going to slow down any time soon,” said spokeswoman Crystal Chen.

Looking for relief from Bay Area prices? Zumper found rents sliding in Pittsburgh, Pennsylvania, Durham, North Carolina, Buffalo, New York, and Milwaukee, Wisconsin, although a check of the weather forecast might be in order before moving.

These Real Estate Trends Will Be Game-Changers in 2018

By Cicely Wedgeworth | Realtor.com, Nov 29, 2017

We’re almost there: the long-awaited home stretch of 2017. And quite a year it’s been! Already, we can’t help imagining what developments next year might bring to the wild world of U.S. real estate. So we asked our realtor.com® data team to give us the inside scoop. The team sifted through historical real-estate data and other major economic indicators to come up with a realistic forecast of just what might be in store next year.

And it looks like a sea change is brewing.

From housing inventory to price appreciation to generational and regional shifts, these are the top trends that will shape, and reshape, real estate markets in 2018. Buckle up! It’s going to be quite a ride.

Game-changer no. 1: Supply finally catching up with demand

After three years of a crushing shortage of homes for sale, the realtor.com economics team is predicting that the shortfall will finally ease up in the second half of 2018.

“The majority of the year should be challenging for most buyers, but we do expect growth in inventory starting in the fall,” says Danielle Hale, chief economist for realtor.com.

That’s a potentially transformative development for many would-be buyers who’ve been frustrated in their search for a home that meets their needs—and their budget.

“Once we start to see inventory turn around, there is plenty of demand in the market,” Hale says.

Although for-sale housing inventory is expected to stay tight in the first quarter of the year,  reaching a 4% year-over-year decline in March, if it increases as predicted by fall, that will be the first net inventory gain since 2015. Markets such as BostonDetroit, and Nashville—all of which recently made it onto our monthly list of the nation’s hottest real estate markets—may see inventory recover first.

Bullish construction is the engine that’s turning this ship around, bringing new homes to the market and creating opportunity for people to trade up into new homes.

“It’s adding inventory instead of just shuffling people around in existing homes,” Hale says.

But those itching to buy a starter home may have to be patient for a while longer.

“We expect the relief to start in the upper tiers, and it will make its way down to the lower tiers,” Hale says. Specifically, most of the initial inventory growth will be in the mid- and upper-tier price ranges, $350,000 and up.

As the market eases, home prices are expected to slow to 3.2% growth year over year nationally. But again, it’s the higher-priced homes that will be appreciating less. And even slower appreciation still means that prices will continue to rise.

“Overall, prices are expected to increase, and we’re expecting to see more of that in lower-priced homes,” Hale says. “It will get a bit worse before it gets better for buyers of starter and midprice homes.”

Game-changer no. 2: Millennials starting to come into their own

The housing market in 2018 will continue to present challenges for millennials—sorry, all of that student loan debt isn’t just going to disappear—but there are some bright spots on the horizon for these millions of Americans.

Millennials seem to be having more success at taking out mortgages on homes at varying prices, and not just starter homes, Hale says.

“They’re at that point where they’re seeing their incomes grow, and that will help them take on bigger mortgages,” she says. That’s because of both the overall strong economy and their own career development.

And as the largest generation in U.S. history reaches that sweet spot in their 20s to 30s when they’re settling down and starting families, they’re particularly motivated to buy. Millennials could make up 43% of home buyers taking out a mortgage by the end of 2018, up from an estimated 40% in 2017, based on mortgage originations. That 3% uptick could translate into hundreds of thousands of additional new homes. As inventory starts to rebound in late 2018 and in years to come, first-time home buyers will likely make up an even larger share of the market.

They probably shouldn’t wait too long to buy, either—mortgage rates are expected to reach 5% by the end of 2018 due to stronger economic growth, inflationary pressure, and monetary policy normalization.

Game-changer no. 3: Southern homes selling like crazy

When it comes to home sales growth, bet on Southern cities to beat the national average in 2018. We’re especially looking at you, Tulsa, OKLittle Rock, ARDallas; and Charlotte, NC. Those markets are expected to see 6% growth or more, compared with 2.5% nationally.

The South has been luring corporations and individuals to its balmy cities with its low costs of real estate, and living in general. The resulting strong economic growth and strong household growth, combined with an accommodating attitude toward builders, is setting the stage for an accelerating boom in homeownership, Hale says.

As soon as there are more homes to sell, these places will be selling strong.

Game-changer no. 4: Tax reform (maybe)

The Republican Party’s proposed changes to the tax system could change everything—but with both the House and Senate versions in limbo, the jury is still out on this one.

If a version of tax reform does pass with the current provisions affecting real estate, Hale says she would expect to see fewer home sales and declining home prices. However, it would be the upper price tiers that would likely be affected the most, in areas with expensive homes and high taxes, such as coastal cities, especially in California.

 

Oakland’s housing pipeline gushes after years of drought

By Roland Li  –  San Francisco Business Times, Nov 30, 2017

For the first time in eight years, cranes have arrived in downtown Oakland.

Three residential highrises are under construction. Collectively, they will add over 1,000 new housing units to the city’s core, replacing an empty lot, a parking garage and small office building. Three more residential towers are approved and could break ground by next year. Another dozen are in the pipeline.

It’s the city’s biggest building boom in decades with over 3,600 units under construction. Although activity is primarily concentrated downtown, there are also projects moving forward in Temescal, West Oakland and East Oakland.

It’s a boom that took years of economic shifts to materialize after Oakland’s home prices and rents shot up. Those soaring prices made both wood-frame and concrete highrise construction profitable enough to attract new developers.

Carmel Partners is among those newcomers. Last month, Carmel started construction on a 634-unit tower that will be the city’s second-tallest building. It’s San Francisco-based Carmel’s first Oakland project and replaces a garage a block from the 12th Street BART station.

Dozens of other investors have come to Oakland for the first time: The Blackstone Group is funding over 400 new apartments developed by partner CityView that are under construction in the Broadway-Valdez district. Vancouver, Washington-based Holland Partner Group has two approved highrises in downtown Oakland.

Longtime builders are also still active in Oakland: Signature Development Group has started construction on the first market-rate building at Brooklyn Basin, the city’s largest master development with 3,100 waterfront units. SunCal also has approvals for 918 for-sale townhomes at the former Oak Knoll hospital site.

Madison Park Financial has a new plan for nearly 400 units in East Oakland, but the veteran Oakland developer has been pickier about additional deals.

Rising construction costs have been a barrier, as well as new impact fees and the cost of connection to water from East Bay Municipal Utility District, which can hit tens of thousands of dollars per new unit.

espite rising costs, bigger developers are able to get large projects underway. A block from the 19th Street BART station, Lennar Multifamily Communities and its contractor Build Group Inc. are laying the foundation of 1640 Broadway. The tower will have 254 apartments.

Previous owner Joe Hernon proposed the project in 2000, but never got it off the ground. In 2015, Lennar pursued the project.Being one of the first new towers was a challenge.

“A lot of investors want to see the proof of concept,” said Tyler Wood, Lennar Multifamily development director.

But there hadn’t been a new residential highrise built in Oakland since 100 Grand St. in 2009. Lennar looked at rents downtown and concluded it was viable to build tall.

“You kind of extrapolate — this is what’s happening in the city. It’s performing quite well. There should be an appetite,” said Wood.

Lennar is targeting rents in the low $4s per square foot, or over $3,000 per month for a 750-square foot unit. Pricing is higher than Oakland’s older highrises and less than rents in new San Francisco towers. Wood declined to disclose the project’s budget. Bay Area highrise projects typically cost over $500,000 per unit to build and design.

 

Go West: Projects are finally rising in long-neglected West Oakland

By Roland Li  –  San Francisco Business Times, Nov 30, 2017

Every weekday, hundreds of thousands of riders pass through West Oakland’s BART station on their way to San Francisco. Only a handful get off.

Despite the station’s central location, the neighborhood doesn’t have many jobs outside of the hulking U.S. post office and the adjacent Port of Oakland. It’s primarily a residential area, with single-family Victorians now selling for over $1 million.

That may change. Two massive development plans could replace parking lots next to the BART station with housing and office towers, along with new shops and plazas. Another half-dozen midrise housing projects are under construction or approved in West Oakland. It’s the boldest vision to transform the area since the 1950s and 1960s, when government-sponsored “urban renewal” devastated what was once a vibrant retail strip on the very same blocks. Homes, jazz clubs and restaurants were demolished to make way for BART, the post office and a new highway that bisected an established community.

The projects are still years away from becoming reality, but they’re evidence that developers are focusing on West Oakland as a place for high-density housing and office space, and that the city supports this push. Developers say the neighborhood’s central location in the BART system and abundance of empty lots make it a strong candidate for dense growth. The proposals are moving forward as Oakland’s rents have hit record highs of $1,930 per month for a one-bedroom and over $50 per square foot for Class A office space, according to brokerage data. That makes new highrise construction more financially viable, developers say.

 

Will the Oakland hills get 200 homes and a charter school? 

By Antoinette Siu  –  San Francisco Business Times, Nov 29, 2017

Developer The Pacific Cos. is proposing 200 affordable housing units and a charter school in the Oakland hills.

A shuttered Ace Hardware store currently sits on the site at Foothill Boulevard and 68th Avenue where Pacific Cos. wants to build the housing and a K-8 charter school for 550 students. Eagle, Idaho-based TPC has developed seven other charter schools throughout Arizona, California, Minnesota and Texas. TPC subsidiary Strategic Growth Partners is led by former Aspire Public SchoolsCEO James Wilcox.

TPC has completed more than 150 multifamily and charter school projects in the West, many of them in California. Mike Kelley, business developer at TPC, said the company is still identifying the tenant for the charter school. It’s possible two of Aspire’s current schools in the area will consolidate and move to the new space, he added.

The company just proposed a similar project with housing and a charter school in San Jose. It also sold an apartment community at 955 South First St. in San Jose earlier this year and built workforce housing at the Mayfair Court Apartments at 65 McCreery Ave. in San Jose.

The Oakland development would be 100 percent affordable: All units will have a rent cap at 60 percent of the area median income. Rents would be limited to $1,174 for a one-bedroom, $1,408 for a two-bedroom and $1,627 for a three-bedroom.

While still in the early stages, Oakland City Council member Desley Brookswelcomes the additional housing.

“There are no elevations, engineering or construction drawings; and there are approvals that still need to be obtained. That said, as with many jurisdictions, Oakland needs more housing,” Brooks said.

Construction would take about 16 months, said Kelley. Developing a school alongside housing has its advantages, he said. “By doing this co-location model, we get affordable housing. It’s very difficult to find housing for families and for teachers to live where they work,” Kelley said.

It’s also easier to finance building both at the same time, he said, without having to ask for a lot of subsidies from the city of Oakland. “By bringing them together, leveraging the different sources individually, it allows for something like this to happen,” Kelley said.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net

Glen’s SF East Bay Area Real Estate Market Update, October 31, 2017

East_Bay_Banner

Glen’s SF East Bay Area Real Estate Market Update

October 31, 2017

Zillow_Statistics

 

Here are some highlights for the 38 East Bay Cities that I track:

 

  • Following a dramatic 60% drop at the end of last year, inventory began its usual seasonal trend upward. Typically, we see a steady increase on a month by month basis to occur before finally peaking in September. This year has taken a slightly different course. Inventory has been fairly flat over the summer months fluctuating slightly up and down. We did see a decrease in the available housing inventory since last month. However, we are still well below where we were last year at this time by 22%. That’s concerning considering last year was a very “tight” market. Pendings were somewhat steady with a slight decrease from September. Our monthly supply is now 30 days. Last year, our months’ supply at this time was 39 days. As a reminder of what we mean by “months’ supply;” If no more homes come onto the market, and homes continue to sell at the same pace as they have been over the last 12 months, then the “months supply,” (in this case 30 days), tells us that’s how many days it would take to sell the remaining number of homes we currently have available for sale in any given market.
  • The number of pendings, (homes that are in contract), decreased slightly in comparison to last month, but is still below where we were last year by 15%. The pending active ratio increased to 1.33. This compares to last year at the same time of 1.22. This supply and demand ratio signals whether we’re in a sellers’ or buyers’ market. Typically, a number well above 1, (more inventory with less pending) favors sellers. A number below 1 favors buyers.
  • The percentage of homes “sitting” has increased slightly with 42% of the homes listed now remaining active for 30 days or longer, while 22% stayed on the market for 60 days or longer. This is lower than what we saw last year at this time.
  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market with only .02% of the active listings and .02% of sales over the past 4 months.

Months_Supply

 

  • The month’s supply for the combined 38 city area is 30 days. Historically, a 2 to 3 months supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern that we’ve seen over the past four years. However, we are well below supplies levels compared to last year at this time, of 39 days. However, this year the inventory level on the graph is shallower.

Active_&_Pendings

  • Our inventory for the East Bay (the 38 cities tracked) is now at 2,065 homes actively for sale. This is still above the December 2012 low of 1,086 and well less than last year at this time of 2,653 or (22% lower). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased slightly to 2,749, but lower than where we were last year at this time of 3,233 or (15% lower).

Pending_Active_Ratio

  • Our Pending/Active Ratio is 1.33. Last year at this time it was 1.22. This will be moving towards a more balanced or “normal.” (a ratio of 1 with an equal number of listings and pending sales) as we continue into fall and winter months.

Sales

  • Sales have decreased slightly from the last (4 month period) now at 9,203 for the 38 cities tracked. This is slightly higher than what we saw last year at this time (9,029).
  • The one factor that has changed this year is that we had a very late start to the spring season due to the heavy amount of rain received compared to very little in the preceding 3 years. The rains more than likely delayed many sellers from putting their homes up for sale early. They simply got a late start because they couldn’t work on the exterior of their homes during this time. Also, on average, homes are closing in fewer days than before. It seems that inventory is still being gobbled up but at a slightly faster pace than is being replenished. Inventory seemed to flatten out over the summer months and remains at a lower level when compared to last years numbers.
  • Sales over the last 4 months, on average, are 4% over the asking price for this area, greater than what we saw last year’s at this time, 3%.

Glen's_Numbers_Pg_1

Glen's_Numbers_Pg_2

Recent News

 

GOP tax proposal would gut affordable housing, state officials say

By KATY MURPHY,  Bay Area News Group, November 3, 2017

SACRAMENTO — Less than two months after California passed hard-fought bills to build more subsidized rental housing for the poor, affordable-housing advocates are reeling from a federal tax-reform proposal that could grind that momentum to a halt and wipe out an existing program that created roughly 20,000 such homes last year.

The GOP tax proposal, if passed in its current form, would take away tax exemptions that generate $2.2 billion annually for affordable housing construction in California. For context: The recession-era elimination of state redevelopment funding in 2011 — a move widely criticized as devastating to affordable housing — amounted to losses of roughly $1 billion per year.

“This is definitely a red alert for California,” said Matt Schwartz, president and CEO of California Housing Partnership, a San Francisco-based nonprofit housing organization. “The time is now for anybody who cares about our continued ability to produce affordable rental homes to engage.”

California had expected to build roughly 90,000 affordable housing units as a result of a $4 billion statewide housing bond — pending voter approval in November 2018 — and money from a bill by Sen. Toni Atkins, D-San Diego, which levies a fee on certain real-estate transactions.

That number would be cut in half under the tax proposal, officials say.

Like other states, California relies heavily on federal tax breaks to finance affordable housing projects. The GOP tax proposal would eliminate tax-exempt private activity bonds — which helped subsidize the construction of 20,000 affordable homes statewide last year — to help offset the cost of a lower corporate tax rate.

The plan could sharply curtail California’s efforts to help those who have been hit hardest by the housing crisis: seniors, and poor and disabled people. As details emerge, affordable housing advocates and developers are scrambling to mobilize opposition to an obscure-sounding tax policy with far-reaching, real-life implications.

“The newly released House Tax Reform bill would be catastrophic for affordable housing in California,” wrote Tia Boatman Patterson, executive director of the California Housing Finance Agency, in an alert sent Thursday to a handful of colleagues and groups, calling for “all hands on deck.”

Proponents of the tax reform plan say it will simplify a hopelessly complex tax code. And, because it would eliminate state and local deductions — another provision that has Californians howling — such a policy would discourage states like California from hiking taxes in the first place, argues state Sen. Jeff Stone, R-Murrietta.

“While some Californians will be adversely affected by an elimination of the deductions that currently exist for state and local taxes paid,” he said in a statement Friday, “a bigger question arises: Why don’t we just lower the tax burden on California’s hard working families in the State to offset the impact that comes with the removal of federal deduction for state income taxes?”

Stone was not available to address the proposal’s affordable-housing implications on Friday, and his office said staffers were still reviewing it.

The proposal could hurt affordable-housing financing in two ways: first, by eliminating a key tax credit, and second, by making the tax credits preserved under the federal proposal less valuable.

As the corporate tax rate drops, experts say, the tax burden will automatically lighten, giving investors less of a financial incentive to buy the credits, which are used to help pay for the costs of building a subsidized home.

Sen. Jim Beall, the South Bay Democrat who carried Senate Bill 3, which put the affordable-housing bond on next year’s ballot, said the proposal “will hurt thousands of California families, seniors and vets.”

“Giving big tax cuts to wealthy corporations at the expense of middle-income and low-income families who cannot afford to buy a home or rent an apartment is cruel,” Beall said in a statement to this news organization. “I urge Californians to contact their congressional representative about this bill and tell them to leave the Low-Income Housing Tax Credit and New Market Tax Credit programs untouched.’’

Carolina Reid, assistant professor of city and regional planning at UC Berkeley, said the proposal would be “absolutely devastating” for the state.

“California, with the housing package, was taking such a leadership role in addressing the housing crisis, and that can be completely undermined by these federal efforts,” she said. “It’s really troubling.”

California’s high taxes, costly housing mean trouble under GOP tax plan

By Kathleen Pender, SF Chronicle, November 2, 2017 

People who live in high-tax states with high housing prices would fare worst under the tax bill released by House Republicans Thursday.

Analysts are still poring over the details and crunching the numbers, but in general, “the bill is a large cut for businesses and a smaller tax cut for individuals,” said Howard Gleckman, a senior fellow with the Urban-Brookings Tax Policy Center.

The impact on individuals “will be very idiosyncratic. It depends on where you live, the makeup of your family, how you make your money,” Gleckman said.

A large family in a high-tax area with expensive housing would likely pay higher taxes than they do now. A working-class household in Peoria, Ill., depending on the family size, “may do pretty well,” Gleckman said.

The bill would cut the top corporate tax rate to 20 percent from 35 percent, and condense the number of individual tax rates to four — 12, 25, 35, and 39.6 percent. Today there are seven, ranging from 10 to 39.6 percent. However, the top tax rate would apply to taxable income over $1 million for married and $500,000 for single filers. Today it kicks in around $470,000 for married and $418,000 for single filers.

The bill would almost double the standard deduction to $24,000 for married couples and $12,000 for single filers, which means far fewer people would itemize deductions. However, large families could fare worse because it also would eliminate the personal exemption ($4,050) they can deduct for each member of the household, including college kids and adult dependents. Instead, it would increase the child tax credit to $1,600 from $1,000 for each child 16 and younger. It also would create a new “family credit,” equal to $300 for each parent and adult dependent, but this would expire after five years.

People in high-tax states could pay more. Today, if they itemize, they can deduct either state and local income or sales tax. California has the nation’s highest income tax rate at 13.3 percent.

People who itemize their deductions could still deduct their property taxes under the bill, but only up to $10,000 per year. Today there is no limit. If you bought a new California home for roughly $900,000 today, your state and local property taxes would be about $10,000 a year.

However, under current law, people who are subject to Alternative Minimum Tax get no benefit from the state and local income and property tax deductions. The bill would eliminate the AMT, taking the sting out of the loss of those deductions for those people.

What's_New_Tax_Plan

 

The proposal would cap the mortgage interest deduction on new home loans. Today, homeowners can deduct interest on up to $1 million in mortgage debt used to buy, build or improve a first and second home, plus up to $100,000 in other mortgage debt (such as a home-equity loan used to buy a car). For existing mortgages, those rules would not change. But starting Nov. 2, if you took out a new loan, you could only deduct interest on up to $500,000 in mortgage debt on a principal residence and no interest on new home-equity debt.

The bill also would make it a little harder to shield capital gains tax on a home. Today, you can exclude up to $250,000 in capital gains ($500,000 if married) when you sell your house, as long as you have owned and used it as your primary residence for at least two of the past five years. The bill would change this to five of the past eight years.

The bill kills most tax benefits for higher education, including deductions for student loan interest and tuition and fees and the Lifetime Learning and Hope Scholarship credits. It retains the American Opportunity Tax Credit and extends it, albeit by half, for students taking a fifth year of college.

In a major change, profits from partnerships, sole proprietorships and other “pass-through” entities would be treated like business income and taxed at the top rate of 25 percent. Today it’s taxed like ordinary income at rates up to 39.6 percent. The bill includes complex “anti-abuse” provisions designed to prevent employees from becoming self-employed just to reduce their taxes.

The 429-page “Tax Cuts and Jobs Act’’ would almost double the estate-tax exemption to $10 million per person and kill the estate tax altogether after 2023.

It retains the Medicare surcharge on investment income and ordinary income above certain limits and the deduction for contributions to 401(k) plans. Cutting the latter has been suggested as a way to offset the cost of the plan, which is estimated at $1.5 trillion over 10 years.

Some surprises buried in the fine print: You would be able to make contributions to a 529 college savings plan for an unborn fetus, the tax credit for adoptions would be eliminated, and churches could make political statements, said William Gale of the Tax Policy Center.

The taxation of alimony would change for people getting divorced in the future. Today, the person getting the alimony claims it as income and the payer gets to deduct it. In the future, alimony would not be taxable or tax-deductible, putting it on the same footing as child support payments, Gale said.

Nicole Kaeding, an economist with the Tax Foundation, said the “vast majority” of Americans would get a tax cut under the plan. People who now claim large deductions for state and local income and property taxes and mortgage interest might not.

The bill’s author, Kevin Brady, R-Texas, said that a family of four making $59,000 a year would save almost $1,200.

Gene Sperling, who served as the principal economic policy adviser for Presidents Bill Clinton and Barack Obama, said in a new conference that the plan fails the test of “fiscal sanity, fairness and moral authority.” He criticized it for permanently cutting taxes for businesses and wealthy individuals, but providing smaller tax cuts for low- and middle-income families and making some of them temporary.

President Trump endorsed the tax plan and said he wants it passed by Thanksgiving.

Zillow tells first-time homebuyers: Buy now before prices jump even higher

By Svenja Gudell, SF Business Times, Novemeber 9, 2017

With home prices still expected to rise in the next year, real estate information company Zillow is advising prospective first-timers: Buy now.

For many first-time homebuyers, the biggest factor in being able to buy a home is amassing the down payment. Some people save for years to patch together enough money to put down for a home in the Bay Area, one of the most expensive home markets in the country.

But waiting too long can be more expensive than taking the plunge now, Zillow found in a recent analysis.

“Sky-high rents and rising home prices are putting first-time buyers in a bit of a catch-22,” said Svenja Gudell, Zillow chief economist, in a statement. “A renter who saves for another year to reach a larger down payment may find that the home they love today is outside their budget a year from now.”

Borrowers are generally encouraged to make a down payment of 20 percent of a home’s purchase price. Those who put down less usually have to buy private mortgage insurance and may face higher loan rates as well.

At the same time, prospective buyers aiming for the 20 percent benchmark might not ever make that goal if prices rise faster than savings rates. The majority of first-time buyers — 59 percent — put down less than 20 percent for their down payments, according to Zillow research.

That is especially true in the Bay Area, where prices are already high that annual increase of a few percentage points can translate into home prices ballooning by tens of thousands of dollars.

Here are some examples:

For San Francisco, Zillow projects a rise of 1.3 percent, or about $11,538 to an average of $876,938 in September of 2018. A 20 percent down payment would be $175,388 — or $2,304 more than you would have put down the year before. That means $192 more in savings each month.

Nationwide, prices are expected to go up by $6,275 to an average price of $208,975 in September of 2018 that would require a $105 bump in savings per month for prospective homebuyers gearing for a 20 percent down payment.

Overall, home-ownership rates are inching downward, especially for the younger generations who tend to stock the nation’s pool of first-time buyers.

The main barrier for many would-be buyers is the high pricetag of a home, which in turn requires a higher down payment, according to a study published in May by Apartment List, a San Francisco-based rental listings site.

“Millennials in many of the nation’s large metros will need at least a decade to save enough money for a 20 percent down payment on a condo. Millennials in San Francisco, San Diego, Los Angeles, Austin and San Jose each face a wait of at least 19 years,” the study found.

Would-be buyers need not lose all hope — it is still possible to buy a home with less than a 20 percent down payment, Zillow states in its 2017 Consumer Housing Trends Report.

“Today’s low mortgage rates make it so a monthly mortgage payment is still likely to be lower than a monthly rental payment in many markets,” the report states. “Buying may not be as far out of reach as many think.”

After long wait, massive Oak Knoll housing project approved

By DAVID DEBOLT, East Bay Times, November 8, 2017

OAKLAND — After so many years of starts and stops, some would be forgiven for thinking the former Oak Knoll Naval Hospital would remain a ghost of its past, nothing more.

But the Oakland City Council on Tuesday evening ended the long wait over the site’s fate by voting to approve the construction of 918 townhomes and houses at the former military hospital above Interstate 580. The project will represent one of the largest developments in the city recent years, in terms of acreage.

Spread over 187 acres, the proposed development includes 72,000 square feet of retail property, 67 acres of open space, biking and walking trails, a restored creek and art installations.

Bay Area rents still a struggle for residents

By LOUIS HANSEN, East Bay Times, November 9, 2017

Nearly half the renters in the Bay Area struggle to meet high housing costs, despite an influx of wealthier workers into the market, a new survey found.

A study by Apartment List, a rental website, found nearly 1 in 4 renters in San Jose, San Francisco, Oakland and surrounding areas were severely cost burdened, spending more than half of their income on rent. About half of Bay Area renters are considered economically burdened, spending over 30 percent of their paychecks on shelter.

But the region’s record-setting housing prices are forcing high wage earners into the rental market, too. Real estate agents and researchers say wealthier clients in the Bay Area are choosing to rent because they can’t afford to buy. Even well-paid young tech workers are finding it hard to break into a housing market where the median single family home price is $775,000.

“Rents are out of control. Everybody knows that,” said David Hunt, operations manager for property management company WA Krauss. But few prospective renters have trouble meeting income qualifications for their 450 rental properties around the Bay Area, Hunt said.

“There’s a lot of money here,” he said.

Average rents have continued to surge, growing up to five percent over the past year in some cities. In San Jose, a one-bedroom goes for $2,050 and two bedroom for $2,570. In Oakland, the typical one bedroom costs $1,780 and a two-bedroom costs $2,240. And in San Francisco, the average rents are $2,450 for a one-bedroom and $3,080 for a two-bedroom, according to Apartment List.

The survey is the latest to spotlight the housing pinch on renters in Silicon Valley. Researchers at UCLA found that nearly 80 percent of residents in the San Francisco metro area earning under $50,000 are spending more than 30 percent of their income on rent.

The Apartment List study considered income and rental costs when calculating an index of affordability. Among the top 100 metro areas in the country, San Jose was ranked at 51 and San Francisco at 30 for affordability, reflecting the Bay Area’s strong economy and higher salaries.

But that doesn’t tell the whole story, Bennet said. Lower income renters have been forced to leave the region for cheaper cities and states, she said. Others are leaving apartments to return to family homes.

California and Florida have the highest percentage of renters paying more than 30 percent of their paychecks for shelter. Los Angeles and Miami ranked near the bottom of the index for affordability.

The study also found the share of cost-burdened renters has soared over generations. Just one-quarter of U.S. residents paid more than one-third of their income to rent in 1960; that percentage is now nearly 50 percent.

Among the most affordable places to live include Ogden, Utah; Pittsburgh and Kansas City, according to the survey. Several California cities were deemed the least affordable for renters, including struggling metro areas of Oxnard and Fresno.

Jeff Barnett, vice president of Alain Pinel Realtors, said the Bay Area rental market has flattened out recently, but still stretches the budgets of many new residents. Rental prices are so high, he said, that some families may be better off reaching a bit to buy a starter home or condo.

“You have to be a little more creative, and save a little more money,” Barnett said. “It’s one of the most beautiful places in the world, but we pay for it.”

 

Home prices expected to soar in North Bay fire zone as Bay Area costs grow

By Kathleen Pender, SF Chronicle, October 27, 2017 

A shortage of homes for sale combined with strong demand continued to push up Bay Area home prices last month, and the situation is only going to get worse in the North Bay when those displaced by the wildfires seek new housing.

The inventory shortage is statewide but “particularly acute in the Bay Area,” the California Association of Realtors said in a news release.

On Friday, CoreLogic reported that the median price of new and existing single-family homes and condos in Bay Area hit $739,000 in September. That was up 13.7 percent from September 2016, the largest yearly gain for any month since January 2014. It was down 0.1 percent from August, reflecting a normal seasonal slowdown.

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It’s too early to know what impact the Wine Country fires, which started Oct. 8 and destroyed an estimated 8,800 structures, are having on home prices and sales in the North Bay. The CoreLogic report reflects transactions that were recorded in September.

Bay Area hammered by loss of 4,700 jobs

Lack of affordable housing strangles hiring efforts

By GEORGE AVALOS, Bay Area News Group, October 20, 2017

For the second straight month, the Bay Area lost thousands of jobs in September, making it the worst month for employment locally since February 2010.

The setback for the local economy comes as the crucial holiday shopping and hiring season draws near, and contrasts with a strong hiring picture statewide.

The Bay Area’s job losses stem from two distinct phenomena: Some employers are slashing positions, and others are unable to hire. Some economists attribute this second problem to structural barriers posed by skyrocketing housing costs. The lack of affordable places for workers to live appears to have hobbled the region’s ability to fill jobs as briskly as in prior years.

“Housing is the chain on the dog that is chasing a squirrel,” said Christopher Thornberg, principal economist and founding partner with Beacon Economics. “Once that chain runs out, it yanks the dog back.”

Overall, the Bay Area lost 4,700 jobs last month. While some smaller metropolitan areas in the region had job gains, employers shed 1,300 jobs in Santa Clara County, 1,700 in the San Francisco-San Mateo region and 2,600 in the East Bay, seasonally adjusted figures from the state’s Employment Development Department show.

The September losses, combined with 2,400 job losses reported by the EDD for August, paint an unsettling picture and lend credence to the assessment from a growing number of experts that the Bay Area’s job growth has begun to slow dramatically.

“The slowdown is real,” said Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy. “There were times this year we thought that job losses here and there were just temporary. But the slowdown is a fact. It’s happening.”

The lack of housing also makes it tough for employees to live near their workplaces, forcing many into lengthy commutes on roads choked with traffic. Some prospective employees decide they’d rather not bother.

“The economy in the Bay Area has pushed up against the physical limits of a lack of housing and a lack of places for workers to live,” said Jeffrey Michael, director of the Stockton-based Center for Business and Policy Research at University of the Pacific.

Over the 12 months that ended in September, the Bay Area added 50,400 jobs, a 1.3 percent increase in total payroll jobs during the one-year period.

By comparison, that’s less than half the growth of 2016. Bay Area job growth was 2.9 percent in 2016, 3.7 percent in 2015, 3.4 percent in 2014 and 3.5 percent in 2013, this news organization’s analysis of the EDD figures shows.

The Bay Area’s employment struggles contrasted sharply with statewide job trends.

California added 52,200 jobs in September, and the statewide unemployment rate remained unchanged at 5.1 percent, the EDD reported.

Despite the Bay Area’s increasingly sluggish picture, experts said Friday that the region doesn’t seem to be headed into a protracted downturn or outright contraction.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net