A Few Facts About the California 2016 Housing Market

Every fall a comprehensive report comes out by the California Association of Realtors assessing the current year's activity and projections for the next year.  The second slide shows prior years selling prices and percent change from prior year, interest rates, and affordability indices.

Interestingly, when asked "Which of the following is your dream home?", 32 percent of those surveyed want a Craftsman bungalow, getting the highest number of votes.  Perhaps that's not surprising when you, the audience member, look at the settings for numerous TV shows and home advertisements, i.e., "Blue Bloods" for one. Craftsman homes have lots of wood, warmth and old-fashioned craftsmanship plus a feeling of years of established family ownership in practically all cities in the U.S.

Certainly in Long Beach there are several neighborhoods in which to find one.  But, what does it take to own one?  From 2010, the CA median house price has risen from $305,000 to the current $476,000, and up to a projected $491,000 for 2016.  The good news for buyers is that the rate of increase is slowing to a projected 3.2% increase for next year.  But the other news for buyers is that, as early as December, we may receive the long awaited news about an interest rate increase--already anticipated in the financial markets.  So the rates under 4% for so long are likely to be up to 4.5% next year.  Sales volume is still expected to go higher, hopefully a release from the long-depressed inventory.

Using statewide medians, that 2015 median priced home at $476,000 is probably going to be about $15,000 higher, and the interest rates will be about .5% higher.  Looking at principal and interest only, a mortgage payment could go from $1796.11 (20% down, SP $476,000, 3.99%) to $1990.26 per month for a 2016 $491,000 house at 4.5% interest with same assumptions.

For buyers who do not know any other market except the current very low interest one, this may seem like very foreign territory.  But it's still not such a bad time to buy.

Too see the entire CAR 2016 report in pdf format, click here or see below in ScribD


How Much Can You Rely on Automated Home Value Widgets?

Have you looked for a new car lately?  If you're like me, you checked out everything you could find on the internet before you ever went to a dealership for a test drive. 

The websites have interior and exterior 360 degree photos, closeups, zoom capability, video, and even the actual car price, which we equate with value. That's something we love, knowing the price, not the one we have to haggle over. You get everything on the internet except the new car smell--minus one more thing, the actual driving experience.

It's the same with house listings, there's so much available information on numerous sites, and the photos often make them look so attractive that you might think you want that one .  But unlike a car, a house price reflects many more "moving parts", condition, location, upgrades, additions, deferred maintenance, permits or lack thereof, remodel, the immediate surroundings, earthquake zones, flood zones, and much more.  And like buying a car, you really have to be there to see for yourself. The asking price could be very different from value when all is said and done with negotiations and the appraisal.

So what does this mean for AVMs (automated valuation models) such as Zillow and its "Zestimates", and other valuation widgets found on many home search sites?  It means that they are tools, rather general tools, but like driving the car and seeing the house, you have to be there. AVMs can't judge the condition of the house, or know how many prior water damage claims were submitted on it, or check the unpermitted rooms, or see if there are title defects which will prevent mortgage financing.  Zillow values are calculated on public records (strictly data oriented) and user submitted data points (selective pool of information).  By the time a given property is negotiated through buyer/seller agreements, the value may be off by as much as 30% from a Zillow estimate.   Zillow's CEO recently sold his house:
     To see a Zestimate at work, consider the fact that in July of this year Zillow Group CEO Spencer Rascoff listed his four-bedroom home in Seattle, Washington, for $1.295 million. At the time, the Zillow Zestimate valued the home at about $1.39 million. That’s over 7% higher than the list price, but within the Zillow median margin of error.
     Gordon Stephenson, the listing agent for Rascoff, told industry publication Inman that Zillow probably overestimated the value of Rascoff’s home because “its algorithm might not have accounted for the home’s unique floor plan.”  Christian Science Monitor, November 14, 2015.
When an appraiser performs his/her job during escrow, an AVM is not a part of the process. When a Realtor helps a seller or buyer established listing or offer price, knowledge of appraisal parameters may be used along with knowledge of recent sales and individualized comparisons to other properties. 
Algorithms and weights assigned to data can be educational up to a point, depending on what properties get caught in the AVM's net, but when a buyer sees multiple houses combined with knowledge of area sales, the reasons for the final result become known. 
So automated robotic prices are fun to look at and may help educate on overall price range for a given area, but they are not a substitute for a complete home price determination.

See the complete Christian Science Monitor article.


Signal Hill's Skyline Estates Dream Home with World-Class Views!

Home on Sea Ridge
This desirable highly sought after home is located in the Signal Hill development of Skyline Estates. Situated on a unique promontory in the highly coveted “Sea Ridge” with sweeping and explosive views from Palos Verdes to the Pacific Ocean to Newport Beach. The views from this home are unparalleled. The three-level floor plan features a formal dining room, formal living room, spectacular ‘Chef’s’ kitchen with GE Monogram appliances, double ovens, center island and breakfast bar that opens up into the family room with expansive windows offering impressive views of downtown Long Beach. 
View towards San Pedro
Three bedrooms are located on the first floor with one being a second master en-suite. The spacious master retreat features lounge, massive walk-in closet. master bath with dual vanities and spectacular tub featuring city views. Wonderful backyard with fireplace and BBQ is perfect for entertaining year round. 

Excellent location close to the community walking trails, and pool. Just minutes to Belmont Shore, Downtown Long Beach and freeway access.
Association dues include community pool and paved road.
Information per MLS# PW15230654
View of downtown Long Beach

See the video and/or find out more about this home, please contact me at 562-896-2609.


Congress Still May Tax Mortgages to Pay for Highways

The real estate industry and those purchasing or selling residential properties are often the focus/target of politicians looking for a vehicle for passing a law. They don't always get passed, fortunately, so the general public is usually not aware. However, the following bill is still in the works, and is a good example of another attempt to get, in this case homeowners, to pay more money for something which should be funded by the entire public, assuming it is truly needed:

 Back in July the U.S. Senate passed a long-term Transportation funding bill that includes a tax on mortgages to pay for the construction of highways. To make it more palatable to Republican lawmakers, this tax has been disguised as a “fee.” This tax isn’t small potatoes either.

On a median priced home in California ($489,560), homeowners could pay over $8,000 for this tax.

While the Senate has passed its version of the long-term Transportation bill, the House has merely passed a short-term version to keep the federal Transportation Department open. The House plans to pass its own version sometime this fall, but there’s no guarantee that this new tax won’t be included in that version. The California Association of REALTORS® is actively opposing this approach to paying for the highway bill and is encouraging the public to get involved.

People are urged to visit www.nomortgagetax.org and go to the “Take Action” tab to send a personal message to Congress to oppose the tax. The public can also get updates on Facebook at www.facebook.com/no.mortgage.tax or follow the campaign on Twitter™ at @NoMortgTax.

Under current law, a portion of every conforming loan, (those backed by Fannie Mae and Freddie Mac) includes a fee used to offset losses from bad loans and to pay for the administrative costs of running these companies. These are called guarantee fees (or g-fees). In 2011 Congress added on an additional.1% increase on the interest rate of every Fannie and Freddie mortgage to fund a six month extension of unemployment benefits. That “add on” was due to expire in 2021 and loans originated after that date would not be subject to the additional fee.

The U.S. Senate’s highway bill extends the “add-on” fee until 2025 for all new mortgages in order to pay for transportation infrastructure. As an example using real numbers, buyers purchasing a median priced home of $489,560 using a typical conforming loan with a 20% down payment will pay an additional $8,100. This figure is sure to rise with an increase in sales prices.

You can contact your representative (go to the website above) to register your opinion on this.


Points to Ponder When Considering A California Condo or Homeowner Association

Versailles HOA Condominiums
Single Family in Bixby Village HOA
Condominiums and other types of units in common interest developments (CID) are very appealing because they may offer homeownership in an area where houses cost much more, security, amenities, neighbor accountability, and less personal responsibility for certain maintenance issues that might otherwise be required in a non-CID single family home.

The most common form of ownership in Southern California is ownership in a condominium project where the owner has title to an individual unit and an undivided interest in the common area. Other forms are stock co-op, own-your-owns, and planned unit developments (PUDs).

The common areas are the areas outside the unit such as walkways and lobbies.  They also include, if present, exclusive use areas such as parking spaces, balconies, and private patios, which many people think they bought when they bought their condo, but in almost all circumstances what they acquired was the right to exclusively use them.

A standard part of the purchase contract includes the receipt and review of association documents which the seller is required to provide.  So often, though, these documents, which include the CCRs, the Rules and Regulations, and By-Laws, are not so thoroughly looked at during the buyer's contingency period, because there seems to be so much else to do, like go to your job everyday.  So the more you know beforehand, the better off you'll be.  Some of the more common concerns that pop up are pets, parking, smoking, and the hours on the association swimming pool or tennis court.  HOAs may regulate the number and type of pets within the guidelines of the pet law; smoking is becoming more of an issue even within private units because smoke drifts out windows; and be prepared to carefully check out the assigned parking area because you'll be signing a disclosure form from the seller so that your oversize truck does not become an issue when you move in.  Why is it so important to know your documents? Because they are voted in by the association members, and they form a contract between the owners and the Board of Directors whose duty it is to enforce them.

If you are buying into a small association, you want to verify that they have an active association as required by law--nothing could be worse than paying dues and not knowing where the money is going.  How old are their CCRs?  Yes, it's still not unusual to find 30-unit associations operating on original documents from the 1970s.  Just be aware that many California laws have changed since then and that older documents will not reflect those laws.  Associations are required to make a growing number of annual disclosures to their members, i.e., starting 1/1/2016, they must disclose in their annual budget if the project is FHA/VA qualified (FYI:  a growing number of formerly FHA-approved associations are not meeting current FHA requirements).

An important law effective January 1, 2015 requires the seller to pay upfront for all HOA documents (per Civil Code Sec. 4525) provided to the buyer.  This can amount to several hundred dollars depending on property management companies who typically manage the transmission for the seller; so the seller may instead forward complete copies directly with written verification (form provided by your Realtor) if he/she already possesses them.  You the seller will have to order what you do not have, but your costs should be greatly reduced.  The contract specifically details these and other HOA documents, and what the buyer or seller will pay for, because non-required documents may be paid for by the buyer.  A new owner could expect to find topics addressing solar panels, satellite dishes, roofing materials, sign and/or flag displays, right of board entry (or not), tenant use of common area, storage, parking, noise, use of swimming pools, architectural control, smoking, and much more including the owner's duty to pay dues and other assessments, what the board may impose a lien on and how, and how the board is elected.

 If you would like a more detailed written discussion about the rights and responsibility of homeownership in various types of common interest developments, please contact me with your information and I will forward you the information.


REDUCED. Extensively Remodeled 1923 Cape Cod Style Home in Belmont Heights ...

Belmont Heights CraftsmanNow priced at $999,789. October 28 2015.
Remodeled, but with its original character. This is the home for you, just 12 lots from 2nd Street in Belmont Shore, shops and fun. This 1923 Cape Cod is in prime Belmont Heights on a northwest corner lot which offers morning, afternoon and evening light/sun. This home has all the character and charm that anyone could ever want, and can easily be used as a 4 bedroom 2.5 bath home.

The 3rd floor works beautifully as a large master with 3/4 bath, or guest suite, with expansive ocean/water views. As you enter the living room you will see the original hard wood floors with dark wood inlays, a Batchelder tile fireplace, and custom crown molding and plantation shutters covering the double paned windows. The large formal dining room has original inlays as well as original corner builtins. The kitchen also has a cozy fireplace,  granite counters and tons of storage. The 2nd floor offers 3 bedrooms, including an office with builtins, plus a large bath. The large master on the 2nd floor has dual closets and a features a sitting area. This home offers central heat updated electrical, copper plumbing, central heat. Also featured is a subterranean 15x140 garage so no land is wasted on driveway and garage.
Asking $1,099,999.  Click on link for more photos and floor plan.

For more information on availability of this property, please contact me soon! 562-896-2609


Are You Taking All Your Tax Deductions?

It's never too early to review what the tax advantages are for you as a homeowner or a future homeowner.

Homeownership comes with many benefits, including some sizeable tax deductions.

For more specific information, ask your accountant or tax professional about whether these deductions apply to you. Also, more information is available in the many publication published on the IRS and California FTB web sites.

  • Mortgage interest – You may be able to deduct all interest paid on your mortgage.
  • Mortgage insurance – Mortgage insurance on government-backed mortgages may be deductible in the same way as mortgage interest.
  • Local property tax – You may deduct property taxes paid to the county tax collector.
  • Points & prepaid interest – Points and charges paid to obtain a mortgage for a home purchase or improvements may be deductible.
  • Home office deduction – The portion of your home used exclusively and regularly as an office space is deductible from your taxable income.
  • Green energy tax credit – Installation of renewable energy systems may be eligible for deductions up to 30%.
  • Moving expenses – If you moved more than 50 miles for a job opportunity, you may be eligible for moving deductions.
  • Renovation/demolition salvage – If you donated construction materials or demolition waste to a qualified charity, you may deduct the value of the donated materials.
  • Improvements added to basis – Qualifying improvements added to your cost basis may reduce your capital gains tax owed if you later sell your home.
  • Withholding credit for investors – If you purchased or sold an income property and 3.33% was withheld, check out the Franchise Tax Board’s withholding criteria to ensure you receive credits.
Looking to buy or sell your home? Call me today or go to my website at www.juliahuntsman.com.


Some Types of Taxes When Selling Real Estate, and a 1031 Exchange May Save Money

There are certain differences between owner-occupied property and investor property (non-owner occupied) when it comes to selling--and buying, but here we are concerned more with selling.

Some owners who have rented out their residences and moved on to another location are surprised to find out when it comes time to sell that they may have lost their capital gains exclusion ($250,000, or $500,000 for married owners). On top of that, they may be paying the State of California 3-1/3% withholding tax upfront at the close of escrow.  Additionally, if you took depreciation on an income property you now own as an investor, you will have additional reckoning at tax time.  Please see IRS Publication 523 for specific information.

Depreciation is a method for matching the costs of acquiring property over the properties’ estimated
economic life.  The IRS requires that most properties be depreciated via the ‘straight-line’ depreciation method.  Using the straight-line method, residential income properties are depreciated over 27.5 years.  Commercial properties are depreciated over 39 years.

Depreciation Calculations
Land is not depreciable.  In order to properly calculate depreciation, the value of land must be excluded. For example, a $1MM duplex with land worth $300,000 has $700,000 worth of depreciable real estate.  Using the straight-line depreciation method, the annual depreciation amount is approximately $25,500 ($700,000/27.5)  NOTE: The IRS will typically not challenge the assessment of the land value if it is reasonable. A tax advisor, attorney or real estate agent should be able to provide guidance for what is reasonable based on the location and type of land.

Depreciation Benefits
Depreciation is an ‘intangible expense’ that will reduce the reportable taxable income from the property, and means less tax to the IRS.
Here’s how it works:
The yearly rental income from the example duplex is $36,000. At the end of the year, this will have to
be reported to the IRS. However, the IRS does not tax the entire $36,000. The taxable income from the property is calculated as follows:
  • Rental Income
  • (Expenses)
  • (Depreciation)
  • Taxable Rental Income
If the expenses of operating and managing the duplex are $5,000 for the year, the taxable rental
income is calculated as follows:
  • Rental Income $36,000
  • (Expenses) ($5,000)
  • (Depreciation) ($25,500)
  • Taxable Rental Income $5,500
NOTE: Please always seek the guidance of a tax advisor. Capital gains may or may not apply depending on how long you lived in the property, and depreciation items may be calculated on different schedules. To completely avoid last minute upsets and lose your deal, it's important to obtain your information before you sell--I once represented a buyer on a very nice fourplex where the seller finally obtained tax guidance after we opened escrow, only to be shocked by how much recapture tax had to be paid to the IRS since the property had been owned long enough to be fully depreciated.  The seller cancelled escrow, much to the buyer's disappointment.

Depreciation Tax
Upon the sale of an investment property, the IRS requires the payment of a depreciation re
tax, which means you have to "pay back" the money you were entitled to take previously. The tax rate is currently set at 25%. In the example above, if the duplex was owned for 10 years, the entire depreciation taken on the property would amount to $255,000 ($25,500 x 10).  The IRS requires a recapture tax on that entire amount. Hence, the sale of the duplex will result in a $63,750 depreciation recapture tax (255,000 x 25%). This is in addition to state and federal capital gains taxes. The depreciation recapture tax as well as any associated capital gains taxes can be deferred in full via a 1031 Exchange.

Of all the benefits of owning real estate, depreciation may be one of the most important. The tax advantage depreciation offers is powerful. The IRS will always assume that depreciation is taken and
will hold an investor liable for the deprecation recapture tax – even if the investor failed to take advantage of the depreciation. Bottom line: make sure you are taking advantage of this powerful tool.
Thanks to Asset Exchange Company for this sample.


Prices in Long Beach, Lakewood, Cerritos, Signal Hill

Home prices continue to rise in Los Angeles and Orange Counties, 6% to June of this year from June of last year according to the Los Angeles Times.  In the four cities below, the average days on market for a single family home in August ranges from 41 days (Lakewood) to 67 days (Signal Hill). Long Beach had total closings of 193 (not surprising since it's the largest city of the four), Signal Hill had 6 closed sales, Cerritos had 26 sales, and Lakewood had 72 sales.

Even though the National Association of Realtors® reported that sales in July were the highest since 2007, Long Beach and Cerritos sales volume decreased somewhat in August.

Housing inventory is still low, although a recent daily trend for the local market shows a higher number of new listings in the MLS than closed sales. For August, however, each of the four cities below shows a decrease in inventory supply from the prior month: 1.6 months (Lakewood) being the lowest, and 3.7 months (Signal Hill) being the highest. Long Beach had 2.2 months supply in August. The traditional norm for a normal market supply has been 6 months.  This is a long term trend: Prices go up while inventory remains low.

Condo prices, which are typically lower than single family home prices, also increased from the prior month: average prices in Lakewood -- $485,000; Signal Hill -- $379,000; Long Beach -- $362,000; Cerritos -- $392,000; all prices represent increases from prior month range from 2% (Signal Hill) to 60% (Lakewood).


Don't Overprice Your Home's Asking Price

When a willing buyer and a willing seller complete a home sale, they have just announced to the world what the value of that property is.  That home may now be used as a marker for other similar home sales, based on other factors:

Location - proximity to community attributes such as parks, schools, and job market usually has more desirability to the buyer.
Size - Larger homes and larger lots may sell for more, and comparing a home to one that is much larger or much smaller could lead to the wrong pricing.  A buyer's lender may have very specific criteria on size when it comes time for the appraisal.
Bedrooms and bathrooms - The most common request from buyers today is for a three-bedroom, two-bath home; families today want and expect more privacy than in prior eras. And, the difference between a two-bedroom vs. a three-bedroom home may be critical for the buyer.
Features - Luxury sells, and homes with newer flooring, newer counters and cabinets are perceived as more luxurious and appealing. Some features such as spas and pools may not be worth extra to the buyer, these are often market-led factors. Newer landscaping may be a comparison item depending on the area.
Condition - A newer home that is well-maintained retains more of its original value, as do updated older homes. Homes with deferred maintenance sell for less.
Appeal - A home that looks inviting on both the exterior and the interior may be able to compensate somewhat for a less desirable location, or some other condition the seller has no control over.

If your house looks like this . . .
Too often sellers based an asking price on their own perceived value, or because they are comparing their property to a recent sale that is not completely comparable to theirs. Understanding how the buyer views the property, using the proper sale comparables most likely to be used by an appraiser, and seeing how their property stacks up against the immediate competition in the local market are important tools for seller objectivity.

It cannot be compared to this.
The public online valuation systems may be very accessible and offer quick valuations, but the homeowner should keep in mind that these systems do not use software that can "see" the home the way the buyer or your REALTOR does.  They use the public tax records, and may include properties inappropriate for yours.  As an example, 9 recently sold SFRs or condo properties in the Long Beach 90803 zip code between February 25th and August 4th, 2015 varied as much as 68% between the actual sales price and the online value estimate by a popular website company.  (Many real estate data sources within the industry do use AVMs, but some are "closer" to value than others.)  In this particular instance with the 9 properties, 6 of the properties were overestimated in value, and 3 were underestimated.  Two of the underestimated were within 1.8% of the actual selling price, which is a realistic market difference, while the third underestimated value was 17% less, which is far outside of the average  list-to-sell price.  The condo that was overestimated in value by 68% at $572,000 actually sold at $339,000.  Other estimates ranged between 7% to 41% over selling price. 

Speaking of estimates, the value of an experienced real estate professional cannot be underestimated. A good market opinion and strategy can earn you more money at the close, and save unnecessary time on the market.  Please contact me, a professional with 20 years' of experience! 


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