The Roaring 20s – 2.0!
A REAL ESTATE RECAP FOR 2021
Welcome to the Roaring 20s – 2.0!?The past 12-months have offered a year of unprecedented and multi-faceted forces on our real estate marketplace. Here are a dozen things that have happened in the past year related to your home’s value.
?1.????Increasing values! Our property values soared across the past year – up 12-20% depending on the specifics of your home’s location, size and condition! In fact, our local property values have been trending upwards for the past decade since the market bottomed out in 2011. Unfortunately, if you were trying to buy real estate in 2021, you were in one of 2 situations: either a BIG winner possibly paying more than you ever dreamed you would or you got completely fatigued from making multiple offers to purchase properties that were not accepted. These past 12 months have seen record high sales prices, allowing sellers to exceed their sales price expectations in many cases and have given buyers a real test of their willingness to pay more and persevere among multiple offer situations.
2.????Low inventory – The number of homes for sale was down by as much as 50% from what we would consider a “normal” market. Only about 4.6% of owners were sellers which means that 95.4% of us stayed put in our homes this year.
3.????Historically low interest rates/higher mortgage loan limits – With the Federal government’s support during this COVID crisis time, interest rates have stayed in the 2.5-3% range for a 30-year fixed rate home mortgage.?Compared to the peak interest rates of 21.50% in 1980, this makes housing affordability way more doable. In addition, due to the rising prices of homes, the Federal Housing Finance Agency (FHFA) has continued to raise conforming loan limits again for 2021 and 2022.
4.????Increasing rental values – With growing costs to rent, the gap between renting and owning a home has narrowed. Homeownership has many more tax benefits than paying someone else’s mortgage through renting. Might be worth learning more about to make your hard-earned money go further and grow faster.
5.????Down payment assistance – This year has seen many more of my buyers get help/gift monies from their parents/grandparents/relatives to accumulate the amounts needed to purchase. If you earn a solid income, the hardest part of homebuying can be the gathering of 15-20% for the down payment as these property values have skyrocketed. ?Your monthly payment of principal, interest, property taxes and insurance (PITI) are really the most important considerations you need to be able to afford.
6.????Great condition paying dividends – When homes have been remodeled, expanded or improved, buyers are even more enthused about paying more for a home.?If a home needs updating, remodeling or repairs, buyers are less inclined to compete as generously. High prices often mean homeowners are working harder to afford the payments. They, therefore, have less time and money to do improvements.?With this inexpensive rate environment, having a move-in ready home is highly attractive. As seen particularly with the new build projects selling in our market, “new” and “done” are highly desirable conditions to deliver top dollar in sales prices.
7.????Homeowner capital gains tax exemption on appreciated values – Many homeowners have found the opportunity desirable to sell their smaller home to purchase a bigger home during these times that have created much more work/school from home situations. You can sell your primary residence and be exempt from capital gains taxes on the first $250,000 if you are single and $500,000 if married filing jointly. You can benefit from this every 2 years related only to your primary residence. Check with your tax professional on how this can be quite a windfall of legally untaxable income.
8.????The buyer pool has expanded and shifted - Migration patterns have been affected by the pandemic causing changes in people’s living needs. Thus, people are moving in and people are moving out of Los Angeles.?Millennials (ages 25-40 years old) are entering the homebuying market at a greater rate creating more competition. Baby Boomers (ages 57-75 years old) are downsizing, relocating or simply cashing out in some cases. Investors locally and from abroad are investing in home purchases as a hedge against inflation. In fact, on the Westside, 59% of residents are renters while only 41% are homeowners.
9.????Pressure for increased housing units in California is leading to significant Zoning changes - Beware of the CPU (Community Plan Updates) that are happening across Los Angeles.?The Governor’s mandate to build more housing for Californians is causing some large-scale building booms in multi-family units.?Areas of our city are being upzoned to allow for much greater density in our neighborhoods. In addition, ADUs (accessory dwelling units)/garage conversions to living spaces are on the rise, helping homeowners to bring in extra income from renting the second living space on their lot, add a remote work space at home or allow for multi-generational living situations.
10. Densification Senate bills 9 & 10 by Weiner – Be aware that Senator Scott Weiner (D- San Francisco) has had multiple bills defeated previously and he strikes again here. SB 9 & 10 are designed to densify and forever change the single-family housing landscape in California. ?Designed to eliminate R-1 (residential 1 unit) zones, these bills could potentially allow for lot subdivisions and from 4-10 units to be constructed on a single residential lot. Can you imagine your next-door-neighbor building 3-9 more living spaces on their property? ADUs began the dismantling of R-1 zoning by allowing garages to be converted into living spaces vs parking spaces.?That allowed for R 1.5 zoning permissions to take hold. Now, these bills could devastate, in my opinion, the neighborhoods we hold dear. Please get informed and involved on what impact these Senate Bills could have on your homeownership.
11. Supply chain shortages – As you may be aware from other areas of your life, the shipping and transportation of products has been massively compromised by a number of factors for the past 21 months. The result is causing delays, surcharges and serious patience when it comes to getting things built. This is another reason why homes that have already been remodeled are selling for more, because the unknowns of supplies and contractor availabilities have been horrendously impacted.
12. What lies ahead? I am concerned about the looming impact of the federal money printing/COVID lenient/business supporting practices that have kept our economy afloat during the past 1.75 years. Inflation may arrive which could raise interest rates and, consequently, impact housing values in a downward direction.?Every seller hopes the market will continue to rise.?Every buyer hopes the market will correct in a downward spiral. I cannot find anyone to fix my crystal ball to give you a straight answer. However, with rising demand, limited supply and inexpensive interest rates, the current market is definitely favoring the homeowners among us.
If you have any questions or if I can answer anything for you, please don’t hesitate to reach out to me.
Cheers to 2021 and heartiest wishes for a brilliant 2022 to you!