Real Estate. Real Life. Real Sacramento.

Millennial housing demand increases potential for home sales in May

But home sales not measuring up to potential

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The market’s potential for existing home sales increased in May, even as the number of sales continued to underperform, according to the Potential Home Sales model for First American Financial Corp., a provider of title insurance, settlement services and risk solutions for real estate transactions.

Potential existing home sales increased to a seasonally adjusted annualized rate of 5.72 million, an increase of 1.8% from the previous month. This represents a 90.3% increase from the market potential low point in December 2008.

“As more and more Millennials marry and have children, among the strongest determinants for the desire to be a homeowner, demand for housing will remain robust,” First American Chief Economist Mark Fleming said. “However, the housing market faces a dilemma that is restricting the inventory of homes for sale.”

“As rates rise and the cost to finance a mortgage increases, existing homeowners are prisoners in their own homes,” Fleming said. “In addition, the fear of being unable to find a home to purchase hinders homeowners’ decision to sell.”

The market potential for existing-home sales fell by 1.1% from last year, a drop of 62,000 sales. The current potential for existing-home sales sits at 644,000 sales, 11.5% below the pre-recession peak of market potential July 2005.

Despite the drop in potential sales, they are still underperforming the market potential by 3.8% or an estimated 218,000 sales.

“The low inventory of homes for sale is preventing the housing market from reaching its potential and pressuring prices higher,” Fleming said. “Increasing shortages of homes for sale is a growing problem for potential homebuyers, especially potential first-time homebuyers today, as it causes affordability to decline.”

Article and image provided by: housingwire.com

BREAKING: Saca re-submits Metropolitan high-rise plan

A decade after his audacious high-rise project on Capitol Mall came to a halt, developer John Saca has resurrected plans for a similar project at 10th and J streets in downtown Sacramento.

An application filed this week calls for a high-rise at 921 10th St. called The Metropolitan. Though the exact height is not specified on the city’s website, the description of the project calls for either 320 residential condominium units or 190 condominiums and 190 hotel rooms.

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High-rise developer John Saga has resurrected plans for his Metropolitan project at 10th and J streets. This is a rendering of the original Metropolitan project as seen in 2007. 

The plan also calls for space to create tandem parking. It does not specify creation of ground-floor retail space or call for demolition of existing but vacant buildings on the site.

The project title, “The Metropolitan,” calls back to Saca’s original proposal on the site, approved by the city in 2008. That had the same number of either condos or condos and hotel rooms, with a height of either 39 or 40 stories. Either would make the building the tallest in the region in at least number of stories.

No messages could be left at Saca Development Co.’s office Friday.

The Metropolitan didn’t move forward because of the economy, and the new application requests only a zoning variance to reduce the amount of allowable area required for maneuvering during parking.

Two years ago, Saca tore down the remains of the former Biltmore Hotel on J Street after a fire damaged the building. The footprint of The Metropolitan, just under an acre, would’ve encroached on the Biltmore site. In 2014, Saca acquired 921 10th St. from the city, in what many believed was a prelude to re-introducing the project.

Though Saca Development Co. has developed a number of strip retail projects around the region, Saca became known — infamously — as the driver behind The Towers, two planned 52-story buildings at 301 Capitol Mall consisting of hotels, condominiums and retail space.

Initial site work got underway for that project, but as the real estate economy declined, funding ran dry and work stopped in 2007. That site is now being eyed for a high-rise project of office, retail and residential space by CIM Group.

Article and image provided by: Sacramento Business Journal

Hedging Economic Bets

Fannie Mae’s Economic and Strategic Research Team hedged a few bets in its June economic summary.  It laid out some wild cards while predicting that the current expansion, which marks its eight-year anniversary this month and is the third longest of the post-World War II area, should continue its moderate growth next year.

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One of those wild cards is the potential for fiscal stimulus. Fannie’s team says the odds the Congress will enact major pieces of legislation, including health care, tax reforms, and infrastructure investment, by the end of this year have diminished, reducing the possibility of any meaningful impacts from fiscal stimulus before 2018. Another fiscal policy uncertainty this year is the need to raise the debt ceiling, probably in November, to avoid a government shutdown and a technical default. Tax revenue, according to the Congressional Budget Office, missed projections for the first eight months of Fiscal Year 2017 by as much as $70 billion, so the debt ceiling could be reached even earlier.

Meanwhile, the Fed continues to normalize monetary policy, raising the fed funds rate at its June Open Market Committee (FOMC) meeting by 25 basis points. In the Q&A session following her press conference, Chair Janet Yellen said balance sheet normalization could occur “relatively soon.”

Following the FOMC meeting, long-term yields declined and the yield curve flattened further. The yield on 10-year Treasuries reached a three-year high of 2.63 percent on March 13, two days before the Fed raised the fed funds rate. The yield has trended down since then, reaching 2.13 percent on June 14. Mortgage rates have moved lower in tandem, with the average rate on 30-year fixed mortgages declining to below 4.0 percent during late May and early June. The spread between 10- and 2-year Treasury notes narrowed from a post-election high of 135.5 basis points in late December to below 80 basis points for the first time since early September.

The bottom line; Fannie Mae is holding to its prior forecast that economic growth will rebound to an annualized 2.9 percent in the second quarter, up from 1.2 percent in the first quarter. Real personal income and consumer spending both grew 0.2 percent in April.

They economists are also calling for one more Federal Reserve rate hike this year, even though the statement after the June Open Market Committee (FOMC) meeting in which the rate was raised 0.25 percent, said inflation has moderated from its earlier pace; the PCE is down to 1.7 percent and the Consumer Price Index slowed to 1.9 percent in May.

Turning to housing, the economic summary says the narrative has not changed over the past year.  Labor shortages continue to constrain homebuilding and tight inventory to hold back sales and drive price increases. Year to date through April, single-family starts were up 7.0 percent, significantly greater than a 1.9 percent gain for multifamily starts.  The latter’s small gain reflects the maturity of multi-family housing’s expansion which may have peaked last year.  Single-family starts remain near levels witnessed in a typical recession prior to the last downturn.

The latest Job Openings and Labor Turnover Survey (JOLTS) confirms the lingering shortage of labor in the residential construction industry.  In April, openings in the construction industry jumped to the highest reading since September, while the quits rate- a gauge of workers’ confidence-remained at an expansion high for the third consecutive month.

On a happier note, builders do appear to be responding to the demand for smaller new homes.  The share of completed new single-family houses containing fewer than 2,400 square feet rose in 2016 for the first time in seven years.  Fannie Mae says, if this trend continues, it could help alleviate the critically tight supply in the lower end of the market.

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After hitting new post-crisis highs in March, both new and existing home sales pulled back in April. The report speculates that the unusually warm winter along with declining interest rates in January and February could have pulled some sales into the first quarter. The tight inventory of existing homes also contributes to decreased sales and the number of says on the market fell to a new record low. The months’ supply of existing homes remained historically tight at 4.2 months, versus 4.6 months the previous April.

The lean inventory is a boon for homes prices and The CoreLogic House Price Index, the measure used by the Fed to estimate the value of real estate assets, gained 6.9 percent year-over-year in April-the strongest increase since May 2014. The continuing appreciation has continued to boost homeowners’ equity which has now surpassed its previous peak recorded 11 years ago.  Outstanding mortgage debt rose 1.9 percent on an annual basis, the weakest gain in a year.

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This increase in household wealth must be balanced against the decreasing purchase affordability arising out of higher high prices.  Fannie Mae’s May National Housing Survey found the net share of respondents reporting it is a good time to buy a home dropped to a record low while the net share reporting it is a good time to sell surpassed the other measure for only the second time in the survey history dating back to 2011.

Fannie Mae calls the near-term outlook for existing home sales “bearish,” although mortgage rates will remain supportive, staying near their current 4.0 percent levels.  Total home sales will rise 3.2 percent this year and total single-family mortgage originations are projected to drop about 21 percent to $1.62 trillion, with a large drop in refinance originations outweighing a modest rise in those for purchases. The share of refinance originations is expected to fall from 48 percent in 2016 to 34 percent in 2017.

 Article and image provided by: mortgagenewsdaily.com

5 things about riverfront plans in Sacramento and West Sac

A number of public, highly visible improvements are in the works on both the Sacramento and West Sacramento sides of the Sacramento River. At a community forum Wednesday at West Sacramento’s riverfront corporation yard, representatives from both cities shared plans. Here are some new details.

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Guests attend a community forum Wednesday in West Sacramento.

1. Replacement of the aging I Street Bridge with a new bridge for cars, bikes and pedestrians is two years from starting construction, with completion expected by 2021. The new bridge will link C Street in West Sacramento to Railyards Boulevard in Sacramento, with the existing I Street Bridge still to be used for rail traffic and the current vehicle bridge possibly refashioned into a public amenity.

2. A project report for a bridge linking Broadway in Sacramento to the Pioneer Bluff area in West Sacramento is about two years away, but funding is needed to make further progress in design and construction. A handout from the cities indicates a 2030 construction start is possible.

3. Later this year, West Sacramento will begin crafting a preliminary plan for relocating barriers to development in Pioneer Bluff and the Stone Lock neighborhood to the south. Those two areas, which total about 325 acres along the riverfront, would need rail and other existing infrastructure relocated to allow development, perhaps in 10 to 15 years.

4. Both cities also envision a new bridge strictly for pedestrians and bicycles linking R Street in Sacramento to Garden Street in West Sacramento’s Bridge District. No timing or fully realized plan exists yet for that project.

5. Sacramento planners continue to see the Docks area and areas surrounding nearby Miller Park as having potential for new development. Miller Park in particular is considered an underused and somewhat hidden asset, but an existing petroleum tank farm near the park will need to be relocated for any plan there to take off.

Article and image provided by: Sacramento Business Journal

California Court Allows Weekend Open Houses For Tenant-Occupied Properties

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Section 1954 of the California Civil Code provides that a landlord may enter a leased or rented dwelling to “exhibit the dwelling unit to prospective or actual purchasers.” Such entry may not be made “during other than normal business hours” unless the tenant consents to entry at some other time. Provided that the tenant has previously been given notice within the past 120 days that the property is for sale, 24 hours is presumed to be reasonable notice, and notice may be given orally. (§1954 (d)(2))

While that civil code section clarifies a number of issues, some questions have remained. What, for example, are “normal business hours”? Also, might exhibiting the dwelling to prospective or actual purchasers include holding open houses?

A California Appellate Court decision (Dromy v. Lukovsky, Second Appellate District, August 30, 2013) provides some answers. To some they may be surprising.

Landlord Dromy leased a Santa Monica condominium to Lukovsky (Tenant) in 1994. In approximately 2010, Dromy entered into a listing agreement to sell the property. The Tenant allowed the agent to conduct individual showings, but she refused to permit open houses on the weekends.

Dromy filed a motion in Superior Court based on Civil Code 1954 and sought declaratory relief against the tenant. In a declaration supporting the motion, his real estate agent stated: “In my professional opinion, Ms. Lukovsky’s refusal to permit weekend open house showings at the subject property has made it much more difficult to find a prospective purchaser. The custom and practice in the residential real estate community is to conduct weekend open houses in order to market properties more effectively and expose listed properties to the general public.” The statement was not contested.

The Superior Court ruled in favor of the landlord; but it did not grant an unrestricted right to hold open houses. Indicating a desire to fashion an order that was fair and reasonable to both sides, it came up with the following:
1. The agent could hold two open houses per month.
2. They could be on weekend days between 1:00 p.m. and 4:30 p.m.
3. The agent must be present, and the tenant may be present, during any open house.
4. The agent must give 10 days advance email notice to the tenant of proposed open house dates, and the tenant has 48 hours to acknowledge or to propose an alternative weekend date.

The tenant appealed.

The Appellate Court noted that the phrase normal business hours, though not defined in the statute, was meant to strike a balance between two competing policies: (1) the tenant’s right of quiet enjoyment of the property, and (2) the landlord’s right and ability to sell his property. The Court noted that, at the time the legislation was enacted, the current edition of Black’s Law Dictionary defined “business hours” as meaning: “In general those hours during which persons in the community generally keep their places open for the transaction of business.” The Court then went on to say, “For our purposes, the relevant community consists of licensed professionals working in the residential real estate business.” Moreover, “It is undisputed that the custom and practice of [that community] is to hold open houses during weekends…”

Thus, the Appellate Court held that the judgment of the Superior Court was “reasonable under the facts and circumstances and that it complies with the requirements of section 1954, subdivision (b).”

California real estate agents will no doubt wonder how this decision applies to their business. The legal department of the California Association of REALTORS® (CAR) had this to say in its realegal publication. “…landlords and their listing agents who want to arrange weekend open houses should obtain the tenant’s consent or comply with the reasonableness standard required by the Dromy court.” To help insure that what they schedule is reasonable, landlords and agents “are strongly encouraged to, depending on the circumstances, pattern your weekend open house arrangements in a similar fashion to what the trial court ordered in Dromy…” (See the 4-point requirement that was stated above.)

Article and image provided by: realtytimes.com

Losing Your Earnest Money

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Question: The contract I just signed to purchaser a house contained the following language: “If the buyer defaults, the earnest money will be forfeited to the seller. This is to be considered liquidated damages and not as a penalty”. Can you please explain what this means? Beth.

Answer: Shame on you, Beth, for signing a contract without fully understanding what it means. It could have required that your car and your current pension plans be given to the seller if you did not go to closing (escrow). (Just kidding, but stranger things have happened when people sign something they don’t understand).

In your case, should you not be able to finalize the deal, you will have to forfeit (ie lose) the earnest money you posted when you initially signed the sales contract. But the law is clear that if the amount you are forfeiting is not consistent with what the seller may have lost because you did not go to closing — but instead is really a penalty — the law will not allow you to lose your deposit.

So lawyers put in the language you question about to protect the sellers.

However, that does not mean you will lose your deposit, if you can prove that the money is disproportionate to the actual loss that your seller may face.

Oversimplified, the damages will be accepted as “liquidated” if the seller cannot really anticipate what the losses will be should you default. Accordingly, it is typical for that language to appear in real estate contracts.

So, for my buyer readers, try to post as little of a deposit as possible; and for my seller clients, try to get as large a deposit as possible.

Hopefully, you will eventually split the difference. And of course, this is completely academic if the buyer closes the deal.

Question: I am a teacher and I live in a co-op. I paid $200,000 cash for my apartment in 2003. In 2008, I took out a HELOC loan on my equity. I now owe $75, 000 on it. When I signed the papers, I was told that if I did not sell my home before principal and interest payment kick in (March 2017) I would just need to apply for refinancing. I did that a few months ago while rates were low and everything was set within a week. My FICO score hovers at 800 and I only owe a monthly plan for a new air conditioner on which I pay more each month than the monthly requirement. At the last minute I was called by the bank to say “sorry, we no longer finance co-ops as we did when you got yours.” My payment will go up about $450 for an grand total of $640 a month. As a teacher who has not had a raise in a long time, I can not afford this payment. I have never been late on any payment for anything and don’t live beyond my means. I can not find an instance where my co-op had a problem with a bank. In checking around, I have not been able to find any local banks who finance co-ops, especially for such a low amount.

Any suggestions? I do not want to sell my house and renting is astronomical. Kim.

Answer: Dear Kim: Assuming your cooperative apartment did not dramatically go down in value since you bought it some 14 years ago, you clearly have considerable equity. I know that not every lender is prepared — or even understands — how cooperative funding works, but clearly there are lenders out there that can assist.

First, is there a teacher’s credit union near you? From my experience, many credit unions will make you a loan based primarily on your credit standing. They need to take the ownership certificate (often called “shareloan certificate) as security but that is something that any local real estate attorney can easily assist in doing.

Another source of lending is the National Cooperative Bank. Although its main office is in Arlington, Virginia, they make loans all over the United States. (www.ncb.coop).

Question: My husband and I plan to buy an investment property, and want to make sure our other assets are protected. What is the best way for us to take title? Emily.

Answer: Dear Emily: as I just wrote to another reader, I cannot provide specific legal advice. However, in general, there are three ways in which title can be held.

First, individually, in the names of you and your husband. That provides the least protection. Even if you have more than adequate insurance — including umbrella coverage — there is always the possibility that your other assets can be grabbed. For example, a court judgment exceeds the insurance limits; or the insurance carrier declines coverage for reasons spelled out in the insurance policy.

Next, you can take title in the name of a corporation. Talk with your financial advisors about this approach; from my experience, there is too much paper work and corporate filings required to make this a favorable option.

Next, you can take title in the name of a limited liability company (LLC). Although I don’t normally make recommendations, this is what I generally suggest to my investor clients. The LLC provides the same protection as if it were a corporation but with less complications and less paperwork. Oversimplified, it is called a “pass through” entity; the LLC files an information tax return but the profits or losses are “passed through” and you include those numbers on your individual tax returns.

Every project is different; review these alternative but discuss with your financial and legal advisors. And the recent tax proposals submitted to Congress by the President seem to favor “pass-through legal entities, as we all know, Congress has the final say.

Article and image provided by: realtytimes.com

Covering The Question Of Condominium Insurance

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Question: I am the President of a medium-sized condominium association. I would like to learn more about condominium insurance, and have had some difficulty in getting information. Do you have any comments about such insurance?

Answer: Unless your association’s insurance package was put together carefully — and is monitored periodically — you and the other unit owners may find yourselves with a serious problem in the event of an accident, lawsuit or even a natural catastrophe.

Here are some common situations in which condominium unit owners often mistakenly assume their insurance coverage is applicable:

  • If your association and its Board members are sued, attorneys’ fees and court costs will be provided by the association’s insurance policy. In most cases, the policy also will pay all judgment costs or out-of-court settlements brought on by any lawsuit.
  • If a guest is injured while visiting your association’s swimming pool, the association’s insurance policy will protect you from all personal liability and out-of-pocket expenses.

 

  • When hurricane-force winds uproot your condominium’s trees, break its windows and splinter its ornate gatepost sign, the association’s policy will cover the damage.In all of these common incidents, the association’s insurance policy may not be adequate. And in some cases, there may not be any coverage at all. According to condominium insurance experts, some condominium associations “are pitifully under insured and represent a significant risk to association members.”Insurance is a very complex area that most lawyers and many property managers do not fully comprehend. Often, the manager of a condominium association uses his or her own policy or brings the friendly insurance agent into the picture, and a “bare-bones” policy is issued. Often, the desire to keep costs down outweighs the need for adequate insurance coverage.

    Here are some items to look for when considering the kind of insurance policy your association needs. The list is far from exhaustive.

    • Full repair and replacement of damaged property. Some policies cover the depreciated value of the damaged property. Let’s take the following example: Your clubhouse roof is six years old and has a 10-year life expectancy. A fire damages the roof. Under a depreciated value policy, the insurance may cover only $4,000 on a roof that cost $10,000 six years ago. The association would end up footing the rest of the bill.
    • Full comprehensive general liability coverage. You should have at least $1 million worth of insurance, but, depending on the size of your association, $2 million may be more adequate. Look at your association’s legal documents. In my experience, they all spell out the minimum coverage that you must have. Of course, if you, your board, and your attorney believe you need more coverage, you always have that option to increase the policy limits.
    • Liability insurance covering the association’s directors and officers. Because more and more lawsuits are being filed, you should discuss this with your insurance agent and attorney to determine the coverage needed.
    • Coverage for business-related personal property, connecting structures, exterior signs, valuable papers and records, outdoor trees and shrubs, medical payments and “personal injury” coverage to protect against such charges as libel, slander, defamation of character and wrongful eviction.

    Contact a number of insurance carriers that specialize in condominium insurance. I also recommend the Community Association Institute in Virginia (703) 548-8600, which has developed a number of excellent publications on the issue.

    One very important caveat: every policy I have ever seen requires the association to promptly advise the carrier if the association is put on notice of a potential lawsuit or is actually sued. “Promptly” us usually no more than 30 days. The carrier wants an opportunity to review the facts and possible help to resolve the issue short of court. If you delay notifying your insurance agent of an issue, you may lose all coverage.

Article and image provided by: realtytimes.com