Local Real Estate Trends That Matter

6.6.24

Good morning,

 

Congratulations to all the happy graduates, from preschool to grad school—these are some of the most wonderful milestones in life. And congratulations to the team that saw it through! From sandwiches to laundry; tutors, Kleenex, band-aids, late nights, and rules enforced, it was a team effort!

 

News alert ;-) I hope you will excuse me for sounding like a broken record, but there is still a supply shortage in the Bay Area, which translates to continued increasing prices. By now I should not be stunned by the dramatic way some speak of the "slower market" as if it were a recession. Looking back to the Great Recession when some were selling luxury cars with homes to entice a buyer, we could not be farther from that!

 

Today, I do not foresee much change in the selling dynamic for the near future. Although appreciation has slowed, we are still in a seller's market. If a home is priced at the current market value, it will sell. The challenge lies in determining the market value or creating a better market value.

 

I recently spent six weeks making improvements to a property—new floors and other relatively minor but important changes. http://www.3587lamataway.com/ We received admiration from the 50 or so people who attended each Open House, and in the end, we received two offers. The two educated buyers who knew the value of this property both bid approximately 12% above asking and, with some negotiations, the seller netted $600,000 over asking. Offered at $4.2 million, it sold at $4.8 million.

Yes, inventory is up, but only enough to slightly slow appreciation. If rates drop meaningfully, which I personally think is unlikely due to the overall strength of the economy, the local real estate market will heat up beyond its current simmer.

 

 

DID YOU KNOW?

 

Rents rising in the Northeast, falling in the South

 

 

The ApartmentList report speaks to a sluggish rental market, with modest growth and year-over-year declines, despite being the busy season. They attribute the cooldown to a robust supply of new apartments hitting the market, particularly in Sun Belt cities:

 

• The national median rent increased by 0.5% in May 2024, reaching $1,404, but the pace of growth slowed compared to previous months.
• Year-over-year rent growth stands at -0.8%, although still ove
• r $200 more per month than a few years ago.
• The national vacancy index continues to trend up, reaching 6.7%.
• 80 out of the 100 largest cities saw rent increases in May, but only 43 cities have positive year-over-year rent growth.
• The steepest year-over-year rent declines are concentrated in Sun Belt cities such as Austin (-7.4%), Raleigh (-4.4%), and Orlando (-3.9%).
• Metros in the Midwest and Northeast, such as Milwaukee, Cleveland, Hartford, and Washington DC, are maintaining positive rent growth. Despite losing population, New York City rents are on the upper end of the spectrum.

(Sunderji, Aziz. "The Week in Review." Home Economics)

 

How many homes are investors actually buying?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Institutional investors were never buying a large percentage of available homes. During the peak in 2022, they bought about 2% of available single-family homes. Second, that percentage has gotten even smaller recently (so small the number rounds down to 0%).

In an effort to understand why that percentage is trending down, private lender RCN Capital asked investors about the challenges they’re facing. Here’s what Jeffrey Tesch, CEO of RCN Capital, found out:

“Investors are already facing many challenges in today’s housing market – rising prices, limited inventory, and higher financing costs.” Understanding these challenges is important because they show big, mega investors aren’t taking over the housing market.

 

Read the full blog here

 

 

 

There are two common mistakes people make when hanging art in their homes:

• Hanging work that is too small for the space. Don’t be afraid to hang large artworks in smaller spaces such as hallways.
• Hanging artworks too high, which makes pieces harder to “connect” with....and can make ceilings appear lower. The general rule is 60" on center above the floor.

Around the World

• Shipping costs for imported goods could spike due to under-capacity, a Panama Canal drought, Red Sea conflict causing longer routes, and bad weather in East Asia. All of this could impact inflation, which was the topic of the day yesterday causing markets to be very volatile. Extreme shipping costs could be a factor to encourage goods made locally:  The goods made locally may be more expensive to make, but that could be offset by the volatile costs of shipping long distances. (CNBC)

 

Market Trends

 

View Luxury Listings

 

 

COMPASS Catch

73-4603 Puhili Loop

Kailua-Kona, HI

5 Bed | 5.5 Bath | $21,500,000 | Karen Ferrara

A rare offering awaits at this modern estate in the private club and community of Kohanaiki. Commanding a coveted location in the community, offering elevated, expansive ocean views, this quintessential contemporary Kohanaiki home defines luxury living.

 

319 Lakeshore Drive

Seabrook, TX

6 Bed | 7 Bath | 2 Half Bath | $8,900,000 | Alexandra Loyd and Nanette Labastida

Discover lakeside luxury living at its absolute finest in this breathtaking modern masterpiece nestled on nearly three waterfront acres in Taylor Lake’s desirable El Lago community. Featuring a powerfully minimalist mixed-materials aesthetic that emphasizes sunlight, tranquility, and jaw-dropping views, this exceptional home is a generational retreat for the ages.

 

Katherine's Take

Change is happening as many embrace ADUs (Accessory Dwelling Units), Junior ADUs, and lot splits spurred on by the recent SB-9 zoning regulation. We curreently have a large supply of new construction in the form of multi-unit housing. This has also created an ample number of rental units, undercutting rent prices, and increasing the value gap between single-family and condominium-type housing.

In addition, the proliferation of ADUs and Junior ADUs contributes to this phenomenon. Certainly they serve a purpose for extended families, provide an income stream for those trying to retain housing in the Bay Area, or possibly house caregivers later in life. And btw, include me in that group of ADU managers. However, in reality, you are essentially turning your home into a duplex. The irony is that duplexes in duplex-zoned areas currently sell for notably less than individual single-family homes. This disparity has grown over the past decades and is attributed to higher density, short-term residencies, and less engagement with the particular community. Additionally, landlords are typically less willing to make expensive improvements to the property over time compared to owner-occupied residents.

I have mixed feelings about these changes. Of course higher density drives up property values benefitiing those who already own. I see the need and inevitability of higher density, particularly to reduce work commutes, but it makes me wonder where the tipping point is for a neighborhood and the growing pains that will ensue. I have already heard complaints from some residents about parking issues in parts of Mountain View, and we have witnessed backlash against the use of ADUs as short-term rentals. Beyond that, I have two recent clients who decided to sell their homes due to the time-consuming challenges of being landlords and the low income it produced even at full market rents.

As we progress toward becoming the next Manhattan (wink, wink), I thought I would send my food for thought your way. These changes are occurring faster than many anticipated, and it will be interesting to see how neighborhoods and investment opportunities evolve moving forward.

I'd love to hear your thoughts and experiences - ping me in an email/text etc.