What is the best year to sell your home?

Wouldn’t we all like to know when the perfect time to sell is? To know what exact time would result in the perfect buyer being ready, willing & able to pay us top dollar? The truth is that timing the market can be very difficult. It’s pretty obvious if you have a larger home selling in February-June when your buyer wants to move around the school year makes a lot of sense. I’ve sold Real Estate for 28 years and spring is almost always the best time in Santa Clarita because so many buyers are drawn here for schools and they want to move around the school year. Year after year the greatest number of new escrows is March-June. When I talk to my friends in second home markets like Florida, that isn’t the case. But this message today isn’t so much about what month but what YEAR to sell. This is for those who have been thinking of selling for a few years and maybe won’t do so for another 2, 3 or even 5 years. The homeowner trying to get the most out of their home but ideally not before they are ready to leave it. And a lot of you have called me.

For the last few years the average time that people have owned their home in California has gone way up. When I started selling in 1991, the statistic I was given was people moved every 5.5 years. Today that number is close to 11. This and so many other statistics about a lack of inventory for home buyers have kept people in their homes longer. That trend is expected to continue. Many attribute the lack of inventory problem with a “boomers don’t want to leave their home problem.” To some extent that has been happening in Santa Clarita. I have hundreds of clients that would move if they had something compelling to go to. Ideally smaller and ideally one level, but there isn’t much of that. So they stay until that changes and boy is that about to change here. Because of our unique situation of having a huge amount of new construction coming, what is about to happen to our Real Estate market makes Santa Clarita different from the rest of Southern California that doesn’t have a huge supply of new homes coming. For this reason, if you will be selling your home in the next 2-5 years, todays post is vital to understanding what that means to you.

Let’s start with a recap and where the market is at the midpoint of 2019. What is happening now can certainly give us clues to the next 5 years. First, it’s pretty clear the height of the market from 2011 to today was summer 2018. The highest prices in most areas in our valley were for homes that contracted in April-June 2018 and closed in May-August. The second half of 2018 was much slower than the first half. We now know that was mostly psychological. Buyers didn’t want to buy a home that might be worth 5 or even 10% less in 6-12 months. So new escrows fell dramatically in the second half of 2018 as buyers waited for the big price decreases…that never really happened. Inventory went up a little, new escrows went down a lot, but price reductions were from 2-5%. Nothing really major and nothing that stopped the best homes in the best neighborhoods (where there is always demand) from dropping much, if at all. When buyers realized there wasn’t a big “crash”, they came back this year and our market is fine. Prices aren’t really going up or down much. However, homes are clearly taking longer to sell, buyers are far more cautious and demanding than 15 months ago and condition is just critical. If you have redone your home more than the competition you likely sell much faster. If you are not, then the opposite is often true.

Most of us expect this to be the trend for the next few years. A normal market where homes take longer to sell, not everything does sell, price and condition become THE issues in what sells and what doesn’t. Interest rates have fallen back to historic lows and the market still isn’t jumping up measurably. Affordability is still a problem for over 70% of the American public that can’t afford the median priced home. Buyers don’t just buy anything because of an inventory shortage, and they don’t necessarily believe what they buy will go up in value substantially. I often tell people who try to understand why some homes in their neighborhood sell quickly still and at a strong price while others sit for months that we have a problem between what people want and what is available. Buyers know what is hard to find (remodeled, best yards, privacy, locations, popular floor plans) and what is plentiful. To know what type of home you have, call me even if you are months or years away. It makes no sense to put money into your home that won’t come back and it makes all the sense in the world to do it if it will. Especially because if you plan to sell between 2021-2026 you very likely will be competing to some extent against new construction and builders who have gorgeous models and the ability to throw in upgrades and concessions. Part of the reason the staging craze is so impactful in Real Estate today is because staged homes DO sell for a premium. I have seen the exact same home sit for months with one agent and it gets staged and sells immediately with a new one. That is real and it is happening everywhere. When all those new models open, your buyer will be comparing your home to those staged model homes and candidly, that’s stiff competition.

It is in this environment, then, that I am tackling the idea of not what month so much as what year might you target selling your home. There are 28,000 new homes planning to be built in Santa Clarita in the next 25 years. Today there are about 650 resale homes for sale, about 20% higher than a year ago. Think about doubling that amount for a buyer to choose from. What does that do to prices? The biggest development (it’s been called “Newhall Ranch” “Net Zero Newhall” and now looks like it will simply be called “Valencia”) is the project already graded by Magic Mountain. It goes all the way to the Ventura County line before build out. Many of us plan to move there, maybe. That is the largest development in the history of LA County, over 20,000 homes. That development will be developed by 5 Points (the old Newhall Land and Farm) and they will be selling dirt to individual builders over the next year. Expect models in 2020 and real live move ins by 2021. We don’t know what will be built yet because the home builders haven’t been identified but with that many homes its likely to be a lot of everything. The second phase of Tesoro is coming at about same time – over 800 homes. Over 3000 homes in Castaic. The huge Skyline project in Plum Canyon Saugus. Sand Canyon Ranch and Vista Canyon. Add it all up and you have a whole lot of homes competing for not that many buyers. Throw in the fact that many existing homeowners will then put their homes on the market to move to the new homes. More inventory. I’ve sold residential real estate for almost 30 years. I’ve seen every kind of market and at the end of the day supply and demand is all any of us need to know about what to expect. So what year should you sell? If it’s going to be in the next few years, you may want to consider sooner than later.

Is Your Property in a Trust?

Back in the 90’s, I would often be asked by my clients buying homes, “How should I take title to my new home?” I wasn’t really supposed to advise them, but I would sometimes offer, “Most people do it as Joint Tenants” because of the right of survivorship. Today those homes aren’t worth $250,000-350,000, they are often more than double that and if one or both owners pass with the property NOT IN A LIVING TRUST the loss is far more than the cost of doing a trust.

If your home or your loved one’s home isn’t in a trust, please watch this video!

The Return of the Contingent Buyer

2018 was one of the most unusual years for Real Estate that I have seen in my almost 30 years of selling homes. The first 5 months were a complete and total Sellers’ market. Buyers would offer over asking price, remove contingencies (especially for the home to appraise) and basically ask nothing of Sellers in the way of repairs. I wrote a blog at that time “When will this Sellers’ market ever change?” describing how a lack of available homes and pure Buyer confidence was fueling something that seemed like it would last forever. Until it didn’t. In June, things started to slow. “Maybe it’s vacations or the interest rate increases” we wondered. Then July and August clearly slowed even more. Homes simply didn’t sell right away. When an offer came in it was one or two, not five. We started to see price reductions again as smart Sellers realized the market for their home simply wasn’t there the way it was in April or May. Now I’ve written about how the Spring season is especially obvious in Santa Clarita because of demographics and so many people wanting to move around the school year. But this was something noticeably different. By September (a pretty strong month in 2017), the amount of homes for sale was up 30% from April. Buyers not only offered under asking price, they would not even respond to counter offers from Sellers. Once in escrow, Buyers would ask for extensive requests and credits…something we never saw in the Spring. In short, the market had in many areas completely flipped in the space of about 4 months. It was clear that what we could get for our Sellers had changed and it required new thinking and a willingness to work with any motivated Buyer, we didn’t have a handful to choose from anymore. The Buyer exuberance that we saw in March/April/May, when over 450 homes each month opened escrow, changed to caution. In the October/November/December months not once did more than 250 homes open escrow. The 6-year run up in prices seemed over.

Which brings us to 2019 and the return of what most people historically would describe as a “normal” market. This market is defined by homes taking longer to sell (normal), Sellers sometimes having to negotiate price and repairs (normal) and Buyers taking their time to evaluate and purchase instead of just jumping on a home for fear of missing out (normal). Buyers are no longer fearful that prices will pass them by because…they aren’t. We still don’t have too many homes for sale, about 700 compared to the 400 we had a year ago, so no big price adjustments across the board are likely coming. Sellers have equity and if they don’t like the market values, they simply won’t sell. That is already happening. Also, clearly homes with desirable locations and upgrades are still commanding top dollar and multiple offers still occur. Just not like they did in Spring of 2018. Many top agents believe Spring of 2018 likely represented the top of the market for the next few years. Time will tell. Regardless, these market shifts are actually healthy to overall market stability in the long term. Prices being essentially flat for a year or two shouldn’t surprise anyone. As I wrote in the Spring “nothing goes up forever,” and it didn’t about 2 months later. All this means moving forward is that Sellers will have to conform to current market conditions and so will the Realtors. Any agent less than 7 years in the business likely hasn’t seen this kind of market and may not know what it requires. In short, it means we really have to work at a much higher and smarter level to get our Sellers into escrow. Again, historically normal. Those of us that have seen this before, in some cases many times, know exactly what is required and that is working with the Contingent Buyer.

The Contingent Buyer is someone that needs to sell in order to buy. This Buyer has historically driven the market in Santa Clarita. When the market was dead slow in the early 90’s a group of top agents decided to start the first Network Group to try to put transactions together. We noticed that it seemed to be the same 20-30 agents that had the majority of the clients that were ready to actually do something and most of these clients needed to sell to buy. We would literally meet and describe our clients that wanted to sell and move up or move down. In this group we could put a condo Seller into a 3-bedroom Seller into a 5-bedroom Seller into an estate home. All we needed was a first-time condo Buyer to get the chain started and inevitably one of us had that. That group exists to this day doing over 25% of the sales in Santa Clarita and my guess is the next two years will require us to dust off some of our real networking skills and get to work. Homes simply won’t sell on their own, they will need to be “marketed” at a much higher level. This Contingent Buyer, that needs to sell to buy, isn’t a Buyer that Sellers have looked favorably on in the past few years. Why choose a Buyer that needs an escrow to close when there are plenty of Buyers that don’t need to sell anything to buy their home? Understandable of course. This is a Buyer that potential Sellers should love, though they certainly didn’t have to work with them 9 months ago. They had plenty of non-Contingent offers. Many Sellers will tell me “I don’t want any Contingent offers” and in a hot market that can be fine. Today, though, that would often be a mistake and it’s important to understand what this Buyer can do for you as a Seller and why they are often even BETTER Buyers in a shifting market than a non-Contingent Buyer!

The reason a Contingent Buyer might be a better Buyer for you if you are selling is that they are usually highly motivated. They have just sold their home. They are in escrow. They HAVE to buy. Often as the market shifted in the fall, we noticed non-Contingent Buyers exhibiting a real lack of motivation. Some simply wanted to see what the Seller might do for them in escrow and walked away when they didn’t like the results. Some offered lower than a motivated Contingent Buyer would. I had Sellers choose Contingent offers over non-Contingent offers simply because they believed the Contingent Buyer would give them a smoother escrow and most importantly, close the deal. That is a big reason why working with a Contingent Buyer in a normal market can be so important. Now, I am not describing a Buyer that hasn’t yet put their home on the market or is on the market but hasn’t opened escrow. Those Seller/Buyers have importance too, but they aren’t ready to go. I’m referring to the Buyer that already is in escrow with their home and wants to buy yours after theirs closes. This is where the knowledge and expertise of your agent becomes critical in vetting out their escrow to make sure it is solid. Once we know that they have solid escrow we can usually expect a concurrent closing that works for all parties. It’s funny how quickly things can sometimes change. A year ago, discussing Contingent Buyers would have been something home Sellers didn’t want or need to consider. Today, it could be the difference between selling and not selling.

How to know when a market is REALLY changing…

It’s almost August and if you read my last post about the super strong, multiple offer driven Spring market, you may be surprised to hear that just a few months later the market is shifting a bit. The problem with describing these changes is that there will be exceptions in every neighborhood and price point, but for most sellers we are seeing a return to stable price points and longer marketing times. Many of my current sellers are experiencing less traffic than they likely expected or hoped for and are noticing more signs up, often without a “sold” attached. The media knows this too and we have seen the return of less than encouraging headlines. In fact, in the last week I have seen Forbes, Bloomberg and USA Today proclaim the following:

  • “Chinese reversing their big Real Estate buying spree.” This actually started a while ago and pertains primarily to Commercial Real Estate, but the San Gabriel Valley isn’t seeing the same residential impact of foreign money that it did in 2013-2017.
  • “Sales of new homes sink to an 8-month low even as prices fall.” This is for new construction and a National Stat, but it still raises eyebrows.
  • “Southern California home sales crash in warning sign to nation.” My personal favorite! Crash? Closed sales were down 10% in June.

So, what is really happening in Santa Clarita and how might that affect your Real Estate plans? No hype or flashy headlines, just the facts. The following started at the end of May and is happening as I write:

  • Inventory is up 30% in the last 60 days. Our spring average was about 450 homes for sale. Today we are at just under 700. For perspective a “normal” amount of inventory would be about 1100 homes. Still we clearly are seeing homes come up for sale and not go into escrow right away. In May, we had more homes in escrow than for sale. Today the reverse is true.
  • When newer listings get interest, it is often one offer and not 2 or 3. More and more offers are coming in under the asking price which rarely happened several months ago. This makes negotiating the price up more difficult when there aren’t multiple offers. There are simply less buyers for the new listings coming on. Many have already bought (hence my advice to sell in February-May, not June-August), and many others are seeing prices they just can’t afford. In Santa Clarita, the median Income is $90,000 and the median price is $595,000.00. It takes 133% of the median income for a 20% down payment on that $595,000 home.  It is also 43% of the monthly income. For many we have reached a point where they simply can’t or won’t pay today’s prices. Therefore, it is important to consider that unless something changes, a small correction to the market, wages increase, or interest rates come down; we will have a little slower market for now and stability in prices if not some modest reductions.
  • Buyers don’t have the same urgency as in the Spring and (surprise!) in addition to making offers under asking are perfectly willing to walk away from seller counter offers they consider too high. Buyers are keenly aware of market shifts. They know when homes come on the market and don’t sell right away. They see the price reductions that are becoming more common as sellers realize they may have been ambitious in their initial pricing. We put a home under contract last week in which our buyer made an offer in May and 75 days later the seller came back and accepted his initial offer.

To sum up let’s remember a few things. Inventory is still low and low sales numbers are often a reflection of that. It doesn’t mean there isn’t still strong demand for quality homes and certain price points. There is. I sold a pool home for $550,000 over the weekend with 5 offers. That can still happen and will continue to happen when homes are marketed properly. However, a great majority of sellers need to understand that if their home doesn’t sell in a few weeks or with multiple offers that nothing is “wrong.” This is the new normal and simply reflects a more balanced market. Further, sellers will not be able to make demands the way they did in a hotter sellers’ market and need to understand that condition & price are key to getting sold. Many agents are uncomfortable telling their sellers about market changes that affect them if it isn’t obviously happy, good news. They won’t emphasize the importance of preparing the home to show its best, pricing it properly (not optimistically) or being honest about how buyers will compare it to the competition under current market conditions. Worse, they won’t explain why repairs might be required to get the home closed. That is a crucial mistake. Months ago, I would say “a hot sellers’ market can forgive a lot of sins.” Not today. Markets ebb and flow. Nothing goes up forever. Sellers should be prepared for it to take a few months (maybe more in higher price points) to sell and be thrilled if it is just a few weeks. Understanding where the market may be softer and less forgiving and being honest with a potential seller about what that means is absolutely critical today. Yes, the market is shifting. Remember though this is still a market that doesn’t have enough homes for sale in many parts of town. Knowing where that is true, and not true, is what good agents have to share with their sellers in navigating these shifts.

When will this “Seller’s Market” Turn?

This spring marks the 6th straight year of appreciation in the cost of housing in California. In many areas the cost to buy or rent has become unaffordable. As I begin my 28th year of selling Real Estate, I know this won’t continue indefinitely. We all should know this if we follow history. Still, this market remains a sellers’ market for anyone with a nice home under $800,000 in Santa Clarita and if you have participated in any “multiple offer” situation recently you feel at the mercy of a seller with a choice of buyers, hoping they will pick you. It’s a frustrating feeling to be sure.

To know when this crazy appreciation may slow down and even change to a more balanced market, it’s important to know why this sellers’ market won’t change for at least 2 years. First, we have a strong economy and people have jobs. Confidence more than anything else fuels housing. When you talk to thousands of people a year and they all tell you “I’m not buying in a declining market” like they did from 2007-2012, you know the importance of this. The opposite of that is happening now. When you are a little tentative as a buyer to offer a higher price for a new listing and you lose it to 4 other offers that all offered as much or more than you were considering, the next time you don’t want to lose out. And you offer whatever is necessary to get the property complete with a heart tugging letter of how you will be the perfect buyer for that seller. Sound crazy? Perhaps, but this is at the core of what you read about as median prices get back to all-time highs. Psychology is a very important driver of the current market. More on that later.

Besides buyer confidence that prices will continue to rise, there are some fundamentals causing a supply/demand equation that favors sellers. First, the amount of new construction built in Santa Clarita from 2007-2017 isn’t anywhere close to meeting demand. Building in California is both expensive and very time consuming. The Newhall Ranch project (now called “Net Zero Newhall”) which I believe will change our market significantly, has been trying to be approved for almost 20 years. Just NOW is the grading beginning around Magic Mountain. New construction has always driven our market and we haven’t had anywhere close to what is needed to satisfy demand. Further, what we have had hasn’t moved the needle with the MANY people in our valley who would move moved if there was something to get them excited. Small, 2 story properties with Melo Roos taxes, high HOA’s and no yards isn’t what this group wants. They have a low tax base on the home they have lived in for 10-25 years, low or no extra fees, a low house payment with a great interest rate they likely locked in a few years ago, and basically, they are comfortable. They might be ready for a change (the house is too big, or they want newer etc.) but there isn’t anything to get them excited. So, they stay put and don’t move. In Santa Clarita we have averaged under 600 total homes for sale for 4 years in a valley in which 1500 would be considered “normal”. We have less homes for sale this year than we did last year, and last year was an all-time low. That is why prices go up!

Another driver of this sellers’ market is the complete change in the quality of buyers in the marketplace and the loosening of lending guidelines in the last 2 years to reflect that. Today’s buyers – some of which lost their homes 10 years ago – are well educated about their options and have taken the time to be a solid buyer again. They buy less than they can afford, they have jobs and their credit is good. Because of this, lenders have made it easier to get loans and again you have a fair supply of good buyers for an unusually small number of sellers. A good supply of motivated buyers plus not enough homes for them to buy equals further appreciation.

So, when will this change? It’s telling that I am getting more sellers calling me to sell and they plan to buy “in a year or two when the market goes down.” If this sentiment grows, a lot more homes will come on the market. Again, confidence and perception really drive cycles in the market. The problem is, it’s hard to see any mass movement to sell and wait when most fundamentals suggest otherwise. Yes, people are retiring out of California but the millennial population coming into the market is the largest home buying group in the history of American Real Estate. They are behind the crazy markets in Salt Lake, Seattle, Portland, Nashville and Dallas. Plenty of them are buying in California too. What I think will cause the market to slow and eventually balance out here is the combination of 3 things that we will start to see in about 18 months here in Santa Clarita.

First, rising interest rates are happening and will continue to happen for the next 18 months. No one disputes this, the Fed has clearly stated it and though historically money is still cheap, higher rates mean a seller’s home costs more to buy even if the price stays the same. We are getting back to the point where people are spending over 40% of their income for housing-both ownership and renting. That CANNOT continue to go up for long. Further, all buyers watch carefully what home ownership costs and one clear trend that came out of the mortgage meltdown is buyers being conservative and buying less than they can afford. They rarely stretch it. Rates going up combined with prices going up (though slower than few years ago, prices are still going up) means at some point buyers simply can’t afford it and don’t buy.
Second, is the new construction mentioned above as creating more supply to take buyers away from the resale market. New construction has a double effect. It takes away the buyers that might consider resale homes if new weren’t available AND it causes people that have homes to put them on the market, so they can go buy a new home. I remember clearly trying to sell Warmington or Lexington resale homes in 1995-96 and having buyers choose new Castlerocks in Northbridge. Or losing buyers to new homes in Sand Canyon, Stevenson Ranch or Castaic instead of my resale down the street. This always happens when new comes on the market and it causes the resale market to cool and sometimes even decline a bit in value. This won’t happen in Encino or Manhattan Beach where there is no room to build, but it will certainly happen here in Santa Clarita in 2020.

The last reason the market will cool has less to do with economics and more to do with psychology. Can you believe that the median price in San Francisco County is over 1.5 million? That we have had 6 straight years of appreciation when a normal cycle is half that? That your neighbor just sold for $20,000 over their asking price with 5 offers? Well we can believe it because it is happening, but it isn’t “normal.” We all know that Real Estate is cyclical and though it’s hard to see any kind of big drop in prices, the cycle will eventually change. In a few years this exuberance for housing will seem just as foreign as me doing a market analysis in Tesoro Valencia in 2010 and having every single home on that piece of paper be a short sale or a foreclosure. That really happened though it seems hard to believe today. So, no reason to think this seller’s market changes soon, all the fundamentals suggest otherwise. But with rising rates, new construction coming and in time, buyers backing off a bit, it will change again. Just like it always does.

2018 Real Estate Tax Plan – Updated

When we reported to you in November what was proposed for “Tax Reform,” there were some proposals which would definitely hurt the Real Estate Market. The final version which is now law has many Realtors & Real Estate Groups concerned that it will negatively impact values and long term growth. I DON’T see that happening in Santa Clarita.

Watch to learn why…

Lawyers Title - Tax Reform