Archives for category: Investment

Great news, I just heard from a fellow agent that an open house he held last weekend in Westwood was attended by 140 people and the house had not even hit the MLS yet.  This is amazing news.  Open house activity has quadrupled.  Buyers are tired of waiting, and sellers are still at the sideline putting their properties on the market very slowing and cautiously.  Inventory is very, very low and buyers are frustrated that there is nothing to look at.  This is all a good sign for the market place.

I expect in the next several months that sellers will start putting their homes on the market and buyers will step up to the plate .  Buyers will start making realistic offers, recognizing that there is a lot of competition in the market.  There are a lot of multiple offers going on right now.  Even though I will not be so bold as to say that prices are going up, the market has definitely leveled and there is definitely more demand then there is available inventory.

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I have been waiting for more than five years to offer this advice. It is now time in most cities across the country to buy a new home or refinance your existing home with thirty-year fixed rate mortgage debt. And this from the author of The Coming Crash in the Housing Market published in 2003 and my 2006 book, Sell Now! The End of the Housing Bubble. Let me explain why.

Home Prices Relative to Peak Prices During Bubble
Home prices are off anywhere from 10% to more than 60% in cities across the country. There is no reason to believe that prices were “fair” during the bubble as we have seen they were largely caused by loose and aggressive lending by banks and non-banks. But, it is always better to buy at a discount rather than at a historical peak, and these seem like awfully big discounts. And by my calculations, in most cities across the country, real prices adjusted for inflation have just about come into line with where prices were in 1997, before all this crazy bank lending started, so there should be little additional downside risk by buying today. There are still some neighborhoods across the country that have not seen very dramatic declines in price, many of them very wealthy and expensive enclaves, but given the distribution of incomes lately heavily weighed toward the wealthy, these areas may never see a really large home price decline.

Home Prices Relative to Construction Costs or Replacement Costs
Homes in many cities across the country are now selling for as little as $60 to $70 a square foot. Depending on the quality of construction and the underlying land value, this represents a 50% to 65% discount to the costs you would incur if you tried to build a similar home today in these cities. While there is no guarantee that there will be a strong rental market in the short run, in the long run it just seems to make sense to buy if you can acquire assets at half or less of the cost of building them.

Home Prices Relative to Incomes and Rents
During the peak years of the housing bubble, entire cities like San Diego were seeing their homes priced on average at 11 times the area’s median family income. Such prices financed primarily with debt are by definition unsustainable. Now, because banks have pulled back on their lending formulas, homes in many cities are changing hands at three to four times average family incomes. Similarly, at the peak, houses traded at such large multiples of possible rents that it made the projects uneconomic from the start. Now, with homes trading at more reasonable multiples of rents, houses and condos can be purchased that are immediately cash flow positive in year one and enjoy all the upside of any appreciation that will occur as inflation returns.

Home Prices in Real Terms, Not US Dollar Terms
We still talk about home prices in dollar terms, which is silly because the dollar has lost 98% of its purchasing power relative to a more stable asset like gold over the last fifty years. If instead of pricing houses in dollars, we look and see what a home would cost in ounces of gold, we see that houses today are a real bargain. As a matter of fact, this graph shows that average homes, measured in the number of gold ounces it would take to buy them are now trading at forty year historical lows.

You might argue that this is because gold is priced highly today. I would argue that gold’s purchasing power has changed very little over time, it is the dollar that is depreciating and thus giving the appearance that the price of gold is rising. Actually, gold is quite stable relative to other assets and commodities and it is the dollar that is highly volatile and declining in value due to the US funding its deficits by printing dollars.

The Real Bubble – US Treasuries and Future Inflation
The real bubble out there is longer US Treasuries and 30-year fixed rate mortgages for homebuyers. With US debt equal to its GDP and equal to more than four times our government’s total tax revenues and with annual deficits of $1.3 trillion and growing, it is amazing to me that people will lend to the US for thirty years for less than 3.0% a year. Even more amazing is that individual homeowners can borrow at 4.0% (around 3% after tax) for thirty years on a fixed rate basis, some 300 basis points better than Italy which has a lot more people and makes much better shoes. Homes may not appreciate greatly in real terms over the next twenty years, but they don’t have to if inflation comes back, which is the only way the US and Europe are going to get out from under the huge debts on their countries and their banks. You may not make a lot in real terms on the house, but if inflation returns, you could make a killing on your investment as your thirty year debt becomes worth less and less in real terms. Run the numbers, but if inflation and interest rates go back to say, 7% to 8%, you could easily make eight to ten times your equity investment on the house because you locked in your borrowing costs and home appreciations historically have always correlated well with unanticipated inflation.

So, run, do not walk to your neighborhood banker and either finance a new home purchase or take out the maximum amount of money he or she will lend you on a home equity loan and buy hard assets, not financial securities, with the money. When inflation comes roaring back the only perfect hedge is to be a borrower, not a lender or investor. Shakespeare said “Neither a borrower nor a lender be,” but they didn’t have huge government deficits and the risk of future inflation back in the Bard’s time.
John R. Talbott, previously a Goldman Sachs investment banker, is a best selling author and economic consultant to families. You can read more about his books, the accuracy of his predictions and his family consulting activities at www.stopthelying.com.

By NICK TIMIRAOS

The reeling housing market has come to this: To shore it up, two Senators are preparing to introduce a bipartisan bill Thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S.

The provision is part of a larger package of immigration measures, co-authored by Sens. Charles Schumer (D., N.Y.) and Mike Lee (R., Utah), designed to spur more foreign investment in the U.S.

Foreigners have accounted for a growing share of home purchases in South Florida, Southern California, Arizona and other hard-hit markets. Chinese and Canadian buyers, among others, are taking advantage not only of big declines in U.S. home prices and reduced competition from Americans but also of favorable foreign exchange rates.

To fuel this demand, the proposed measure would offer visas to any foreigner making a cash investment of at least $500,000 on residential real-estate—a single-family house, condo or townhouse. Applicants can spend the entire amount on one house or spend as little as $250,000 on a residence and invest the rest in other residential real estate, which can be rented out.

The measure would complement existing visa programs that allow foreigners to enter the U.S. if they invest in new businesses that create jobs. Backers believe the initiative would help soak up an excess supply of inventory when many would-be American home buyers are holding back because they’re concerned about their jobs or because they would have to take a big loss to sell their current house.

“This is a way to create more demand without costing the federal government a nickel,” Sen. Schumer said in an interview.

International buyers accounted for around $82 billion in U.S. residential real-estate sales for the year ending in March, up from $66 billion during the previous year period, according to data from the National Association of Realtors. Foreign buyers accounted for at least 5.5% of all home sales in Miami and 4.3% of Phoenix home sales during the month of July, according to MDA DataQuick.

Foreigners immigrating to the U.S. with the new visa wouldn’t be able to work here unless they obtained a regular work visa through the normal process. They’d be allowed to bring a spouse and any children under the age of 18 but they wouldn’t be able to stay in the country legally on the new visa once they sold their properties.

The provision would create visas that are separate from current programs so as to not displace anyone waiting for other visas. There would be no cap on the home-buyer visa program.

Over the past year, Canadians accounted for one quarter of foreign home buyers, and buyers from China, Mexico, Great Britain, and India accounted for another quarter, according to the National Association of Realtors. For buyers from some countries, restrictive immigration rules are “a deterrent to purchase here, for sure,” says Sally Daley, a real-estate agent in Vero Beach, Fla. She estimates that around one-third of her sales this year have gone to foreigners, an all-time high.

“Without them, we would be stagnant,” says Ms. Daley. “They’re hiring contractors, buying furniture, and they’re also helping the market correct by getting inventory whittled down.”

In March, Harry Morrison, a Canadian from Lakefield, Ontario, bought a four-bedroom vacation home in a gated community in Vero Beach. “House prices were going down, and the exchange rate was quite favorable,” said Mr. Morrison, who first bought a home there from Ms. Daley four years ago.

While a special visa would allow Canadian buyers like Mr. Morrison to spend more time in the U.S., he said he isn’t sure “what other benefit a visa would give me.”

The idea has some high-profile supporters, including Warren Buffett, who this summer floated the idea of encouraging more “rich immigrants” to buy homes. “If you wanted to change your immigration policy so that you let 500,000 families in but they have to have a significant net worth and everything, you’d solve things very quickly,” Mr. Buffett said in an August interview with PBS’s Charlie Rose.

The measure could also help turn around buyer psychology, said mortgage-bond pioneer Lewis Ranieri. He said the program represented “triage” for a housing market that needs more fixes, even modest ones.

But other industry executives greeted the proposal with skepticism. Foreign buyers “don’t need an incentive” to buy homes, said Richard Smith, chief executive of Realogy Corp., which owns the Coldwell Banker and Century 21 real-estate brands. “We have a lot of Americans who are willing to buy. We just have to fix the economy.”

The measure may have a more targeted effect in exclusive markets like San Marino, Calif., that have become popular with foreigners. Easier immigration rules could be “tremendous” because of the difficulty many Chinese buyers have in obtaining visas, says Maggie Navarro, a local real-estate agent.

Ms. Navarro recently sold a home for $1.67 million, around 8% above the asking price, to a Chinese national who works in the mining industry. She says nearly every listing she’s put on the market in San Marino “has had at least one full price cash offer from a buyer from mainland China.”

Bargain hunters snap up foreclosures, and the median home price continues to fall.

California home sales picked up in September from the same month last year as prices came down.

Sales were up 6.7% as bargain hunters paying cash snapped up foreclosures. Sales figures remained below the average for September in Southern California and the Bay Area, according to DataQuick, a real estate information service based in San Diego. As is typical, sales were lower than in August, down 6.2%, for a total of 35,404 homes sold last month.

Downsizing is not necessarily settling for less.  Several of our homeowners recently decided that they didn’t need as large a home now that their children have left.  Their lifestyle has changed, and includes traveling and visiting friends and family from time to time, leaving their home in some cases for several weeks at a time.  As they evaluated their options, several of our clients chose to move to the Wilshire Corridor and Ocean Avenue where there are condominiums, making it is easier to lock up and easily leave.  One of our other clients chose to buy a contemporary home in Pacific Palisades in a community that better suits their needs with a smaller yard and beautiful ocean views.  In each and every case that our clients decided to downsize, there was not a sacrifice made; in fact, there was an upgrade and a positive change in lifestyle.

If you are interested in possibly buying a newer home that is more streamlined to your current lifestyle, please let us know.  You can choose a contemporary style or one with ocean views.  You may decide that a condo is perfect for your lifestyle, or perhaps you may decide to move out of town where there is less traffic and an environment that caters to a slower lifestyle.  If you appreciate beautiful gardens and tranquil views, we have some selections in mind.  Remember, downsizing need not require the thought of stepping down, but in fact is the opportunity to step up while minimizing your financial commitment at the same time.

By Alejandro Lazo, Los Angeles Times

Before the bust, rising prices fueled the housing market, enabling buyers to start small and climb the ladder. Now that promise of upward mobility has been all but shattered, gumming up the market.

Back in the frothy days of 2007, Luciano Mor needed only a weekend and a Craigslist ad to find a buyer for his two-bedroom starter home.

The split-level house, on a quiet Silver Lake street, sold for $749,000, commanding nearly twice what he paid in 2002 and about $50,000 more than a real estate agent had suggested as a listing price. Mor, who works for Vans’ apparel division, had planned on taking the gains and snapping up a place closer to his job in Cypress with enough room to accommodate an expanding family.

It was the kind of life progression that traditionally fuels a healthy housing market. Then prices started to drop. Nearly four years later, Mor is still looking for the right deal.

“I just feel like the longer I hold off, the better I will be,” Mor said, sitting in the living room of the Long Beach home he and his wife rent. “It’s almost like getting a new car — you just know it’s best to hold on to your old car as long as possible.”

Potential move-up buyers like the Mors are largely sitting on the sidelines these days, leaving a key part of the housing market stuck in neutral. The promise of rising prices and upward mobility, once a powerful force in the American housing narrative, has been all but shattered by the downturn.

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The $40-million sale is one of the highest this year in L.A. County.

La Belle Vie, the mammoth Bel-Air residence built in 1993 for philanthropist Iris Cantor by her husband, Bernard Gerald Cantor, has sold for $40 million, public records show. The sale is one of the highest this year in Los Angeles County.

The mansion had been marketed at $53 million since 2009. It was designed to house the Cantors’ extensive art collections.

The 35,000 square feet of living space include a three-story entry hall, a formal library, a media room, a gym, a billiards room, a beauty salon, three kitchens, 12 fireplaces, nine bedrooms, 21 bathrooms and a staff wing. The property includes a pool, a tennis court and a 10-car garage.

Iris Cantor is chairwoman and president of the Iris and B. Gerald Cantor Foundation, which supports the visual arts and medical, educational and cultural institutions. B. Gerald Cantor, who died in 1996 at 79, cofounded the securities firm Cantor Fitzgerald.