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Autumn in the Garden | Sunday September 29th 4-7pm

I hope you enjoyed your summer and are looking forward to a wonderful holiday season.


The Agency continues its dedication to supporting our community and Gus Ruelas and I are proud to be Sponsors of Autumn in the Garden, an evening to raise funds to maintain Arlington Gardens, on Sunday September 29.  The garden was recently recognized by State Senator Anthony Portantino as a California Nonprofit of the Year for Senate District 25.  It promises to be a wonderful evening honoring garden founders Betty and Charles McKenney and if you are interested in attending, you can purchase tickets, which start at $45, at info@arlingtongardenpasadena.org

Our BIG NEWS is that we will be opening The Agency’s new Pasadena office, located at the Pasadena Corporate Center, 225 South Lake Avenue later this month, and I will be celebrating my first anniversary with The Agency.  It has been a gratifying year for me, as I closed a record number of listed and off-market sales throughout Pasadena and Los Angeles, which included some of the city’s most beautiful homes.

As always, if you have any real estate needs or you would like information about the Los Angeles real estate market, please don’t hesitate to contact me.

Rita J. Whitney | Managing Director, Estates Division
https://ritajwhitney.com | https://www.theagencyre.com/agent/rita-whitney/

THEAGENCY | A Global Marketing and Sales Organization

Do Top School Districts Equate to Higher Home Prices?

What $1.5 million buys right now in three of L.A. County’s top school districts

Hot Property | What $1.5 million buys right now in three of L.A. County’s top school districts

By JACK FLEMMINGSTAFF WRITER AUG. 1, 2019 5 AM

For those looking to move before the school year starts, here’s a look at what roughly $1.5 million buys right now in three of L.A. County’s top-rated school districts: San Marino Unified, Arcadia Unified and Palos Verdes Peninsula Unified.

SAN MARINO: Character and curb appeal are a few draws of this 1950s ranch, which opens to a park-like backyard with tiered gardens and an in-ground spa.

Address: 2225 S. Los Robles Ave., San Marino, 91108

Listed for: $1.568 million for three bedrooms, two bathrooms in 1,782 square feet (9,000-square-foot lot)ADVERTISEMENT

Features: Lattice windows; living room with corner brick fireplace; remodeled kitchen; sun room

About the area: In the 91108 ZIP Code, based on 16 sales, the median price for single-family homes in June was $2.329 million, up 10.9% year over year, according to CoreLogic.

Hot Property | What $1.5 million buys right now in three of L.A. County’s top school districts

ARCADIA: A few blocks from the L.A. Arboretum, this property holds a 1950s home, a newly built guesthouse and a swimming pool.

Address: 400 Cambridge Drive, Arcadia, 91007

Listed for: $1.49 million for five bedrooms, six bathrooms in 2,683 square feet (13,503-square-foot lot)

Features: Circular driveway; living room with floor-to-ceiling fireplace; tile kitchen; sliding glass doors

About the area: In the 91007 ZIP Code, based on 16 sales, the median price for single-family homes in June was $1.213 million, down 25.5% year over year, according to CoreLogic.

Hot Property | What $1.5 million buys right now in three of L.A. County’s top school districts

PALOS VERDES ESTATES: This price-reduced property near the beach expands to a spacious balcony overlooking the ocean.

Address: 1100 Via Zumaya, Palos Verdes Estates, 90274

Listed for: $1.449 million for three bedrooms, three bathrooms in 2,288 square feet (10,779-square-foot lot)

Features: Flagstone accents inside and out; stacked-stone finishes; bold living spaces; deck and trellis-topped patio

About the area: In the 90274 ZIP Code, based on 23 sales, the median price for single-family homes in June was $2.094 million, up 5.3% year over year, according to CoreLogic.

Hot Property | What $1.5 million buys right now in three of L.A. County’s top school districts

SAN MARINO: A colorful courtyard fronts this charming single-story home full of French windows and Spanish charm.

Address: 1722 Hilliard Drive, San Marino, 91108

Listed for: $1.55 million for three bedrooms, 1.75 bathrooms in 1,836 square feet (7,714-square-foot lot)

Features: Beamed ceilings; arched doorways; indoor-outdoor breakfast nook; landscaped backyard

About the area: In the 91108 ZIP Code, based on 16 sales, the median price for single-family homes in June was $2.329 million, up 10.9% year over year, according to CoreLogic.

Hot Property | What $1.5 million buys right now in three of L.A. County’s top school districts

ARCADIA: Newly renovated, this two-story home on a tree-lined street features an open floor plan lined with maple hardwood and a fenced backyard with a pool and spa.

Address: 226 San Luis Rey Road, Arcadia, 91007

Listed for: $1.59 million for five bedrooms, 3.5 bathrooms in 3,151 square feet (7,787-square-foot lot)

Features: Custom paint; marble fireplaces; plantation shutters; backyard with fruit trees

About the area: In the 91007 ZIP Code, based on 16 sales, the median price for single-family homes in June was $1.213 million, down 25.5% year over year, according to CoreLogic.

Hot Property | What $1.5 million buys right now in three of L.A. County’s top school districts

PALOS VERDES ESTATES: Neutral tones and wide-plank floors touch up this remodeled home with a custom-built lounge out back.

Address: 1721 Via Zurita, Palos Verdes Estates, 90274

Listed for: $1.55 million for three bedrooms, 2.25 bathrooms in 2,168 square feet (7,095-square-foot lot)

Features: Covered front porch; kitchen with breakfast bar; master suite with glass shower; second-story balcony

About the area: In the 90274 ZIP Code, based on 23 sales, the median price for single-family homes in June was $2.094 million, up 5.3% year over year, according to CoreLogic.

What’s Happening in Our Real Estate Marketplace?

Late July/August 2019

A Recession Is Coming (Eventually). Here’s Where You’ll See It First.

Economists don’t know when the decade-long expansion, now the longest in American history, will end. But here are the indicators they will be watching to figure it out.

Last week’s report on second-quarter gross domestic productshowed that the economy slowed last spring. It also came exactly 10 years since the Great Recession ended, making this officially the longest expansion in American history. (Well, probably. More on that in a second.) So perhaps it’s no surprise that forecasters, investors and ordinary people are increasingly asking when the next downturn will arrive. Below is a guide to some of the indicators that have historically done the best job of sounding the alarm

One caveat: Economists are notoriously terrible at forecasting recessions, especially more than a few months in advance. In fact, it’s possible (though unlikely) that a recession has already begun, and we just don’t know it yet.

“Historically, the best that forecasters have been able to do consistently is recognize that we’re in a recession once we’re in one,” said Tara Sinclair, an economist at George Washington University. “The dream of an early warning system is still a dream that we’re working on.”

Indicator 1: The Unemployment Rate

What it’s saying: All clear.

What to watch for: Rapid increases, even from a low level.

What to watch for: Interest rates on 10-year Treasury bonds falling below those on three-month bonds. (It has already happened.)

What it’s saying: Storm warning.

Indicator 3: The ISM Manufacturing Index

What to watch for: The index falling below about 45 for an extended period.

What it’s saying: Mostly cloudy.

Indicator 4: Consumer Sentiment

What to watch for: Declines of 15 percent or more over a year.

What its saying: Partly cloudy.

Indicator 5: Choose Your Favorite

O.K., this is cheating. But no single indicator can tell the whole story of the $20 trillion United States economy, and the measures that performed well in the past might not do so in the future. So it pays to keep an eye on a variety of data sources.

The indicators above are among the most common inputs into the formal models that economists use to forecast recessions. But many economists have a favorite indicator (or maybe a couple) that they also watch as a gut check.

  • Temporary staffing levels: Temp workers are, by definition, flexible — companies hire them when they need help quickly and get rid of them when demand dries up. That makes them a good measure of business sentiment. As of June, temp staffing is near a record high, but it has pretty much stopped growing.
  • The quits rate: When workers are confident in the economy, they are more likely to quit voluntarily. The quits rate, a favorite indicator of Janet Yellen, the former Fed chair, bottomed out shortly after the Great Recession ended and rose steadily until leveling off in the middle of last year.
  • Residential building permits: The housing market has frequently led the economy both into and out of recessions. That has made building permits — which are generally issued several weeks before construction begins — one of the best historical indicators of economic activity. But construction has lagged since the last recession, and housing makes up a smaller share of the economy than in the past, so permits may not be as meaningful now.
  • Auto sales: After houses, cars are the most expensive thing most families buy. And while owning a car is effectively required in large parts of the country, buying a new one almost never is. So when new car sales are strong, it’s a sign consumers are feeling good. Retail car sales have typically peaked before recessions, then dropped sharply once one began. So it isn’t a great sign that sales are falling.

Written by Ben Casselman of teh New York Times, who writes about economics, with a particular focus on stories involving data.

Foreign investment in US homes plummeted to $78B over the past year

Florida, California and Texas had the most foreign purchases of residential real estate, according to a National Association of Realtors report

By Katherine Kallergis | July 17, 2019 | The Real Deal

A map of the US with flags from China, Canada and India

Foreign investment in residential real estate in the U.S. has taken a tumble.

Foreign buyers purchased $77.9 billion worth of existing U.S. homes between April 2018 and March 2019, a 36 percent decline compared to the $121 billion recorded the previous year, according to a report from the National Association of Realtors released Wednesday.

Buyers from China topped the list, outspending those from other countries for the seventh consecutive year with about $13.4 billion worth of home purchases. That still represented a sharp decline — 56 percent — from the prior year.

Canadians ranked second, spending $8 billion on residential properties last year. About 75 percent of them were the most likely to pay all cash while half of Chinese buyers paid all cash. Buyers from India spent the third most, $6.9 billion. The United Kingdom ranked fourth at $3.8 billion and Mexico was fifth at $2.3 billion.

Within the U.S., 20 percent of foreign investment was spent in Florida, which comes out to about $15.6 billion between the spring of 2018 and 2019. California attracted 12 percent of the nearly $80 billion international buyers spent, or about $9.35 billion. Texas was the third most popular state for foreigners, accounting for 10 percent of such purchases.

While Florida has been known to attract foreign and out-of-state investment due to its favorable tax laws, California is not so friendly. It has the highest state income tax in the country.

Slower economic growth worldwide and a strong dollar have contributed to the pullback, said Lawrence Yun, chief economist at NAR.

“The magnitude of the decline is quite striking, implying less confidence in owning a property in the U.S,” he said in a statement accompanying the report.

The top five countries reported an annual drop in total sales volume. Chinese investment, especially, could continue to drop. The Chinese government recently cautioned students considering studying in the U.S. — who historically spend billions on homes near their schools — from studying in America. The continuing trade war between the Trump administration and China could also be a contributing factor, experts said.

Economists: SoCal Housing Market is Slowing but No Crash in Sight

A cooling market could be good for buyers, who could see prices normalize

The state’s housing market has cooled in recent months following a stretch of red-hot price growth fueled in part by diminishing inventory, but economists aren’t ringing the alarm bells on a crash.

Because the U.S. economy is more solid ground than it was a decade ago — helped by regulations enacted during that period — there are fewer risks of another sharp downturn, according to analysis by the Los Angeles Times.

Home prices in Southern California hit an all-time high in June. But the numbers have not mirrored the those just before the recession. From 2000-2006, housing prices shot up 28 percent. Meanwhile, from 2012 to 2018, there has been just an 11.4 percent rise.

That rate of growth is slowing nationwide and it’s pronounced in Southern California, which has been one of the hotter large markets in the country. The region saw its slowest September in over a decade and had its slowest summer in four years. Home sales fell 17.7 percent in September year-over-year and the price gain from 2017 was much lower than in recent years.

Rising interest rates are contributing to the slowdown, experts say.

Still, fundamentals are healthier than they have been during previous booms. Lending standards are tighter and borrowers have more solid credit than they did during the 2000s bubble. The total U.S. mortgage payments in the second quarter are 4.2 percent of total disposable income, compared to 6-7 percent during the bubble.

The U.S. economy is also more diverse than it was during the recession in the early 1990s, and unemployment is lower. An economic shift from manufacturing to the service industry — along with the net loss of jobs — helped fuel that downturn in Southern California. [LAT] — Dennis Lynch 

What’s Driving the Market?

5 Reasons 2019 Is The Most Important Year For Housing In 10 Years

by Joshua Pollard

In the midst of the longest US government shutdown in history, a volatile stock market, global trade wars and Apple slashing its revenue forecasts to start the year, the question rings loud: How will the US housing market hold up in 2019?

A number of global economic sectors took a hit in 2018, while the US real estate sector only cooled in certain markets, though it did not crack. However, if housing gets a cold, banks and the financial sector get pneumonia. The global economy would surely be in trouble if the real estate market became a broad concern.

Given this potential for volatility, 2019 will be the most pivotal year in US housing and commercial real estate since the Great Recession.

Here are 5 reasons why:

1. Opportunity Zones (Positive)

Opportunity Zones were created as a part of the 2017 Tax Cuts and Job Act, and they will have important ramifications on the real estate market in 2019.Every governor in the US selected 25% of the low to moderate-income areas in each state to be the place where monies that would otherwise be paid to the IRS as capital gains taxes could instead be deferred, reduced and eliminated. Pundits have heralded this program as the most advantageous US economic development program in decades. In order to gain the maximum benefit, though, a taxpayer would have to defer his or her capital gains for seven years prior to 2026. In other words, 2019 is the maximized benefit year for the Opportunity Zone program. How investors are able to manage through the Opportunity Zone program and its forthcoming guidance from the IRS will be critical to the US housing and commercial real estate market for 2019.

2. Changes To Mortgage Interest Deduction (Negative)

American families will receive their W-2s over the next few weeks and prepare their taxes before April 15th. Many do not recognize that the mortgage interest deduction that they have been used to was capped as a result about the 2017 Tax Cuts and Jobs Act. The 2017 legislation limited the amount of mortgage interest that could be deducted, along with a host of other changes that will impact families. Many families will really only understand the impact of the tax changes as they look to file their returns over the next few months and realize that things have changed.

3. Volatility In Interest Rates (A Toss-Up)

There’s been a stock market correction within the first year of every new Federal Reserve Chair’s tenure in the last 40 years, with the exception of one: Dr. Janet Yellen. Current Fed Chairman Jerome Powell has fallen back in line with his predecessors and witnessed a material stock market correction to close out 2018.

A common measure of broader interest rates, the yield on ten-year treasuries rose 2.47% at the beginning of 2018 to 2.67% at the end of the year. However, ten-year treasury rates have dropped from a high of 3.23% in October 2018 to approximately 2.70% last week. This level of volatility is an indication of a jittery economic outlook, but with respect to housing, it can completely change the affordability of a home.

4. Slow-down In Home Price Increases In Coastal Markets (A Toss-Up)

The extreme home price increases that have occurred over the last ten years in markets like New York City and San Francisco took a breather in 2018. This is good in a certain respect, because it helps to ensure that oversupply doesn’t happen in these markets any more than it may have already occurred.

That said, consumers are counter-affordable buyers when it comes to housing: When times are good, everyone’s buying, everything’s expensive and quick to move on homes. When things cool off a bit, prices are a little better, consumers get slightly more cautious and are slower to purchase. If consumers become very slow to purchase, a highly motivated seller can drop prices in a knee-jerk reaction. If the recent cool-down is a blip, and the recent reduction in interest rates incites consumers to make the purchase that they’ve been looking forward to, this could be very good. If, on the other hand, consumers decide to slow down en masse, there would be reason for concern. The spring selling season for new homes, which starts in earnest just after the Super Bowl (early February), will be very telling in places like California, Florida, Texas and the remainder of the Sunbelt.

5. The Rest Of The Economy (A Toss-Up)

In 2001, the US economy slipped into a recession following the initial burst of the tech bubble and the ramifications of Sept. 11. Housing prices, which were growing mid-single digits in the years leading up to 2001, slowed to no growth during that short recession. Home prices did not decline on a national basis.

Right now, there are multiple global and US economic sectors that are in temporary recession or correction. Oil prices have dropped from $73 per barrel to $51 since September 2018. The stock market, as measured by the S&P 500, has fallen by nearly 12% since then, too, and the valuations of technology stocks have similarly fallen during that time frame.

Conditions vary with each economic cycle, but the government shutdown and other economic sectors are already affecting real estate, setting 2019 up to become the most pivotal year the US housing market has seen in the last decade.

Jumbo Mortgage Slowdown Forces Banks to Rethink Focus on High-End Customers

Originations for the largest loans are down 12% YOY

It turns out bigger isn’t always better.

Jumbo loans — mortgages too large to be sold to Fannie Mae and Freddie Mac — fell by 12 percent by dollar volume last year, according to a new report from the Wall Street Journal. It’s a warning sign for banks that pivoted to cater to wealthy borrowers in the wake of the financial crisis.

In general, a jumbo is any loan above $484,350, but in more expensive parts of the country it is a loan above $726,525. They are most common in expensive cities. Last year in Manhattan, 61 percent of mortgages qualified as jumbo, per that year’s loan limits, the Journal found.

The jumbo market has been hit by headwinds. Refinancings have slowed, as has the general U.S. economy, according to the Journal. House prices, while still rising, are also cooling, and new tax laws have reduced incentives to buy larger homes.

Several banks did more than half their U.S. mortgage business in jumbo loans last year, including First Republic Bank, MUFG Union Bank, Toronto-Dominion Bank and Bank of America, according to Inside Mortgage Finance. [WSJ] – Decca Muldowney

Maybe 2019 Will Be a Great Year for Homebuying After All?

‘We are closing the affordability gap at a noticeable rate,’ said Williston Financial Group CEO Patrick Stone.

You have maybe heard that the market is turning? And that 2019 is going to be a sad year with fewer home sales?

Well Patrick Stone, president and CEO of title insurer Williston Financial Group, disagrees. And he offered a surprisingly sunny assessment of the near-future real estate market.

“I do think we’ll see the return of the first time homebuyer,” Stone told a gathering of real estate professionals at Inman CEO Connect Tuesday morning. “You are in the right industry for the next three to five years.”

Stone’s assessment hinges on a handful of economic trends he thinks will buoy the real estate market beyond some of the more dire predictions that have captured recent headlines. First, Stone said that home appreciation is slowing while wages are, finally, catching up.

“We are closing the affordability gap at a noticeable rate,” Stone said.

That’s a significant trend, given that buyers in many coastal markets have been pushed out of their cities by years of price inflation and wage stagnation. And the result, he argued, was that in 2019 there will be “more mortgages made for resales this year than last year.”

“By the second half of this year I think you’re going to see a fairly significant surge in new home buying,” Stone added.

To prove his point, Stone cited his own company, which has seen a 24 percent jump in orders this month compared to December 2018. He described that jump as the largest December-to-January change that he has seen in 43 years.

“I’m optimistic,” Stone concluded from those numbers.

Stone is also optimistic about the real estate market’s health because, he argued, there should be 16 million new home buying households forming in the next five years. Those households — created as more millennials come of age — represent the largest generation since the baby boomers and should drive significant demand for real estate. Stone also pointed out that the U.S. still isn’t building as many houses as there are people reaching home buying age, meaning demand should exceed supply and prices should go up.

“This is a population bubble coming,” Stone said.

Stone argued that there is not currently a housing bubble, and that “we are not in a speculative economy.” And while there are reasons to be generally cautious — for example he said there is a corporate lending bubble — the real estate market remains poised to thrive in the coming years.

“It’s a good business to be in,” Stone said.

Written by: Jim Dalrymple ll – Inman Staff Writer

When Is It A Good Time To Buy?

Updated: January 2019

California Home Sales Volume Lays Low

Posted by ft Editorial Staff | October 2018 | Charts, Home Sales, Latest Articles, Market Watch | 80

42,900 new and resale home transactions closed escrow in California during August 2018. The number of homes sold in August was 5% lower than a year earlier, amounting to 2,000 fewer sales. Total sales volume year-to-date is very slightly below 2017.

2017 ended with 461,900 home sales in California. This is 3,800 more sales than took place in 2016, amounting to an increase of less than a percent. For perspective, the 461,900 homes sold in 2017 was still 39% below peak sales volume experienced in 2005.

Home sales will likely continue to struggle as we go through 2018, slowing the flow of agent fees. Rapidly rising prices and interest rates, along with uncertainty brought on by shifting economic policies, have discouraged potential homebuyers. Therefore, home sales volume won’t rise significantly until after home prices bottom with the next recession, expected in 2020.

Updated October 4, 2018. Original copy posted March 2009.

Home sales vary from month-to-month for a variety of reasons, most significant being homebuyer demand. This demand is influenced by several factors constantly at work in California’s homebuying market, including:

Seasonal Differences in Annual Sales Volume

It’s normal for home sales volume to rise in the first half of the year and fall after June, generally speaking.

Chart 2

Chart update 04/11/18

Chart 2 shows average home sales as experienced from 2011-2015. As depicted, the most homes are regularly sold each year in June. Another small increase takes place in December, as homebuyers seek to wrap up their financial activities before the end of the year.

Therefore, real estate professionals are not to worry when they hear of falling sales volume in the latter half of the year. This is a normal seasonal progression. What to watch for is year-over sales comparing a month or other period (such as year-to-date) this year with the same month or period last year.

A Very Long Recovery for Home Sales Volume

Annual real estate sales numbers since the Great Recession of 2008 suggest the upcoming years through 2017 will be characterized by the same continuing bumpy plateau in home sales volume we have experienced now for eight stagnating years. As a rule, current market action, whether up or down, is reflected first in sales volume, followed by prices, and both fluctuate from month to month mostly going in opposite directions or just standing still.

Chart 3

To set the stage for a forward look, a review of sales volume in the recent past is helpful:

  • Mid-2005 saw sales volume peak for all types of real estate in California, with nearly 754,000 homes sold that year
  • Early 2006 produced both the peak in sales prices and a precipitous further decline in sales volume. Nearly 30% fewer sales were recorded in 2006 than in 2005
  • In 2007 sales volume dropped another 30%
  • 2009 sales volume was artificially higher than anticipated after bottoming in 2008 due to subsidy-induced purchases and speculators jumping on the momentum, but remained 40% below the 2005 peak year
  • 2010 saw a decline from the year earlier in both sales volume and prices
  • 2011 increased slightly in sales volume while decreasing in sales prices, a normal price adjustment condition
  • 2012 saw sales volume increase marginally and home prices jump significantly by year’s end, supported primarily by massive speculation
  • 2013 home sales volume stagnated, while home prices continued to increase rapidly, not a good sign for the immediate future
  • 2014 saw home sales volume decrease throughout the year, ending the year 7% below 2013
  • 2015 ended 9% higher than 2014 — in other words, just about level with 2013. [See Chart 4]
  • 2016 and 2017 sales volume continued a flat trend in sales which began in 2015.

As of August 2018, home sales volume year-to-date (YTD) is less than half-a-percent below 2017. At the end of 2017, home sales volume ended the year with just 3,800 more sales than in 2016. This is an increase of less than 1%. The previous year, 2016, also saw a minuscule increase over 2015.

Sales volume is not expected to increase significantly until the years following 2021, due to:

  • Fewer participating first-time homebuyers than normal
  • Lower homeowner turnover to buy an upgrade or relocate due to continued negative equity and delayed retirement
  • Reduced home inventory across the state
  • Static turnover in rental occupancies

Much of these disadvantages are due to the jobs recovery which has been dragged out for eight years now, a confidence issue, and is pronounced by wage increases below the rate of consumer inflation. California finally regained all jobs lost in the 2008 recession in mid-2014, but has yet to return to pre-recession employment levels after considering the 1.1 million working-aged population increase. At the current recovery pace this will occur in 2019.

Short sales, real estate owned (REO) property resales and speculators have contributed to sales volume distortion over the past few years. Conventional positive-equity resales by owner-occupants were the exception, sometimes reminiscently called standard sales as opposed to short sales. As prices rise, move-up homeowners will return to the market to sell and concurrently buy a more suitable replacement home.

Further, as of Q3 2017, 3.2% of California mortgaged homeowners were still underwater. Thus, turnover by this chunk of owners is restricted. These homeowners cannot sell and relocate to purchase another home because their homes are worth less than the debt encumbering them. To rid themselves of the home and the debt, they have to endure damaged credit resulting from a short sale or foreclosure. The desire to avoid this embarrassment takes most of these 3.2% homeowners out of the home buying market for years.

Home Sales in the Coming Years

The forward trend in California home sales is mixed for both buyers and seller. Homebuyer income is going further and doing more than anytime during the past 15 years due to increased borrowing capacity brought on by low interest rates (even though they rose mid-2013 to cut back funding by 10% from one year prior, but dropped to fuel sales in 2015). In fact, the Buyer Purchasing Power Index (BPPI) went negative in June 2013 and bounced back to zero in September 2014 – this momentarily stalled home price expectations.

In December 2015, the Federal Reserve (the Fed) committed itself to raise short-term interest rates in order to keep a lid on the recovery (as they did in both 1984 and 1994 midway through those recoveries). This upward rate move by the Fed (and the bond market) will instantly be reflected in ARM rates, and eventually trickle into higher mortgage rates, likely around mid-2016. Higher FRM rates will promptly trend real estate sales volume down and some 9-12 months beyond prices will slip. As prices start to decrease, expect the short-term rate to decline in the 2017-2018 period which will slow and put an end any downward turn in real estate sales volume and the economy.

First Tuesday forecasts home sales volume will return to 2006 levels around 2020-2021. The peak sales volume last seen in 2004, inflated by speculator acquisitions and excessive mortgage money, is unlikely to return for decades, when interest rates cyclically peak.

Relocating Baby Boomers going into retirement later this decade will be the primary propelling force in both selling homes and buying replacements beginning around 2019. Their Generation Y (Gen Y) children will add to the sales volume at the same time as they find jobs at better pay levels and become first-time homebuyers. Gen Y influence will peak in sales volume at the end of this decade as they complete their shift from renting to owning.

Once Californians feel the effects of two or three years of healthy employment growth, their confidence about the future will improve. They will once again be willing to invest in the economy since the expectations for tomorrow are projections based on yesterday’s most recent experience. Only then will occupying homebuyers – end users – return in sufficient numbers for sales volume to swell significantly.

In 2018, sales volume will begin to pick up in earnest, peaking in 2019-2021. Employment and labor force participation will have reached beyond its 2007 peak, and grow quickly. Then, California will once again see home prices jump beyond the rate of consumer inflation. Mortgage lenders with an eye for excess profits will then begin to loosen their lending standards to whatever extent federal regulators permit or lawyers divine. The memory of the grim mid-2000s will be politely pushed aside, and mistakes will be repeated by all participants – lenders, builders, brokers and buyers.

Favorable Market Conditions Now at Work

Several favorable market factors currently support increasing sales volume:

  • A steady 3% annual increase in the number of new jobs;
  • A more reasonable (though still rising) price trend as we start 2016;
  • Slowly rising consumer confidence and spending; and
  • The recapitalization of the private mortgage insurers to eventually replace (or fully compete with) government guarantees of home mortgages.
Trends To Be Concerned About

However, many unfavorable market conditions restrain the rise of home sales volume:

  • The weakest homebuyer demographics in 15 years;
  • Failed savings for a down payment as high rents squeeze potential first-time homebuyers out of saving;
  • Buyer borrowing power no longer enlarging the funds they can borrow as interest rates inevitably rise, reducing funding for purchase-assist financing and dampening property prices;
  • The public’s increasingly anti-business and pessimistic attitude about American economics, wealth inequality and national politics no matter the outcomes; and
  • Tightened loan standards as lenders are forced to apply forgotten fundamentals of sound mortgage lending practices (20% down payment on non-FHA/private mortgage insured loans, lower income ratios, risk-free credit scores and full documentation of income, funds and collateral value).