The strong pace of job creation, combined with the substantial pent-up demand for home purchases, is expected to result in the strongest spring buying season in a decade, according to the chief economist at Realtor.com.
Other economists are not so optimistic, since last month’s job increase did not translate into higher wages. While more people are entering the workforce, wage increases lag far behind home price appreciation.
Home price gains are still being fueled by a serious lack of inventory and competitive bidding for the scarce inventory that is out there. The lack of affordability is still the biggest issue for most people.
In Los Angeles, over the last few years, we have seen the sales prices of homes rise by large margins in almost every zip code, but wages remain stagnant.
Almost half of all Millennials say the reason they do not buy is that they cannot afford a purchase. They have not been able to save enough for a down payment and their wages, if they are lucky enough to find a job, simply do not support the cost of the monthly mortgage expense for a home purchase.
The reality is that most Millennials rent.
More than one-third of Millennials live with their parents.
Many “Baby Boomers” who lost substantial amounts of their retirement money in the Great Recession eight years ago are staying put for now. Then there are the billions of borrowers who have not built up enough equity in their homes to make a move.
“For housing, as low inventory pushes prices up at a fast clip, the mismatch between fast-growing home prices and slow-growing incomes continues to be a huge obstacle for would-be buyers” says the chief economist for Redfin, an online real estate brokerage service.
The volatility in the U.S stock market has a significant impact in the high-end housing market. Typically, people have most of their equity tied up in the equity of their home rather than in the stock market. However, the opposite is true for high net worth individuals.
As income in the top income brackets goes up, from the top 10 percent to one percent, an individual’s stock exposure increases. For this reason when there is a severe correction in the stock market, it has the largest impact on high net worth homebuyers.
Regardless of whether you are a high net worth individual or not, the news of 200 to 300 point swings in the stock market on a regular basis over an extended period of time as we have seen this year, makes everyone nervous. This kind of volatile stock market activity causes buyers to be hesitant about making a purchase of a home.
With the supply of uber-high end inventory rising in New York City, some economists are predicting supply will outpace demand resulting in a downward trend in prices this year on the luxury high end of the scale. Others say the international demand for New York City real estate as a “safe haven” to park money will continue to move prices up there.
A reputable New York real estate brokerage firm reports that bidding wars are less frequent and asking prices are moving down for luxury high end properties.
Real estate agents on the high end of the luxury Westside of Los Angeles, including such areas as Beverly Hills and Bel-Air, have been reporting increased inventory here since the beginning of 2016, creating some price resistance.
Agents typically advise sellers that if you are not getting offers or not getting a significant amount of showings, the market is telling you there is no interest and you have to reduce the price.
With some record setting deals in the last 12 to 18 months, including a sale in the prime luxury estate Trousdale area of Beverly Hills for $70 million dollars, sellers are expecting their property to bring an eye-popping price as well.
If a property is too ambitiously priced, real estate agents say that becomes apparent when the home is placed on the market. Agents liken the situation to a boyfriend or girlfriend who stops calling. They do not call and tell you they do not like you anymore, they just stop calling.
When more property comes to market, buyers are more patient and the excitement and motivation to act quickly fades. With more options, buyers become choosier. This is happening now at the uber-high end luxury market in New York City.
Meanwhile, the scarcity of inventory in other tiers of the market is still putting upward pressure on prices.
The chief economist for Zillow, an Internet house site, foresees an increase in demand for condominiums in 2016, especially for first-time home buyers.
The influx of Millennial buyers that was expected in 2015 never materialized. For 2016, Zillow’s economist says Millennials are expected to just begin to trickle into the market place. They are still having difficulty finding jobs and are in no rush to get married, have children, or purchase a home.
Generally analysts say the factors that positively influence real estate – such as employment, interest rates, and low inventory – will likely support an improving real estate market for 2016.
While analysts do not expect spectacular returns for luxury homes worldwide in 2016, they advise buyers to look for those high end markets that offer the opportunity for a safe investment with excellent financial returns over time.
For a free courtesy consultation, or information regarding mortgage brokers, contact Bess Hochman, a top Westside Real Estate Broker for over 20 years. Bess is also distinguished by holding a law degree. This article expresses the opinion of the author. You are advised to consult attorneys & others experts specializing in the issues referenced in this article. Contact Bess at 310.291.4111 or Bess.CenturyCityNews@yahoo.com.
“Bess is a master negotiator!” says Michael Donaldson, attorney and author of “Negotiating For Dummies.”