BHAUS EIGHT May 2022 Newsletter

Hello community,

May has arrived! End of school is only a few weeks away, and summer vacation will be here before the blink of an eye! Whether you are planning an international excursion or a U.S. destination, it is bound to be fun and busy!

Many spots around the world are opening, after months of closures due to Covid (but many properties have taken advantage of the time “off” and completed beautiful renovations for tourists to enjoy!). While there are still precautions to take due to Covid, the world is again our oyster!

This month we have great information below regarding the SouthBay real estate market, economy and mortgage news, expected changes in the market, and the pros and cons of different loan terms in our Investor Corner chats.

SouthBay Real Estate.

Overall the Southbay market continued selling strong in April. Across all cities, average home prices had a slight 2% increase versus last month, with homes selling at a record average of 13 DOM. We did see an ever so slight 1% decrease in average prices versus last year, and continue to see price drops across many listings in the higher range homes. Even so, homes sold in April closed at an average of 107% above original list price.

We continue to see an improvement in inventory, with more listings coming up weekly, giving the much strong buyer demand options in home purchasing. While buyers may be feeling the pinch of the mortgage rates, the demand continues strong with closed sales up 3% versus last month.

Home Stats by City.

Below are the snapshots of average home prices, # Sold listings, DOM, # New listings by city, inclusive of all types of properties (ie: Single Family Residences, condos, townhomes) compared to April of last year.

Please note Hermosa Beach average home price decrease is most likely due to a very different type of property that sold this year versus last. This April’s median price was -$265,000 below last year’s median price which more closely reflects the HB market.

Economy & Mortgage News.

Forces are coming together for an interesting show in the real estate industry. Inflation has increased to new highs of roughly 8.5%, interest rates have climbed by about 2% versus a year ago, GDP fell for the first time since the second half of 2020, all while consumer spending levels remain high (these levels may wane now that Fed Reserve prepares to shrink its $9tn balance sheet). We are expecting that all these forces at play will eventually catch up with the residential real estate market and buyers will again enjoy the next cycle of a buyers’ market.

The Federal Reserve met this week and announced an increase in their target rate by another 1/2 percentage point in its effort to reduce inflation. Analysts expect slight increases in mortgage rates for the remaining of 2022.

Mortgage rates have already climbed the first week of May to roughly 5.5% for a 30-year fixed, while a 15-year fixed mortgage is at 4.71%. According to C.A.R., mortgage applications have fallen below not only the 2020-2021 period but also below pre-pandemic levels, and may continue to fall given the higher interest rates.

While many would-be-buyers will likely want to stay in rentals, it is important to also note that rental rates have also increased at a fast pace. A USC Casden Economic Forecast predicted last year that rental markets with vacancy rates below 5% will see rent increases of $250 and above depending on the area.

Investor Corner.

For our chat this month, given the inevitable buyers’ market, we want to discuss the pros and cons of different loan terms/programs. As a home buyer, you have different options to choose from - generally you can decide between a 15-year or 30-year loan term (although you can also find 10/20/40-year loan terms), as well as a fixed rate (fixed for the term of the loan) or an adjustable rate mortgage (fixed for either 5, 7, or 10 years before adjusting annually based on market rates).

The best program depends on the borrower’s particular goals/scenario. If you are planning on staying in your home for longer than a 10-year period, a fixed rate will bring greater stability than an adjustable rate mortgage (ARM). However, if the you are planning on staying in the property for no longer than the 5/7/10 year period, an adjustable rate mortgage will most likely have better financials as it will probably have a lower interest rate upfront, potentially creating savings for you.

When it comes to a 15-year versus a 30-year mortgage, again the best choice depends on your long-term goals. A 15-year loan term will likely offer a lower rate than a 30-year, but because the loan amortizes in half the time, the monthly payments will be higher than the 30-year term. However, if you are buying your forever home, you will have paid it off in 15 years and can live mortgage-free upon retirement (you should always talk to your CPA regarding tax implications for doing it one way or another).

Ultimately, as a borrower, you will receive the lowest interest rate possible with a higher down payment, higher credit score, lower debt-to-income ratio (DTI), and a lower loan-to-value (LTV). As a potential buyer starting to look at the market, you should talk to your realtor/lender so they can advise on how to get prepared and have the best case scenario for when you find a home you love and are ready to apply for a loan.

For any questions, don’t hesitate to contact your BHAUS EIGHT team!

To subscribe to our weekly emails of investor opportunities and our digital newsletter, please email Sonia directly at Sonia@bhauseight.com

From BHAUS to yours.