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by Leonard Steinberg
|Many parts around the US are experiencing massive surges in rent prices, well above the average rate of inflation. A new report shows that rents rose in 96% of 252 housing markets. In most parts the natural forces of free markets are at work: when there are 10 renters for one apartment, you can be certain over-bidding will occur. |
Housing represents about 40% of CPI, so what happens in home pricing matters….lots! Nationally, average apartment rents rose 9.4% in the second quarter of 2022 compared with the same quarter in 2021. While that is high by historical standards, it is down from the more than 11% annual increases seen the previous two quarters, and there is an expectation that these increases will moderate to around 6.2% higher than 2021 for the year. Costar is projecting a 4.9% increase for 2023. If rents continue to rise at 4%, $2,500/month rent today could be $3,700/m a decade from now.
In many areas where people moved after the pandemic for a more affordable lifestyle, rents rose even more, making these areas a lot less affordable than imagined when you consider the average American spends over 30% of their income on rent. 80% of municipalities saw the average rent increase by 10% or more. Miami had the biggest increase in average rent, rising 59%. Rents are up 31% in Tempe, Arizona, 21% in San Diego, and 30% in Austin. However, rents have also risen in areas that have always had high rents: New York, Boston, Los Angeles.
Why do rents rise?1. An imbalance between supply and demand.2. More people focused on renting rather than buying, mostly because of affordability and availability of for sale homes.3. Rising operational and labor costs for landlords, including rising real estate taxes.4. Because people are willing to pay the price.5. Aging housing stock that requires massive renovation and upgrades.6. Fear of buying/committing to a purchase.
While rent hyperinflation can be great for landlords, some downsides are: 1. A pro-forma based on exaggerated high rental returns can run into trouble when markets turn. Already banks have started to discount the more over-exuberant expectations.2. Those who draw capital from properties producing high returns right now could run into trouble if rents subside or vacancies emerge.3. Governments come under greater pressure from voters to implement laws around rent control and stabilization. Penalties for vacant properties are also possible.4. When people spend too much on rent, they don’t have money left to spend on other things and this can lead to recession.5. When rents soar, fees come under attack…..including agent fees!
Most extremes don’t end well. Yes, some rental properties were under-valued in areas where new demand seems long term, but most seem very, very frothy.
What can YOU AND I do to curb rising inflation? I hate to tell you this, but we could actually do LOTS. In an unreal world. But we live in the real world, so……
One of the key drivers of inflation is the cost of housing. In many parts of the country COVID has fueled new audiences. Housing costs, accounting for almost a third of the Labor Department’s consumer-price index, were the largest single driver of inflation in the Atlanta area and similar places in 2021. We in the real estate profession are helping facilitate rising prices …..often MASSIVE price hikes. Have you EVER said to any of your clients in a multiple bidding scenario to take the asking price instead of the offer 10% over ask because it’s their patriotic duty to keep inflation down? HAH! I wouldn’t even attempt to do so. I know the answer. Have you ever told your sellers or landlords not to raise prices when the market is rising? The reality is we live in a free market system driven by supply and demand. I have yet to meet a lottery winner who wishes to redistribute their wins to everyone who lost. I have yet to meet a seller/owner who wishes to take a lower price to help the US economy tame inflation too…..
The reality about inflation is that when demand far outstrips supply, prices rise. That excess demand is fueled by multiple factors. And thrown into the mix is some good old fashioned greed…..and why not if everyone else is doing it? Why not, if we live in a free market capitalist system? We are reaping the rewards on the rise: chances are we will also feel the pain when the markets shift. They always do. I don’t ever recall myself sympathizing with a retail store when they had to discount their products deeply because of a lack of demand……I do recall the pains of real estate markets when we had to slash prices and accept low offers…..or had no showings and no offers. Markets change and they always will. We all play a role in them, consciously and unconsciously…..
Because of COVID, many parts of the US are reeling from even higher inflation rates because those moving in from more expensive parts – accustomed to far higher housing costs and higher wages – are willing to pay much higher prices than traditional ‘local’ pricing. When housing costs rise for locals, they command higher wages. More people moving into one area fuels demand and diminishes supply. Higher wages add to inflation by triggering rising corporate pricing on the goods and services they sell to pay for this.
So next time I complain about rising prices, I will turn to the mirror and ask myself: am I truly innocent of playing a role in this “BECAUSE YOU CAN” pricing moment? No, we are not responsible for inflation but to better understand it, we are witness to its primary causes each and every day. And we are part of the process that facilitates it. Most people will sell something for a higher price – if they can – regardless of costs.
And yes, prices can and do come down…..triggering DEFLATION and discounting…..and we will be active participants in that too when/if the time comes. Free market pricing is all about supply and demand.
There is Inventory (less of it these days in most parts!), SHADOW Inventory (those homes and apartments that developers can sell and are for sale but are not officially listed anywhere….and whisper, private listings) …..and then there is FLASH Inventory.
FLASH Inventory is the kind of inventory that often comes to market and is snapped up so quickly it can make your head spin. Sometimes it barely makes it into the MLS systems, although most areas require this. Between the FLASH and SHADOW inventory, consumers would be wisest to work with a professional, on-top-of-it buyer’s agent who can navigate this area of the market – often the market with the greatest opportunity for buyers – efficiently and effectively. Often a buyer’s agent who is both highly competent AND liked by their peers is most effective.
Recently, we did a sale on a property that had an accepted offer within hours. Not only did the seller like the terms and qualifications of the buyers, but they (and I) also trusted their buyer’s agent implicitly, who also did what was necessary price- and terms-wise to secure the deal, making his buyers instantly the most likable, desirable buyers who also happened to be extremely qualified with zero contingencies because their agent had already done extensive due diligence on the building and unit. He had prepared his buyers with all the comps, knowledge and insights needed to make a smart and QUICK decision, explained valuation thoroughly and factually. His buyers trusted him AND I trusted him….as did my clients. These buyers moved FAST, they were 100% prepared …AND 100% well represented. Strong, smart, professional representation matters (Price does too). AND the likability, trustworthiness and ethical strength of the agent.
In a world where often the best properties trade in a flash, having outstanding representation can make all the difference. Often buyers who enter these scenarios make points and fight battles not worth fighting. Often it is the buyers who lose arguments – or avoid these sometimes petty details – who are left winning the home. FLASH!
by Leonard Steinberg
When calculating how much your home has increased in value, you have to identify its COST BASIS – meaning anything and everything that you spent to pay for the product. The IRS defines a capital improvement as a home improvement that adds market value to the home, prolongs its useful life or adapts it to new uses. Minor repairs and maintenance jobs like changing door locks, repairing a leak or fixing a broken window do not qualify as capital improvements. Capital improvements and things you can put in your COST BASIS include:
* The price you paid for the property, including settlement costs, such as: title fees, legal fees, recording fees, survey fees, and any transfer taxes or fees you paid in connection with the purchase.
* Additions: An added extra bedroom or bathroom, a deck on the back of the home, a new garage, an added porch or patio….anything that adds value to your home.* Lawn and grounds improvements: Value-adding landscaping projects, driveway or walkway construction, a new fence or retaining wall, adding a swimming pool, etc can qualify as property improvements.
* Exterior improvements: New windows, a new roof, and new siding are examples. Any and all renovation costs including ANY and ALL costs related to that renovation work.
* Insulation: This includes insulation in the attic, inside walls, under floors, or around pipes and ductwork.
* Systems: Installing a new heating or air conditioning system, new ductwork, adding a central vacuuming system, wiring improvements, installing a security system, solar, geothermal, generators, batteries, and putting in lawn irrigation are improvements.
* Plumbing: Installing a septic system, water heater, or soft water system adds value.
* Interior improvements: New appliances, kitchen renovations, new flooring/carpeting, the installation of a fireplace, etc.
* If you needed to make home improvements in order to sell your home, you can deduct those expenses as selling costs as long as they were made within 90 days of the closing.
COST BASIS does NOT include hazard insurance premiums, moving expenses, or any mortgage-related charges (mortgage insurance, credit report fees, and appraisal costs are out) and general repairs that are essential to keep something working do not qualify. Yard maintenance, HOA fees, and real estate taxes don’t count.
Always check with your accountant when in doubt. Keeping tabs of these costs throughout the lifetime of a house is wise.
|This past week we’ve endured our fare share of media articles that were either incomplete, inaccurate or downright misleading. Yesterday, The Wall Street Journal published an article about some academics discussing how overpaid real estate agents are and how to fix this problem…..in a publication that supposedly believes in free markets and capitalism. It was another embarrassing moment for the WSJ which used to focus on facts and data and tell the complete story.|
The writer for this article was basically making the case for any entity on the planet that would sharply reduce the excessive fees us agents charge for doing what this troupe deem as ‘quick and easy’ money. The article continued the myth that all agents everywhere earn ALL 6% commission simply by doing a little paperwork, a few showings and bingo! Jackpot! Not one real estate brokerage or agent was consulted in this embarrassing lapse of journalistic drivel. So while I could go on and break down each and every ridiculous claim and their solutions, I’d rather focus on the more important lesson from this moment.
Here again we see how some of the fame-seeking, drinks-throwing loons on Reality-TV calculating their commissions BEFORE a showing (never mentioning splits or expenses of course….or the time and energy and work that happens well before a transaction and forever afterward) have given the world – even College Professors – the completely false/distorted impression of what we do and how we earn our fees. That’s aside from boasting about the ‘millions’ they make, the private jet lifestyle they lead, etc. The damage they have done over a decade may take a decade to undo……but only if we do something about it.
We as a profession have failed miserably in CLEARLY messaging to the consumer exactly what a PROFESSIONAL agent does to earn their fees. Everything. Not just the open house or the showings. Not just the advertising, marketing, social media management, etc. EVERYTHING. As well as all the planning and advisory work that happens BEFORE something is listed and all the work that happens AFTER the closing. We also have to message the extensive expenses we incur and the mammoth expenses of our brokerage that we participate in with our splits. What does a website, tech tools, offices, staffing, advertising, marketing teams, etc cost to build and operate? WE – not the WSJ or the crafty drivers of this narrative whose sole purpose is to replace us or minimize our income for THEIR gain – must message this. The COMPLETE picture.
So let’s get started. Today. What can you do that messages the WORK and VALUE you deliver, not just the income, glamor, etc. And yes, all of this can showcase beautiful property too. Boasting about our incomes and successes is nice but may also message that we are indeed overpaid and its all too easy. (Most of us never message how tough it was to sell a listing over 18 months…..maybe the time has come to do so!)
PLEASE contact us today and we will show you our VALUE of WORK as agents that we will bring to helping you to get your real estate needs taken care of with professionalism.
|There is a common theme around the globe: home buyers and renters want brand new or newly renovated homes and are willing to pay a premium for them, often a large premium. It’s almost become an obsession. I’ve always been attracted to ‘projects’, but even I’m finding these projects more cumbersome these days. Here are my TOP 10 reasons I’ve identified for the NEW craze:|
1. Time is the Last Luxury: enjoying a home immediately is more meaningful to most. Waiting for a renovation or new build is time lost. The time and effort spent on a home build/renovation project is time you can spend on your career making the money to pay for a home, or enjoy with friends and/or family.
2. In a rising interest rates environment locking in to a rate has value.
3. When you buy a renovation project you need cash or (difficult to obtain) additional financing to renovate. One financed lump sum is quicker/easier.
4. With rising labor and materials costs, anticipated costs for renovation at closing are bound to rise. Most projects go over budget regardless.
5. Consumers want the least aggravation: older systems require more time, effort and money to service, maintain and replace.
6. New homes are usually much more energy efficient.
7. New/renovated homes have been adjusted to today’s lifestyle needs.
8. When you buy one apartment in a 50-unit building by a top architect/interior designer there is economy of scale: you would pay MUCH more for that quality of design for a single home project.
9. Decorating and furnishing is the fun part. Sorting through a complex permitting and approvals process is not nearly as much fun.
10. Seeing exactly what you’re going to get is much easier than imagining what could be.
I am sure that there are many more reasons to add. What ones would you add?
Yes, a few weeks ago the COMPASS brand turned 6 years old. Originally named “Urban Compass”, the brand name, logo, and graphics were changed in early 2015 when we were merely around 300 family members in total.
The speed at which Compass’ brand name recognition has grown – especially amongst home buyers, sellers, landlords, developers and renters, specifically in more luxury markets around the nation – in the past 6 years is quite remarkable. The brand name recognition amongst those monitoring the financial markets has been further accelerated since our IPO a month ago. The TOP 5 luxury brands in the world are: Gucci, Chanel, Hermes, Christian Dior, and Louis Vuitton: all are at least 75 years old. According to Statista, there is only one brand amongst the world’s TOP 20 Most Valuable Worldwide Brands that is 10 years old…..the majority have been around much longer. Of the Top 25, only seven are not one-word name brands.
“Compass is a simpler, more universally memorable brand name that speaks directly to the connection between people and technology that is so central to what we are building,” Matt Spangler, February 2015 when discussing the shift from URBAN COMPASS to simply….COMPASS.
A powerful brand name is possibly your most competitive advantage: imagine Coca-Cola without its brand name…..it would be merely just another soft drink. A brand with a distinct personality drives value perception. A brand has to evoke a perception, a story. COMPASS’ brand speaks to modern luxury. It speaks to the next generation of luxury, regardless of age. It speaks to a mentality. Boldly broadcasting our best-looking properties promotes an identity and association that has tremendous value to ALL properties we market. The brand sets the tone. A brand has to speak its own unique language. The COMPASS brand speaks to simplicity, the new language of modern luxury that is more about authenticity and simplicity than gilded opulence or stodgy heritage. It speaks to contemporary, tech-fueled efficiencies and A-grade service.
When a newly built Condominium comes to market called for example “THE PRETTY CONDOMINIUM”, many locals may identify it after many weeks of advertising and marketing. But it would cost many millions of dollars to achieve the same recognition and quality association that you achieve if you were to brand-associate the building, eg: “THE FOUR SEASON’s Pretty Condominium”. That association INSTANTLY messages to the consumer years worth of advertising and personal experience no brand can ever hope to achieve without massive investments in money and time.
Imagine the value of the COMPASS brand when 20,000-plus in the COMPASS family are messaging that brand name multiple times per day, if not by the hour. Here are some examples:
* If every Compass agent sends out one social media post per day with the name COMPASS attached to it…..that’s over 7 million posts per year. If each social media post is exposed to on average 500 people, that’s 3.5 BILLION impressions.
* Imagine if every COMPASS family member sends 25 emails per day (I’m being kind!) with the COMPASS brand name attached….that’s close to 200 million impressions per year: that’s pessimistic knowing how much we email.
* Now add in T-shirts, print and digital advertising, billboards, mugs, video, public relations e, 6-million-plus website visits per month, yard signs, office signage, ticker-tape appearances, Robert’s book (coming out this week), etc…..you get the picture.
The COMPASS brand is now delivering MILLIONS of impressions ….daily. And Consistently. While all of this is very impressive, you may be asking the obvious question: “What’s in it for me?” As agents and teams, we are all our own individual brand and that is empowering and extremely valuable. Creating your own unique and differentiating identity is great. Attaching that identity to the COMPASS brand multiplies its effectiveness dramatically. It is a brand association/endorsement that speaks of invaluable marketing aspects – INSTANTLY – that is impossible to replicate.
BRAVO to our multiple teams of creative and marketing geniuses around the country who consistently and brilliantly build and nurture the COMPASS brand and maintain its high-quality standards every single day. THANK YOU!
by The KCM Crew
If your house no longer fits your needs and you are planning on buying a luxury home, now is a great time to do so! We recently shared data from Trulia’s Market Mismatch Study which showed that in today’s premium home market, buyers are in control.
The inventory of homes for sale in the luxury market far exceeds those searching to purchase these properties in many areas of the country. This means that homes are often staying on the market longer, or can be found at a discount.
Those who have a starter or trade-up home to sell will find buyers competing, and often entering bidding wars, to be able to call your house their new home.
The sale of your starter or trade-up house will aid in coming up with a larger down payment for your new luxury home. Even a 5% down payment on a million-dollar home is $50,000.
But not all who are buying luxury properties have a home to sell first.
In a recent Washington post article, Daryl Judy, an associate broker with Washington Fine Properties, gave some insight into what many millennials are choosing to do:
“Some high-earning millennials save money until they are in their early 30s to buy a place and just skip over that starter-home phase. They’ll stay in an apartment until they can afford to pay for the place they want.”
The best time to sell anything is when demand is high and supply is low. If you are currently in a starter or trade-up house that no longer fits your needs, and are looking to step into a luxury home… Now’s the time to list your house for sale and make your dreams come true.
by President Jamie Duran, Orange County, San Diego, and Desert Companies
We want to Thank President Jamie Duran of Coldwell Banker Residential Brokerage for this Presidents Message! And we were honored to have been the ones that handled the Sells of these hallmark properties that were features in numerous books and received several architectural awards for its “timeless architecture.” As quoted by us :These are stunning estates with rich history, remarkable design, and incredible vistas. The transactions fell into place beautifully and we were fortunate to be involved with the sales”
346 Tamarisk Rd – Zanuck Estate – Sold /$4.9M
64725 Acanto Drive – Pond Estate – Sold /$7.5M
2212 Southridge Dr – Boat House – Sold /$1.75M
We Cat Moe & John Nelson of Nelson-Moe Properties Coldwell Banker Presidents Premier Properties would also be HONOREDif given the chance to SELL your “Timeless Architecture” Estate as well! Contact us TODAY!
We were very HONORED to have been the ones that listed this Iconic architectural property in the desert of Palm Springs!
Earlier this year after four years of working with Lloyds Bank of London, we announced the listings of the iconic architectural properties at Southridge. Today as an update we are proud to announce the successful closing of escrow of the famous Lautner/James Bond House. This sale marks a historic bench mark as the highest sale in Palm Springs history – a sign of a healthy direction in our Real Estate market as Palm Springs continues to attract the next generation of successful investors from outside the area. We are honored to have another very happy client and appreciate the opportunity given to us. Known as the Elrod House this monumental, world famous residential sculpture was designed by 1968. Organic shapes, monumental construction and world class design create an extraordinary experience of space that Lautner himself described as “timeless” architecture. The 60′ wide circular living room has a conical dome that fans out in nine petals between nine clerestories angled up to bring in light. Retractable curved glass walls open the entire living room and pool terrace to panoramic views of Mt San Jacinto, Mt San Gorgonio and the full sweep of the valley below and mountain ranges beyond. The very rock of the ridge is incorporated into the design throughout the home. A very rare opportunity to acquire an inspiring example of architectural perfection. SOLD!!!