OCAR Blog

News and Information to Keep You a Step Ahead!

 b2ap3_thumbnail_liz_noriega.jpg

In Memoriam: Liz Noriega
(1955-2017)

It is with great sadness that we announce the passing of a beloved member, Liz Noriega. Noriega worked as a REALTOR at RE/MAX Terrasol in Huntington Beach.

Memorial services will be held at the Huntington Harbour Yacht Club at Warner and PCH on Wednesday, December 20 from 11am-2pm with tacos being served at noon as Liz would have liked. This is a party to celebrate her life, so bright colors and happy memories are required. Liz's family members are requesting that everyone that attends bring a written memory of Liz with some pictures that they can use to make a scrap book of her life for her grandkids.

Huntington Harbour Yacht Club
3821 Warner Ave
Huntington Beach, CA 92649

Last modified on

By David Girling
GIRLING REAL ESTATE INVESTMENT GROUP

 

Tax reform, reduced housing affordability, limited inventories, and rising home prices and rents dominate the headlines. All are interrelated. As REALTORS®, we need to read past the headlines and make sense of the facts for our clients. The goals of this article are (1) to give you some information to address questions that may arise from recent headlines and (2) to clarify the conclusions drawn concerning these headline topics. 

Headline No. 1:  Tax Plan Will Hurt Homeowners
Lawrence Yun, NAR Chief Economist, November 2017

The National Association of REALTORS® (NAR) says, “Home values could drop 10 percent if the Senate or House tax reform bill is signed into law. The bills double the standard deduction and, as a result, fewer people itemize using the mortgage interest deduction. This will give people less incentive to buy a home.” Added Lawrence Yun,

“It will lead to a renter nation and away from an owner nation.” 

Analysis Based on Actual 2017 Sales Transactions

I arrived at the conclusions below from an analysis of three actual 2017 sales transactions (in Newport Beach, Mission Viejo, and Aliso Viejo), as well as an additional scenario where the purchase price was the same as the U.S. median home price. All four properties were later leased as investment properties. Purchase prices ranged from $245,000 to $2.9 million. Housing payments before and after the application of tax benefits were compared to the monthly rents. 

  • Newport Beach: $2.9 million purchase price, $7,900 monthly rent. It is clearly better for a person to rent this property than to purchase it. If the tax reform bill is signed into law, more than $40,000 in potential tax benefits (e.g., property taxes and the mortgage interest deduction) will be lost. Assuming 2 percent appreciation, the return on equity (ROE) is negative. 
  • Mission Viejo: $980,000 purchase price, $4,500 monthly rent. The total housing payment and rent for this property are within $100 of each other. After factoring in the tax benefits, it is better to purchase rather than to rent this property despite the approximately $9,900 in tax benefits that will be lost with the new tax plan. Assuming a 2 percent appreciation in the value of the property, the ROE is 6.57 percent. 
  • Aliso Viejo: This property (a condo) sold for $580,000 in 2017 and was leased for $2,850. No tax benefits will be lost through tax reform in this scenario. The analysis shows it is better to purchase this property when tax benefits are applied. The ROE is 5.13 percent. 
  • S. Median-Priced Home. Using the most recent median home price (Source: NAR) as a purchase price and using a rental rate of $1,600 per month (Source: Zillow), this scenario shows that it is better to purchase. No tax benefits will be lost with tax reform; and assuming a 2 percent appreciation rate, the ROE is 13.46 percent. 

Some homeowners with a higher standard deduction (SD) may chose not to itemize; and, as a result, the tax benefits will not matter. In that event, all transactions analyzed except for the U.S. median-priced home show that a potential homeowner would be better off continuing to rent if no tax benefits were applied to the housing payment (Mission Viejo and Aliso Viejo are marginally better). Not all homebuyers base their decision on tax benefits, but it will impact the decision for some. 

Assumptions for These Four Scenarios

Property tax deductions are limited to $10,000, the mortgage interest deduction (MID) is limited to loans up to $500,000, and the standard deduction almost doubles. There is also no opportunity cost factored into the analysis (see Table 1).


 

Conclusions

This analysis confirms some of the conclusions that have been drawn about the possible impact of tax reform on homeownership. Homeowners at the high end will be greatly impacted through the loss of tax benefits. Lower-end buyers who base their decision regarding whether to purchase primarily on the impact of tax benefits may decide not to do so because the higher standard deduction may render the tax benefits unusable. And prices may need to correct (NAR says by as much as 10 percent) as a result of the impact of tax reform and how it affects the decisions to buy or rent. The impact of tax reform will vary for each situation, and it will be important to analyze each situation and the assumptions that are being made. 

 

Headline No. 2: Homeowners Can’t Count on Property Appreciation for Wealth
Faculty at Florida Atlantic University, Florida International University, and the University of Wyoming, November 2017 

According to the authors, “On average, renting and reinvesting wins in terms of wealth creation regardless of property appreciation, because property appreciation is highly correlated with gains in the traditional financial asset classes of stocks and bonds.” 

Conclusions

Some of the follow-up articles that resulted from this study included headlines that prompted some readers to conclude that renting is always better than owning, such as the following: “Homeownership Doesn’t Build Wealth” (CNBC, November 16, 2017). This is an example of where you need to read beyond the headlines. This study is based on the assumption that renters will invest the savings generated by renting rather than buying and, as a result, will create more wealth by renting than by owning a home. The assumption is that the renter will save and reinvest, not consume. Homeownership is a good, forced-savings vehicle and, because most renters are not likely to save to the extent necessary, continues to be a good alternative for wealth building. 

 

Headline No. 3:  58 Percent of Homeowners Think the Housing Market Is Set for a Correction—Are Bubble Fears Founded? 
Forbes, August 15, 2017 

Conclusions

Bubble—No. The conditions that led to the housing crash in 2006 (i.e., easy credit, speculation, etc.) do not exist today. 

Price Correction—Yes. If you believe in housing cycles, a correction is approaching. Depending on how you interpret the graph shown in Figure 1, the previous housing cycle lasted anywhere from ten to seventeen years, flat from 1990 to 1997 but picking up momentum in 1997 until it burst in 2006/2007. Cycles have historically lasted seven to ten years, and we are in the ninth year of the recovery. As a result, a correction may be on the horizon. Other factors, including the potential for increasing interest rates and the lack of affordable housing, also suggest that a correction may be coming.

Figure 1. Depending on how you interpret the numbers, the previous housing cycle lasted anywhere from ten to seventeen years, flat from 1990 to 1997 but picking up momentum in 1997 until it burst in 2006/2007. Historically, housing cycles have lasted seven to ten years, and we are in the ninth year of recovery. 

 

David Girling completed his undergraduate work at the University of Southern California and earned a Master of Business Administration degree from the Anderson Graduate School of Management at the University of California, Los Angeles. In 2008, he formed Girling Real Estate Investment Group (Girling REIG) with his father, Bing, and has more than thirty years of experience in the financial services industry.  Dave and Bing are affiliated with Villa Real Estate.

 

 

Disclaimer: The opinions expressed and the conclusions reached in this article are based on best-efforts analysis and are offered solely for informational purposes. The accuracy of the information is deemed reliable, but is not guaranteed by the author, who is not responsible for typographic errors or other inadvertent inaccuracies. Any individual or entity intending to rely on this information should seek verification through personal investigation or investigation by qualified individuals. All information is provided “as is,” without any warranty of any kind, either expressed or implied.

Last modified on

By Bob Hunt
C.A.R. DIRECTOR

 

Effective January 1, 2018, California real estate agents and brokers are subject to a new and different set of rules covering their advertising. The new rules were spelled out in Assembly Bill 1650, which was signed into law by Governor Jerry Brown on August 19, 2016. 

No, that’s not a typo; the law was passed a little over a year ago. The long delay in making it effective was an accommodation in recognition of the costs, planning, and physical changes that would be required. More than a year’s time was given. But now the law is in effect. 

AB 1650 came about in response to what, over the years, had become a hodgepodge of rules covering real estate advertising. Although no actual conflicts existed, different rules covering different types of ads and solicitations had led to confusion. Hence the 2016 legislation, which became known as the “uniform advertising standards.” 

In what follows, we will offer a summary of the changes that became effective January 1, 2018. It should be noted, though, that specific requirements that apply to mortgage loan originators are not discussed here. 

  • A licensee must include his or her name, license identification number, and responsible broker’s identity on all solicitations intended to be a first point of contact with consumers.
  • For the purposes of this section, “solicitation materials” includes
  • Business cards, stationery, and advertising brochures or flyers
  • Advertisements on television, in print, or electronic media
  • “For sale,” “for rent,” “for lease,” “open house," and directional signs, unless an exception applies

The exception that applies to the type of signs referenced in Item (c), above, is that no agent identification is required for those types of signs if either (1) the responsible broker’s identity is included on the sign without any reference to an associate broker or licensee or (2) there is no identification at all on the sign.

Suppose, for example, that a directional or “for sale” sign had the company name (responsible broker identification) on it (e.g., an arrow that contained the following: Open House, ABC Realty). That sign would not also require the name and identification number of an agent. Though, of course, an agent’s name and number could be on it but then the exception would not apply.

Conversely, suppose the directional sign said only Open House. Again, no agent identification would be required.

What you can’t have is a sign with the agent’s name and/or number, but without the responsible broker’s identification. If the agent’s name is there, the broker’s must be also.

While an agent’s name must be accompanied by his or her identification number, that is not the case for the responsible broker or firm. Including the broker’s identification number is optional.

Other items to keep in mind:

  • The font size of the identification number can be no smaller than the smallest size of any other type used in the material.
  • If the name of more than one licensee appears in the material, the license identification number of each must appear also.
  • If team names or nick names are used, the rules that were in place for those instances still apply.

This discussion refers to state regulations. Under the REALTOR® Code of Ethics, there are additional rules that apply to advertising.

 

Bob Hunt is a director of the California Association of REALTORS® and is the author of Real Estate the Ethical Way. His email address is scbhunt@aol.com.

 

View California Association of REALTORS® Announcement on 2018 Advertising Rules

View 2018 Advertising Rules Flyer

 

 

Last modified on
 b2ap3_thumbnail_Tommy_Anderson.png

In Memoriam: Tommy Anderson
(1950-2017)

It is with great sadness that we announce the passing of a beloved member, Tommy Anderson. Tommy, 67, passed away after battling cancer. Tommy grew up in Pennsylvania until his family moved to New Jersey when he was 15. He graduated from high school in Turnersville in 1968. Following high school, Tommy was in the U.S. Navy for four years then worked as a pipefitter at the Philadelphia Naval Shipyard. 

Tommy met his wife, Judy, in the winter of 1976 in New Jersey. About a year later they moved to Southern California where he worked at the Long Beach Naval Shipyard. From 1983 to 1988, Tommy and Judy lived in New Jersey before returning to Southern California. 

Tommy began his real estate career in 1988 as a part-time agent with Laura Lee at Century 21 Astro in Cerritos, CA.  Within a very short time, he became the top listing agent among all the full-time agents in the office. The broker encouraged and convinced both Tommy and Judy that he should be full-time in the business. That was the end of pipe-fitting and the beginning of what would become a lengthy, successful career in real estate.

After a while Tommy moved to Century 21 A Marketplace near the traffic circle, which is now known as Coldwell Banker.  Because of his success with selling condominiums, he became known as the "Condo King." In early 1990, his then-wife, Judy, got her real estate license and they became known as the "Condo Couple." 

Around 1990, Tommy received the Centurion Agent award. A few years later they relocated to Laguna Niguel where they joined Lakeview Realtors. He had most recently worked for Coastal Castles in San Clemente.

A celebration of life event will be held on Monday, November 20 at 4:30 PM at Laguna Beach United Methodist Church.

Laguna Beach United Methodist Church
21632 Wesley Dr, Laguna Beach, CA 92651

Last modified on