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The Sizzling Market Defined with the Numbers

Mark RogoA lot of you have asked me to clarify the hysterics in the media talking about this sizzling market, but in statistical terms so you can translate hysterical English into quantifiable numbers. Good suggestion. Adjectives can be ambiguous but numbers cannot. Here’s the catch; read the numbers but continue digging to find out how they translate into the millions of human stories behind them. That’s the real statistic here.

On the first Wednesday of each month, the top 30 agents from both Coldwell Banker Beverly Hills offices have breakfast together with the CB corporate brass. With over 500 agents between the two offices, you’ve got some big hitters in that room. I feel like a little pisher as they talk about their $20M and $30M sales. One of the agents announced her newest listing; $350,000,000! All I could think about was the new owner’s pain when it came time to write the first installment on property taxes at 1.2% of $350,000,000!

  • But they give a really good recap on the state of the upper end of the market. Check it out.
  • For sales closing over $5.0M, 382 have closed so far this year while ALL of 2016 saw only 316 close,
  • For sales closing over $10.0M, 116 have closed so far this year while All of 2016 saw only 89 close,
  • For $20M and above? You guessed it. 36 closed so far this year and 33 closed for ALL of last year,
  • For $30M and above? Take a wild guess! 17 so far this year and 4 for this period to date in 2016,
  • Of the 36 buyers in the $20M and above closings, only 26 were American. 3 Chinese and assorted Scottish, Indonesian, Canadians, and others. But NO Russians.

The National Association of Realtors (NAR) issued a press release this week on this exact topic, under the headline “Home Prices Surge on Strong Buying Season”. As reported, “Single-family home prices went up in 87 percent of the markets assessed in the report, or 154 of 178 metropolitan statistical areas (MSAs)… Home prices in the West grew at the highest year-over-year rate, 7.5 percent to a median existing single-family value of $372,400… Affordability, again, shrunk in the second quarter…” You can read the entire article at http://rismedia.com/2017/08/16/home-prices-surge-strong-buying-season/utm_source=newsletter&utm_medium=email&utm_campaign=eNews or go to my blog at www.liveonwilshire.com and see my post that comments on the article and gives you the link.

RISMedia.com reports a headline earlier this year, “Existing-Home Sales March On at Highest Pace in 10-Plus Years”. How do you think that makes a first-time buyer feel, which accounted for 32% of existing home sales in March. NARs chief economist is quoted as saying, “Until we see significant and sustained multi-month increases in housing starts, prices will continue to far outpace incomes and put pressure on those trying to buy.”

Yes, I know your next question; is this a bubble that will explode or when will it end? I have said many times before that real estate is a strange animal; it doesn’t necessarily follow the bell-shaped curve. There is real estate on the Westside of Los Angeles and in Manhattan and the gold coast of Newport Beach and Silicon Valley, and then there’s real estate in the United States of America. And never the two shall meet. The gaps continues to grow, as it does in wealth disparity, making the state of California the largest home to paper millionaires. Just by definition, if you own property west of La Cienega Blvd to the ocean and north of the Santa Monica Freeway to the mountains, you are almost assuredly a paper millionaire, even if you own nothing else.

Where is all this money coming from? Your guess is as good as mine. We see it as listing agents when we require the buyer to show written proof that they have sufficient funds to close a proposed transaction. We have seen brokerage accounts with over $30,000,000 in it, just sitting there idle. We have seen funds from finance, high tech, entertainment, manufacturing, medicine, real estate and Wall Street business interests. We have seen it all and then some. My obsession with securing sufficient guarantees for my seller gets very quiet when I’m reading the Schwab account of a 28 year-old showing holdings in excess of $20M or watch a client pay over $5.5M for a home in cash and then tear it down to spend another $2.0M to build his dream house, all from pharmaceuticals. It’s a brave new world out there and wealth is being created through technology in ways few of us “boomers” understand. But the millennials do.

Home prices and rents can’t continue to go up this fast and there will certainly be a correction. That correction for the upper-end areas around the country will not resemble the correction in blue collar USA, home of Joe Budweiser. The rich get richer, and this continental divide in this country will only exacerbate the continuing disparity between the “have” and the “have nots”. To some extent, I think this is being played out in the political arena, indicative of how different California has become than the rest of her sister states.

I think I speak for all of us when I say that our core interests will continue to be for the caring and protection of our families. This interest can only be executed through the vehicle called “money”, and that can only come from one of three sources; inheritance, career and investments. I submit that careful planning, a prudent life style and hard work is supposed to assure everyone in this great country of ours an excellent chance at reaching that goal and providing for our families. If you’ve read my past blogs, you know that long-term financial planning is an obsession of mine. But I want someone to explain to me how a hard working father of two is supposed to take care of his family, provide a roof over their heads with three square meals a day and make sure they start life with an advanced education to guarantee a good job, at $125,000/year in Los Angeles. It doesn’t pencil any more. Or even $250,000. It just doesn’t pencil. Making $60,000/year in Biloxi, Mississippi has a better chance to achieve those dreams than the hard working father at $250,000/year in Los Angeles. It’s getting so expensive to live here, starting with housing, that good people are seeing their dreams evaporate before their eyes. Only the super-rich are able to adequately provide for their future, as they move in greater numbers to the west side of Los Angeles and push out families that have been here for generations.

Do I sound like I’m making a political statement? I’m really not; I’m just stating the simple facts. It doesn’t matter what side of the political spectrum you’re on, you’re heartless if you don’t have some empathy for the human stories that play out every day in this economy.