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Boost Your Credit to Afford Home Purchases

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By Rick Tobin

The average single-family home statewide across California reached $888,000 in October 2024, according to the California Association of Realtors, and a California condominium might cost you about $670,000.

While the unusually perfect number of $888,000 for California properties may seem a bit high for most Americans, it’s lower than the few consecutive months earlier this summer when average home prices surpassed $900,000.

By comparison, the median home listing price in October for the entire nation reached $424,950, as per Realtor.com. Both the number of homes listed for sale and home prices are higher than one year prior.

For example, the total number of home listings rose +22.5% between October 2024 and October 2023 while home prices still increased in most U.S. home regions. This is quite an unusual combination of rising inventory and prices that are usually inverse to one another like a seesaw.

Generally, home prices either remain the same or start to fall as home listing inventory rises. However, our total national home listing supply is still well below historical averages and we’ve haven’t seen significant home price drops yet.

Unaffordable Home Prices and Payments

Nationwide, the typical monthly mortgage payment hit $2,175 in November 2024, which was quite a jump of +6.9% from one month prior when the October payment was $2,034, as per Reef Insights.

The good news about mortgage payments in the 4th quarter of 2024 is that they are -10.7% lower than last year’s record high of $2,435. This is primarily due to the fact that long-term 30-year fixed mortgage rates have fallen quite a bit over the past year.

In spite of the more recent national mortgage payment averages being -10.7% lower than last year, today’s monthly payment for the U.S. is a whopping +78.7% higher than back in January 2020. The combination of record low mortgage rates and record high home prices in many regions between 2020 and 2024 were key reasons why home payments and home prices changed in recent years.

Today, a homebuyer needs to budget or set aside another $1,000 per month ($12,000/yr.) to purchase the same house compared to just four years ago. How many Americans today are earning $12,000 more per year today to help cover these costs? It’s probably not that large of a number for home buyer prospects who are earning much more money today than back in 2020.

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The Importance of Boosting FICO scores

As shared before in my article entitled The Interconnected California & Global Real Estate Markets, it’s never been more important to figure out ways to increase your FICO credit scores so that your qualifying mortgage rates are as low as possible and your qualifying loan-to-value (LTV) options are as high as possible, especially if you have minimal cash reserves for real estate purchases.

Understanding Credit: FICO scores range from 300 to 850. The higher the score, the better the credit grade.

The three main credit bureaus or credit reporting agencies (CRAs) include Experian, TransUnion, and Equifax. The credit scores are derived from the following factors:
● Payment history—35%
● Amount owed—30%
● Length of credit history—15%
● New credit—10%
● Types of credit used—10%

Newer Credit Score Models: The average American has a FICO credit score near 690 to 700, according to various reports. In October 2022, the Federal Housing Finance Agency (FHFA) announced the approval of a new credit score rating system named FICO 10T and VantageScore 4.0 for use by Fannie Mae and Freddie Mac. FICO 10T and VantageScore 4.0 will consider payment histories from rent, utilities, and telecommunication bills. Yet, a rental payment history can be very bad for tenants on Covid moratoriums with years of no payments.

I’ve written real estate courses in most states for the two largest real estate publishers as well as for the oldest and best-known real estate school in California. Many of the courses that I create include details about how to build, rebuild, or boost overall credit scores.

Oftentimes, I am helping my clients increase their FICO scores during our mortgage pre-approval process. If and when successful with boosting my clients’ credit scores by 20 to 200+ FICO points within a relatively short period of time, the client may then qualify for a much lower rate while saving tens of thousands of dollars’ worth of interest payments on their mortgage.

California’s Rising Rents

The median rent for all property types.in California reached $2,800 in October 2024, as per Zillow. California rents were $795 higher than the national median. The more encouraging news for California renters is that rents only increased by $5 per month as compared to back in December 2023.

Top 10 Most Expensive Rental Markets in California

For those people who are struggling making rent payments here in California and elsewhere, it’s quite understandable why as we review the Top 10 priciest average rental regions below:

1. San Diego: $3,175/mo.
2. San Francisco: $3,168/mo.
3. Los Angeles: $2,893/mo.
4. San Jose: $2,570/mo.
5. Santa Monica: $2,500/mo.
6. Oakland: $2,450/mo.
7. Irvine: $2,400/mo.
8. Santa Ana: $2,370/mo.
9. Berkeley: $2,350/mo.
10. Fremont: $2,300/mo.

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Top 10 Most Affordable Rental Markets in California

Conversely, let’s take a look at the 10 most affordable rental markets in California as per Zillow:

1. Redding: $1,142/mo.
2. Turlock: $1,351/mo.
3. Lodi: $1,358/mo.
4. Bakersfield: $1,367/mo.
5. Yuba City: $1,375/mo.
6. Merced: $1,481/mo.
7. Modesto: $1,546/mo.
8. Fresno: $1,430/mo.
9. Clovis: $1,627
10. Citrus Heights: $1,755/mo.

Boost Your Credit, Boost Your Quality of Life

Please focus on increasing your FICO credit scores whether or not you currently own real estate or dream to one day buy your first home. With average credit card APRs (Annual Percentage Rates – includes rates and annual fees) hovering in the 35% to 45% APR ranges today for many consumers, it can be very challenging to pay off this unpaid and compounding consumer debt as well as to set aside enough cash reserves for a down payment and closing costs for home purchases.

Earlier this year, the average store merchant credit card rates were closer to 28.93% before the Federal Reserve cut short-term interest rates by 0.75%. In spite of the 0.75% rate cuts by the Fed, several big box retailer merchant card rates rose by 7% to today’s 35.99% rate average in recent months, according to USA Today.

In normal economic times, credit cards rates would’ve fallen after the Fed cut short-term interest rates. However, many of these same merchant credit card rates rose by almost 7%. This may be completely unprecedented as I can’t think of any other time in U.S. history when credit card rates rose so quickly and at such a large 7% rate increase following two Federal Reserve rate cuts for short-term rates that usually lowers credit card rates.

These rates don’t include annual fees, so the true APRs (Annual Percentage Rate) are probably closer to 40% to 45%+ as most credit card issuers don’t have to follow usury laws.

Usury: the illegal action or practice of lending money at unreasonably high rates of interest. (Source: Dictionary.com)

Credit card default rates are reaching all-time record highs for some credit card issuers. As a result, they are seemingly punishing the credit card customers who are still making their payments on time to cover these credit card issuer losses with higher rates and fees for both the good and bad paying customers.

If possible, please pay off any double-digit debt as fast as possible. Then, focus on boosting your credit scores. Once achieved or if you need some free credit repair advice from me and a new mortgage, please contact me for more details. I’m easiest to reach via email at [email protected].

Rick Tobin

Rick Tobin has worked in the real estate, financial, investment, and writing fields for the past 30+ years. He’s held eight (8) different real estate, securities, and mortgage brokerage licenses to date and is a graduate of the University of Southern California. He provides creative residential and commercial mortgage solutions for clients across the nation. He’s also written college textbooks and real estate licensing courses in most states for the two largest real estate publishers in the nation; the oldest real estate school in California; and the first online real estate school in California. Please visit his website at Realloans.com for financing options and his new investment group at So-Cal Real Estate Investors for more details. 

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

Creating Wealth and Following Your Dreams

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By Rick Tobin

Is it better to let your money work hard for you or for you to work hard for your money? For most people, the answer would be that they’d want their money or investments to grow and compound each year so that the investor could enjoy life and travel or sleep more.

The Social Security Administration released their final wage statistics for employed workers across the nation for 2023. As per this latest published report for annual wages, the “median wage” in the U.S. was just $43,222.81. If true, this means that half of Americans made less than $43,222.81 in 2023 while the other half made more than this annual income amount.

“Based on data, about 67.6 percent of wage earners had net compensation less than or equal to the $63,932.64 raw average wage. By definition, 50 percent of wage earners had net compensation less than or equal to the median wage, which is estimated to be $43,222.81 for 2023.”
– Social Security Administration

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Equity Gains and California Dreamin’

“If you don’t find a way to make money while you sleep, you will work until you die.” – Warren Buffett

The average annual home appreciation rate in California over the past 39 years is 6.77%, as per sources like the California Association of Realtors (CAR).

Earlier this year in 2024, the average California home price statewide surpassed $900,000 for several consecutive months. This was more than double the national home price average closer to $428,000 that was reported for September 2024 by Redfin.

To simplify the math, let’s use the $900,000 California home value average and multiply this same home price number by the 6.77% average annual home appreciation percentage rate over the past 39 years.

$900,000 home value x 6.77% annual appreciation = $60,930 in potential future equity gains if future value percentage gains maintained the same 6.77% historical pace.

While there are no absolute guarantees for real estate and life, the fact that the average California homeowner might’ve collected more than $60,900 when they were literally sleeping part of the time is quite impressive. If so, this $60,930 annual equity gain was much higher than the $43,222.81 median wage income average for U.S. workers.

Whether the skies around you are blue or gray, it’s time to take more walks around your neighborhood to find the next great housing investment deal.

All the leaves are brown (all the leaves are brown)
And the sky is gray (and the sky is gray)
I’ve been for a walk (I’ve been for a walk)
On a winter’s day (on a winter’s day)
I’d be safe and warm (I’d be safe and warm)
If I was in L.A. (if I was in L.A.)
California dreamin’ (California dreamin’)
Music video: California Dreamin’ by The Mamas & the Papas

Good or Bad Times in California

Is time the most valuable and precious commodity of them all? Life is too short for us all. Many people who invest in real estate, stocks, insurance vehicles, bonds, gold, silver, or other investments just want to create more free time to spend with their family and friends instead of being forced to work until they die.

The varying degrees of real estate wealth creation is directly affected by a few different things or factors such as location and time when the property was bought or sold. Since 1977, home appreciation in California has far surpassed the cost-of-living inflation increases two-thirds of the time.

Timing is key when you buy and sell your home for profits. For example, a California home purchased in 1990 and later sold in 2000 would’ve resulted in a net loss. Conversely, a home purchased in 1996 and sold 10 years later in 2006 near the peak of the last major housing bubble in both California and the nation would have resulted in a significant price gain.

Let’s take a look below at how statewide home values or median home sales prices either increased or decreased for a specific year in California:

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Between 2008 and 2012, California home prices fell to a still all-time state record loss of -41.7% from peak to trough. However, California home prices skyrocketed more than any other region in the entire 2010 decade, starting shortly after the housing market bottomed in 2012 or 2013, depending on the region.

There’s no other state in the nation that has experienced such extreme home price swings from low to high in a relatively short period of time than California, for better or worse. In spite of falling more than -41% within four years (2008 to 2012), California home prices still rose a net gain of 120% between 2010 and 2020, which was double the national average.

Life is Short, Invest Today

The sooner you start investing in real estate, the more likely it will compound and grow over time as the home value may double or triple while you pay down your mortgage debt until the home is later free and clear.

A few decades ago, it was much more common for young college graduates to marry and start having multiple children in their early to late 20s. Additionally, these same young families followed their heart and grabbed a piece of the American Dream by buying their first home.

In more recent years, housing has become so unaffordable and fewer people are choosing to marry or have children, partly due to how expensive it is to raise children these days, that the average first-time home buyer age and the overall age of all homebuyers nationwide have reached all-time record ages.

Between July 2023 and July 2024, the average age of first-time buyers rose from 35 to 38, and from 58 to 61 for repeat buyers.

The average age of all U.S. homebuyers reached an all-time record high of 56 years of age in 2024, according to the National Association of Realtors and Yahoo! Finance. By comparison just one year earlier in 2023, the average U.S. homebuyer age was seven years younger at 49.

Please note again that California home prices tend to be more than double the national average, so it can be more challenging to purchase here. Yet, rents are significantly higher here in our state too.

If you can set aside a few thousand dollars or more or have family members “gift” you some funds, you may still be able to purchase a home in California or across the nation that has a monthly mortgage payment similar to what rent is these days for many tenants.

The average age of a U.S. home seller in 2023 was 60. For many of these homeowners, they probably bought their home 30 years earlier at the age of 30 when they borrowed a 30-year mortgage.

Either way, your monthly housing payments will make someone wealthy over time whether you rent or own. Homeowners are 40 times wealthier on average than tenants as I’ve shared before in past articles.

It might as well be you who creates wealth while you sleep, so please create a plan and take action sooner rather than later as your future nest egg is depending on you.

Rick Tobin

Rick Tobin has worked in the real estate, financial, investment, and writing fields for the past 30+ years. He’s held eight (8) different real estate, securities, and mortgage brokerage licenses to date and is a graduate of the University of Southern California. He provides creative residential and commercial mortgage solutions for clients across the nation. He’s also written college textbooks and real estate licensing courses in most states for the two largest real estate publishers in the nation; the oldest real estate school in California; and the first online real estate school in California. Please visit his website at Realloans.com for financing options and his new investment group at So-Cal Real Estate Investors for more details. 

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

Weather Extremes, Homes, and Insurance Risks

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By Rick Tobin

We live in interesting times these days with the unusual combination of all-time record highs for weather extremes, home prices, mortgage and overall consumer debt, and insurance costs.

Redfin reports that the combined total U.S. home value rose $3.1 trillion in value between August 2023 and August 2024. If these home appreciation trends continue onward at a similar pace, the US housing market may soon surpass $50 trillion in total value by sometime next year in 2025.

If you have a mortgage secured by your home, you are required to carry some form of basic homeowners insurance that’s sufficient enough to cover your ownership risks as well as your mortgage lender’s risks.

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Water is usually the #1 source of damage to homes across the nation each year. These horrific hurricanes, tornadoes, and massive fires across the nation are financially wiping out many homeowners, insurance companies, and government agencies.

These literally underwater homes from the horrific floods in many Southeastern regions are also causing many of these properties to lose value and become “underwater” figuratively where the mortgage debt far exceeds the current market value.

The Pool of Disaster-Relief Funds Dried Up

Let’s take a closer look at some of the news headlines shared this year about how financially insolvent insurance or government agencies are these days:
FEMA (Federal Emergency Management Agency) has been technically insolvent or broke since earlier this year, as per FEMA themselves. The National Flood Insurance Program (NFIP) was described as being more than $20 billion in debt back in January 2024 at a panel hearing held by the U.S. Senate Banking, Housing and Urban Affairs Committee.

“The Small Business Administration’s (SBA) disaster assistance loan program is out of money after hurricanes Helene and Milton struck parts of the United States, the agency has announced.”
– ZeroHedge

The Citizens Property Insurance Corporation is described as the “last” option for insurance within the state of Florida. However, Citizens was also described by many as being out of money before Hurricanes Helene and Milton reached the Florida shores.

“Citizens was created by the Florida Legislature in August 2002 as a not-for-profit, tax-exempt, government entity to provide property insurance to eligible Florida property owners unable to find insurance coverage in the private market.”
– Citizens Property Insurance Corporation

Hurricane Helene and Milton might’ve caused more than $200 billion dollars’ worth of damage in Florida, North Carolina, and other nearby regions, according to The Real Deal.

Who will bail out FEMA first so that FEMA can bail out the National Flood Insurance Program, Citizens, SBA, and others?

Top 10 Largest Insurance Payouts

Will Hurricane Helene and/or Hurricane Milton break the all-time financial damage record set by Hurricane Katrina or at least reach the all-time Top 3? Please see the Top 10 financial damage list that I put together before in past articles and real estate courses.

Hurricane Ian, which hit Florida and other regions in late September 2022, has already caused more than $109 billion in overall damage claims in Florida alone. How will the insurance industry make it through another hurricane and fire season in Florida, California, Oregon, Washington, Idaho, Texas, Louisiana, and elsewhere?

Floods from horrific rain storms or hurricanes especially are generally the most common and costly natural disasters each year. Within the past 20 years, the 10 most financially damaging floods in the history of the National Flood Insurance Program (NFIP) happened while exceeding $50 billion dollars in costs. A whopping 75% of national flood insurance payouts have happened since 2002.

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The 10 largest payouts in the history of the National Flood Insurance Program on an adjusted inflation basis up through the second quarter of 2022 were as follows:

1. Hurricane Katrina – $22.17 billion
2. Superstorm Sandy – $10.05 billion
3. Hurricane Harvey – $$10.03 billion
4. Hurricane Ike – $3.32 billion
5. Louisiana severe storms and flooding (2016) – $2.83 billion
6. Hurricane Ivan – $2.40 billion
7. Hurricane Jeanne – $2.15 billion
8. Hurricane Ida – $1.64 billion
9. Hurricane Irene – $1.58 billion
10. Hurricane Irma – $1.26 billion
Source: FEMA

Upwards of 75% of flood insurance funds that were paid by the National Flood Insurance Program (NFIP) to property residents were located in just five states: Louisiana, Texas, Florida, New York, and New Jersey. After inflation adjustments, Louisiana was the highest-ranked state with NFIP payouts at $28.9 billion since 1978. The highest percentage of NFIP payouts to Louisiana residents were as a result of Hurricane Katrina. which totaled more than $22.1 billion dollars.

Paying High Premiums with Lower Chances of Coverage Benefits

It’s not uncommon for Florida residents to pay close to an average near $1,000 per month for homeowners insurance coverage. I’ve heard of property owners in the high-risk Florida Keys region who pay upwards of $100,000 per year for insurance coverage for homes valued near $2 million dollars.

It’s one thing to pay significant amounts for home insurance coverage protection benefits when you may later need it if a storm or fire damages your home. Yet, it’s even worse when the insurance carrier later denies any coverage protection.

For example, the lesser known Hurricane Debby that reached Florida as a Category 1 storm on August 5, 2024 caused significant damage to homeowners and businesses.

According to published data released by the Florida Office of Insurance Regulation, nearly 60% of all Hurricane Debby insurance claims cases were listed as “closed” just about one month after the storm hit. More than half of those insurance claim cases were listed as “closed without payment.”

As of September 6, 2024, the Florida Office of Insurance Regulation data showed that 19,973 insurance claims were filed after Hurricane Debby. The number of closed claims were listed as 11,090. Of these closed claims, 6,447 were listed as closed without any payments and 58% of those claims were completely denied, according to ABC Action News.

High-Rise Condominium Tower Risks

The implosion of the Champlain Towers in Surfside, Florida (Miami-Dade) back in 2021 was a catalyst to set off a chain reaction that is adversely affecting high-rise towers in Florida and even across the nation to this day.

As a result, a higher percentage of all-cash buyers who can self-insure like BlackRock, Vanguard (BlackRock’s largest shareholder), Blackstone (BlackRock spinoff), and others will likely acquire a higher percentage of these properties in the near future. Gee, what’s the common link here?

The legal outcome of the Champlain Towers collapse story was the SB 4-D legislation, which passed in 2022, that requires all owners of condominiums older than 30 years to hire outside engineering and/or architects to thoroughly inspect these properties no later than December 31, 2024.

These inspections will also be used to ensure that the usually financially insolvent HOAs have enough funds to cover the repairs or they must rapidly increase the monthly HOA payments that could be increased by several hundred or thousands of dollars per month.

Local, state, or federal agencies may have the power or legal right to fine or assess apartment building landlords or individual high-rise condominium owners with $100,000 to $300,000+ retrofit requirements per unit to modernize balconies, air conditioning and heating systems, appliances, windows, and other property features while insurance costs skyrocket.

Then, these older and more spacious affordable building units may be replaced with new smaller and more costly “smart” buildings that rent for $10 to $20+ per square foot (or up to $4,000/month for a 200 square foot unit) while closely following the newly restrictive high-density zoning laws.

If so, there will be an increasing number of motivated sellers who wish to avoid these new HOA assessments and “green living” requirements, especially if their own homeowners insurance company cancels their policies due to the perceived risks.

A homeowner with a mortgage who loses all access to insurance will then later have a mortgage default trigger and subsequent foreclosure filing, sadly.

Check Your Insurance Policies

No matter where you live, there are potential internal and external risks that can severely damage your home or rental property investments. Please call your insurance agent to discuss the best ways to minimize your risks and maximize your asset protection.

You may also consider speaking with local experienced home inspectors who can advise you how to best clear trees and shrubs near your home to reduce fire risks and how to protect against floods and mold risk.

For most Americans, the bulk of their net worth comes from the equity in their primary home. To best protect your wealth and to keep a roof over your head, please surround yourself with a knowledgeable team of inspectors and insurance, mortgage, and real estate agents who can help advise and protect you at the same time.

Rick Tobin

Rick Tobin has worked in the real estate, financial, investment, and writing fields for the past 30+ years. He’s held eight (8) different real estate, securities, and mortgage brokerage licenses to date and is a graduate of the University of Southern California. He provides creative residential and commercial mortgage solutions for clients across the nation. He’s also written college textbooks and real estate licensing courses in most states for the two largest real estate publishers in the nation; the oldest real estate school in California; and the first online real estate school in California. Please visit his website at Realloans.com for financing options and his new investment group at So-Cal Real Estate Investors for more details. 

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

Are You Focused on Commercial Real Estate?

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By Rick Tobin

Earlier this year in January, economists from the International Monetary Fund claimed that commercial real estate prices had fallen at the steepest pace in more than 50 years. As we now approach the fourth quarter here in 2024, the price drops have escalated and only worsened for property owners. Now, we might be seeing the worst commercial property price declines in U.S. history.

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Approximately 20%, or $929 billion, of the $4.7 trillion dollars’ worth of outstanding commercial mortgages owed to lenders and investors may balloon or become all due and payable by the end of 2024, as per the Mortgage Bankers Association’s 2023 Commercial Real Estate (CRE) Survey of Loan Maturity Volumes.

Between 2024 and 2028, upwards of $2.81 trillion in commercial loans are scheduled to come due and need to be paid off or refinanced, according to Trepp. Within this same analysis provided by Trepp, they project that more than $533 billion will balloon or come due in 2025. The largest commercial mortgage holders for these commercial mortgages coming due are regional banks and thrifts that hold over half of these maturing loans through 2028.

Commercial Real Estate Trends

Let’s take a look at both positive and negative commercial property trends across the nation in recent years:

  • The estimated total dollar value of commercial real estate was $22.5 trillion as of Q4 2023, which makes it the fourth-largest asset market in the nation following stocks or equities, residential real estate, and Treasury securities. (Federal Reserve’s April 2024 Financial Stability Report),
  • By 2050, commercial building floor space is expected to reach 124.3 billion square feet, a 33% increase from 2020. (Center for Sustainable Systems, University of Michigan)
  • 72% of commercial buildings in the US are 10,000 square feet or smaller. (National Association of Realtors)
    The typical length of a building lease in the US is three to 10 years. (DLA Piper)
  • Approximately 69% of all commercial buyers in the US need financing to purchase properties. (National Association of Realtors)
  • As of July 2024, the national office vacancy rate reached a whopping 20.1%. This was the very first time ever that the U.S. vacancy rate surpassed 20%. (CommercialEdge)
  • In 2024, the U.S. apartment construction industry is expected to break a new all-time record for apartment units delivered with well over 500,000 units completed, which is 30% higher than back in 2022. (Fannie Mae)
  • An estimated one-third of industrial space in the US is more than 50 years old. (NMRK)
  • The Inland Empire (Riverside and San Bernardino counties) in California had averaged an incredibly low 1.2% vacancy rate for industrial space in 2021 and/or 2022. (Commercial Edge)
  • However, vacancy rates for industrial properties in the Inland Empire skyrocketed to 6.8% by Q1 of 2024, a 400-basis point vacancy rate increase compared to 2023. The Inland Empire now has the second highest vacancy rate for industrial properties on the West Coast, behind only Phoenix. (Kidder Matthews)
  • Nationally, the industrial real estate vacancy rate reached 6.1% in the first half of 2024. (CommercialEdge)
  • For every $1 billion of growth in the e-commerce sector, it requires an extra 1.2 million square feet of new warehouse space. (Prologis)

Is Multifamily Strong or Not?

In many U.S. regions, the multifamily sector is very strong partly since so many tenants can’t afford to buy homes nearby that are currently priced at all-time record highs. In other regions, multifamily apartment landlords may be struggling with significant financial losses.

The multifamily apartment mortgage default rate has quadrupled over the past year, according to Freddie Mac. Last year in 2023, this year in 2024, and through at least 2025, more brand new apartment units will be completed and available for lease than at any other time since as far back as 50+ years ago in 1973.

Multifamily apartment landlords across the nation are defaulting on their mortgages with decade-high rates in states like California, Texas, Florida, and elsewhere.

Some of the main factors why multifamily apartment mortgage default rates are rising are as follows:

1. The owner’s existing mortgage rate may have increased by 100% or more after their previously 3-year, 5-year, 7-year, or 10-year fixed rate converted to a new adjustable rate at today’s much higher mortgage index. As a result, the once positive monthly cash flow turned negative due to the higher mortgage rates and payments.

2. Rising vacancy rates as fewer tenants could afford rapidly increasing rents in many of these apartment building locations found in various metropolitan regions.

3. In other regions, the vacancy rates had increased so much that landlords had to drop their rent prices which, in turn, turned monthly profits into losses.

4. Skyrocketing costs for various types of landlord insurance or umbrella insurance policies as well as increased litigation costs from unhappy or injured tenants.

The multifamily market is projected to add or deliver another 574,000 new apartment units in 2024 alone, according to an analysis shared by the CoStar Group. As a result, future rent prices may start falling as the available supply exceeds the demand.

Upside-Down Office Buildings

Almost 45% of all office buildings nationwide that are leveraged with debt are upside-down or underwater where the existing mortgage debt exceeds the current market value, according to sources like ZeroHedge, Bloomberg, and Morgan Stanley. Some office buildings are now selling for as low as $9 per square foot, not $900/sq. ft.

An eye-opening example of how massive some of these commercial property prices have plunged was the recent April 2024 sale of the 44-story AT&T Center office building in St. Louis, Missouri. Back in 2006 near the previous real estate bubble peak, the same building sold for $205 million dollars. In April, this property sold for just $3.6 million, which was a staggering 98% value drop.

Some savvy investors who purchase these discounted office buildings may choose to convert them into multifamily apartment buildings if the remodel and rezoning costs aren’t too high. Are you seeing heavily discounted office building deals in the areas where you live or invest as well?

Two of the main causes for falling residential and commercial real estate values are related to rising unemployment and upside-down properties as more people may soon clearly see, sadly.

All-Time Record Consumer Debt and Defaults

The ability to pay rent or a mortgage payment is directly related to access to cash and credit for most people. When times are more challenging and the employment or investment income is either lower or nonexistent, many people choose to access their credit cards to make their monthly payments. Once the credit card limits are reached, some tenants may not be able to pay their rents.

There is not a single state in the U.S. today with less than a 10% credit card delinquency rate for their residents as credit card APRs are near 28% to 40% in 2024, depending upon the credit card issuer and the borrowers’ creditworthiness .

Back near the depths of the Great Recession in April 2009 when credit card rates were closer to 12%, the national credit card delinquency rate was only 6.77%.

Highest Credit Card Defaults

By state, here is the percentage of consumers who are delinquent on one or more accounts:

* Mississippi – 39%
* Louisiana – 32%
* Alabama – 31%
* Arkansas – 30%
* Oklahoma – 28%
* Kentucky – 28%
* South Carolina – 27%
* Tennessee – 26%
* Texas – 25%
* West Virginia – 25%
* North Carolina – 24%
* Indiana – 24%
* Georgia – 23%
* New Mexico – 23%
* Missouri – 22%
* Arizona – 20%
* Nevada – 19%
* Wyoming – 18%
* Oregon – 17%
* California – 15%
* Florida – 15%
Sources: Trading Economics and John Williams

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Top 10 Credit Default Cities

Here are the U.S. cities where the largest share of people are behind on their credit cards by at least one payment.
1. McAllen, Texas — 51.7 percent
2. El Paso, Texas — 46.3 percent
3. Baton Rouge, La. — 45 percent
4. Greensboro, N.C. — 44.8 percent
5. Columbia, S.C. — 44.6 percent
6. Jackson, Miss. — 44 percent
7. San Antonio, Texas — 43.8 percent
8. Augusta, Ga. — 43.3 percent
9. Greenville, S.C. — 42.6 percent
10. Memphis, Tenn. — 42.5 percent

Source: LendingTree

Discounted Real Estate Buying Opportunities

Just like following the Great Depression, the Savings & Loan Crisis, and the Great Recession, there were incredible discounting buying opportunities for homeowners and investors who were searching for both residential and commercial real estate deals.

You must continue to stay focused on the opportunities rather than on the obstacles to get ahead in this world. “Out of chaos comes opportunity” as I like to say repeatedly to friends, family, and clients.

If 99 people are running towards the hills and doing nothing, you can be the sole brave and wise person who buys the property for almost cents on the dollar like some of the office building deals. If so, you might create generational wealth for you and your family.

Rick Tobin

Rick Tobin has worked in the real estate, financial, investment, and writing fields for the past 30+ years. He’s held eight (8) different real estate, securities, and mortgage brokerage licenses to date and is a graduate of the University of Southern California. He provides creative residential and commercial mortgage solutions for clients across the nation. He’s also written college textbooks and real estate licensing courses in most states for the two largest real estate publishers in the nation; the oldest real estate school in California; and the first online real estate school in California. Please visit his website at Realloans.com for financing options and his new investment group at So-Cal Real Estate Investors for more details. 

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

The California Gold Rush Boom

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By Rick Tobin

The California statewide median home price reached an all-time record high of $908,040 in May, which was more than $500,000 higher than the national average price of $407,600. Through June 2024, the median home price average remained above $900,000 for three consecutive months in California.

By the end of the 1st quarter of 2024, California homeowners saw the largest year-over-year equity gain in the nation at $64,000. Los Angeles metropolitan region homeowners had even larger gains while netting closer to $72,000, according to the CoreLogic Homeowner Equity Insights report.

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The CoreLogic analysis showed that homeowners across the nation with mortgages (approximately 62% of all properties) had total equity gains of roughly $1.5 trillion dollars between the first quarter of 2023 and 2024, an annualized percentage gain of +9.6%. Massachusetts had the #2 overall state equity gain at $61,000 and New Jersey was ranked #3 at $59,000.

By comparison, the median national home price hovered between about $430,000 and $445,000 through May and June 2024, according to multiple sources such as Realtor.com. The typical home listing nationwide took 45 days on average to sell, which is still well below the historical average time to sell listed properties.

These massive equity gains each year for most states have dropped the average loan-to-value (LTV) for mortgaged homes nationwide to a record low 48.3% LTV. While other types of consumer debt are currently near all-time record highs for credit cards, student loans, and automobile loans, many American homeowners have never been wealthier.

No matter how fast national home prices are increasing each year, California home prices continue to remain at least twice as high as the national average.

Two Top California Home Regions

There are several booming housing regions across California. Yet, two of the best overall housing markets remain here in Southern California: Orange County and San Diego County.

1. Orange County, California: Through June 2024, Orange County topped a ranking of home-price gains for 30 U.S. cities for the fourth consecutive month, according to data released by First American Title. Orange County price gains grew by +10.2% in 12 months. By comparison, the #2 and #3 national home price gain leaders were in Miami (+8.9%) and Pittsburgh (+6.5%).

The home value trends in Orange County through July 2024 were as follows:

● Median listing home price: $1.3 million
● Median listing home price per square foot: $704/sq. ft.
● Median sold home price: $1.7 million

2. San Diego, California: In May 2024, home prices in San Diego County surpassed $1 million for the first time ever, as per both the San Diego Union-Tribune and CoreLogic. The total overall price increase of more than 9% year-over-year was the largest spike of any of the Top 10 metropolitan regions in the nation.

With most coastal regions in Southern California now averaging well over $1 million dollars for home prices, a larger number of home buyers are looking at inland regions such as those found in Riverside and San Bernardino counties where some homes can be found at prices closer to the much lower national average.

Low Home Sales Volume

In May 2024, there were 4.11 million home sales, according to the National Association of Realtors. During this same time, there were 3.7 months of available home listing inventory, a median sales price gain of +5.8% year-over-year, and the inventory percentage increase was just up +0.6%.

The May 2024 home sales numbers for the nation dropped to one of the three lowest home sales months over the past decade. The slowest home-selling month was back in May 2020 during the pandemic lockdowns and back in October 2023 when mortgage rates were reaching peak highs.

I can’t think of any other time in U.S. history when near record low sales volume happened as home values reached all-time record highs. Generally, lower sales volume tends to lead to falling home prices.

California’s Top 5 Global Economy

By 2018, California had surpassed the United Kingdom as the 5th largest economy in the world, as measured by Gross Domestic Product, if it were listed as a separate nation.

Listed below are the Top 8 largest world economies as of the end of 2023:

1. United States: $27 trillion (including California)
2. China: $17.7 trillion
3. Germany: $4.4 trillion
4. Japan: $4.2 trillion
5. California $3.86 trillion
6. India: $3.7 trillion
7. United Kingdom: $3.3 trillion
8. France: $3.1 trillion
Source: International Monetary Fund

Now, let’s take a closer look at the Top 5 states for largest output in the nation as of 2023:

1. California: $3.86 trillion
2. Texas: $2.6 trillion
3. New York: $2.2 trillion
4. Florida: $1.6 trillion
5. Illinois: $1.1 trillion

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California’s Finite Land Supply

As I’ve shared before in my 2021 article entitled California’s Gold Rush for Valuable Land, there’s a relatively small percentage of available buildable land in the state of California. Values for real estate or other types of consumer goods and services are generally determined by supply and demand. When the demand far exceeds the available supply of an asset or other type of consumer product, the values tend to rise much higher as we’ve seen with California real estate prices.

There are approximately 40 million residents in the Golden State. As of January 2020, the US Census Bureau reported that the U.S. had a population base of 330 million. This translates to California residents representing 12.12% of all U.S. residents.

The famous film and stage actor, writer, and witty humorist from Pacific Palisades, California named Will Rogers once said: “Buy land. They ain’t making any more of the stuff.”

Another historic quote by Harold Samuel, the founder of Land Securities, which was one of the United Kingdom’s most successful property companies, about the key to success in regard to how to make money in real estate is as follows: “Location, location, location.”

California is filled with an abundant supply of land that is adjacent to the majestic Pacific Ocean and includes scenic rivers, mountain ranges, and forests up and down the state which borders Mexico, Nevada, Arizona, and Oregon. Our state is 1,040 miles in length and 560 miles in width. There are an estimated 156,000 square miles of land and an additional 7,734 square miles that are covered by water for a grand total size of 164,000 square miles.

If you flew on an airplane between two airports in the state that didn’t fly over the Pacific Ocean, you’d probably see primarily empty land regions. Did you know that our 40 million residents live on approximately just 5.4% of the state’s entire available land supply?

Almost 95% of California has no people living on it due to very strict zoning and usage laws and incredibly high building costs like environmental-impact study and “sustainable living” or green home building fees. The combination of costly environmental-impact fees and rising supply costs are two of the main reasons why there haven’t been many affordable homes or apartments developed in the state.

If we divide 156,000 square miles of available California land supply by the estimated 5.4% of land that’s allowed to have residents living there, this means that only 8,424 square miles of California has residential or commercial real estate and residents on it. If so, this is equal to 4,748 California residents per square mile of the buildable land supply.

Let’s put this 8,424 square miles of buildable land in the Golden State into better perspective by comparing it to other U.S. regions:
● All of the Hawaiian Islands combined: 6,422 square miles
● The Big Island of Hawaii by itself: 4,028 square miles
● The state of Connecticut: 5,543 square miles
● Puerto Rico: 3,515 square miles

California’s Land of Opportunity

For so long as the state’s overall economy remains strong in spite of our massive state deficits, crime, traffic, and lack of affordable housing, we might just see a statewide home price average surpassing $1 million dollars in the near future if our annual home price gains remain at a pace well above our historical average.

Because most of California is not located on a beautiful beach, the fact that many inland properties are also rising to all-time record highs is validation or confirmation that the American Dream is more likely found within California than outside of our state’s borders.

Rick Tobin

Rick Tobin has worked in the real estate, financial, investment, and writing fields for the past 30+ years. He’s held eight (8) different real estate, securities and mortgage brokerage licenses to date and is a graduate of the University of Southern California. He provides creative residential and commercial mortgage solutions for clients across the nation. He’s also written college textbooks and real estate licensing courses in most states for the two largest real estate publishers in the nation; the oldest real estate school in California; and the first online real estate school in California. Please visit his website at Realloans.com for financing options and his new investment group at So-Cal Real Estate Investors for more details. 

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

Wealth Creation in a Hyperinflationary America

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By Rick Tobin

Are we currently experiencing the best economic boom ever with all-time record high stock and real estate prices? Or are more investors moving their weakening dollars into hard assets like real estate, partly as a hedge against skyrocketing inflation trends? Can Quantitative Easing ever end, or have the Federal Reserve and US Treasury created a seemingly infinite hyperinflationary spiral?

Home values have never been higher in many U.S. regions than what we’ve all seen here in 2024. The Dow Jones index also recently reached an all-time peak high of 40,000 and the NASDAQ surpassed 17,000 for the first time ever.

American mortgage holders may now have access to a staggering $11 trillion in tappable equity that’s over and above their existing mortgage balances, according to the May 2024 Mortgage Monitor report from the Intercontinental Exchange (ICE).

The amount of residential property equity is so massive that if all 48 million homeowners spent $10 million of their tappable equity each day, it would take more than 3,000 years to exhaust it, as per ICE. This amount of residential equity available is more money than the Gross Domestic Product (GDP) of Japan, India, and the United Kingdom combined.

The West Coast Gold Rush

The same ICE report identified just five housing markets on the West Coast that represented a quarter of that $11 trillion equity number: Los Angeles, San Francisco, San Jose, San Diego, and Seattle. Four of these five core equity cities are located in the Golden State of California.

As per a study released by Zillow, approximately 20% of our nation’s total housing value is in California. With an estimated 40 million residents in California and upwards of 333 Americans across the nation, the state residents represent close to 12% of all Americans. Yet, our state home values represent a much higher 20% number as compared with the rest of America.

Homeowners usually need income first to qualify for a third-party mortgage to purchase their home. While the cost of living for West Coast residents is typically near the highest in the nation, the salaries paid out by many employers, or the income generated by self-employed workers, is also among the highest in the nation with San Francisco, San Jose, and Seattle ranking first, second, and third nationally for the top average salary, according to CareerBuilder.

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The Top 5 Most Unaffordable Housing Regions

Three of the Top 5 most unaffordable housing regions in America are located in Southern California – #1 Los Angeles, #3 Irvine, and #5 Long Beach. Miami was #2 and New York City was #4, as per the RealtyHop Housing Affordability Index for May 2024.

Average families who earned the median income in Los Angeles must now spend a shockingly high percentage of 99.33% of their income on home ownership costs, as discovered in this RealtyHop survey. If true, the average Los Angeles resident would have just 0.67% (or less than 1%) of household income left over to purchase groceries and pay for utilities, automobiles, clothing, home maintenance, and other basic necessities if they were actually able to qualify for a home mortgage with those very high debt-to-income ratios.

Rounding out the Top 20 for the most unaffordable housing cities in America, which included many more California regions, were as follows:

6. Newark, NJ
7. Anaheim, CA
8. San Diego, CA
9. San Jose, CA
10. Boston, MA
11. San Francisco, CA
12. Santa Ana, CA
13. Oakland, CA
14. Chula Vista, CA
15. Fremont, CA
16. Jersey City, NJ
17. Austin, TX
18. Dallas, TX
19. Riverside, CA
20. Seattle, WA

These Top 5 most unaffordable housing regions in the survey compared the median home listing price primarily with the median income for the same region. Let’s take a look below at how high the percentage of household income was needed to cover the project monthly household expenses (mortgage, property taxes, insurance, etc.):

The Top 5 Most Affordable Housing Regions

Now, let’s review the Top 5 most affordable cities in America, which have much lower percentage of income to monthly household payment numbers:

Out of the 100 major cities analyzed by RealtyHop, a whopping 88 of the cities had homebuyers paying more than 30% of their monthly income towards household expenses.

The RealtyHop report findings were based on factors such as the percentage of income required to afford a home, a 30-year fixed mortgage rate of 7.125% (subject to change), and projected household income based on US Census and BEA data.

While there are many cities and towns across the nation with much higher median home values than the Top 5 most unaffordable housing regions listed by Realtyhop, those areas usually had much higher household income averages that helped make the home purchases more affordable.

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Income Requirements for Homes by State

Families who live in the five most expensive U.S. states for home purchases require an annual income exceeding $270,000 to live comfortably, according to a report published by Visual Capitalist.

“Comfortable” is defined as the income required to cover a 50/30/20 budget, with 50% set aside for necessities like housing and utilities, 30% for discretionary spending, and 20% allocated for savings or investments, as per the same Visual Capitalist report.

The Top 10 most expensive states for two working adults who are raising two children is listed as follows:

Because home values are so much higher today, the average mortgage balance debt is dramatically rising for many borrowers. One-to-four residential mortgage debt has also reached all-time record highs just north of $20 trillion dollars, as per the St. Louis Fed’s Economic Data.

Investments and Wealth Creation

“If you don’t find a way to make money while you sleep, you will work until you die.” – Warren Buffett

If you’re fortunate to own assets, your net worth is probably rapidly increasing. If not, the declining purchasing power of the dollar is making it very challenging for tens of millions of Americans to pay their bills on time.

There’s another old saying that is somewhat similar to Mr. Buffett’s quote that’s as follows: “Either you work hard for your money or your money works hard for you.”

Our towns, cities, states, and our nation are spending money like never before in U.S. history. The federal government continues to increase our debt at a pace of close to $1 trillion dollars every 90 days.

Between January 2020 and October 2021, the M1 money supply (cash or cash-like instruments) grew from $4 trillion to $20 trillion as I’ve written before. The more money that is created and the larger our federal debt grows and compounds, the weaker the purchasing power of the dollar.

For those people who don’t own any real estate or stocks, they are not experiencing firsthand the record wealth being created for many Americans.

Inflation is more likely than not to grow at a faster pace in the near future than what we’ve seen over the past 50 years or so. If so, real estate has proven to be an exceptional hedge against inflation as properties tend to appreciate on a historical average at least as high as the published annual inflation rates.

If you’re lucky enough to own one or more properties today, then you might consider pulling some equity out of the home to acquire more income-producing assets. For first-time homebuyers, today may be the best time to start looking for properties.

A home near you that you consider to be “too expensive” might seem very reasonable five years from now as inflation keeps rising and our dollar gets weaker and weaker.

Rick Tobin

Rick Tobin has worked in the real estate, financial, investment, and writing fields for the past 30+ years. He’s held eight (8) different real estate, securities, and mortgage brokerage licenses to date and is a graduate of the University of Southern California. He provides creative residential and commercial mortgage solutions for clients across the nation. He’s also written college textbooks and real estate licensing courses in most states for the two largest real estate publishers in the nation; the oldest real estate school in California; and the first online real estate school in California. Please visit his website at Realloans.com for financing options and his new investment group at So-Cal Real Estate Investors for more details. 

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.