Many markets have changed including the insurance market. Most people are in the position where the insurance premiums have changed or they are struggling to get insurance at all. If you’re in the market to purchase a home or your insurance premiums have changed, listen up.

We’re navigating environmental changes, increased costs for materials, increased labor costs, and colossal fires in California for 2017 and 2018. As a result, State Farm California’s largest insurer, left the state and as of right now, Californians are left with either high premiums or few options.

Many insurance companies are not writing new policies. As a result, I called and spoke with several insurers. They all more or less had the same tricks to share. Universally, they appeared miserable because they can’t write any new policies. However, they all said that your best bet is to contact who holds your car insurance as they would be most likely to add to your existing policy. Even still, there might be limitations. If so, California has a program called the California Fair Plan that can assist in supplementing your existing coverage. For more information, contact me today and check out the links below:

https://www.latimes.com/business/story/2023-09-14/newsom-homeowners-insurance-rates-coverage

https://calmatters.org/economy/2023/06/california-home-insurance/

https://calmatters.org/politics/2023/09/california-insurance-wildfires/

For many years, if you had lived in your home for many years and had a very low property tax base, you were disincentivized to move and pay significantly more in property taxes often by 10 fold. The only way you could keep your property taxes if you found a cooperating county and you purchased a home of equal or lesser value. Oftentimes that was very limiting.

Enter Prop 19 which is the new and improved version. Here are the important notes of Proposition 19:

1. Statewide participation-you no longer need to be concerned about ensuring that your county or the county you’re looking to move to, participates in this exchange.

2. If you are staying in California and over 55, you’re allowed to exercise Proposition 19 up to three times.

3. The equation is as follows: (Purchase Price of New Home) – (Sale Price of Old Home). Apply the existing property tax rate to the net difference. This amount is added to your existing property taxes on your old home for the current rate that you would pay.

For example, potential sellers are considering a change. Sale of their house for $10,000,000 and a purchase for $13,500,000. They are currently paying $57,000 in property taxes. The math is as follows:

$13,500,000-$10,000,000 = $3,500,000

$3,500,000 (.0115) = $40,250

$40,250 + $57,000 = $97,250 New Yearly Property Tax Rate on Home Purchased for $13,500,000

Property Tax Rate without Proposition 19 would have been $155,250 per year.

This works out to be a savings of $58,000. Proposition 19 has had a significant improvement on the mobility of long time property owners and have enabled more mobility.

I think the answer circles back to the oldest idea in Real Estate: location, location, location. If you’re happy where you are, and your home is in need of updated finishes, absolutely remodel. However, maybe your home location is fine, but your home was new 20-30 years ago. The popular design 20-30 years ago was definitely gearing up to our palatial mediterranean homes, or if you’re really lucky, you have glass blocks in your home. (I’m sure I will regret saying that someday because someone will figure out how to make that design work). Either way, maybe it makes sense to remodel while you live in your home if the changes aren’t significant. But what if you feel meh about the location and the home needs some work. What are the variables you need to consider?

1. Taxes. Benjamin Franklin’s “in this world, nothing can be said to be certain, except death and taxes” is a reminder that taxes are always a variable. In this case, there are four questions to ask: how much are you currently paying in taxes; how much is your home currently worth; how old are you; and how much is the proposed home you’d be considering? If you’re 50, you purchased your home 20 years ago and you’re considering selling, you may want to wait 5 years for when you can exercise Prop 19. For more on that check out this article Proposition 19-Save on your property taxes
2. Expectations of your Next Home. In a flat market, this is a fairly easy proposition. In a squirrely market, this can be a real challenge to navigate. In a fair or tight market where things are fairly predictable, this ought to be a fairly simple task to spend a little time online, contingent upon you knowing your budget. If you’re navigating a squirrely market, you may want to do what you can in order to protect yourself by using hedging language such as “subject to seller finding replacement property”. The transition of identifying your next home can range from a day at the beach to a scenario you wouldn’t want to wish upon your worst enemy.
3. Is your home serving your needs? If you purchased your home as a single guy and now you’re engaged or married with a dog and planning on having a family, maybe your needs are beyond a remodel and a new home is the right solution.
4. Last, and this requires introspection and honesty, what is your appetite for a remodel? Sometimes the cognitive dissonance of your ability to take on a remodel can be a significantly miscalculated variable because HGTV can make it look easy. It’s easy to think that you won’t make the same mistakes. However, you’re human and things happen. It’s important to not underestimate your ability to roll with the punches when navigating a remodel. The hardest part is that you are the only one that can answer that question.

There are a few different ways to evaluate our market. We can look at pricing, but it’s also good to calculate how interest rates have affected our monthly payments. For example, last year a home that sold for the average price of $4,257,163 had a monthly payment of $18,282.70. This is assuming a standard 20% down and a 30 year fixed rate mortgage.

There are a few different ways to evaluate our market. We can look at pricing, but it’s also good to calculate how interest rates have affected our monthly payments. For example, last year a home that sold for the average price of $4,257,163 had a monthly payment of $18,282.70. This is assuming a standard 20% down and a 30 year fixed rate mortgage.

Despite expectations, we continue to see growth in our market. We’ve had both an increase in our average sale price year over year and quarter over quarter. In terms of the volume of our sales, we’ve seen more than we did for the first quarter of this year, but less than the second quarter of last year. Just like our volume of sales, we had fewer days on market for this quarter than last, but more than this time last year. Last, our sale price is about 97% of our list price. The trend continues as that is higher than last quarter, but less than this time last year.

Putting this in context, this means our marketplace has a strong resilience in the climate of rising interest rates. A couple of variables that might be contributing to this are low inventory and the hope or expectation that these current rates are not here forever.

One of the hypothesized side effects of the Federal Reserve increasing interest rates was to reduce or discourage real estate transactions. There was significant concern that this may cause some sort of recession part two or generally bad news for real estate pricing. However, this has not been the case. One of the unforeseen consequences has been that homeowners have been discouraged to sell their homes to trade a low interest rate mortgage for a higher interest rate mortgage. The side effect that we’ve seen locally regarding higher interest rates has been fewer sellers. As a result, we have had a restricted supply of inventory that has nearly kept pace with the reduced demand as a result of higher interest rates. Our market has been resilience in the face of rising interest rates.

The other piece of the puzzle that appears to be assisting or supporting the overall optimism within our market has been the expectation that interest rates will not stay this high. There are a couple of reasons why. First, the Federal Reserve has been noting that cuts may be in the future, but they first want to tackle inflation. As our inflation continues to come down, the Federal Reserve may determine that rate cuts would be appropriate or justified to sustain their target rate of 2% inflation. Second, when speaking to lenders, they mention that when the 10 year treasury was at these current rates, mortgage rates were closer to 5% than 7%. The combination of the Federal Reserve foreshadowing a future rate cut and the 10 year treasury supporting mortgage rates closer to 5% has been a very optimistic indicator that mortgages at these current rates have a sunset period.

As long as supply and demand move in correlation with one another, we continue to expect a generally optimistic market locally. It can be tough to not listen to the white noise of the news when our market isn’t matching the national narrative. This is why it is important to work with a local expert to help you navigate your local market. For help in navigating this market, contact me today.

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