Skip to content

Los Angeles County was hit hard by the 2008 recession, and it has still not fully recovered in terms of home sales volume and construction.

Los Angeles County Home Sales Volume

Until 2015, home sales volume in Los Angeles County was driven primarily by investors. With employment and income improvement in 2018, home sales volume has increased, although at a slow rate of growth.

In 2019, the Los Angeles County housing market may experience a significant price correction. This price correction would be driven by new home construction issues, property turnover rates, mortgage interest rates, and possible changes in the tax code.

Los Angeles County home sales volume continued on a gradual upward slope in 2017. Year-to-date home sales volume for Los Angele County in 2018 is currently 8% below 2017 home sales volume.

Home sales volume continues to feel downward pressure in 2018 as home prices are still rising and wages are not keeping pace. While Los Angeles County median income is $69,300, the median house price in Los Angeles County is $613,100. Under these conditions, a mortgage payment with property taxes, insurance, and fees could be over $4000 per month.

LA homeowner turnover is relatively high today with one in 16 homes selling annually. Still, this is below the peak year of 2005 when one in 12 homes sold. With home prices running higher and average turnover dropping, expect homeowner turnover to decrease in 2018.

LA County’s homeownership rate has historically been lower than the state average, which was 55% in Q3 2018. LA County has a smaller share of homeowners since much of the county is urbanized, and renting is a convenience, if not a financial necessity. LA’s homeownership rate today is right around what may be considered a “normal” (pre-Millennium Boom) rate, which was 48% in 2000.

Prices have continued to rise in 2018, with low-tier prices 9% higher than a year earlier in Q3 2018. Mid-tier and high-tier prices are 6% and 5% higher than a year earlier, respectively. However, the continued Freddie Mac interest rate increase has decreased the principal amount homebuyers are able to borrow while making the same sustainable mortgage payment.

Multi-family construction starts have jumped significantly in Los Angeles County, far outpacing the near-flat trend in single family residential (SFR) starts. This is due to the increased demand for rental housing, evidenced by the steep rise in rents, especially in the urban city-center areas of Los Angeles County. Builders know this, the City of Los Angeles is accommodating and lenders are catching on.

Since homeowners and renters require employment to make housing payments (with rare exception), the jobs recovery is key to the housing recovery. Just over 4.5 million people are employed in Los Angeles County as of June 2018. This is about 200,000 more jobs than at the 2007 peak.

Los Angeles’ jobs recovery rate has slightly trailed the statewide employment recovery in recent years and has begun to slow. From September 2017 to September 2018, the number of jobs grew by a meager 1.2%. Contrast this with the also slow statewide job growth of 1.8% over the same period of time.

As long as income remains diminished across most job sectors, increases in home prices and rents are limited. This is because buyers and tenants ultimately determine sales prices and rent amounts — collectively they can pay no more to buy or rent a home or apartment than their savings and income qualify them to.

A Reciprocal Easement Agreement (REA) is typically used when a commercial shopping center property is owned by more than one person or entity, and these persons or entities want to develop the property as an integrated shopping center.

Santa Barbara California Shopping Center Parking Lot

The most common scenario is that one of the owners acts as the developer and the other owner is a major retailer (such as Target or Wal-Mart). If the major retailer desires to purchase a portion of the commercial property, it will be necessary for the developer and the major retailer to enter into an REA. If not, there will be no contractual agreement between the developer and the major retailer governing such things as the construction of the shopping center, the architectural compatibility of the buildings, and the use of the common area. Without an REA, the developer or the major retailer could build whatever and whenever it wishes and could conceivably prevent the other party from using its parcel for parking, access or utility lines.

If the developer and the major retailer enter into an REA, it is recorded by the parties in the county in which the commercial property is located and will create certain contractual obligations between the developer and the major retailer that will enable a shopping center to be constructed. Once constructed, the shopping center is operated as one integrated retail project. These contractual obligations follow the property. If any part of the property is sold, any subsequent owner will be subject to the obligations contained in the REA and will benefit from those rights.

Items Typically Associated with a Reciprocal Easement Agreement (REA)

1. Easements for Parking, Access, Encroachments and Utilities.

Each party should have the right to access the other party's property for vehicular parking and access and for pedestrian access. Each party may also need to access the other parties' utility systems. Also, the parties may need certain encroachment rights if their canopies or foundations encroach upon the other party's property. All of these rights would take the form of "easements" and would have to be set forth in detail in the REA. These "easements" would effectively allow one party non-exclusive use of the property of the other party.

2. Construction and Architectural Compatibility.

The REA will typically provide for the developer to construct all of the on- and off-site improvements for the shopping center, as well as those relevant to buildings to be located on the developer’s property. The major retailer will be responsible for the construction of the major retailer's building. The REA typically provides for each party to review and approve the plans and specifications for each party's work, thereby creating architectural compatibility for all of the construction work at the shopping center.

3. Operation of Common Areas.

The REA should provide for one party to operate, insure, and maintain the common areas of the shopping center. That party would usually be the developer or a third party manager appointed by the developer. Typically, if the developer does a poor job operating and maintaining the common area, the major retailer will have the right to "take over" the operation and maintenance of the common areas located on its property, and sometimes this take over right may be extended to the entire common area in the shopping center.

4. Taxes, Building Maintenance, and Building Insurance.

The REA typically requires each property owner to pay the property taxes that relate to its property. In addition, each party is also required to maintain the appearance of the buildings on its property in an attractive manner.

5. Use, Recapture Rights, and Rights of First Offer.

Some REAs may require the major retailer to use its property for a particular use or may restrict certain uses on the developer property to the benefit of the major retailer. In the event that the major retailer is required to use its property for a particular use and then ceases to do so for a specified period of time, the developer may be given the right to purchase the major retailer's property for its fair market value.

Contact David Collins at 562.694.4920 or if you have any questions about Reciprocal Easement Agreements (REA) for a Shopping Center.

Netflix rapid expansion in Hollywood, California, continues with another new commercial office space lease. The online video streaming company has signed a long-term agreement to occupy about 355,000 square feet at a mixed-use site that Kilroy Realty Corp is building on a lot on Vine Street and De Longpre Avenue, just south of Sunset Blvd.

Kilroy Realty Corp purchased the 3.5-acre lot in 2013 for $46 million from the Academy of Motion Pictures Arts and Sciences (AMPAS). The property complex, dubbed Academy on Vine, will include three office buildings that are currently under construction, with Netflix expected to be able to start moving in by mid-2020. The site will also include a 20-story, 193-unit residential building and large public gathering areas that will feature public art.

The new site is located about a mile from Netflix’s Los Angeles headquarters at Sunset Bronson Studios on Sunset Boulevard near the 101 Freeway, where it uses more than 400,000 square feet in the Icon and Cue buildings built by Hudson Pacific Properties Inc. Netflix also signed an additional lease with Hudson Pacific to fully occupy another 325,000 square feet of office space nearby.

Sears filed for Chapter 11 Bankruptcy protection on October 15, 2018. The company has over $11 billion in liabilities and plans to close nearly 200 stores by the end of 2018. At its peak in 2011, Sears an Kmart had a combined total of just over 4000 stores. It started 2018 with about 900 stores, and plans to close almost 200 before the end of the year.

Number of Sears Kmart Stores in USA

The average store is about 100,000 square feet, and approximately 3300 stores are or will become available. Based on quick calculations, that is about 330 million square feet of retail space. Most of these stores are in high density commercial centers and shopping malls.

With the closing of Toys R Us and other big retail businesses, an enormous amount of commercial retail space is available. The question is, what does the next generation of retail commerce look like?

Many shopping centers are moving away from retail shopping and moving toward entertainment experiences.

California’s population grew at a rate of 0.7% in 2017. The overall trend since 2000 is a declining growth rate. California's population growth rate peaked in 1989 at 3.43%. From 2000 to 2017, the growth rate steadily decreased from 1.55% in 2000 to 0.73% in 2017. Of California’s ten largest counties, Los Angeles County had the smallest increase of 0.3% in 2017. Riverside County had the highest increase of 1.9% in 2017.

Steady population growth is essential for a long-term, stable real estate market. California’s rate of population growth varies from year to year, but it has always increased over time. Only three California counties (Plumas, Sierra and Alpine) saw their populations decrease in the first decade of the new millennium.

California's Population Growth in the New Millennium

While many temporary factors influence the rise and fall of California’s population and growth rate, including birth and death rates, migration, cultural trends, and environmental factors, the most critical influence is economics. When jobs are plentiful, and housing is available at reasonable prices, people move into California. A strong economy is an incentive for both interstate and international immigration. A weak California economy causes people to move out or stay away. A state with a lack of good jobs can lose people, as they leave for more job-friendly environments in other states.

The recession of the early 1990s, for example, corresponded with a dramatic decrease in the rate of California's population growth. However, the 2008 recession had no comparable decelerating effect on the rate of California’s population growth. This is likely because the Great Recession, unlike the 1990s recession, was accompanied by a tremendous drop in real estate prices. This drop returned prices to their historic trend of slow but dependable increases.

Immigration and California's Population Growth

Immigration, both authorized and unauthorized, is a critical driver of population growth to California. This includes migration to California from other states and other nations. The largest proportion of international immigrants to California come north from Mexico. According to the US Census Bureau, 38% of California’s population in 2013 was Hispanic, and this proportion has increased annually for the last twenty years. The vast majority of immigrants go to Los Angeles County. Although the state’s birth rate and statewide emigration are both critical factors that influence California's population, immigration averages 58% of the yearly increase in California's population growth for the last 25 years.

Intra- and Interstate Migration

In 2013, five million Californians moved from one residence to another (13% of the total state population). If these, 77% remained in the same county and 21% remained in California. Renters are far more likely to relocate than homeowners: the annual rate of relocation was around 20% for renters and 6% for owners. Men were very slightly more likely to relocate than women, singles were more likely to move than couples, and those with more education (a bachelor’s degree or higher) were more likely to relocate than those with less.

Six California and Arizona hospitals declared bankruptcy in 2018. Medicare is reducing reimbursement to save about $760 million in 2019. The clinic visit is the most common service billed under the Outpatient Prospective Payment System (OPPS). The change in reimbursement is to make clinic visits site neutral. In other words, doctors at hospitals would be paid the same rate as doctors at off-campus clinics. This change, along with other revenue pressures, shrinks hospital profit margins.

There are 6 hospitals and health systems that have filed for bankruptcy in California and Arizona since January 1, 2018.

1. Coalinga Regional Medical Center:

Coalinga Regional Medical Center, located at 1191 Phelps Ave, Coalinga, CA 93210, closed its doors on June 12 and filed for Chapter 9 bankruptcy on September 5, 2018. Chapter 9 Bankruptcy provides for reorganization of municipalities, cities, towns, villages, counties, taxing districts, municipal utilities, and school districts. Coalinga Regional Medical Center owes about $5 million in unsecured debt.

2. Community Medical Center Long Beach:

Community Medical Center Long Beach, located at 1720 Termino Avenue, Long Beach, CA 90804, closed its doors on July 3, 2018, due to the inability to retrofit the hospital to meet California's seismic standards.

CEO John Bishop said in a prepared statement in March: "We exhaustively explored all options to continue operations at Community Medical Center as an acute care hospital. This proved not possible since large portions of the facility would have to be demolished, resulting in a small, 94-year-old hospital with no more than 20 acute care beds, which would not allow for viable acute care operations."

3. Surprise Valley Hospital:

Surprise Valley Hospital is located at 741 Main St, Cedarville, CA 96104. Surprise Valley Health Care District, which operated the hospital filed for Chapter 9 bankruptcy on January 4, 2018. Beau Gertz, who owned Cadira and Serodynamics labs, was aligned to purchase the failing hospital. Gertz, however, closed his labs, let go of all his staff, and quickly left town in Denver, Colorado.

4. Verity Health:

Verity Health, based in El Segundo, California, operated six hospitals in California:

O'Connor Hospital: 2105 Forest Ave, San Jose, CA 95128
St Francis Medical Center: 3630 E Imperial Highway, Lynwood, CA 90262
St Louise Regional Hospital: 9400 No Name Uno, Gilroy, CA 95020
St Vincent Medical Center: 2131 W Third St, Los Angeles, CA 90057
Seton Coastside: 600 Marine Blvd, Moss Beach, CA 94038
Seton Medical Center: 1900 Sullivan Ave, Daly City, CA 94015

It filed for Chapter 11 Bankruptcy on August 31, 2018, due to excessive debt of over $1 billion.

5. Florence Hospital at Anthem:

Florence Hospital at Anthem, located at 4545 N Hunt Hwy, Florence, AZ 85132, closed its doors on June 18, 2018. It was owed by New Vision Health LLC who filed Chapter 11 Bankruptcy on May 24 after it failed to contest an involuntary bankruptcy petition from creditors within the required 21-day timeline.

6. Gilbert Hospital:

Gilbert Hospital, located at 5656 S Power Rd, Gilbert, AZ 85295, closed on June 16, 2018. It is affiliated with New Vision Health LLC and Florence Hospital at Anthem. Both hospitals closed due to financial issues.

First launched in 2008, California's Property Assessed Clean Energy (PACE) program was designed to address the need for sustainable energy building construction and energy-efficient retrofits. PACE finances "green energy" upgrades and installations for residential and commercial property owners. These energy upgrades include solar panels, heating and cooling systems, water pumps, LED lighting, insulation and more.

Over 220,000 California homes have been upgraded using PACE financing. In theory, PACE is a win-win situation for homeowners and local governments that establish the program. Property owners get free or low-cost energy upgrades and save on energy bills and the city is repaid through a tax assessment on the improved property.

PACE Energy-Efficiency Program's Primary Problem

The primary problem with PACE is that the energy savings did not offset the PACE lien payment on the property tax bill.

The PACE financing program qualifies homeowners based on home equity and not the ability to repay. This causes an unaffordable tax bill. This was also true for many participating mortgaged homeowners paying their property taxes through escrow, whose monthly fees jumped to cover the PACE tax assessment.

These high property tax lien assessments led to numerous defaults, which increase in 40 California counties from 245 in 2016 to 1,110 in 2017. These property homeowners face tax lien foreclosures, which do not eliminate the PACE lien.

A lender's main issue with the PACE program is their first-lien status. The Federal Housing Administration (FHA), the Department of Veteran Affairs (VA), Fannie Mae and Freddie Mac no longer insure mortgages associated with PACE-participating homes since the lien takes repayment priority in a foreclosure.

This so-called “super lien” has become a headache for real estate agents as well, since it stays with the property and makes it difficult for PACE-participating homeowners to sell.

Some cities have voted to end their PACE programs due to increasing complaints and foreclosures.

Many real property related professions are advising their clients against PACE financing.

City zoning classifications allow a city, county, or other municipality to regulate development, land use, traffic, municipal resources, and more. A zoning map is often generated to visually describe these zones, and a set of laws, ordinances, and regulations provide a legal framework for how to manage each property.

What Is City Zoning?

City zoning is the way city governments control land development and land use for each individual property within their jurisdiction. City zoning is controlled by zoning laws, ordinances, and regulations passed by city government. City zoning typically separates the region into four major types: residential (R), commercial (C), industrial (I), and agricultural (A).

What are Municipal Zoning Regulations?

The basic purpose and function of municipal zoning is to divide a municipality into residential, commercial, industrial, and agricultural districts (or zones). Typically, a uniform set of laws and regulations are in effect for each specific type of zone. Zoning regulations may include:

- Specific requirements as to the type of buildings allowed
- Location of utility lines
- Restrictions on accessory buildings, building setbacks from the streets and other boundaries
- Size and height of buildings
- Number of rooms
- Minimum lot area
- Parking restrictions
- Types of animals allowed
- Extraction of natural resources

Who Controls City Zoning?

Zoning is a purely a county, city, or municipal responsibility. Though such laws are somewhat universal, the classifications used to describe zoning are not uniform from place to place. Zoning laws and regulations are typically established through that municipality's leadership, including elected officials, managers, and lawyers.

Residential, Commercial, Industrial, Agricultural Zoning Laws and Municipal Planning Subdivisions

Within each general category (Residential, Commercial, Industrial, Agricultural), more narrowly defined divisions are designed. A residential zone might be separated into single-family homes on one acre, single family homes on a half acre, hotels, boardinghouses, mobile homes, low-rise apartment complexes, high-rise apartment complexes, or institutional housing.

A commercial zone might be separated into neighborhood shopping centers, office buildings, or large shopping centers.

An industrial zone might be zoned as light or heavy.

An agricultural zone might be separated into the types of plants or animals that can be farmed.

If you have any questions about zoning issues, please contact David Collins and Associates.

Data shows that a man is 50% more likely to buy a home without a cosigner than a woman. But not all cities in the US share this home buying imbalance.

One of the worst home buying mistakes you can make is to buy a home you cannot afford. Of course, both you and the home loan originator will work to make sure you can afford your mortgage but sometimes mistakes happen. Data suggests women are more likely to buy a home which limits their long-term financial flexibility than men are. On average women have mortgage-to-income ratios 7% larger than men.

Where women are buying homes in the United States:

1. Santa Fe, New Mexico

287 women bought homes in Santa Fe in 2016 without a cosigner, compared to 269 men. This means women bought homes around 6.7% more than men. Men who bought homes in Santa Fe still had higher average incomes and as a result tended to buy more expensive homes.

The average female who bought a home in Santa Fe had an income of $81,100 and took out a mortgage of $239,500. The average male had an income of $92,400 and took out a mortgage of $255,300. This state is also a good place for women to buy homes, as New Mexico has some of the lowest property tax rates in the country.

2. Santa Rosa, California

With 739 mortgages going to women and 727 going to men, women outbought men by about 1.6%.

Both men and women in Santa Rosa earn large sums. The average single man buying a home without a cosigner earned $126,000 and the average woman in the same context earned $109,300. Both men and women in this metro area may be buying homes they cannot afford. The average mortgage-to-income ratio in Santa Rosa was 3.5 for women and 3.45 for men. Assuming a 20% down payment, this would mean the total home value is 4.4 times women’s average income and 4.3 for men. As we mentioned earlier, this is higher than most experts recommend.

3. The Villages, Florida

The Villages is a retirement community located in central Florida. Men without a cosigner bought homes 1.3% more often than women did.

Income inequality for homebuyers in The Villages is slightly better than the national average. The average home-buying female had an income equal to 89% of the average home-buying male income. While that figure isn’t ideal, it is the second-lowest figure in the top 10.

4. Hot Springs, Arkansas

The effects of income inequality become more apparent in Hot Springs, Arkansas. Men only buy homes 4.5% more than women here. However, the average home a man buys without a cosigner is worth 20% more than the average home a woman with the same background buys.

The average male without a cosigner takes out a home loan worth 1.9 times his income. For a woman that number is 2.4.

5. Springfield, Illinois

Illinois’ capital takes fifth. Here men without a cosigner buy homes 6.2% more often than women without a cosigner. Unfortunately for women, they are not only less likely to be buying homes, they are also likely to be earning less than men. The average man buying a home without a cosigner had an income of $68,200 compared to $53,200 for the average woman.

The average man without a cosigner took out a mortgage of $128,000. For the average woman that number was $110,000.

6. Prescott, Arizona

In Prescott, men without cosigners bought 763 homes while women bought 686 homes. That yields a percent different of 11.2% in favor of men.

The average home-buying woman here took in an income worth around 77% of what the average home-buying man did. The average woman here who bought a home without a cosigner took out a mortgage worth 3.2 times their income. That number is only 2.6 for men.

7. Lawrence, Kansas

The average home-buying woman in Lawrence has an income of $66,200 and takes out a mortgage of $158,500. Men show similar financial prudence. They have a mortgage-to-income ratio of 2.1.

However, Lawrence men are more likely to buy homes than women: In 2016, men without cosigners took out 333 home loans, compared to 299 for women.

8. Napa, California

In Napa, California we find one of the widest differences between women’s incomes and men’s incomes. The average man who bought a home without a cosigner earned $170,000. For women that number is $121,000. On average women buying homes without a cosigner in Napa earned only 71% of what men buying homes without a cosigner earned.

Napa homes are also expensive, and both men and women may be stretching their budgets thin to afford homes in here. The average woman took out a mortgage worth 3.42 times her income. The average man took out a mortgage worth 2.96 times his income.

9. Philadelphia, Pennsylvania

Philadelphia is known as one of the more affordable big cities in the country. Men without a cosigner were about 13% more likely to buy a home than women without a cosigner in the Philadelphia metro area. Women buying homes here earned about 79% of what men buying homes earned.

10. Rochester, Minnesota

One of the best places for working women is also one of the places where women are buying homes the most. Of the 1,735 homes bought in Rochester without cosigners, 814 went to females and 921 went to males.

This city also has the lowest gender pay gap in the Top 10. This has led to women and men taking out similar-sized home loans. The average women took out a mortgage of $161,000 while the average man took out a home loan worth $171,000.

Over a million more people moved out of California from 2006 to 2016 than moved in, according to a new report, due mainly to the high cost of housing. Housing costs are much higher in California than in most other states, yet wages for most workers aren’t. Even though the minimum wage in San Francisco is $14 per hour - one of the highest in the US - the median house price in this city is $1.61 million. Assuming housing is a third of your net income, you need a monthly take home pay of $36,000 to afford to purchase an average home in the city. This is just one example of what is going on across the state of California.

California attracts highly-educated high income earners who can afford these expensive homes. In the meantime, it is losing many hourly workers who just can't afford to live in the state, including those in construction, retail, and manufacturing.

There are many reasons for the housing crunch, but the lack of new construction may be the most significant. From 2008 to 2017, an average of 24.7 new housing permits were filed for every 100 new residents in California. That’s well below the national average of 43.1 permits per 100 people. If this trend persists, analysts forecast the state will be about 3 million homes short by 2025.

What does it mean?

California homeowners spend an average of 21.9% of their income on housing costs, the 49th worst in the nation, while renters spend 32.8%, the 48th worst. The median rent statewide in 2016 was $1,375, which is 40.2% higher than the national average. And the median home price was more than double that of the national average. The top five destinations for California migrants between 2014 and 2016 were the nearby, but generally cheaper, states of Texas, Arizona, Nevada, Oregon, and Washington.