The extent of my pizza knowledge is that it’s delicious and I love to eat it. But there’s also this New York economics idea called the “pizza principle”. In a normal functioning economy, a slice of cheese pizza will always be the same price as a subway ride. Since 1980, it’s actually been fairly accurate—rises in pizza prices have indeed been able to predict price hikes in public transit.
Until now, that is.
Prices for plain slices are now $3.14 throughout NYC while subway fares are frozen at $2.75. Inflation has hit pizzerias particularly hard at a faster than usual pace with soaring gas bills (gotta keep those pizza ovens running), much pricier ingredients, and major hikes in labor costs.
And it’s having a real impact on people’s wallets. And stomachs, which let's be real, is the biggest tragedy of all.
Do you binge-watch Flip or Flop and all the HGTV shows and now aspire to flip houses yourself? Then you'll want to know about the California Housing Speculation Act. Also called AB 1771, this legislation proposes a 25% tax on the capital gains earned if a house is sold within 3 years of purchase. Properties sold after 3 years would be taxed at 20%, and after 7 years that percentage would be zero. The money would then be distributed to different counties in an effort to create more affordable housing, fund school districts, and support community infrastructure.
This wouldn’t apply to first-time home buyers, homes used as primary residences or affordable housing units, homeowners active in the military, or to those selling a house after an owner’s death.
This act was basically written in an attempt to prevent real estate investors from driving up prices by buying properties in all cash, quickly renovating, and then selling them at much higher prices.
On the one hand, for the average buyer just wanting to be able to afford a home without selling a kidney on the black market, this might help. Although on the other hand, flippers are doing the dirty job that a typical home buyer would not and they are eventually adding inventory to a market in desperate need of them. If adopted, the tax would go into effect on January 1, 2023.
Also please don't sell any organs on the black market.
According to Zillow, 2021 U.S. homeowners made more money on average from home appreciation than the median worker earned from their job.
The average U.S. home climbed 19.6% in 2021 to $321,634, a $52,667 increase since 2020, mostly thanks to record low mortgage interest rates and an ongoing housing crisis that kept real estate in high demand.
So is that why everyone is quitting their 9-5 jobs these days??
Besides record low inventory levels and increasing lack of affordability for buyers? Turns out it's even more depressing than that.
Americans are finding themselves “increasingly locked into places that they wish to escape”. As residential mobility has gone down, "so have levels of happiness, fairness, and trust among Americans.” But how exactly could a decline in mobility lead to such bleak outcomes?
When people move less, it affects culture. Staying in one place leads to an increased aversion to risk, suspicion of outsiders, and cynicism. Another way to frame it is comparing two different types of society, one where people move a lot versus one where they don’t. A “mobile society” is often linked to optimism and tolerance while a “stable society” is linked to security and a strong sense of difference between groups of people. As America has shifted towards the latter, this could explain much of what has happened to America’s political system in recent decades.
We’ve become a less mobile society for many reasons—low income workers don’t have the financial freedom to move, many jobs require occupational licenses that are difficult to transfer across state lines, taxes and housing costs differ too greatly depending on geographical area, etc. While stability isn’t necessarily a bad thing, this could all lead to Americans growing up in a country where freedom of movement belongs only to the rich.
Potential solution? Taking steps that would allow more mobility like loosening zoning restrictions that leads to increased construction and neighborhood change in the places that people want to move to. Might be costly but definitely worth it.
If you've ever driven along the El Camino Real from San Francisco to San Jose, you’ve probably noticed the seemingly endless stretch of parking lots and strip malls that line the entire route. Well, get this—apparently there’s room for an estimated 250,000 new apartments along this road. Developers are trying to figure out how to make this happen as an attempt to alleviate the housing shortage.
Now let's be real, everyone loves a good strip mall. Where else can you do your grocery shopping, get a haircut, and pick up a burrito for lunch all in the same afternoon? So the goal here wouldn’t be to tear down every strip mall completely. Instead they suggest creating mixed-use buildings that would keep retail space on the ground level while adding apartments on top.
California reportedly needs to build millions of new housing units to meet current demand. Governor Newsom pledged to build 3.5 million homes by 2025, but so far only around 100,000 homes are being built each year. Strip mall development might be a solid solution.
...Or something like that.
After two years of being spoiled by record-low interest rates, they're finally starting to creep back up, thanks to the Fed's attempt to tame the beast that is inflation. In just one month, rates jumped half a point from 3.11% to 3.64%. That's the largest one month jump we've seen since December 2013! On a $1M loan, the difference in rates equate to a $300 increase in monthly mortgage. As if the market wasn't challenging enough for buyers to get into these days.
So how will this affect the housing market? Simply put: The higher mortgage rates go, the more bearish the outlook for home price growth.
A more nuanced perspective: "The impact of rising interest rates depends on where they land. If rates approach 4% before the end of the year, there will be a notable downshift in housing demand. If mortgage interest rates gradually rise throughout the year, allowing home sellers to price their homes accordingly, then the shock to the system will be less noticeable."
Anyone else read the word “cottage” and think of a quaint little home surrounded by wildflowers in the middle of a forest? No? Just me? Ok cool. Well I'm actually referring to an accessory dwelling unit, also known as an ADU.
Homeowners in the Berkeley flatlands can now build two-story ADUs in their front or back yards as long as they inform their neighbors and tenants first. The new rules allow for those who want to build an ADU up to 20 feet tall to get almost automatic city approval.
Meanwhile in the Berkeley Hills, council members still haven't decided how they want to regulate building ADUs, considering there would be higher wildfire risk in those areas.
Under these new regulations, city staff would notify any existing tenants and immediate neighbors about plans for an ADU on their property no more than 10 business days after a homeowner submits a project application. Those who oppose the plans likely won’t have the power to block or change them under Berkeley’s new rules.
Low interest rates, housing shortage, everyone working from home, etc etc etc., all of which came together to create the perfect storm for another record-breaking year in real estate. Here are the new housing records set in 2021.
Cheers to the new year with a more balanced housing market! Hopefully.
All things real estate.