Here's Your Roundup Of Recent Major News Affecting California Real Estate, Housing, And Mortgages.
Repairs in San Clemente Expected to Span Up to a Year
San Clemente has allocated over $8.5 million for repairs expected to span up to a year on a landslide that disrupted train traffic for weeks between San Diego and Orange counties.
City officials aim to initiate the work promptly due to ongoing slow sliding of the slope, posing a threat to the historic Casa Romantica Cultural Center and Gardens situated at the pinnacle, which risks falling onto the railroad tracks below.
The coastal rail line, crucial for transit between San Diego County and Orange County, Los Angeles, and other destinations across the U.S., is heavily trafficked.
Casa Romantica, erected in 1927 on 2.5 acres owned by the city, rests on soil that became saturated during unusually heavy winter rains. Soil samples indicate that the buildings are constructed on sand, now weakened and in danger of failing.
The City Council unanimously approved emergency contracts with LGC Geotechnical for consulting and Alliance Diversified Enterprises, Inc., for construction to urgently secure the building and site before the upcoming winter rain season. The project will entail installing four sets of anchors drilled horizontally into the slope, reaching layers of clay and bedrock below the sand.
These tiebacks will be linked to a surface concrete wall, covered with soil and a reinforcement fabric, and landscaped upon stabilization completion.
Funding for the project will be redirected from a planned capital improvement initiative, the construction of Mariposa Beach Trail Bridge replacement, initially budgeted at $8 million. The city will simultaneously pursue state and federal grants to potentially cover costs.
The stabilization endeavor is projected to span up to a year, with the aim of installing tiebacks before the onset of winter rains.
The Reef Gate condominium building, located on the slope below and slightly north of Casa Romantica, also faces jeopardy. Approximately 30 out of 72 condominiums were evacuated for nearly a month after the initial slide deposited mud and debris against the building.
Passenger rail travel resumed between San Diego and Orange counties after the installation of a 12-foot-tall barrier wall along the tracks beneath the San Clemente slide, ending a suspension lasting nearly six weeks. During the suspension, Amtrak passengers were shuttled between the stations at Oceanside and Irvine.
Prior to this, a separate coastal slope failure in September 2021, followed by another in 2022 two miles south of the current location, incurred repairs exceeding $13.7 million and suspended passenger trains for about six months.
Real Estate :
Key Trial in Kansas City Challenges Real Estate Broker Fees
A significant trial underway in Kansas City, Missouri, is potentially set to disrupt a fundamental aspect of the U.S. real estate market: broker fees.
Significance: This case, one of two antitrust class-action suits against major brokers and the National Association of Realtors (NAR), has the potential to alter the landscape of the real estate industry in the U.S. If successful, it could lead to a transformation in how Americans engage in the process of buying homes.
Two of the defendants, Anywhere Realty and Re/Max, have already settled both cases, resulting in modifications to their association with NAR and a combined payout of $139 million in damages. There are also indications that the Department of Justice is considering antitrust action against NAR.
Core Issue: The focal point of the case is broker fees, specifically the payment made by the seller to the buyer's agent.
As per NAR regulations, agents must adhere to specific guidelines to access most local real estate databases. Under these rules, it is the seller who covers the fee, which is then divided between the seller's real estate agent and the buyer's.
In property listings, sellers are required to disclose a fee offer (even if it's zero), which is visible to buyers' agents but usually hidden from prospective buyers.
Plaintiffs' Claim: The plaintiffs, representing sellers of over 260,000 homes in Missouri, Kansas, and Illinois, assert that this system amounts to a conspiracy that artificially inflates home prices.
Statistical Perspective: In 2020, Americans collectively paid upwards of $85 billion in residential real estate commissions, according to a previous antitrust investigation by the DOJ.
While NAR recently suggested that fees could potentially be as low as zero, research has demonstrated that fees typically remain relatively consistent.
Zooming Out: Critics have long criticized NAR and this fee structure for driving up home prices and causing a misalignment of interests between buyers and their agents.
Agents, in essence, stand to earn more when the buyer pays more. From a consumer standpoint, the industry's practices have often been seen as perplexing. Steve Brobeck, a senior fellow at the Consumer Federation of America, who has advocated for reform in this area, highlighted that the sum paid in broker's fees for a home could, in many instances, be equivalent to the cost of an entire car. For example, the broker fee on a $500,000 house would amount to $30,000.
In Summary: The trial could have far-reaching implications for the real estate market, potentially reshaping how transactions are conducted and how fees are managed in the industry. The outcome of this trial is eagerly anticipated by industry professionals, stakeholders, and consumers alike.
In a striking turn of events, the Federal Open Market Committee (FOMC) has raised the federal funds rate in 11 out of the last 13 meetings. However, both investors and officials from the Federal Reserve are now suggesting a potential shift in direction.
The consecutive interest rate hikes over the past year have led to a surge in savings account and CD rates, but have also resulted in higher rates for mortgages and other loans. Since March of last year, the average 30-year loan rate has surged from under 4% to nearly 7.63% as of October 19, according to data from Freddie Mac.
Rates for 15-year loans have also risen, averaging nearly 7%, and short-term ARM rates have experienced a similar spike. With the average new mortgage payment reaching nearly $2,200 in August, affordability has become a pressing concern.
The question on many minds is whether a potential rate increase from the Fed later this month could further escalate these payments. Here’s what to anticipate from this month’s central bank meeting and beyond.
A Prolonged Break
The Fed chose to pause its rate hikes last month but left the door open for potential future increases. According to the majority of FOMC members, at least one more rate increase is deemed necessary for 2023, with the possibility of further adjustments in the following year.
However, it appears that this rate hike may not materialize at the October meeting. Federal Reserve Chair Jerome Powell hinted at this during a recent speaking engagement, a sentiment echoed by Fed Gov. Christopher Waller.
Waller expressed, “I believe we can wait, watch, and see how the economy evolves before making definitive moves on the path of the policy rate,” during a European Economics & Financial Center Seminar last week.
Investors seem aligned with this perspective. The CME Group’s FedWatch Tool indicates a probability of over 98% that the Fed will maintain its benchmark rate within the 5.25%-5.50% range at the conclusion of its Oct. 31-Nov. 1 meeting.
Observation and Caution
Even if the Fed opts to keep its rate steady this month, it does not necessarily imply that rate increases are off the table in the future. Nor does it guarantee an immediate decline in rates.
Powell emphasized, “We are attentive to recent data showing the resilience of economic growth and demand for labor. Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy.”
Various other factors may influence the Fed’s decisions, with political uncertainty chief among them. Ongoing conflicts, such as those in Israel, and the potential for a government shutdown, along with the absence of a House speaker, are significant considerations.
Powell cautioned, “Geopolitical tensions are highly elevated and pose important risks to global economic activity.”
Additionally, there remains a persistent risk of recession. However, according to a recent survey, economists are no longer in unanimous agreement on this front. Only 48% expressed the belief that a recession is imminent within the next 12 months.
These factors could explain why the likelihood of another rate hike increases for the Fed’s December meeting. According to CME Group, the odds currently stand at approximately 25% for a rate increase from 5.50% to 5.75%, with a 2% chance of a rate decrease.
In summary, while there is a strong likelihood that the Fed will maintain its current stance at this month's meeting, the road ahead remains uncertain.
Powell stated, “A range of uncertainties, both old ones and new ones, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little. Given the uncertainties and risks, and given how far we have come, the committee is proceeding carefully.”
While the markets may welcome news of a continued pause, preparations for another hike continue. In terms of real estate, the status quo persists: low inventory, diminishing demand, high prices, and the enduring “lock-out” effect.
The only anticipated shift is likely to occur when rates begin to decline.