A California Real Estate Newsletter
Edition 10, April, 2016
WILL SELF-DRIVING CARS AFFECT REAL ESTATE?
- President Obama just pledged $4 billion for self-driving cars. http://www.geekwire.com/2016/obama-pledges-4-billion-investment-for-self-driving-cars/
- Most experts agree self-driving vehicles will improve safety on the roads. Currently about 30k people in the U.S. die each year from auto accidents.
- By some estimates, homes cost an extra $50k per parking space.
- In urban environments already, we see couples preferring smaller homes with high walk scores and nearby transit, who needs a car?
- Unlike cars of today, which are parked 96% of the time, self-driving cars will be in semi-continuous service except in early morning hours. Thus we will need fewer cars.
- 1/3 of urban real estate is devoted to parking garages.
- There are 8 U.S. parking spaces for every car in operation, as many as 2 billion U.S. spaces overall.
- 13% of every lot for a typical single family home is now dedicated to a garage.
- Imagine: Parking garages become nature parks or high density housing with no garages; garages become your office or rooms to rent out on Air BnB. You get the picture.
HEMPCRETE: DEEP GREEN CONSTRUCTION MATERIAL
- If we are truly dedicated to sustainable housing, the whole world would be using hempcrete right now.
- Industrial hemp can be used for food, fuel, and fiber, and within those three basic catagories there are 25,000 different products that can be made out of hemp. Housing is one of its products, and its benefits are extensive and sustainable.
- It's a rotation crop and beneficial to the soil, it actually cleans the soil, requires few pesticides and returns nutrients to the soil.
- It can be harvested between 40 - 90 days after planting.
- Hempcrete homes provide:
- excellent insulator
- acoustic insulation
- excellent control of humidity
- resistant to mold, pests, and fire
- low carbon footprint
- extremely windproof
- non-hazardous to work with
- fully recyclable
- energy efficient
- just to name a few
- Though currently banned by the US government as a crop, there is a bill currently in Congress to legalize hemp plants, and many states have legalized controlled growth for research. It is imported from Canada and Europe where it is legal to grow.
- First hempcrete house in the US:
- According to the latest S&P Case-Shiller Home Price Index, the housing market continues to experience tight inventory leading to rising prices. A poll of economic analysts predicts that U.S. home prices are likely to rise 5% this year and continue this trend into 2017.
- The pace of sales has fluctuated in part to a lack of homes for sale and because high prices have started to scare some buyers.
- Rising construction costs are squeezing the housing supply, contributing to the low inventory. California's regulatory environment poses many obstacles to new construction, causing labor costs, and home prices to appreciate well above the national average.
- Homeownership rates are dropping. Last year homeowner households dropped by 233,000 in the U.S.
- Seniors rental rates are up 29% from 2001, due in part to the high price of housing. Even renting is becoming a challenge due to increasing rental rates. Of all renters, those aged 75 and older have the greatest incidence of paying more than 50% of their income to rent.
- U.S. census data released in March, 2016 provides strong support that suburban areas are growing faster than urban ones, despite a temporary shift in 2011.
- The overall population trends underscore that people flocking to cities remain a select class, mostly of the young, educated, and affluent who can afford rising prices. Meanwhile, America overall continues to suburbanize.
- Urban homes nationwide are now valued at roughly 25% more than suburban ones on a per-square foot basis.
- The South and West are growing at the expense of the Northeast and the Midwest.
- The Federal Reserve leaves interest rates unchanged and sees only two hikes in 2016. It signaled lifting them more slowly than previously indicated.
- Cash sales on homes are continuing to decline. In November, 2015, they were down .7% year over the year before accounting for 36.4% of total home sales. They peaked in January 2011 at 46.6 %.
BUYERS: WHAT TO LOOK FOR WHEN BUYING A HOME
- Steer Clear of Highways:
- Research shows a link between living near congested highways and premature or low birth weight babies due to vehicle emissions.
- Look for Stability:
- A "churning" neighborhood leads to curriculum disruption in the classroom and lower educational performance for your children.
- Pay more to drive less:
- Consider the cumulative costs of wear on the car, gas, the stress of commuting and less time at home.
- Get the Right Size:
- Newer research is revealing that too much space in a home can be as bad as too little for families with children in school. "Adequate but not excessive" is the motto.
- Think Long Term:
- Is this a house that can take you through many life changes? What are the best amenities for a long stay in the home if that how life happens?
INVESTORS: CALIFORNIA HAS THE LOWEST SFR CAP RATES IN THE NATION
- The highest Single Family Rental (SFR) cap rates tend to be located in the middle of the country, with Memphis, Tennessee topping the list at 7.3%. The lowest cap rates are along the West Coast and New York City.
- San Francisco and San Jose have the lowest cap rates in California as well at 2.7%.
- The SFR cap rate is a measure of the annual rate of return produced by the operations of an income property stated as a percentage of invested capital. It is the annual "yield", the continuing receipt of net operation income calculated for each year of ownership from the rental operations in relation to the seller's asking price.
- Low cap rates become acceptable to cash heavy investors faced with few investment opportunities, as in San Francisco and San Jose.
- Rapid price growth has made investors more interested in the "profit", the one-time money-maker that occurs on the sale of the property.
- As interest rates increase over the coming decades, appreciation will slow down. It is expected to decrease as the interest rates increase. That will refocus investors on cap rates.
- Be careful with cap rates as low as 2.7%. Ask yourself if it is realistic to expect a good investment from projected profits and little or no yield, not to mention property improvements that could arise needing adequate reserves and reduce projected profits.
- Remember: Home prices do not rise forever. This trend will change. Where will you be in that cycle with a property you are buying today? This is something to think about.
- Be sure to have a thorough financial analysis done on any property purchased as an investment. Cap rates are only one indicator of the investment potency of that property. We can help you with that!
- Research by Home Union:
Here is a recent area of intense focus: home building with hemp. Frankly, I have more questions than answers. If you know anything about this highly sustainable material for building homes, please contact me. If you are interested in developing homes using this material, please contact me. I am learning more and more with each passing day and night.
Here is a quote from a member of the Hemp Tech team in Asheville, NC about building with hemp:
We have been looking for the most effective toxin-free building material for years, an effort that we still put time into every single week. We recognized almost immediately that hemp was, in every way but in cost, seemingly the most effective and sustainable material available worldwide. The qualities it offers are beyond anything we get from typical materials, combining energy efficiency found in mass-based construction with the carbon sequestration, rapid renewability, strength, several hundred year wall lifespan, and the breathability and indoor air quality that is unsurpassed. It is incredible combination, and a list of positive attributes we have never seen in any other material.
Hempcrete has some interesting qualities one of which is it's ability to pull carbon from the atmosphere both while being grown and while in - situ producing a double edged sword for fighting climate change. Firstly at the cropping state the hemp plants naturally use carbon dioxide for growth at about 22 tons per hectare, however the interesting factor is that the building itself continues to sequestrate carbon as lime in the hempcrete calcifies over time. The fact that the time content is constantly calcifying, turning to stone essential
Additionally, hemp homes are fire, mold and termite proof, as well as being super-insulated, breathable and energy efficient. And when the cost of importing hemp is eliminated with legalized industrial hemp farming in this country, the cost to build homes will be extremely low. This is one of the very real solutions to the housing inventory and affordability crisis in my opinion.
The list goes on and on.
I am a proponent with others in our country to remove barriers to industrial hemp farming in the U.S through education, legislation and advocacy. Industrial hemp is the non-psychoactive, low-THC, oilseed and fiber varieties of the cannabis sativa plant. Hemp has absolutely no use as a recreational drug.
I am asking for you to write our senators in Congress and ask them to become a cosponsor of the S.359, Senator Wyden's companion bill to the H.R 525, the Industrial Help Farming Act of 2013. You can learn more here and click on the "Take Action" button for a letter to send to our senators, you need only add a bit of personal information and your support of this bill.
Learn more about industrial hemp use here.
Again, please contact me for further involvement or with any questions you may have. Thank you.
Schneider Estates, Inc.
Christine Schneider, Broker