We all know the most popular, prevailing question in real estate is always “How’s the market?” but the conversation is a little more niche right now, especially here in Southern California. Specifically, there are four topics I keep hearing over and over, so I wanted to provide some updates and clarity on each one. (Also, if you have your own thoughts or questions on any or all of these hot topics, please comment below!)
The L.A. Times recently reported that “Insurance Commissioner Ricardo Lara announced Thursday that he struck a deal with the insurance industry to encourage new coverage in the state.” As part of this deal, large insurers agreed to insure high-risk fire zones in the hills and canyons of California, in exchange for a commitment from the state that they could get higher rate increases approved quickly through state regulatory agencies.
State Farm, USAA and Allstate were among the leading insurers mentioned in the article, and those companies have requested insurance increases of 28.1%, 30.6% and 39.6%, respectively.
To add some context to this piece of news: Most of the large insurers stopped writing policies in California, leaving homeowners with no choice but to get basic California Fair Plan Insurance, which only covers a maximum of $3 million. It will not cover personal content, or relocation fees to rent another home while rebuilding or fixing the damage.
Years ago, insurance used to be the last step in the home buying process, left to the last minute as an add-on before buyers moved in. You’d call up the insurance broker and they’d respond with a casual hair flip and an, “Oh no problem, give me a few hours and I’ll put together a policy for you.”
But that’s not the case anymore. It can take weeks to shop your insurance policy around, and in many markets it’s impossible to get a secondary bid. If these large insurers do come back to California, it would definitely give buyers and homeowners more options but it’ll also mean insurance would get more expensive. The L.A. Times noted that while those proposed rate increases could be distributed differently among homeowners, “a cabin in the woods might see a 200% jump while a home in San Francisco could see little to no change.”
So, what are the implications of this hot topic? If you have a mortgage, you’re required to have basic replacement coverage for fire insurance to protect the mortgagee (the lender). If you pay cash for a house, you’re not required to have fire insurance, and many cash buyers will self-insure. For those who aren’t paying cash, these insurance figures can get really pricey, getting into the six figures for some of the bigger homes just for basic fire insurance, which doesn’t cover earthquakes or content, like jewelry. Insurance has become so expensive that it’s now in the real estate buying conversation because it’s a huge problem and expense for owners who don’t pay cash. If State Farm and the larger insurers do come back to California, we’ll likely see higher rates but more options. Right now, a homeowner’s options are extremely limited and costly, especially in markets anywhere near hillside. I’ve seen instances where a home could be nowhere near what we’d typically think of as a fire area but the insurance will designate it as a fire area anyway. A lot of the companies in California right now are looking at a 2D map in Tarzana and saying, “Well, this is right by the Malibu fire.” And yes, on a 2D map it does look pretty close but in reality, there are three mountain ranges between Tarzana and Malibu. It would be a world disaster if a Malibu fire hit Tarzana but for today’s insurance underwriter looking at the map from an office in Chicago, the two areas look right next door. The hope is that some of these bigger companies will have a more boots-on-the-ground presence, and insurance will be easier to obtain.
The Feds recently indicated that rates might go up one more time, which could potentially dampen market activity. The hikes that happened this year have already slowed the market down, though inventory in all the areas I serve is still on the rise. However, with more inventory we’re not seeing more closed sales. It’s a combination of higher rates limiting the buyer pool and the remaining buyers realizing that with all this new inventory, they can afford to take their time and find the perfect house that’s priced perfectly. It’s not like if they spot a property they like it’ll be sold tomorrow, (or even the next week or next month) so they can really be thoughtful about the selection process, which is why pricing a home correctly is more important than ever before.
TIME ON THE MARKET
Homes priced incorrectly are sitting on the market, causing average time on market to increase. If someone has a need to sell, getting the price right upfront is key. A lot of sellers are still living in the prices of ‘21 and ‘22, but this is ‘23 and we just can’t price the same way anymore for leases or for sales. Getting realistic with pricing today means you can position yourself to have not only the most attractive home but also the most attractively priced on in your category – and that’s how you get your house sold, regardless of how time-on-market metrics are trending.
HOMES FOR THE HOLIDAYS
As we approach the holiday season, sellers are already talking about taking their homes off the market or not listing during the holidays, but I have a different take. There’s nothing wrong with having a house on the market or listing a home over the holidays, when you’ll see an artificial dip in inventory particularly from mid-November to early January. This means while other sellers are off the market, your home can be on the market, and thrive among an environment with less competition and plenty of people with time off to look for houses they’ll love. In fact, the holidays are a great time to buy or sell a house.
I always say Super Bowl is the official kick-off of the real estate season because a lot of people go into a holiday hangover in January then wake up around early February when inventory always increases each year. But why should you have to wait until February to achieve your real estate goals? If you have a well-priced home in a good location, you’ll sell it whether it’s Christmas Day, New Year’s Eve or Thanksgiving.
Now it’s your turn to tell me: What do you think of these hot real estate topics?
Andrew Manning • REALTOR® • Berkshire Hathaway HomeServices California Properties • DRE: 00941825 • 818-380-2147 • email@example.com