Downsizing your home: How to determine if a smaller house is the right move

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Tim and Tracey Kerin knew it was time to downsize soon after their grandson Maximus was born.

“We started to re-evaluate what’s important to us at this stage in life and decided that our health and family were more important than a larger home with a big backyard and pool,” says Tim, 58, who along with Tracey, 59, operate a commercial cleaning and construction business.

Last December, the Kerins packed up a two-story colonial replete with a beautifully landscaped garden in Damascus, Maryland, and moved to New Smyrna Beach, Florida, near their sons Justin, 35, and Jason, 33, and their families. And of course, they get to see Maximus, now 2. “We usually see Max a couple of times a week, and he spends one night every weekend, which we look forward to,” Tim says.

The Kerins are not alone in their quest for a simple life centered on happiness. According to a recent TD Ameritrade Survey, 42 percent of preretirees are likely to downsize if they haven’t done so already. Some 25 percent of respondents are moving to a warmer climate, and 17 percent are relocating closer to loved ones.

Another critical consideration is cost. “Retiring with a lower mortgage payment, property tax bill, smaller place to clean and maintain can be attractive,” says Dennis LaVoy, CFP of Telos Financial in Plymouth, Michigan.

Run the numbers

Before downsizing, homeowners should run the numbers to make sure it makes financial sense.

“Look at costs associated with selling the primary home, such as preparing the house for sale, agent’s commission, moving and buying a smaller home to get an idea of the fixed costs to relocate,” says Aaron Galileo, senior loan officer at Investors Home Mortgage in Howell, New Jersey.

Once a person decides to downsize, he or she must keep lifestyle in mind. “You need to save as much as you can for retirement to keep your lifestyle intact,” says Jeff White, a financial analyst at FitSmallBusiness.com. “If you can lower your monthly mortgage payment from $2,500 for the big home to $1,200 per month for a nice condo that fits you and your spouse, why not leap and invest the extra $1,300 into your retirement plan?”

Consider the space you need

The amount of space you have may also influence your decision to scale down. “If the kids have moved out and you’re an empty-nester, do you need all of that space?” asks Brian Graves, co-founder of Everything But the House, an online estate sale marketplace. He says factor in how much space you need based on your family dynamic and the frequency of out-of-town guests.

For some homeowners, maintaining a property, especially an older one, is no longer attractive. That was the case for Sean Dougherty, age 51, and his wife, Juliana V. Atinaja-Dougherty, 56. In February, they moved into a two-bedroom, two-bath apartment in Manhattan after living for more than 20 years in the 2,000-square-foot single-family ranch house in Clifton, New Jersey, where his wife grew up. “The house was run down in small, but noticeable ways, and we kind of lost the emotional energy to fix it up for sale, so we priced it to sell,” says Sean, a senior vice president at a public relations firm, and Juliana, an attorney. “Plus, we always wanted to move back to New York at some point, and having reached a point where we are more financially comfortable, it made sense.”

Factor in cost-of-living changes

Part of their decision was doing the math and figuring out they could afford to do it, especially given that the move to New York would increase their cost-of-living expenses substantially thanks to the rent they now pay. The other part was wanting to enjoy the entertainment and cultural experiences of big-city living.

“In my case, I wanted to do more in New York like seeing friends, taking in a Broadway show or going to a book reading without worrying about the frustrating commute back to New Jersey,” Sean says. Even still, they are happy with the move. “I put a ceiling on what we could afford, and I could still keep my job as my wife plans to retire soon,” Sean says.

His best advice for those thinking about downsizing: “Don’t wait too long. It’s easy to live in the status quo of your life, but then you deny yourself other experiences.”

Jersey City becomes alternative to New York, but without the ‘sticker shock’ in prices

Lower Manhattan, as seen from Exchange Place in Jersey City.

Real estate prices in New York City have cooled but remain astronomically high, so Jennifer Tobias, a senior designer at the Studio Sofield design firm in lower Manhattan, found a nearby refuge.

Located just across the Hudson River from Manhattan’s West Side, Jersey City is being touted by some as the latest alternative to New York City’s torrid real estate market. It’s where Tobias joined a growing number of area residents who find Jersey City more affordable when compared to its more famous neighbor.

“My apartment is a 310 square foot studio in a 28-unit building,” Tobias told CNBC recently. Her unit cost $195,000 when she bought it in 2007, and she said that its current value is $312,000.

“A similar apartment in New York City would easily cost twice as much,” she added. Her residence faces Van Vorst Park, which has a farmer’s market, Shakespeare performances and outdoor movie nights. A wide range of restaurants and bars can be found within an eight-block radius, and the overall cost of living is low.

She isn’t only getting a more affordable lifestyle across the river. New York’s outer boroughs like Brooklyn and Queens, have traditionally offered lower cost housing. However, prices there have also skyrocketed in recent years, forcing residents of modest means to look elsewhere.

Enter New Jersey, which for years dwelled in the shadow of its larger-than-life counterpart across the Hudson, but has definitively come into its own. Places like Jersey City have emerged as alternatives to the Big Apple for cosmopolitan-minded residents.

‘Avoid sticker shock’

According to a real estate report from PricewaterhouseCoopers, Jersey City has established itself as the go-to for people fleeing New York City. Its growth can be attributed to an influx of “highly educated millennials,” many of whom work in Manhattan’s technology service companies, Pricewaterhouse noted.

“Renters and buyers alike are taking notice and helping to make Jersey City the fastest growing metropolitan area in the state,” said Ralph DiBugnara, vice president of retail sales at the New Jersey-based mortgage lender Residential Home Funding.

He cited an average home price of $391,000 and an average rent of $1,500 per month—substantially lower than what Zillow cites as Manhattan’s median home price of over $1.3 million, and median rent of $3400.

Agent Gina Castrorao of the New York City-based real estate company Triplemint said that Jersey City’s real estate prices depend in large part on proximity to the Hudson River.

“There are rents ranging from $1,200 to $10,000,” she said. “Typically, the closer you are to the water, the higher the prices will be.”

“It is true that high growth markets like Jersey City do often eventually become victims of their success, and are branded as ‘too expensive.'”-John Boyd, president, Boyd Company

Scott Bierbryer, co-founder of the apartment marketplace startup VeryApt.com, said that those who work in Manhattan are well-served by transportation options that offer a short commute into the city.

Those interested in buying luxury property have many options as well. These include 99 Hudson, an 82-story condominium owned by Chinese developers that’s currently under construction. When it’s complete, the building will offer virtually every amenity residents can get east of the Hudson River, minus the high prices: Unit prices start under $1 million.

“Buyers can avoid sticker shock by saving an average of 10 percent on purchases at 99 Hudson, compared to newer properties in DUMBO, and an average of 38 percent versus Lower Manhattan,” said Edwin Blanco, a sales manager with Marketing Directors, who represents the property.

A view of Jersey City skyline from an early morning run.

Blanco told CNBC that 99 Hudson has attracted more buyers from Manhattan than any other Jersey City property in his portfolio. They cite the easy commute and spectacular views as the biggest selling points.

David Amsterdam of the global real estate company Colliers International said that Jersey City is also a good deal when it comes to office space. He quoted an overall rent of $72.74 per square foot for Manhattan businesses, as opposed to only $38.98 per square foot in Jersey City.

All of which raises the question of whether Jersey City could soon go the way of formerly reasonably-priced New York neighborhoods like parts of Brooklyn and Long Island City. As soon as the word got out, many of those became trendy, expensive hotspots.

To some extent, that effect is already underway. In nearby Hoboken, median apartment prices are even more expensive than the Big Apple’s, data from real estate tracking firm Apartment List shows.

It is true that high growth markets like Jersey City do often eventually become victims of their success, and are branded as ‘too expensive,'” said John Boyd, principal of the Boyd Company, a corporate site selection firm based in Princeton, New Jersey.

“The challenge for developers and politicians in Jersey City is to create a climate where new housing options remain in the pipeline, and incentives are available for re-purposing projects, [such as] converting old industrial and retail into mixed-use housing projects,” he said.

However, if Jersey City does eventually become too expensive, Boyd added that new options will always, eventually, present themselves.

“Bayonne, which is getting a new ferry service by the end of this year, is being touted the ‘new Jersey City’ by many of our clients, because of its lower cost profile and proximity to Manhattan,” he said.

Selling your house can you cost you more than $18,000

 

A property for sale in Monterey Park, California

If you’re thinking about selling your house, plan ahead for extra costs that will take a chunk out of any profit you may make.

The average American homeowner will spend $18,342 to sell their house, according to a new study by real estate research firm Zillow and Thumbtack, an online site matching local professionals to customers.

The total includes average closing costs of $13,357 for a U.S. home of median value ($210,200, according to Zillow) and $4,985 on average for basic home preparation projects.

These extra costs can vary widely from market to market.

Among the 35 largest metro areas examined in the study, San Jose had the highest total costs for selling a home with an average of $81,507. Cleveland was the lowest at $12,986.

“Even in the hottest housing markets in the country, selling a home takes time and costs money,” Jeremy Wacksman, Zillow’s chief marketing officer, said in a statement.

Closing costs

Sellers are generally responsible for closing costs in the sale of their home which include agent commissions and transfer or sales taxes.

Commissions make up the biggest chunk of the closing costs with sellers typically paying real estate agent commissions of about 6% of the sale price that is split between the buyer’s and the seller’s agents.

The study utilized a 6% sales commission for the median home value in each area.

While 6% is often standard, that percentage is not set in stone and can be negotiated with your agent depending on the level of service needed in selling your home.

Real estate transfer rate taxes also vary widely. Among the top 35 cities, transfer taxes were as high as $8,487 in Seattle for a $476,800 median value home.

Several cities had no transfer tax at all including Austin, Dallas, Houston, Kansas City, Indianapolis, Phoenix, Portland, San Antonio and St. Louis.

Home preparation costs

Depending on the condition of your house, the costs of getting your home prepared for selling can also be substantial.

“From decluttering and staging to pre-inspections, agents and homeowners often spend months behind the scenes prepping a home — well before it’s listed on the market,” Wacksman said.

The average cost of covering basic projects — painting, staging your home, carpet cleaning, lawn care and gardening, and local moving costs — was $4,985 for sellers who hire professional help, the study found.

The analysis showed a range of an average high of $6,580 in San Jose and a low of $3,720 in Dallas.

“While there could be some initial sticker shock associated with the costs of selling a home, investing in home improvement projects like painting and home staging often proves to be very valuable in the long-run,” said Thumbtack economist Lucas Puente.

Subprime mortgages make a comeback—with a new name and soaring demand

They were blamed for the biggest financial disaster in a century. Subprime mortgages – home loans to borrowers with sketchy credit who put little to no skin in the game. Following the epic housing crash, they disappeared, due to strong, new regulation, and zero demand from investors who were badly burned. Barely a decade later, they’re coming back with a new name — nonprime — and, so far, some new standards.

California-based Carrington Mortgage Services, a midsized lender, just announced an expansion into the space, offering loans to borrowers, “with less-than-perfect credit.” Carrington will originate and service the loans, but it will also securitize them for sale to investors.

“We believe there is actually a market today in the secondary market for people who want to buy nonprime loans that have been properly underwritten,” said Rick Sharga, executive vice president of Carrington Mortgage Holdings. “We’re not going back to the bad old days of ninja lending, when people with no jobs, no income, and no assets were getting loans.”

A home improvement contractor works on a house in Cambridge, Massachusetts.

All loans will not be the same

Sharga said Carrington will manually underwrite each loan, assessing the individual risks. But it will allow its borrowers to have FICO credit scores as low as 500. The current average for agency-backed mortgages is in the mid-700s. Borrowers can take out loans of up to $1.5 million on single-family homes, townhomes and condominiums. They can also do cash-out refinances, where borrowers tap extra equity in their homes, up to $500,000. Recent credit events, like a foreclosure, bankruptcy or a history of late payments are acceptable.

All loans, however, will not be the same for all borrowers. If a borrower is higher risk, a higher down payment will be required, and the interest rate will likely be higher.

“What we’re talking about is underwriting that goes back to common sense sort of practices. If you have risk, you offset risk somewhere else,” added Sharga, while touting, “We probably are going to have the widest range of products for people with challenging credit in the marketplace.”

Carrington is not alone in the space. Angel Oak began offering and securitizing nonprime mortgages two years ago and has done six nonprime securitizations so far. It recently finalized its biggest securitization yet — $329 million, comprising 905 mortgages with an average amount of about $363,000. Just more than 80 percent of the loans are nonprime.

A ‘who’s who of Wall Street’

Investors in Angel Oak’s nonprime securitizations are, “a who’s who of Wall Street,” according to company representatives, citing hedge funds and insurance companies. Angel Oak’s securitizations now total $1.3 billion in mortgage debt.

Angel Oak, along with Caliber Home Loans, have been the main players in the space, securitizing relatively few loans. That is clearly about to change in a big way, as demand is rising.

“We believe that more competition is positive for the marketplace because there is strong enough demand for the product to support multiple originators,” said Lauren Hedvat, managing director, capital markets at Angel Oak. “Additionally, the more competitors there are, the wider the footprint becomes, which should open the door for more potential borrowers.”

Big banks are also getting in the game, both investing in the securities and funding the lenders, according to Sharga.

“It’s large financial institutions. A lot of people with private capital sitting on the sidelines, who are very interested in this market and believe that as long as the risks are managed well, and companies like ours are particularly good at managing credit risk, that it’s a good investment opportunity,” he said.

As the economy improves, and rents continue to rise, more Americans are trying to become homeowners, but the scars of the Great Recession still stand in the way. One-fifth of consumers today still have very low credit scores, often disqualifying them from obtaining a mortgage in today’s tight lending market.

Relaxed lending standards

Last summer, Fannie Mae announced it would relax its lending standards for prime loans, allowing borrowers with higher debt and lower credit scores to obtain loans without additional risk overlays, such as large down payments and a year’s worth of cash reserves.

Fannie Mae raised its debt-to-income (DTI) limit from 45 percent to 50 percent. DTI is the amount of total debt a borrower can have compared to his or her income. As a result, demand from buyers with higher debt exceeded all expectations. The share of high DTI loans jumped from 6 percent in January 2017 to nearly 20 percent by the end of February 2018, according to a study by the Urban Institute.

“From January to July 2017, Fannie purchased 80,467 loans with DTI ratios between 45 and 50 percent. But from August 2017 to February 2018, Fannie purchased 181,911 loans in the same DTI bucket. This increase of more than 100,000 loans in just seven months exceeded our estimate (85,000 additional Fannie loans annually) and Fannie’s expectations.” – Urban Institute

The mortgage industry expectation was that Fannie Mae would mitigate the additional risk with other factors, like a higher necessary credit score, but that was not added. The mortgage insurers balked, since they would be on the hook for the risk, so last month Fannie Mae “recalibrated” its risk assessment criteria again.

“We got a bigger response than we thought we were going to, so we dialed back to make sure we were in the right spot where our governance kicks in to make sure we’re not taking excessive risk,” said Doug Duncan, Fannie Mae’s chief economist.

Millennials carry more debt

The outsized demand from borrowers with more debt as well as demand for nonprime mortgages in the private sector show just how many borrowers today would like to become homeowners but are frozen out of the mortgage market.

Millennials, the largest homebuying cohort today, have much higher levels of student debt than previous generations. Members of older generations who went through foreclosures during the housing crisis or other hits to their credit are still struggling with lower FICO scores.

In addition, credit tightened up dramatically. In fact, between 2009 and 2015, tighter credit accounted for just more than 6 million “missing” loans, according to research by Laurie Goodman at the Urban Institute. These are mortgages that would have been granted under more normal historical underwriting standards.

The rebirth of the nonprime market is focused on these missing mortgages. The hope is that the industry will also focus on better standards of underwriting and not take risk to the levels it once did, levels that resulted in disaster.

Zillow shares plunge 9 percent on the company’s plan to start flipping homes

Zillow shares plunged 9 percent on Friday after the online real estate database company announced it will begin buying and selling homes, a capital-intensive endeavor.

With Zillow’s new program, announced on Thursday, home sellers in the test markets of Phoenix and Las Vegas will be able to use Zillow’s platform to compare offers from potential buyers — and Zillow. When Zillow purchases a home, it will aim to quickly flip the home, making updates and repairs and listing it as soon as possible. An agent will represent Zillow in each transaction.

“We’re entering that market and think we have huge advantages because we have access to the huge audience of sellers and buyers,” Zillow CEO Spencer Rascoff said on CNBC’s “Squawk Alley.” “After testing for a year in a marketplace model, we’re ready to be an investor in our own marketplace.”

But investors are less enthusiastic. Flipping homes, a model that’s being utilized by start-up Opendoor, is very different than operating an internet marketplace. It carries additional risk associated with buying and selling homes and requires a hefty investment in operations. And it also potentially puts Zillow in direct competition with the realtors on its platform.

Zillow sank $5, or 9.3 percent, to $48.77 as of mid-day on Friday, knocking more than $900 million off its stock market value.

“This is a business model that to date has been all advertising revenue driven, which is high gross margin,” said Mark Mahaney, an analyst at RBC Capital Markets who has a “buy” rating on Zillow. “And now there’s this pivot into this other category which has balance sheet risk and it has much lower margins and is in an uncertain housing environment,” Mahaney said on CNBC’s “Squawk on the Street.”

In May 2017, Zillow announced the launch of Instant Offers, which enables home sellers in the Las Vegas and Orlando test markets to get cash offers from potential investors on Zillow’s platform. The company said homeowners prefer the process, and that most of them who requested an Instant Offer ended up selling their home with an agent.

“Home sellers welcome a hassle-free experience selling your home without decluttering your garage or taking the kids out of the house,” Rascoff said.

Rascoff said the company will take on collateralized debt to purchase the homes, and hopes to have between 300 and 1,000 homes held for sale by year’s end. He called the move “industry friendly,” benefiting buyers, investors and agents. He also said it could help stimulate the real estate market and open up new inventory for prospective buyers.

`Unstick people’

“There are people that are basically stuck in their home that would love to go buy another home, but can’t sell,” Rascoff said. “This could provide the ability to unstick people from their homes.”

Mahaney said that it will help Zillow test how much the real estate market is turning.

“This is an interesting experiment on the company’s part,” Mahaney said. “They’ve reached the point of scale with both real estate agents and with consumers. There are data points in the market that suggest this way of buying and selling homes is really starting to gain traction.”

The program will start this year in Phoenix and Las Vegas. Zillow didn’t say when it will expand into other markets.

No relief in sight: Housing affordability is weakening at the fastest pace in a quarter century

A real estate agent, right, shows a home to a prospective buyer in Miami, Florida.

It is the perfect storm: Rising home prices, rising mortgage rates and rising demand are colliding with a critical shortage of homes for sale.

And all of that is slamming housing affordability, which is causing more of today’s buyers to overstretch their budgets. This year, affordability — a metric based solely on the amount of the monthly mortgage payment — will weaken at the fastest pace in a quarter century, according to researchers at Arch Mortgage Insurance.

The average mortgage payment, based on the median-priced home, increased by 5 percent in the first quarter of 2018 nationally and could go up another 10 to 15 percent by the end of the year, according to their report.

Researchers looked at the median-priced home, now $250,000, and estimated price gains this year of 5 percent in addition to mortgage rates going from 4 percent to 5 percent on the 30-year fixed. Other studies that factor in median income also show decreasing affordability because home prices are rising far faster than income growth.

Related: More tech workers can’t afford to live where they work

That is a national picture – but all real estate is local, and some markets will see affordability weaken more dramatically. The average monthly payment in Tacoma, Washington, is estimated to increase 25 percent this year, given sharply rising prices. In Baltimore and Boston, it could rise 21 percent in each. Philadelphia, Detroit and Las Vegas could all see 20 percent increases in the average monthly payment.

“If mortgage rates and home prices continue to rise as expected, affordability will get hammered by year-end as demand continues to outstrip supply,” said Ralph DeFranco, global chief economist-mortgage services at Arch Capital Services. “A strong U.S. economy combined with a housing shortage in many markets means that there is little hope of any price drop for buyers. Whether someone is looking to upgrade or purchase their first home, the window to buy before rates jump again is probably closing fast.”

Barely a decade after home values crashed epically, they are now hovering near their historical peak, accounting for inflation. Prices are being driven by record low inventory of homes for sale. Homebuilders are still producing well below historical norms, and demand for housing is very hot. The economy is stronger, which is giving younger buyers the incentive and the means to buy homes.

Stretching budgets and pushing limits

Maryland real estate agent Theresa Taylor said the supply shortage is hitting buyers hard. She is seeing more clients stretch their budgets to win a deal amid multiple offers.

“People are having to escalate offers on top of rates going up. I’m seeing it in all price ranges,” said Taylor, an agent at Keller Williams. “I am seeing it when I’m getting five offers, and people are trying to package up an offer where they’re pushing their limits.”

Buyers are taking on much higher debt levels today to be able to afford a home. In fact, the share of mortgage borrowers with more than 45 percent of their monthly gross income going to debt payments more than tripled in the second half of last year. Part of that was because Fannie Mae raised that debt-to-income threshold to 50 percent, but clearly there was demand waiting.

“Family income is rising more slowly than home prices and mortgage rates, meaning that the mortgage payment takes a bigger bite out of income for new homebuyers,” said Frank Martell, president and CEO of CoreLogic. “CoreLogic’s Market Conditions Indicator has identified nearly one-half of the 50 largest metropolitan areas as overvalued. Often buyers are lulled into thinking these high-priced markets will continue, but we find that overvalued markets will tend to have a slowdown in price growth.”

CoreLogic considers a market overvalued when home prices are at least 10 percent higher than the long-term, sustainable level. High demand makes the likelihood of a national home price decline very slim, but certain markets could see prices cool if supply grows or if there is a hit to the local economy and local employment.

In any case, the more homebuyers stretch, the more house-poor they become, and the less money they have to spend in the rest of the economy.

With no relief in either inventory or home price appreciation in sight, the housing market is likely to become even more competitive this year.

At some point, however, there will come a breaking point when sales slow, which is already beginning to happen in some cities. Home prices usually lag sales, so if history holds true, price gains should start to ease next year.

Californians fed up with housing costs and taxes are fleeing state in big numbers

Californians may still love the beautiful weather and beaches, but more and more they are fed up with the high housing costs and taxes and deciding to flee to lower-cost states such as Nevada, Arizona and Texas.

“There’s nowhere in the United States that you can find better weather than here,” said Dave Senser, who lives on a fixed income near San Luis Obispo, California, and now plans to move to Las Vegas. “Rents here are crazy, if you can find a place, and they’re going to tax us to death. That’s what it feels like. At least in Nevada they don’t have a state income tax. And every little bit helps.”

Senser, 65, who previously lived in the east San Francisco Bay region, said housing costs and gas prices are “significantly lower in Las Vegas. The government in the state of California isn’t helping people like myself. That’s why people are running out of this state now.”

Homebuyers face tough spring market ahead

Housing problem

Based on the U.S. Census Bureau’s American Community Survey data, “lower income Californians are the ones who are leaving, not higher income,” said Christopher Thornberg, founding partner of research and consulting firm Beacon Economics in Los Angeles.

He said housing is the chief reason people are leaving California, pointing out there are frequently bidding wars for what limited inventory of homes is available.

A USC Dornsife/Los Angeles Times Poll of Californians last fall found that the high cost of living, including housing, was the most important issue facing the state. It also found more than half of Californians wanted to repeal the state’s new gas tax, which raised fees by 40 percent.

“The rate at which California has been losing people to other states has accelerated in the past couple of years, in part because of rising housing costs,” said Jed Kolko, chief economist with employment website Indeed.com.

Outbound migration

He said the latest Census Bureau data, from July 2016 to July 2017, show “more people moved out of California to other states than moved in from other states. In other words, California lost people due to domestic migration.”

During that 12-month period, California saw a net loss of just over 138,000 people, while Texas had a net increase of more than 79,000 people. Arizona gained more than 63,000 residents, and Nevada gained more than 38,000.

“You can literally have a lot of buying power for the dollar in Southern Nevada versus Southern California,” said Christopher Bishop, president of the Greater Las Vegas Association of Realtors. “So it has been a major trend over the year, year and a half, and we’re seeing it increase.”

Bishop said some people who work for Silicon Valley companies are even working remotely from home in Las Vegas to avoid the higher housing costs in California. But he added, “Most of the people are here because of our growing job market and industries in Las Vegas — and it’s not all about casinos anymore.”

Data from United Van Lines show some of the most popular moving destinations for Californians from 2015 to 2017 were Texas, Arizona, Oregon, Washington and Colorado. Other experts also said Nevada remains a top destination.

Regardless, some people still want to move to California but are finding it tough to do so because of the high cost of housing.

Trying to return

Michelle Lynn Ostroff, who left the Los Angeles area in 2013, now lives outside Cleveland, Ohio, with her daughter and wants to return to California to be closer to her friends and family. But she’s been discouraged from returning so far due to monthly rental prices.

“I’m finding it very hard to make that happen, as finding a place that’s affordable is tough,” said Ostroff. The L.A. area “is definitely more than two times the amount of rent that I pay.”

Indeed, California has five of the top 10 most expensive rental markets nationwide, according to industry tracker Zumper.

San Francisco ranks as the nation’s most expensive rental market, followed by New York, according to Zumper’s top 10 list. San Jose comes in third place, and Los Angeles in sixth place. Oakland and San Diego also made the top 10.

“For a lot of people, renting is the only option they have because it’s tough to afford a house here,” said Steve Feldman, a Keller Williams real estate agent in the L.A./San Fernando Valley region.

Expensive rents

The median monthly rent for a one-bedroom apartment in the Los Angeles area is $2,249, and in San Francisco it’s almost $3,400, according to Zumper. The median rent for a two-bedroom apartment in the Los Angeles area is $3,200 and in San Francisco about $4,500. By comparison, the median rent for a one-bedroom in Las Vegas is $925 and in Phoenix $945, and for a two-bedroom in Las Vegas $1,122 and in Phoenix $1,137.

“High housing costs are a challenge for employers, who need to offer workers enough so they can afford to live here,” said Kolko. “Despite this, California is still hiring, and job growth was strong over the past year.”

California’s $550,990 median price statewide for an existing single-family home compares with the national median price of $247,800, according to the National Association of Realtors and its state association.

“People who have owned their house for quite a while can cash out with quite a nice bit of money in their hands,’ said Feldman. “They can go to another state and buy a house for a fraction of what they have here and tuck away a lot of money and retire, work or bring their cost of living and overhead down.”

Rising rents causing major affordability issues

Middle class leaving

Internal Revenue Service data would appear to show that the middle-class and middle-age residents are the ones leaving, according to Joel Kotkin, a presidential fellow in Urban Futures at Chapman University in Orange, California.

“We know the actual net migration out of California has been growing,” said Kotkin.

Furthermore, Kotkin believes the outmigration from California may start to rise among higher-income people, given that the GOP’s federal tax overhaul will result in certain California taxpayers losing from the state and local tax deduction cap. “They are the ones who will tend to have the high property taxes and rely on writing it off,” he said.

California is often criticized as one of the highest-taxed states in the nation.

Last year, Gov. Jerry Brown, a Democrat, signed a 12-cent-per-gallon increase in the state’s excise tax on gasoline, bringing the tax to 41.7 cents per gallon, or a 40 percent jump. Drivers in California already pay the highest average for gasoline after Hawaii.

Malls can survive if they’re converted into mixed-use centers: Retail expert

Converting malls into multi-service mini villages may be the key to using unoccupied real estate in the retail market, said Amanda Nicholson, professor of retail practice at Syracuse University.

“We don’t need all the mall space we have just for shopping,” Nicholson told CNBC on Monday.

Instead, Nicholson suggested integrating residential units, health clubs, grocery stores and upscale restaurants into malls to create more experiences.

“You’d have a place to live with a place to shop, with a place to work out, with a place to maybe go to a luxury movie theater and have dinner,” Nicholson said on “Power Lunch.”

Nicholson said certain longstanding rules about how malls are run should be broken.

“You don’t have residential units in malls,” she said. “Well, why not? Why are we always segregating so much?”

Retailers such as Toys R Us, Best Buy and Sam’s Club have all announced mass store closures this year, leaving the fate of many malls across the nation uncertain and landlords desperate to fill empty spaces.

Stephen Sadove, former Saks chairman and chief executive officer, said the key to creating mixed-use centers is location.

“The dog malls, these ones that are going away, they should go away,” the founding partner of JW Levin Management Partners said of Class B and Class C malls, many of which are older properties in hard-to-get-to places. “Some of these should just be torn down.”

Millions of square feet of unoccupied mall space are up for grabs, according to Nicholson, including parking lot space.

Police say two improvised explosive devices ignited near the JC Penney at the Eagle Ridge Mall in Lake Wales, Florida.

Source: Google Earth
Police say two improvised explosive devices ignited near the JC Penney at the Eagle Ridge Mall in Lake Wales, Florida.

Malls in the top Class A level will continue to grow, Sadove said on “Power Lunch.” But do so they’ll need innovative ideas such as fine dining, pop-up shops and entertaining attractions, such as Nordstrom’s plans for a storewide liquor license in New York City.

“If it’s a big mall, and it’s in an interesting area, build a Topgolf,” Sadove suggested. “People are dying to play golf at one of these things.”

“You’ve got to make the store fun,” he said.

Meanwhile, despite what some call the death of brick-and-mortar stores as more consumers shop online, retail sales as a whole grew 4 percent last year, Sadove said.

“The fact is that people are still spending money on eating and going out and shopping,” Nicholson said. “They want to socialize. They’re still human.”

“But they want to do it in a way that is fundamentally different than what we were doing 40 years ago in a one-level mall with a smelly food court in the center,” she said.

With the new model of consumption focusing on the experiential, Nicholson said the retailers that provide consumers a way to “do more than just buy products [are] probably going to win this game.”

NYC launches investigation into Kushner Cos. false filings

Jared Kushner, senior White House adviser

A New York City council member launched an investigation Monday into the Kushner Cos.’ routine filing of paperwork falsely claiming zero rent-regulated tenants in its buildings, saying that the deception should have been uncovered long ago because the documents are online for all to see.

Councilman Ritchie Torres said the city’s buildings department should have spotted the wrong numbers because they were contradicted by tax documents filed with another city agency.

“The scandal is not only the deception of Kushner Cos., the scandal is the dysfunction of the city bureaucracy,” said Torres, chair of the city council’s investigations committee. “The right hand of city government didn’t know what the left hand was doing.”

The Associated Press reported Sunday that a tenants’ rights watchdog found that the Kushner Cos. had filed more than 80 construction permit applications for 34 buildings across the city between 2013 and 2016 stating it had no rent-regulated tenants. But tax documents showed more than 300 rent-regulated units.

Asked about the Kushner Cos. documents Monday, Mayor Bill de Blasio said that “if it proves to be true that they lied to evade regulation, they have a problem on their hands.”

The false documents allowed the Kushner Cos. to escape extra scrutiny during construction projects, when the family real estate developer was run by Jared Kushner, who is now senior adviser to his father-in-law, President Donald Trump. Housing Rights Initiative, a watchdog group, said the false documents made it easier for the Kushner Cos. to harass rent-regulated tenants so that it could push out low-paying tenants and replace them with higher paying ones.

Current and former tenants of three buildings in Queens once owned by the Kushner Cos. told the AP that they were subjected to extensive construction, with banging, drilling, dust and leaking water that they believe were part of targeted harassment to get them to leave.

“It was noisy, there were complaints, I got mice,” said mail carrier Rudolph Romano, adding that he also bristled at a 60 percent rent increase, a hike the Kushner Cos. contends was initiated by the previous landlord. “They cleaned the place out. I watched the whole building leave.”

Tax records show rent-regulated units that numbered as many as 94 when Kushner took over fell to 25 by 2016. The Kushner Cos. sold the three Queens buildings last year for $60 million, nearly 50 percent more than it paid.

“Kushner Cos. made the lives of many of its tenants a living hell,” said Aaron Carr, founder of Housing Rights Initiative, which is joining with the Torres committee in the Kushner investigation. Construction harassment is “a tool designed to make the lives of rent stabilized tenants so unbearable, so intolerable that they are forced to give up the most valuable thing one can have in the midst of an affordable housing crisis, affordability.”

Also Monday, the office of New York Attorney General Eric Schneiderman said it is looking into the issue and planned a meeting with tenants’ representatives in coming days. Both Torres and Schneiderman are Democrats.

The Kushner Cos. said in a news release Monday that “the investigation is trying to create an issue where none exists. Kushner Companies did not intentionally falsify DOB filings in an effort to harass any tenants.”

The company said it outsources the preparation of such documents to third parties and they are reviewed by independent counsel. “If mistakes or typographical errors are identified, corrective action is taken immediately with no financial benefit to the company,” the news release said.

Nearly all the permit applications were signed by a Kushner employee, sometimes by its chief operating officer. None were signed by Jared Kushner himself.

For its part, the New York Department of Buildings said its investigation into the matter is ongoing and that it has undertaken a series of steps to spot future false filings. Among them, the department last year launched a program in which examiners cross-check new construction applications against a database of rent-regulated buildings.

The department also said that it disciplined a contractor, Michael Conard, who it says filed false documents while working on two Kushner buildings in Queens that are currently under investigation by a tenant-harassment task force. His case has been referred to law enforcement.

Submitting false documents to the city’s Department of Buildings for construction permits is a misdemeanor, which can carry fines of up to $25,000. But real estate experts say it is often flouted with little to no consequences. Landlords who do so get off with no more than a demand from the city, sometimes a year or more later, to file an “amended” form with the correct numbers.

Councilman Torres said he would make a criminal referral if he uncovered evidence of criminal wrongdoing.

Housing Rights Initiative found the Kushner Cos. filed dozens of amended forms for the buildings mentioned in the documents, most of them a year to two later.

Exactly how much money the Kushner Cos. earned from the buildings mentioned in the documents is unclear. Of those 34 buildings, only the three in Queens and a fourth in Brooklyn appear to have been sold. The company also likely made money by reducing the number of rent-regulated tenants and bringing in those who would pay more.

Jared Kushner, who stepped down as CEO of the Kushner Cos. last year before taking on his advisory role at the White House, sold off part of his real estate holdings as required under government ethics rules. But he retained stakes in many properties, including Westminster Management, the Kushner Cos. subsidiary that oversees its residential properties. A financial disclosure last year showed he still owns a stake in Westminster and earned $1.6 million from it.

New tax law: Steps to cut property tax are worth effort, money after SALT cap

The new GOP tax law included an unwelcome surprise for some homeowners: a $10,000 cap on the state and local tax (SALT) deduction.

The cap could cause financial pain for residents of some high-tax states where even middle-class houses can easily exceed that threshold.

Given the new cap, is it worth trying to lower your property tax bill?

Experts say the effort can pay off, but be prepared to invest some legwork and even some money in the pursuit of a lower tax bill.

The first step is to figure out if you are likely to be affected by the $10,000 limit on SALT deductions. Homeowners whose property tax bills are close to that amount are likely to feel the financial pain, given that your total SALT taxes could get pushed above the new cap once state income taxes are included.

Next, you’ll want to determine if you’re likely to itemize your deductions in 2018. The Tax Cuts and Jobs Act almost doubled the standard deduction to $12,000 for single filers and $24,000 for married filers, a change that is effective for the current tax year.

“In many cases, the doubling of the standard deduction might be enough to offset itemizing deductions in order to take advantage of SALT deductions,” noted Cheryl Young, senior economist at real estate site Trulia.

Feeling the pinch

Homeowners in California, New Jersey and New York are the likeliest to feel the pain of the new SALT deduction cap, she added. A Trulia analysis found that almost 1 out of 10 U.S. homeowners have property tax bills higher than $10,000. The metropolitan area with the highest share of tax bills above $10,000 is New York’s Nassau County-Suffolk County region, where almost half of all homes have property taxes that exceed the new cap, Trulia found.

Even without the pain of the SALT cap, property taxes across the country are on the rise. Homeowners paid $18.4 billion in property taxes during 2016, or 4.6% more than in the previous year, according to the U.S. Census.

“We surveyed homeowners in October, so before the new tax law, and we asked them, ‘Are your property taxes too high or too low?'” said Aaron Terrazas, senior economist at real estate site Zillow. “It’s not surprising that many think their property taxes are too high.”

How to start

If you’ve decided it’s worth the shot, where do you start? Property taxes can change when a municipality increases its tax rate or when it changes the assessed value on your home. While you can’t challenge the former, you have the right to appeal your home’s assessed value.

Do a reality check about your home’s value. Compare your property’s value against similar properties in your area. If your home seems to be assessed at a higher amount than those comparable ones, that data will help you build your case.

“You have to make sure that the houses that you are showing them for comparables are comparable to your house, in terms of square footage and what your house has to offer,” said Lisa Greene-Lewis, CPA and tax expert at TurboTax.

Hiring an independent appraiser is also helpful, said Zillow’s Terrazas. But be aware that it can cost a few hundred dollars and require some time to book an appraiser, given that many are busy with appraisals for home buyers and sellers.

Making your case

Your property tax bill should include information about how to appeal your assessment. Every municipality has its own process, with some allowing an appeal at any time while others only allowing it once a year.

Remember to document everything, including photographs, your independent appraisal and comparable home information.

Some homeowners, such as seniors and veterans, may be able to take advantage of waivers or property tax relief programs offered by their municipalities or states, Terrazas said. Those residents may be able to get a lower tax bill without challenging their assessments.

One downside? The “hassle” of an appeal, Terrazas said, adding homeowners should make sure they have the time to devote to the process.