Author: Marlowe Clark

Despite fierce competition, it’s not indicative of recovery

Throughout California, homes are selling quickly. 46% of homes are on the market less than two weeks. Using data from Redfin, 54% of offers were contested. The breakdown by region is 67% in the San Francisco/San Jose area, 65% in San Diego, 58% in Los Angeles, and 47% in Sacramento. However, don’t mistake this for a healthy market — we’re still in a transition period.

The actual reason for low days-on-market is a combination of high buyer demand, due to low interest rates, and low inventory. Those who are able to buy correctly recognize this as a great time to do so if you are able to afford it, and are scrambling to get at what few properties are available for sale. Even the high demand, though, is merely high relative to inventory — there still aren’t very many people who are able to afford a purchase right now. Whether or not we get a COVID-19 vaccine before then, the housing market won’t properly right itself until the job market stabilizes. The expectation is that this won’t happen until 2022 or 2023.

Photo by Randy Fath on Unsplash

More: https://journal.firsttuesday.us/summer-2020s-unseasonably-hot-housing-market/72921/

California gets revised eviction protections under AB 3088

AB 3088 was signed into law, extending eviction moratoriums to January 31, 2021, under certain conditions. While tenants will still be responsible for unpaid amounts after this date, they cannot be evicted for missing payments between March 4 and August 31. For rent due between September 1 and January 31, tenants will be required to pay at least 25% of the amount owed each month to be immune to eviction. Tenants also are not immune to eviction for causes unrelated to missing payments.

In order to be eligible for these protections, tenants will also need to declare financial distress as a result of the COVID-19 pandemic. This could be in the form of loss of income, increased expenses related to performing essential work or to health care, child care, elderly care, disability, or sickness, or some other category, but must be a result of the pandemic. This declaration also applies to 15-day eviction notices the tenant may receive. If no response is provided, the tenant may still be evicted.

Photo by Bill Oxford on Unsplash

More: https://journal.firsttuesday.us/ab-3088-new-eviction-protections/72951/

Work-From-Home likely to continue beyond COVID-19

The increasing number of people working from home was initially supposed to be a temporary response to COVID-19 lockdowns. Companies also took it as an opportunity to experiment with the work-from-home model. And for the most part, it seems to work. It’s expected that there will be many more permanent work-from-home positions even after vaccines are distributed.

This has had and will continue to have implications for spending patterns and stock values. Traditional work clothes aren’t necessary for many people, nor is spending on commutes, work lunches, and coffee breaks. Most shopping is going to be done for the home — and also at home, signaling a boon for e-commerce. In the real estate sector, commercial construction is expected to drop as fewer companies require as much office space. A major advantage of the work-from-home model is that more people are able to enter the workforce, since it opens the doors to people unable to commute, such as those who are disabled, can’t afford reliable transportation, or have children at home.

Photo by Mikey Harris on Unsplash

More: https://www.morganstanley.com/ideas/coronavirus-work-from-home-trend

Unemployment delays homebuying for adults under 30

As of July, over half of adults under 30, 52%, are now living with one or both parents. The previous recorded high was 48% in 1940, eight decades ago. No data is available for the period including the Great Depression, but it’s likely the number was higher during that period. The majority of this increase comes from those in the 18 to 24 age range, with particularly large spike in April.

In some instances this could be a conscious choice, at least initially, as people moved in with their parents during lockdowns so they could isolate with family members instead of alone while working from home. Even for those for whom this was the plan, their stay has been extended longer than expected. For most people, though, it’s because they aren’t working from anywhere — it correlates strongly with rising unemployment numbers. Unemployed young adults aren’t financially stable enough to become independent homeowners. Increasing student loan debt is also a significant factor.

Photo by Thought Catalog on Unsplash

More: https://www.huffpost.com/entry/young-adults-living-with-parents-covid_n_5f53a937c5b6946f3eb291b0

Lenders in uncertain territory, but hopeful

As a result of home sales volume dropping by 30% in Quarter 2 of 2020 from 2019, loan origination has also dropped considerably. The effect was somewhat lessened by low interest rates, which resulted in more refinances. The commercial sector, however, didn’t have that luxury. The Mortgage Bankers Association (MBA) forecasts a 59% decrease from 2019 in total commercial loan amount, from $601 billion to $248 billion. The majority of this will be from the multi-family sector, which was at a record high of $364 billion in 2019 but is only expected to reach $213 billion this year.

Lenders are optimistic, though, as long as governments can continue to keep people housed. Vacancies aren’t great for lenders, as they reduce the prospects of landlords, and recently evicted people certainly won’t be looking to originate new home loans any time soon. The MBA expects 2021 to bring the number up to $390 billion for commercial loans. The catch is that commercial landlords aren’t protected by the recently extended foreclosure moratorium. If multi-family homeowners are hit with a foreclosure, all their tenants will be affected as well. Commercial property owners as well as lenders are looking for new methods of loan accommodations.

Photo by Morning Brew on Unsplash

More: https://journal.firsttuesday.us/commercial-lending-plummets-in-2020/72811/

Demystifying mortgage insurance

There are two types of mortgage loan insurance, and it’s also possible to avoid needing insurance. Mortgage insurance premiums (MIP) are the type of insurance required by the Federal Housing Authority (FHA). The other type is private mortgage insurance, or PMI. It’s easier to qualify for FHA loans, but private loans come with some additional benefits if you do qualify. Most notably, it’s only PMI that you can avoid; if you only qualify for an FHA loan and not a private loan, MIP can’t be ignored.

Private lenders generally have stricter credit score requirements than the FHA. In return, the higher your down payment, the lower your premium amount. Furthermore, if your down payment is at least 20%, you aren’t required to get loan insurance, so you avoid paying PMI. If you’re getting an FHA loan, you’re stuck with MIP for at least 11 years. On the bright side, the down payment amount to qualify for a reduction to 11 year MIP is 10%, not 20%.

Generally, the greater you can make your down payment, the better. Of course, paying all cash to avoid a loan at all is ideal, but not everyone can afford to do that, so keep in mind the important breakpoints. If you qualify for a private loan, putting at least 20% down is probably your best bet. Even if you only qualify for an FHA loan, be sure to put at least 10% down so that you aren’t stuck with MIP for the entire duration of the loan.

Photo by Letizia Bordoni on Unsplash

More: https://journal.firsttuesday.us/fha-pmi-or-neither/

Is sales volume a good predictor of economic recovery?

Sales volume and home prices tend to correlate, albeit on a delay of about a year. It’s usually helpful to look at changes in one to predict changes in the other. But sometimes that’s not the case — most notably, at the start of an economic recovery. Looking only to sales volume to forecast a recovery can result in some false starts.

This happened in 2008, and may be about to happen now. Home sales volume shot up between 2008 and 2009, but crashed back down the next year. This is because economic stimulus resulted in temporary buyer demand, which fell off as soon as the stimulus was used up. Now, in 2020, despite actual buyer demand, sales volume is low as a result of low inventory. Low inventory doesn’t decrease home prices, though, so they’re still going up. Pent-up demand means that as soon as the economy recovers, inventory may be snatched up quickly, resulting in another sudden burst of activity that will rapidly fall off.

So what does need to happen for an economic recovery? The answer is jobs. While sales volume may predict short-term direction of change, the job market is an excellent reflection of the housing market stability, since both homeowners and renters require income in order to make payments. Job numbers aren’t going to be stable for a while either. A full recovery of the job market isn’t expected until 2022 at the earliest, at which point we can start to see the regular patterns emerge again in home sales volume and home prices.

Photo by Chris Liverani on Unsplash

More: https://journal.firsttuesday.us/sales-volume-a-powerful-magnet-for-home-prices/34319/

FHFA delays additional refinancing fees

The Federal Housing Finance Agency (FHFA) announced in August that it would be charging an additional refinancing fee to offset losses due to COVID-19. The new fee was expected to come into effect yesterday, September 1st, but at the last minute, the FHFA rescheduled it to December 1st. We’re still in the midst of a recession, so the FHFA doesn’t want to make too many changes too early.

The new fee exempts refinance loans with balances below $125,000, affordable refinance products, Home Ready, and Home Possible. Applicable loans, which are cash-out and limited cash-out refinance loans, will have 0.5% added to each transaction. While this fee applies directly to lenders, it also indirectly affects borrowers in the form of higher interest rates. While the FHFA certainly wants to recoup their projected $6 billion in losses, they’ve agreed that now is not the time; the economy still needs to recover first.

Photo by Morning Brew on Unsplash

More: https://journal.firsttuesday.us/additional-refinancing-fees-delayed/72824/

Long Beach approves basic income plan

Long Beach just started the planning process for a basic income pilot program. It’s very early in the process, so not much is known, but the City Council just had their vote today, September 1st, and unanimously approved the program, which means it’s sure to happen in some capacity. This pilot program will be privately funded, so it’s not going to be a tax burden.

The decision arrived after witnessing the success of a similar program in Stockton. The Stockton program tested a $500 basic income for 18 months, given to 125 randomly selected residents. The spending breakdown was 40% on food, 25% on merchandise, and about 12% on utilities. It’s unclear what happened with the other 23% — it’s possible it was saved, or maybe it was spent on other categories not listed. Now the mayors of 15 other cities across multiple states want to try it, including Oakland, Long Beach, and Los Angeles in California, Newark in New Jersey, and Columbia in South Carolina.

Photo by Damir Spanic on Unsplash

More: https://lbpost.com/news/long-beach-to-begin-planning-for-basic-income-pilot-program

Here’s why house prices are still high despite the recession

It may seem intuitive to look at past recessions, such as the one in 2008, to predict the market during the current recession. But that doesn’t always work, since the circumstances surrounding the downturn may be different. In 2008, what caused home prices to drop was reduced buyer demand and increased foreclosures and short sales. Now in 2020, that’s not happening.

Buyer demand is actually relatively high right now, as a result of interest rates being low. The Fed decreased interest rates in 2019 in expectation of a recession. They were right, of course, but couldn’t have predicted the exacerbating effect that COVID-19 would have. Interest rates can’t get much lower without the Fed going negative, so the market doesn’t have anywhere to go. Foreclosures may be on the horizon if federal and state governments don’t maintain protections. But for the time being, there’s a moratorium on most foreclosures, so there’s no need to drop home prices. Another factor is the lack of construction. With fewer homes being built, especially in the form of affordable housing, low inventory means there’s no competitive pressure on sellers to reduce prices.

Photo by bruce mars on Unsplash

More: https://journal.firsttuesday.us/letter-to-the-editor-why-are-prices-still-rising-even-though-were-in-a-recession/72735/

Foreclosure moratorium extended through December

The CARES Act, signed into law in March, provides multiple benefits to those impacted by the COVID-19 pandemic, including a moratorium on most foreclosures. On August 24, real estate journal First Tuesday pondered what may happen beginning August 31, when the CARES Act was set to expire. However, it was announced August 27 that the moratorium has been extended through December 31.

Even had the moratorium not been extended, First Tuesday said not to panic. The foreclosure process would have to start from the beginning, and it takes time, so homeowners would not be evicted overnight. That said, it’s important that state legislators make efforts to soften the blow even after the federal moratorium ends. Just like foreclosures won’t happen overnight, nor will affected parties recover overnight. Fortunately, there is a statewide bill for California, AB 2501, that seeks to extend it for another 12 months as well as offer forbearance.

Photo by Bruno Figueiredo on Unsplash

More: https://journal.firsttuesday.us/will-expiring-cares-act-protections-trigger-a-foreclosure-wave/72730/

Understanding property value reassessment

Under Proposition 13, a property’s assessed value doesn’t change very much from year to year, unless the home is sold, in which case its value may or may not be reassessed. But under what conditions is the value not reassessed? Here’s an explanation.

Several types of transfers don’t trigger reassessment. This includes transfers between spouses or domestic partners, from parents to children, or in some cases from grandparents to grandchildren, though it does not include transfers between siblings. Changes recorded without transfer of ownership also do not trigger reassessment. In some cases, replacing a property may also not trigger a reassessment for disabled persons or seniors. Joint tenancy and co-ownership are also factors in determining whether reassessment applies.

Photo by Mari Helin on Unsplash

More: https://journal.firsttuesday.us/brokerage-reminder-prop-13/17306/

Trends in home sales volume

With their most recent update to home sales volume data for California, First Tuesday has the some of the numbers up to June of 2020. While parts of their analysis have not been updated, we do have data comparing month-to-month sales in June 2020 to both May of 2020 and June of 2019, as well as data for year-over-year sales for June of 2020, 2019, and 2018. We’ve also compiled data exclusively for the South Bay, which demonstrates a much more significant difference.

In June of 2020, the month-to-month sales for all of California were 35,300, with a nearly even split between Northern and Southern California. This is a decrease from the June 2019 number of 39,900, but the numbers are up from May of 2020 at 24,000. Looking at only the South Bay, the trend direction is the same, but the differences are much more stark. There were only 75 sales in May 2020 and 95 in June 2020, compared to 376 in June 2019.

This pattern continues to hold for year-over year sales through June. The total for California was 177,500 in 2020, down from 206,300 in 2019 and 223,800 in 2018. Again, the difference is much more obvious in the South Bay. Following 1692 sales through June in 2018 and 1245 in 2019, there were just 433 in 2020.

Photo by Ussama Azam on Unsplash

More: https://journal.firsttuesday.us/home-sales-volume-and-price-peaks/692/

Predictions for the 2020 recession’s impact on inventory

The real estate journal First Tuesday asked readers in July how they felt the 2020 recession would impact for-sale inventory. The votes are now in.

A plurality of respondents, 45%, felt inventory would go down. This would likely be a result of both anxiety from sellers and not enough construction. However, the number who instead felt construction would increase and there would be rental vacancies, leading to more listings, was 39%, not too far off from the plurality. The third and final category, those who felt there would be little to no impact, totalled 16%.

But that was July. It’s now August, and there certainly has been an impact. It turns out the 45% were right. Inventory has declined steeply, and construction companies are even more wary about building than they already were before the pandemic. Fortunately, declining rental vacancies points to an increase in inventory as soon as construction starts back up. Changes to California zoning laws also hope to speed up construction.

Photo by Macau Photo Agency on Unsplash

More: https://journal.firsttuesday.us/the-votes-are-in-how-the-2020-recession-impacts-californias-for-sale-inventory/72705/

How to protect yourself from extreme heat

California is seeing a rise in heat waves. It’s important to know how to keep safe in extreme weather conditions. Here are some suggested precautions from Senator Steven Bradford.

  1. Avoid the sun– stay indoors from 10 a.m. to 3 p.m. when the burning rays are strongest.
  2. Drink plenty of fluids– 2 to 4 glasses of water every hour during times of extreme heat.
  3. Replace salt and minerals– sweating removes salt and minerals from your body, so replenish these nutrients with low sugar fruit juices or sports drinks during exercise or when working outside.
  4. Avoid alcohol.
  5. Pace yourself– reduce physical activity and avoid exercising outdoors during peak heat hours.
  6. Wear appropriate clothing– wear a wide-brimmed hat and light-colored lightweight, loose-fitting clothes when you are outdoors.
  7. Stay cool indoors during peak hours – set your air conditioner between 75° to 80°. If you don’t have air conditioning, take a cool shower twice a day and/or visit a County Emergency Cooling Center. Find a local emergency cooling center at lacounty.gov/heat.
  8. Monitor those at high risk– check on elderly neighbors, family members and friends who do not have air conditioning. Infants and children up to 4 years old, people who overexert during work (e.g. construction workers) and people 65 years and older are at the highest risk of heat-related illnesses.
  9. Use sunscreen – with a sun protection factor (SPF) of at least 15 if you need to be in the sun.
  10. Keep pets indoors– heat also affects your pets, so please keep them indoors. If they will be outside, make sure they have plenty of water and a shaded area to help them keep cool.

It is also recommended to reduce electricity usage to avoid shortages and service interruptions. If you are experiencing difficulties from extreme heat, Los Angeles County has designated Cooling Centers with air conditioning. A list of the Cooling Centers can be found in the full article.

Photo by Jonathan Borba on Unsplash

More: https://sd35.senate.ca.gov/sites/sd35.senate.ca.gov/files/e_alert/20200820_SD35_newsletter_410.htm

The obstacles to solving the housing shortage

We’re all well aware that California has been facing a shortage of affordable housing. Affordable housing is also an important step in recovering from the current recession. So, why hasn’t it happened yet? There are a couple of reasons.

It’s true that not enough homes are being built, but it’s more complicated than that. Not enough affordable housing is being built — because it’s actually more expensive to build than high-tier homes. Whenever housing is developed, it’s subject to a development fee, the rules for which are set at the city level, so they’re hard to standardize. The development fee can range from 6-18%, reaching upwards of $150,000 in some cities. The big issue is that this fee is charged per unit, which means that affordable housing developments, which invariably consist of multiple, smaller units, are subject to multiple development fees. This makes it difficult for developers to turn a profit from affordable housing projects.

The other reason is also the same reason it’s so important to our recovery — the job loss from COVID-19 and the recession itself. These factors have reduced purchasing power, increased homelessness, and increased the demand for lower-tier housing. Construction companies can’t keep with the ever-increasing demand for their most expensive, lowest return-on-investment projects.

Photo by Jeriden Villegas on Unsplash

More: https://journal.firsttuesday.us/homebuilding-is-key-to-the-next-recovery/72698/

Automation is coming to restaurants

As a result of COVID-19, restaurants are looking for ways to reduce the interaction between workers and customers. One solution? Robots. Robot chefs have been around for a while, but weren’t always successful. They’re now gaining more traction as restaurants see them as becoming a necessity.

New plans include a burger-flipping robot named Flippy at White Castle and a smoothie-making robot called Blendid, which is expected to have more widespread availability. Chowbotics reports 60% increased demand for Sally, a salad-making robot, and Wilkinson Baking Co. said they have also been getting more inquiries about their BreadBot.

Some are skeptical, though. Max Elder of Food Futures Lab warns that automation can’t solve all the problems within the food industry, and that offering it as a solution may take attention away from issues that were already in existence before the pandemic began. Elder also says the human factor is important — “Food is so personal, and it needs to involve humans,” according to him. Automated food companies insist they aren’t trying to replace human workers, only streamline the process so that workers can be more efficient, but nevertheless automation does reduce the demand for labor.

Photo by David Levêque on Unsplash

More: https://apnews.com/8782f38c9bfb0955a5f1dfd952a9e866

Many lockdown layoffs may be more permanent than temporary

Of course, no one who was laid off during the lockdowns was happy to lose their job. But at least initially, the expectation for most was that they would be returning to their job once the lockdown was over. In most cases, that hasn’t happened, both because COVID-19 has not yet been contained and because many of those positions simply don’t exist anymore.

The economic recession has been difficult on small businesses with tight budgets that are not getting as many customers, but still have the same costs without laying off workers and often even closing down facilities entirely. This means that the same businesses won’t have the extra income to rehire the workers they laid off. Businesses that are transitioning online rather than closing down may be hiring people again once a vaccine is widely available, but probably not the same people — they’re going to need a different skillset. People nearing retirement may be forced to retire early, as most businesses won’t want to hire someone who will only be working there a few years before retiring. All in all, a currently estimated 50% of jobs lost during COVID-19 will not be recovered, despite the estimate being 17% in April.

Photo by Markus Winkler on Unsplash

More: https://apnews.com/89992979ca3c3ba72eb2cd31a9ca0e5d

Advantages and Disadvantages of Co-living

Like any living situation, co-living has its pros and cons. An article from the July/August 2020 edition of NAR’s senior newsletter can help you understand what they are. NAR outlines the advantages and potential disadvantages as well as how to mitigate them.

First, the advantages. Sharing responsibilities in the home is sure to decrease the burden on everyone. It’s especially useful if residents have distinct strengths and weaknesses and can complement each other. Residents in a co-living situation also divide costs, whether it’s mortgages as a homeowner or rent as a renter. Another big plus is the social factor. Humans are inherently social, and our physical and mental well-being depends on a sense of community.

Conflict is bound to arise between any people living together. This is especially true when there are power dynamics or physical limitations at play. Homeowners and renters may battle for a sense of control. Differences in health and mobility may place an unexpected burden on some residents. Luckily, many conflicts can be avoided with written agreements and trial periods. Be sure to interview prospective residents and discuss with them matters of finance, cleaning, visitors and pets, scheduling, and private vs common areas and household items. Background checks and credit checks may also be advised.

Photo by Thanos Pal on Unsplash

How To Safely List Your Home During COVID-19

If you’re worried about listing your home during the pandemic, or if you want to take advantage of the increased inventory and buy a new home, there is a protocol for doing so safely, even in heavily impacted areas of California.

You should discuss with your agent the things that can be done to curb the spread of COVID-19. Some things you can do while others your agent will be better able to do. You can leave interior doors open prior to a showing to ensure visitors don’t need to open doors. Also, you can open windows before and after showings to let in fresh air.

In addition to opening windows for a showing, use disinfecting wipes or spray to clean surfaces that you expect may have been touched frequently, such as countertops, cabinets, light switches, and door knobs.

You and your visitors should wash hands or use hand sanitizer, wear masks or other protective face covering, and practice social distancing. Any disposable protective gear should be discarded when leaving.

The listing agent can discuss the precautions with the buyer and/or buyers’ agent. They can discuss taking care to avoid touching surfaces as much as possible and other safety measures, as well as check to make sure everyone is symptom-free.

The California Association of Realtors (CAR) provides a poster guiding the actions of visitors to minimize risk, which should be posted near the entry. CAR also provides a form called the Coronavirus Property Entry Advisory and Declaration (PEAD) which requires all involved to certify that they are aware of the safety requirements. That form should be signed by the agents, seller, and any visitors.

Be sure to call or email us for more information about safely showing property during the pandemic or regarding other aspects of buying and selling in difficult times. We each have over 25 years of experience in good times and in bad.

Photo by Clay Banks on Unsplash

More: https://journal.firsttuesday.us/farm-health-precautions-when-listing-your-home/72565/