Coronavirus Eviction Moratorium

Tom T. and I were lamenting earlier this week about the plight of the mom-and-pop landlords due to the ban on evictions – because some tenants are taking advantage.  The ban might get extended too:

Senator Elizabeth Warren (D-MA) and Representatives Jesús “Chuy” Garcia (D-IL) and Barbara Lee (D-CA) introduced legislation on June 29 that would extend and expand a nationwide eviction moratorium to protect tenants who have been impacted by the coronavirus pandemic. The “Protecting Renters from Evictions and Fees Act of 2020” would extend the federal eviction moratorium until March 27, 2021, one year after the date of enactment of the “Coronavirus Aid, Relief, and Economic Security (CARES) Act,” and expand the moratorium to cover all renters. The bill would also prohibit fees, fines, and extra charges due to nonpayment of rent.

The federal eviction moratorium included in the CARES Act covers fewer than 30% of renters, and it is set to expire on July 25, 2020. Advocates warn of a surge in evictions and a spike in homelessness if Congress does not intervene. The “Protecting Renters from Evictions and Fees Act of 2020” aims to ensure renters will not lose their housing if they experience economic hardship during the crisis and need additional time to make payments.

“Without a significant federal intervention, there will be a rash of evictions and a spike in homelessness across the country,” said NLIHC President and CEO Diane Yentel. “Ensuring housing stability for all is both a moral imperative and a public health necessity. I applaud Senator Warren and Representatives García and Lee for introducing legislation today that will keep renters in their homes and give them the security and stability needed to stay safe throughout the duration of the pandemic.”

Read Senator Warren’s press release at: https://bit.ly/2Bvj5Xz

Read a fact sheet on the bill at: https://bit.ly/3eTk8Pu

If you, or someone you know, is thinking about disposing of a property that is tenant-occupied, contact me today.  I have a wealth of experience in convincing tenants to move!

Prop 19 Breakdown

It was called ACA-11 while the legislators considered it, and the realtor-backed initiative is now Prop 19.  In our last installment, the legislative analysis included this gem:

Right now, around 80,000 homeowners who are over 55 move to different houses each year without receiving a property tax break. The measure would cause more people to sell their homes and buy different homes because it gives them a tax break to do so. The number of movers could increase by a few tens of thousands.

In the graph above, we see that there were 437,000 homes sales in California last year.  The analyst who prepares these studies is saying that 18% of all home sales are seniors buying up, or moving to a county that doesn’t allow for tax-basis transfers?  And if this measure passes, even more seniors will move just because of the tax break?

The analysis also includes this tax increase, but doesn’t mention the exclusion for those heirs who occupy the inherited home as their primary residence:

Under current law, between 60,000 and 80,000 inherited properties statewide are excluded from reassessment each year. Under the measure, these properties would instead be reassessed resulting in higher property tax payments. This, in turn, would increase property tax revenues for local governments.

Though the official state analysis seems far-fetched, just the appearance of being an assault on Prop 13 should be its undoing.

Hat tip to SM for sending this in from the Howard Jarvis Taxpayers Association that declares it to be just another political play to generate billions more in property-tax dollars:

https://www.hjta.org/california-commentary/proposition-19-is-latest-assault-on-taxpayers/

The California Association of Realtors has pulled in the firefighters by adding that the excess tax revenues go towards fighting wildfires.  Will that be enough smoke & mirrors (pardon the pun) to persuade voters to change Prop 13? The last attempt to pass a similar initiative in 2018 never gained traction, and it’s doubtful that C.A.R. will spend enough advertising dollars to change voters’ minds this time.

Why Home Prices Will Keep Rising

Over the history of real estate, buyers have determined the market.

They decide how much education and investigation they need to complete before making what is now the biggest decision of their life, and then they proceed when ready – or when they see an attractive house, hopefully in that order!  There isn’t much education available on how to do it, so people just trust their gut and start looking around – even those who already own a home.  HGTV makes it look easy (see three, and buy one), and the disrupters keep promoting that their agent-lite program is all you need.  In a hot market, the investigation/education phase usually gets obliterated.

You’d think it would cause people to Get Good Help, to compensate – and many do (thanks!).

But once on the playing field, the buyers are split into two categories:

  1. Those who own a home here now, and are trying to do better.
  2. Those who don’t own a home here, and want/need to get in.

Buyers from the second category are determining the market.

They see every decent home get snatched up by those who got desperate sooner.  It becomes a race for those newcomers to get desperate enough so they can compete with those ahead of them.

Buyers in Category 1 already have it good.  Even if their home doesn’t suit their current needs, it’s what got them here.  The property taxes are lower, the neighborhood is a known quantity, and they are comfortable.  Are they going to rise to the same desperation level as those who don’t own a home here yet? It’s doubtful, even if the Prop 19 passes and sellers can take their property-tax basis with them anywhere – nobody is desperate to leave coastal San Diego.

It’s what is causing the inventory to be so thin, and why I’m convinced it’s only going to get worse.

Consider these factors:

  1. Baby boomers are older now – if they haven’t moved yet, it’s probably too late.  They will make do with their current residence, and make it last for the duration.  Kids will inherit, and one of them will occupy as their primary residence – and the cycle of low inventory for sale will continue for another generation.
  2. San Diego is a mid-range market – there are a number of more expensive areas that makes us look cheap, relatively.  It’s those move-down buyers from affluent areas who are filling up Category 2, making it very tough for locals to compete, which prevents them from moving…..which means less inventory.
  3. There aren’t any new-home tracts left to build in Coastal North County.
  4. There will be massive pressure on the Fed to keep rates low for years to come.
  5. The business is being dumbed-down for easier consumption, not smarter.

These factors will keep the inventory low, and competition high for a long time.  It also means that the deliberate, informed buyers will keep getting run over by those who are just in a hurry to buy a house.

The old adage of buyers determining the market is being snuffed out.

Sellers can name their price now, and there is probably someone who will at least consider paying it.  Until unsold listings are stacking up to the rafters, sellers will ensure that prices keep creeping upward.

Rates at All-Time Low (Again!)

From MND:

Mortgage rates were unchanged today for the average lender.  That means they remain at all-time lows that are even lower than the all-time lows seen during the previous 3 business days.  Even so, today’s underlying market movement might be a bit of a wake-up call for anyone waiting to lock an interest rate.

In general, the decision to lock or float a mortgage rate has had low consequences recently.  While that will likely continue to be the case until the coronavirus situation meaningfully improves, it doesn’t mean we should fall asleep at the wheel.  We need to remain vigilant for signs that the most recent all-time low mortgage rates are the last we’ll see for months or years.

Today served as a fairly non-threatening wake-up call in that regard–at least for those following the intraday movement in the bond market.  Mortgage rates are ultimately dictated by the bond market.  When yields move higher (and specifically when mortgage-backed bond prices are moving lower), we need to be on the lookout for mortgage rates to move up.  That was exactly the sort of market movement we saw this morning, and it forces some of the risk takers out there to question how many times they will push their luck before finally resigning to lock.

There is NO WAY to know when rates have finally bottomed.  So it’s best to decide a personal set of rules as to how you’ll approach the lock/float decision.

What can we know about the future?  That’s tough because coronavirus has changed the playbook to some extent.  In general, though, mortgage lenders are hesitant to drop rates very aggressively when they’re already at all-time lows.  I can also tell you that, outside of an apocalyptic scenario, mortgage rates are highly unlikely to drop by more than half a percent (which is still significant).  Even dropping by that much would require a significant deterioration in the covid narrative.

But how about we discuss this in a slightly simpler way.  People always ask me for predictions, and I always tell them why it would be silly for me to provide and for them to put any stock in such things.  What I CAN do is give you my sense of the most and least probable rate ranges within the next 3.5 months (presidential election will likely create new volatility for better or worse).

Most probable: 0.25 lower to 0.25 higher
Somewhat probable:  0.25 to 0.50 higher
Less probable: 0.25 to 0.5 lower OR 0.50 to 0.75 higher
Improbable: >0.5 lower or greater than 0.75 higher

Please keep in mind that this is as of July 8, 2020.  Things can and do change rapidly when it comes to pandemics and financial markets.  That said, if your takeaway is that we’re slightly more likely to see a 0.5% move higher than a 0.5% move lower, that is indeed what I am saying.  Again, it would take further deterioration in the covid narrative to reverse that order.  That’s totally possible, but it’s not a given as of today.

http://www.mortgagenewsdaily.com/consumer_rates/948995.aspx

Leucadia Sheridan

I love this video’s length and quality – it makes you want to visit!

Welcome to the Sanctuary, an incredibly private architectural masterpiece with whitewater ocean, lagoon and sunset views. This extraordinary mid-century modern home and its guest house sit on nearly an acre of Batiquitos Lagoon-front land, positioned behind a gated entry and set well away from the road. The main house (3 BR) and detached guest house (1+ BR) harmonize perfectly and both feature floor to ceiling windows. Sellers will consider offers between $4.8M and $6M (closed today for $5,399,450 cash).

Home Prices to Decline?

One of the more-accurate forecasters is predicting that home prices will start dropping:

Strong home purchase demand in the first quarter of 2020, coupled with tightening supply, has helped prop up home prices through the coronavirus (COVID-19) crisis. However, the anticipated impacts of the recession are beginning to appear across the housing market. Despite new contract signings rising year over year in May, home price growth is expected to stall in June and remain that way throughout the summer. CoreLogic HPI Forecast predicts a month-over-month price decrease of 0.1% in June and a year-over-year decline of 6.6% by May 2021.

Unlike the Great Recession, the current economic downturn is not driven by the housing market, which continues to post gains in many parts of the country. While activity up until now suggests the housing market will eventually bounce back, the forecasted decline in home prices will largely be due to elevated unemployment rates. This prediction is exacerbated by the recent spike in COVID-19 cases across the country.

https://www.corelogic.com/insights-download/home-price-index.aspx

Expecting prices to fall that quickly is flawed, however.

They are ignoring that for home prices to go down, we would need a load – probably a majority – of sellers who are willing to sell for less than the last guy got.  In addition, it would take realtors who recognize what’s needed, and be able to properly advise their sellers on lower pricing.

It ain’t going to happen.

Listing agents only have one pitch – to berate the buyer agents into paying the seller’s price.  If we ever get to the point where buyers object to the constantly-rising prices, and/or we run out of buyers altogether, then there will be a long stall before sellers and agents re-calibrate.

Recognizing that a shift in pricing is needed will be hampered by all the usual excuses.

The seller retorts of “I’m In No Rush”, “I Don’t Need to Sell”, and the classic, “I’m Not Going to Give It Away”, will be doused with coronavirus blame before any sellers – even the desperate ones – would consider selling for less than what they think they deserve.

Sales will slow first, so keep an eye on them – but it would take 1-2 years of stallout before sellers and agents start believing that they might not get their price.

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