Good morning,

    I am getting a lot of very concerned calls and emails from clients who want to know how the Corona virus will affect Real Estate and current transactions.  Let me address this now.

 

Current escrows:

   The title companies are open during this 3 week, shelter in place, order since Title companies are considered essential.   However at this point the Alameda county recorder's office is not.   Santa Clara county does do E-recording so therefore if you have an escrow closing in Santa Clara, then you should be fine.   The Fremont  title companies are working to get the county of Alameda to do limited recordings so that we can close current escrows. I will keep you informed.

   Knock on wood, we have had no buyers walk away from their escrows today or yesterday or this past week.  Fingers crossed.

 

Future escrows;

    I have offers due on two homes today and believe it or not, I am still getting offers on both.  I just received an offer 110k over asking on one Irvington home this morning.   This is great news since we are all thinking the worst.

 

Homes being prepped for market:

    Contractors are exempt from the shelter in place order.  Therefore if we are currently preparing your home for market, then we will do our best to continue.  The problem however is that the suppliers may not be open for business.   I will keep each of you, updated on your home.

  

   NOW what everyone is really concerned about.   Will the Real Estate market crash during this time?   The answer is a big NO.   Please let me explain.

 

  The stock market can crash in a day.  A particular stock can crash in an hour.  The Real Estate market does not crash like this and here is why.   Real estate ticks down only.  This ticking down occurs when the market slows, and a seller who either needs to sell,or has a lot of equity is willing to reduce the price of their home.  Typically a seller will sit on a home price for 30 to 45 days prior to making any price reduction, and that price reduction will be around 1% to 3%.  If the home does not sell at that point then the seller will do another reduction of 1% to 3%, however this is typically 60 days in.   What does this mean to you?  This means that home prices may tick down, and probably will tick down over the next few months, however this tick down of the Real Estate market will not be more than 5% over the life of the virus.  Do not panic.  We will be just fine since everyone receiving this email has a lot more than 5% equity in their home.

 

  To demonstrate what I am speaking of, we need to look at history.   First, we did get a market crash in 2007, however the market did not crash overnight.  The market ticked down over a 7 year period before it recovered.  Second; The stock market crash did not cause the Real Estate crash of 2007 but just the opposite.  The Real Estate boom ending, caused the stock market to crash.   Please remember what I have said in this forum many times.  Real Estate can only crash when buyers put zero money down and have nothing invested in the home and are willing to walk away,  which happened in 1989 and 2006.   Over the past 8 years, we have had the most qualified buyers in history buying homes. Min of 20% down.  Excellent credit and high incomes.  These homeowners are not going to walk away from their home if it comes down 5%, they just won't.  Would you?  No, of course you would not.  You have 20 to 50% equity in your home and you just are not going to walk away because it comes down 5%. 

   This Coronavirus is more like 9/11.   For one month after 9/11 happened only one home in Fremont sold.  I remember it well because it was my listing.  The bottom line is that the market did not crash. The market took a breath and went back to normal a month after the attack.  Or you can look at the dot com crash of 1995.  The stock market crashed huge in 1995 but believe it or not, the Real Estate market did not.   If you recall, we got a lot of new agents during that time who were engineers that could not find a job in engineering.

   The bottom line is that Real Estate will not crash during this time.  It will tick down but no more than 5 to 8%.   Please relax at home and take some time with your family knowing that your equity is safe.

 

Feel free to reach out to me if you have any questions or if I am not clear on this.

Google News - Tech job cuts totaling 1,100 jolt Silicon Valley, East Bay

  When it was announced that the president may wait until after the election to negotiate with China on Tariffs, the stock market dropped, but also the long term interest rates dropped nicely.  This has given us an unexpected Christmas present, since buyers have really stepped up lately.  Here are the current rates.

 

Commercial and Investment property sales remain robust and a growing number of sellers are structuring their sales as 1031 Exchanges. Rather than pay taxes that may be as much as 40% of the gain, by simply structuring sales as tax deferred 1031 Exchanges and purchasing new replacement properties, all of the following taxes can be deferred:

Capital Gains – Your rate will vary based on your taxable income (15 to 20%). For 2019, your rate may be 20% if taxable income exceeds $434,551 (single) or $488,851 (married filing jointly). Net Investment Income Tax (NIIT) – If you have income from investments, including capital gains, you may be subject to a 3.8% net investment income tax on your adjusted gross income in excess of $200,000 ($250,000 if married filing jointly). Read more to see if this applies to you. State tax –You may be subject to state or local income taxes. State tax rates vary from 0% to the highest rate in California at 13.3%. See 2019 rates here. Depreciation Recapture – A flat Federal tax rate of 25% is applied for unrecognized gain due to depreciation.

Capital Gain Estimator Use our Capital Gain Estimator tool that illustrates potential taxes to be paid in a taxable sale vs. a 1031 Exchange.

Supreme Court Ruling Stands to Strengthen Private Property Rights

On Friday, the Supreme Court issued its ruling in the case of Knick v. Township of Scott, a decision which NAR believes will lead state and local governments to be more thoughtful and deliberate when developing laws or regulations that could infringe on Americans’ private property rights.   Specifically, Knick v. Township of Scott declared that plaintiffs who have accused local governments of violating the Takings Clause of the U.S. Constitution may proceed directly in federal court rather than first litigating in local circuits, overturning a 34-year old precedent set by a 1985 Supreme Court ruling.   “A property owner has an actionable Fifth Amendment takings claim when the government takes his property without paying for it,” the Court’s opinion reads. “The Fifth Amendment right to full compensation arises at the time of the taking, regardless of post-taking remedies that may be available to the property owner. In sum, because a taking without compensation violates the self-executing Fifth Amendment at the time of the taking, the property owner can bring a federal suit at that time.”   As many Realtors® are aware, property owners had previously been required to exhaust all remedies to receive just compensation for private property seizure in state court before they could escalate the case to federal court.    Going forward, property owners will have both state and federal court available to redress their property rights. NAR expects this new development to prompt state and local governments to be more strategic regarding takings, especially in the areas of land use planning and environmental regulations, in order to avoid the uncertainty of litigation in federal court. Considerations surrounding compensation should intensify and increase, as well.

 

 

 

Interest rates have ticked down a quarter percent this past week. 

Buyers are taking advantage of the drop in interest rates and are making offers.  Even at Christmas time.

 

 

Average U.S. Mortgage Rates Rates edged up, with the national average holding at around 4.71%. Check out Freddie Mac’s graph below, revealing average mortgage rate trends over the last 12 months. JVM Lending Rates: Edging Up From Last Week Below are 6 scenarios and their related rate quotes. Feel free to request additional scenarios from our team at any time.

Home prices have steadily gone up. Buyers have had an extremely difficult time with this. Homes have become more and more unaffordable these past four years. As you can see from the graph below, interest rates are the straw that broke the camels back. High prices and high interest rates have killed our sellers market. Home values have not started coming down significantly yet however, which is the shining star.

SELLERS: The Real Estate market goes in what is referred to as 7 year cycles. No one knows why it works this way, it just does. Let me explain. For the past 50 years we have seen a repeating trend. We will have a buyers market for approximately 5 to 7 years. During this 7 year period prices will stay flat. Then all of a sudden we will get a sellers market. During the sellers market the prices will skyrocket. Usually 30 to 50%. These sellers markets will usually last 2 to 4 years. Unlike the stock market or individual stocks, Real Estate can only go as high as people can afford. This is not rocket science.

I like to joke that Apple has not really invented anything new for ten years but the stock keeps going up from the momentum. We do not have that luxury in Real Estate. In a normal sellers market, prices will go up just so high, and then stop. As you have noticed in the past month, this end of a sellers market is just as abrupt as the beginning. At the beginning of this sellers market (Four years ago) I saw financial statements from the buyer with enough money to have 30% down. Reserves, money to cover shortfalls in the appraisal, and still have stocks and cash left. Over the past three years however I have watched those reserves get smaller and smaller.

This year I have seen buyers get down to the bare bones, cashing in their 401k's to get the down payment. Buyers just cannot pay the high prices that we are expecting from our listings anymore. Now- add in interest rate increases and poof. Buyers just cannot close the deal and the sellers market ends. NOW WHAT? At the end of every sellers market we usually drop an average of 11%. We are starting to experience this now. Home prices have topped out. With a few exceptions we are not getting multiple offers anymore and are actually having to negotiate terms with the buyers. The buyers are still there. All of my listings are being tagged as hot homes in both Zillow and Redfin.

Buyers are wanting to buy, but the buyers are afraid. The average buyer in Fremont has only seen one cycle; that cycle ended in a major crash. Buyers are afraid to be "That guy" who bought at the peak and saw the market crash afterwards. Market crashes We have only experienced two major crashes in history. 1989 and 2006. Both times the banks gave phony loans which created a fake market. THIS IS NOT THE CASE NOW. Both crashes were caused because buyers had nothing invested in the home (No down payment), and were willing to walk away. This time it is different.

Buyers have had to put down a minimum of 20%. Have excellent credit and high incomes to get a loan. These new homeowners are NOT going to walk away from their home because it comes down 10%. Therefore the market will definitely not crash. CONCLUSION If you are thinking of selling then you should consider it now, for obvious reasons. If you are thinking of buying then you should also consider it now, since interest rates are going up, and going up fast. Interest rates are everything!