What the California State Executive Order Means for Open Houses, Showings, Etc.

Huge disruption is an understatement. This will affect a lot of people in so many ways, especially sellers and buyers who were in the middle of transactional activities. 

Latest from C.A.R., California Association of Realtors:

“Yesterday Governor Newsom and the State Public Health Officer issued Executive Order N-33-20 requiring all Californians to stay home except as needed to maintain continuity of operations in 16 infrastructure sectors. This supersedes all existing local city and county orders that are less restrictive. The real estate industry is not exempt from this prohibition except as needed to maintain “continuity of operation … of … construction, including housing construction.” Therefore, REALTORS® should cease doing all face-to-face marketing or sales activities, including showings, listing appointments, open houses and property inspections. Clients and other consumers are also subject to these orders and should not be visiting properties or conducting other business in person. 

Property management and repair work, which generally involves maintaining sanitary and safety conditions is permissible. Additionally, many other aspects of the real estate industry can continue to occur without in-person contact, including documentation and signing, and in many circumstances, closings. Other activities may also be managed remotely, though there may be some difficulties.”

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There are measures in place that are designed to help protect, so stay informed:

https://www.irs.gov/coronavirus

https://www.consumerfinance.gov/about-us/blog/protect-yourself-financially-from-impact-of-coronavirus/

https://www.congress.gov/bill/116th-congress/house-bill/6201/text

https://www.cnn.com/2020/03/19/success/real-estate-coronavirus/index.html

Things Change in an Instant

Anyone who's read Black Swan by Taleb knows that this is a black swan event. Very strange, unexpected, and often with a huge impact. This pandemic has upended the floor beneath us and changed "normal" life as we know it, at least for now. 

All we can do is do our best to stay healthy and be decent human beings. And try to stay sane while everything is up in the air and in flux. I know it's hard to isolate, especially in L.A. where today is another sunny, blue sky day. 

Some things I've been doing to stay calm and be prepared for when we see the light at the end of the tunnel:

1. Watch some interesting movies or books online as an escape.

2. Exercise at home, to keep healthy, even if just a few stretches each day.

3. Take vitamins, eat an apple or orange if possible, even boiling the rind for tea.

4. Learn to live on less--only buy sustenance items like food and cleaning supplies.

5. Sort through clutter--get rid of unwanted items, finally organize that closet.

6. Learn to say hello and thank you in 10 languages.

7. Deep clean the place--doing a section a day. (e.g. Today I'll be properly wiping down all the upper cabinets of my kitchen, tomorrow the lower cabinets)

8. Give extra attention to your children--human or furry.

9. Plan your next move in real estate as soon as you get the chance--will you rent, will you sell, will you buy? I'm going to hold and refinance.

10. Lots of tax credits, aid and other important updates coming up for individuals and businesses, and these things are constantly changing so check here often:

https://www.irs.gov/coronavirus

https://www.consumerfinance.gov/about-us/blog/protect-yourself-financially-from-impact-of-coronavirus/

https://www.congress.gov/bill/116th-congress/house-bill/6201/text

Coronavirus/COVID-19 & Impact on Real Estate

From the California Association of Realtors, see below. I personally haven't seen a huge drop off in activity. It has slowed down for sure in the past month, but mainly in sales coming on the market. There are some buyers who are taking advantage of this short term downturn and still buying. 

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The rapid growth of COVID-19 (“Coronavirus”) cases continues to create turbulence in the global economy and in domestic financial markets. However, C.A.R. is not revising its current 2020 housing market forecast, but will continue to monitor the market for negative macroeconomic impacts on the demand for housing as well as the supply chain impacts that could adversely affect the cost of new home construction in the coming months and quarters. C.A.R. has created a list of the Top 10 potential impacts that could elicit questions from buyers and sellers over the near term.

1. Forecasts Have Been Downgraded, But Few Economists are Calling for Recession Yet: Last week, the International Monetary Fund (IMF) cut its forecast for global economic growth by 0.1%, but is still calling for an expansion in 2020, albeit at a slower pace. Similar orders of magnitude have been forecast for the domestic economy, with groups like Wells Fargo and others expecting GDP to grow by 10-20 basis points slower than their pre-Coronavirus forecast. Growth is expected to be slower, but the economy is still expected to grow.
2. Mortgage Rates Will Likely Remain Low, Or Even Fall Further As A Result of Coronavirus: The Federal Reserve issued an emergency 50 basis point cut to their target interest rates, and guidance suggests that the Fed may be open to future reductions in order to counteract the negative impacts to financial markets. This should help to reduce the cost of borrowing and make housing more affordable over the near term, which should help to offset some of the negative impacts to housing demand associated with rising uncertainty.
3. Domestic Buyers May Be Discouraged By Rising Uncertainty and Recession Risk, But Is It Still a Good Time to Buy?: This week, mortgage rates fell to an all-time low level of just 3.13%. That is down from 3.80% at the start of the year and represents significant cost savings over the life of a 30-year loan. For buyers who can afford their monthly payments, the economic uncertainty that is driving rates lower provides an opportunity to capitalize on significantly reduced borrowing costs that they will enjoy for years to come. Short-run risks to the economy exist but are arguably offset by long-run benefits of lower rates at the individual level.
4. Financial Market Volatility Could Reduce Demand For Luxury Homes, But Also Create Potential Opportunities for Luxury Home Buyers: The recent turbulence in financial markets has already impacted household wealth. This could reduce demand for luxury homes in California in particular. However, with less luxury buyers, there could be opportunities for price discounts for buyers who choose to remain in the market for high-end properties. Real estate may also act as a buffer against potentially larger declines in the financial markets.
5. Demand From Foreign Home Buyers Could Be Curtailed Over the Near Term: Reduced economic growth in China, specifically, could stifle demand for California real estate this year. However, foreign buyers represented just 3.9% of California’s home sales last year, so the impacts statewide will be muted compared to 6 years ago, when foreign buyers represented 8.0% of the market. In addition, because domestic buyers typically finance their homes in much larger proportions to their foreign counterparts, low rates could stimulate more domestic demand that would help to offset the impact to foreign buyer demand.
6. Foreign Home Sellers May Face Closing Delays: Because the Embassy and many consulates are closed or may have limited hours in China, and elsewhere, there may be difficulty in providing a properly notarized deed to the property that escrow will accept and title will insure.Advise sellers to make efforts to obtain the deed early in the transaction. If sellers are currently in the U.S., make efforts to comply before returning to their foreign home country. If contract has not been accepted, foreign sellers might want to consider a contingency allowing a seller to cancel if they are unable to obtain notarized deed.
7. New Home Construction in California Could Slow Further, Exacerbating Already-Tight Supply: Many of the inputs to California’s Building Industry are sourced from Asian countries including China. As the Coronavirus disrupts these supply chains, the cost of those materials may increase over the short run or become limited, which will increase the cost of construction and potentially reduce the pace of new residential development below its already-lackluster pace in 2020.
8. Low Rates and Fewer New Homes Constructed Should Place Upward Pressure on Home Prices: Improved affordability stemming from lower rates combined with fewer new homes being constructed as the construction supply chain is impacted could lead to more upward pressure on home prices in California. Unsold inventory is already at low levels, and reduced construction activity means that is likely to continue—especially if buyers respond to lower rates.
9. Offsetting Effects Leave C.A.R.’s Housing Market Outlook Unchanged, For Now: The situation remains fluid, and conditions could deteriorate beyond what is currently envisioned depending on the severity and duration of the outbreak, but if current economic forecasts of modest declines in GDP growth are realized, the effects of lower rates should help to offset the effects of a slower economy and increased economic uncertainty such that California would still achieve a modest improvement in both home sales and prices this year.
10. Eventual Rebound Will Take Longer Than It Did With SARS in 2000: At the turn of the century, the negative impact of the SARS virus began to fade within 6 months of the outbreak coming under control. However, unlike with the Coronavirus, SARS did not have significant impacts on either consumer spending or domestic financial markets. The size of the impacted population and the death toll is also much larger with Coronavirus, which suggests that the eventual recovery will play out over a longer period of time.

It’s clear that the Coronavirus will have an impact on the economy and the housing market in 2020, but it is also clear that it is not time to panic. The effect of lower rates will help to offset some of the headwinds in the housing market, and forecasts of economic growth by C.A.R. and others have been revised down, but only by 10s of basis points—not hundreds. The situation remains fluid and the California Association of REALTORS® will be monitoring this situation closely and providing updates as information comes to the fore.

AB 1482 Tenant Protection Act of 2019 Can Backfire for Tenants

Happy 2020 everyone! I hope that this year brings lots of success for people, especially in finance and investing. The reason I stress these two things in particular, is because I believe that things won't be as easy as they are now. Easy is relative, I know, with high prices of just about everything. This includes rents. One of the biggest things in California to affect real estate beginning in 2020 is AB 1482, the Tenant Protection Act of 2019. This adds to existing rent control housing and newer housing by capping rent increases by no more than 5%. While the Act is a good step towards additional tenant protection, 5% is still a pretty large increase. For a rental that is $2000/mo, that's still a $100 increase the following year, then another $105 the year after that. That's not much protection in my opinion. What is expected to happen is that Landlords will take advantage of any applicable rent increases that they otherwise wouldn't impose--which is a sad blowback of this Act.

Plus there are so many exemptions to this Act, and below are just a few. Note: This act has basically skipped over DTLA, where the majority are individually owned condos! (And another reason I'm so bullish about buying DTLA housing!)

• New Construction – housing that was issued a certificate of occupancy with the previous 15 years. This means some of the housing previously exempt under Costa Hawkins will now be subject to the State’s rent control provisions.
• Owner-Occupied housing accommodations in which the tenant shares a bathroom or kitchen facilities with the owner who maintains principal residence with the residential real property;
• Owner-occupied duplex in which one of the units is the owner’s primary residence at the beginning of the tenancy and the owner continues in occupancy;
• Single-family homes and condominiums if the owner is not a real estate investment trust, a corporation, or a limited liability company in which at least one member is a corporation.

For owners/landlords, DTLA is one of the best places for exemption from AB 1482.

For buyers, a 30-year fixed on a DTLA condo where the price of your mortgage won't change for 30 years can be better than living in a rent control property, where prices can (and will) be raised annually. 

Eastern Columbia Live/Work Lofts for Rent Right Now!

The first one: Spacious open plan loft with concrete floors and 14-foot ceilings! Two generous built-in closets. Has a balcony too. Faces west for lovely sunsets. 1 parking space included. $3300/mo. Call or text 310-869-2655 for more info.

The second one: Open plan with gleaming concrete floors and southfacing views, and an unusual closed off bonus room that's perfect for a small guest room or office or art studio! Also includes a storage unit in the building. 1 parking space included. $3500/mo. Call or text 310-869-2655 for more info.

The Holiday Buy List Should Include Property

The winter is the worst time to sell, but the best time to buy. This is when deals can be made, price drops seen and desperation is running high for sellers. 

Which brings me to talk about buying during the holidays. Two of my investment properties were bought during the holiday months. I lowballed, got the offer accepted with no counters. This is because properties aren't selling as quickly and sellers just want to get out. So, buyers out there, remember that if you're thinking of waiting to buy in May or June of next year, then you will likely pay a bit more, or end up in a bidding war with other buyers. Of course interest rates could fluctuate, and they will, but the forecast is that they will be roughly the same as this year, or a tad higher.

Pocket Listing Alert - Eastern Columbia Lofts

Beautiful corner unit, 2 beds, 2 baths, plus a balcony! 1740sf. Contact me for details.

Luxury Condos in LA are One-Upping Their Amenities

Typical luxury condo amenities in Los Angeles 20 years ago: pool, hot tub, gym, clubhouse, BBQ, business center, front desk concierge, and maybe a tennis court.

Now, lifestyles have changed. "You don’t need a front-desk person to book the table you want at a restaurant,” per Josh Greer of Hilton & Hyland. “You already have an assistant who does that.” You also don't need saunas as people tend to have other gym memberships.

The luxury condo checklist now:
- Pool (The larger the better, saltwater preferred, and temp controlled of course)
- 24/7 Security (Basically no one is allowed unless on the guest list)
- Fitness Center (Must have towel service, yoga rooms, and up to the minute gym equipment)
- Valet Service or Private garages
- Charging Stations
- LEED certification or sustainable fixtures
- Gardens and decks, preferably with views
- Screening Rooms
- Lounge and event space
- Pet amenities and grooming stations

Gas Prices Up, Home Mortgage Rates Down

The 30-Year Fixed is at 3.5%. Crazy. This is like back in 2004 or 2011. Prices have plateaued a bit, and interest rates are low, and that is the best time to buy.

New Rent Control Laws Affecting All of California

From the American Apartment Owners Association:

Creating rent control for a state as vast as California is no easy task. While California voters said no to rent control last year, lawmakers didn’t give up, and the new legislation includes compromises on a few key issues. The rule, California Assembly Bill 1482, excludes cities that already have rent ordinances. That happens to include the two largest cities, San Francisco and Los Angeles.

In California, if a tenant has lived in a unit for 12 months, it becomes far more difficult to evict them and they can only be evicted if they:

• don’t pay rent,
• breach the lease in some other way,
• are involved in criminal activity on the property, or
• cause some other public nuisance.

Landlords can also evict if their immediate family will occupy the unit or if it’s being converted into a condominium. The landlord must pay the tenant’s relocation cost.

The legislation also doesn’t allow any California cities to create an annual rent control cap lower than 5% plus inflation. Single-family homes and condos are exempt from rent control, protecting smaller real estate investors. The California Apartment Association didn’t oppose the bill, but the California Association of Realtors issued a statement saying the new rules don’t do enough to increase the supply of affordable rental housing.

What landlords need to keep in mind

Even if rent control isn’t an issue in your community yet, it may be coming. For landlords, it’s always important to stay aware of what’s happening in your community. Pay attention to the local news where your rental is located and attend town meetings if possible. As a real estate investor, you can make your voice heard.

City and state legislation tends to focus on two core issues: the cost of rent and the process of eviction. As you determine your budget and the rent you need to charge, know that city or state regulations may limit your rents now or in the future by updating legislation.

As we’ve seen with the examples above, most laws and ordinances aren’t universal — there are generally different rules depending on the size and age of the building. Know where your property falls with regard to your local legislation.

Eviction is never an easy process, but most laws favor tenants. As a landlord, you’ll need to understand the process in your area before you need to go through it. Documentation of reasons for eviction is critical. Keep as many records as possible documenting the situation. While it’s impossible to predict the future, one way to lessen your chances of having to evict a tenant is through careful screening.

Individual real estate investors can be an important part of the affordable housing crisis and by staying aware they can protect both themselves and their tenants.