Estate Planning and Financial Planning are essential in real estate

I had a number of declines from a seniors group who I included in the Blog mailing list.  Too many came back with a "no interest, I'm going out in a box".  Yes, that is true.  Selling a home that is highly appreciated with a low property tax is quite foolish.  Even if you need the money.  A reverse mortgage will help for tight cash strapped home owners.

The greatest fault I can lay on the male spouse is they leave their partner holding a bag of assets without any knowledge or training in how to proceed and know the market for their most valuable asset, their home.  The belief, "my children will take care of (her) him when I am gone",  is a false assumption.

It is my hope and prayer for those who do have highly appreciated real estate they have a trust.  Then when a partner and spouse pass away, the property has a step up in basis from cost to market value.  It is essential for the surviving spouse to know the market beyond that of hear say and local papers and media.  There is a general tendency of the media to over stress the positive and under stress the negative.  Of course, who will buy newspapers with negative comments and subscribe to media with the same down in the mouth remarks.

It is also important for the surviving spouse is not taken.  There is a real estate investor type that runs obituaries and calls the surviving spouse with the promise of paying all cash, as is and immediate close, no commission!  6 months later the house is on the market refurbished and remodeled for a substantially higher price.    The children of the surviving spouse are not much better.  They don't want to care for the parent and reach into their pockets when that real estate is there.  In a snap Mom or Dad is in a nursing home and 14-24 months later an obituary.

If there is anything this blog will do is to be of interesting reading to the female spouse and hopefully the male spouse.  Their knowledge of the market is up to date and current.  So when the eventful day comes the surviving spouse knows the approximate value the need to update and the value achieved by the update.

Every day I look over the recent changes in the real estate market.  The big change is lowering of list price.  The small cuts have given way to 8,9,10,11 & 20% cuts, from Menlo Park to Palo Alto to Redwood City, Portola Valley and Woodside.  These are not low priced areas either.  It is not surprising either.  California's virus cases jump, late payments of mortgages triple, Home-Mortgages delinquencies have reached their highest level since 2011.  The once Booming San Francisco Apartment market had gone into reverse with a vacancy rate of 6.2% and s drop in rent of 9.2%. Rather than stay, the option of renters has been to move.  The Exodus from the Bay Area is causing rental price drops all over the Bay Area, not just San Francisco.

It is worth being optimistic when the virus is dropping, but it is not.  The economic toll will most likely take the biggest toll on the rental market as the service industry will have no income to cover rent, car payment and daily expenses.  The only option for them is to move out of the area.  Added to that are the work from home high tech people who look at open spaces with lower costs of living.

The Office market is no better off .  The San Francisco Office Market has cooled and Startup are retrenching.  That is occuring in New York city and any of the big city markets.

The Bay Area News states that the new home building target set for the Bay Area will double in the next decade.  That is a great way to get the homeless off the streets.  But, who will pay for that.  Taxes on an already high tax rate state....more movers out to Nevada, Texas and no tax states.

So, buyers now is the time to begin looking in earnest.  There are very few homes for sale.  Those that are will be moving out of state or contractors caught with a home that at best they can break even.  Homes for sale with plans approved for a new home indicate builder do not see a profit incentive.  They are looking to break even and will give the buyer the approved plans

This is a time of price adjustment.  Just as the stock market went up to historically high levels.  This is a time of adjustment.  Too much emotion and not enough fundamental reasons for prices.

Gary

What Day Is It?

What a week it is has been.  Coming up more often is the progression that Shelter @ Home will extend itself.  When a relaxation appears imminent, then more cases occur.  Go out shopping and everyone is wearing a mask and gloves.  Fill up for gas.  It is not uncommon to see the disposal of gloves after the tank is filled.

Local media is on both sides of the street when it comes to whether there is a relaxation of rules or will there be a return to shelter in place.

For the real estate buyer or seller one needs to get a grip on the situation and look at it realistically with a focus on their long term objectives. 

Yes there will be opportunities.  Having cash in liquid form and a commitment letter from a bank is a necessity.  Having a plan is necessary

Do not become too optimistic or too pessimistic that you either put yourself in a regrettable situation or missed a golden opportunity.  I think of a sermon from our local priest about a soul is given a tour of heaven.   St. Peter takes the soul on the tour introducing ll the beauty of heaven.  They pass a locked door.  The soul asks what is behind the locked door.  St Peter reluctantly opens the door and from the door to as far as the soul can see are wrapped gifts.  The soul looks quically at St Peter.  St. Peter says those are gifts God has given mankind that were failed to be opened.  Do not let god's Gift pass you by because of fear or lack of advice.

No, the economy will not be returning to normal!  It is easy to be pulled along by the economic, political and governmental experts.  Look at the present realistically and the future positively and lean toward caution.   While city core areas are being torched and gutted and looted and the virus has a resurrection there will be opportunities. 

On a daily basis the results of the riots, work from home mandates, closing brick and mortar stores, the joy of sitting at our favorite bar or restaurant has been  taken away.  The results are evident  Wealthy buyers reportedly are in a "mad rush" to leave San Francisco.  For decades movement in and out of San Francisco has existed.  Moving out and paying dearly and moving back in and paying dearly has gone on for decade after decade.  It is only opportunity, God's Gift to be opened.  San Francisco is not the only major city to see a migration.  Manhattan's empty apartments leases plunge 62% in May!  Like San Francisco the movement out of cities have been historic.  Once the cites get control of their environment the movement back will return.  During those times of opportunity will exist for both those returning and those leaving.  It is all up the those willing to take God's gifts for their advantage.

Carrying on with the mantra the fact of movement is so strong it is becoming a common thread for the media.  Cities are crumbling all over the US, the infrastructure, the schools, the proper training of public servants all come to a point when the call is "We've Had It."

These are times of opportunity for those who have always had the desire to live in San Francisco, this is the opportunity.  There are neighborhoods that remain peaceful and safe.  To those in the city wishing to find a quiet place to live there is no better place the the Peninsula. 

FROM A DISTANCE: In light of the heightened social distancing, there is no better place or time to slow down, take a step back and enjoy to poetic beauty of the lifestyle and environment of the Peninsula.  The Western Hills offer panoramic views of the Bay and the Ocean.  There are stands of Old Growth Redwoods and the peaceful quiet of the clean air those gentle giants provide.  Even it you only want an escape from the hustle and bustle of San Francisco or Silicon Valley the Western Hills and their communities will provide a vacation home and an escape minutes away.

Present day situations do not bode well for the real estate market.  Remember this is opportunity.  Zillow will give some indications of the health of the market. 

Rentals in Los Altos has prices down over 19%.  Redwood City has a 1.9% decline which only hides a probable cuts coming.  Some 193 properties are for rent on Zillow.  7 Bayberry in Portola Valley has had a 10.72% price cut in the listing price.  986 Loma Verde in Palo Alto a 10.22% cut in the listing price.  Double digit price cuts are become very common all over Silicon Valley.

E-blasts from real estate agents to other real estate agents tell a similar story.  Selling agent gets a week in a condo in Hawaii to sell at listing price.  Another agent is offering a 3 1/2% commission, over the standard 2 1/2% commission for selling a home at list.  The flat lands in Redwood City once dominated by Google, Facebook and buyers who used company buses have seen a dramatic slow down as they all work from home and new buyers look outside the Bay area.  That is not to say homes do not sell.  Sales occur when prices are at a level buyers feel satisfied.

Remember Gary McKae when a referral from a friend or family member is looking for housing.  Negotiating in this market takes experience and knowledge.  Age does help and buyers and sellers will be given dedicated service.

Gary McKae

Three Months of Shelter in Place, How has the Real Estate Market Reacted?

After  three months of shut down, businesses closed, jobs lost and lives changed there has been a constant rhetoric of a real estate market and the economy bounding back.  Low interest rates have been a dominant source of reason to buy; along with, it will be better.

Newspapers and other media have vacillated between good times ahead and danger in the wings.  

Here is how the dominant Silicon Valley real estate markets have performed.

In general all but two have seen sales below list.   In most instances 5-6% below list.  Homes for sale have out distanced sales.  Sales and listings have been below normal.  With the next week being a time of relaxation of rules and a return to work it will be of interest to see how home buyers and sellers will react. (CLICK THE HI LIGHTED CITIES FOR GRAPHS)

In the Five County area homes for sale have risen from 11,436 in April to 16,028 in May.  Sales have declined from 9,424 in April to 8,177 in May.

In Atherton days on the market have risen from 5 in April to 23 in May.  Price to list have dropped to 95% of list.

Menlo Park days on the market dropped from 29 in April to 3 in May and Sales to list price dropped from over 101% to just over 100%.

Los Altos had a large drop in sales to list from 103% in March to 102% in April and under 98% in May.

Palo Alto had a drop in days on the market in April of 15 to 10 in May.  Sales to list jump from 100% to almost 102% in May from a high of 106% in March.

Portola Valley had a drop in days on the market in April of 57 to 11 in May. Sales price to list dropped roughly 100% in April to 95% in May.

Woodside saw days on the market drop from 161 days in April to 21 days in May with sales price to list rising from 93% to 95% of list.

Redwood City saw days on the market increase from 9 in April to 12 in May and sales to list drop from 101% in April to under 100% in May.

The willingness of sellers to take a lower price is quite positive as it indicates a top in the rapid home price increase and the afordability factor many buyers are faced with.

'It's going to be ugly,' analyst says as mortgage rates suddenly spike on shocking jobs report
What's good news for the U.S. economy is suddenly bad news for mortgage rates. A far-better-than-expected May employment report only added to a growing sell-off in the bond market, pushing bond yields to the highest level since March. Mortgage rates loosely follow the yield on the 10-year Treasury.

Broker Price opinions have increased along with Appraisals as many owners are reconsidering the soundness of refinancing to 30-year mortgages.

Commodity prices are begining to increase as in the cost of food, gas prices and oil prices.  All sooner or later will become inflationary tools that will put the Federal Reserve on notice of how to save our economy and control inflation.

Rental prices have dropped in May some 16-19% depending on where you look.  San Francisco with 69% of housing as rental will be the point of contact for the future of rates.  When looking at Zillow for rentals in Redwood City it seems like there is a blanket of rentals available.  How long they remain so will all depnd on demand, price cuts and whether the move out of the area will continue.

The latest report of "new home" sales is most encouraging.  The interpretation is that it is time to look at newer homes out of the area once work from home becomes a dominant thought for the future.

Buyers are still recommended to remember you are buying something you will be living in 10, 20 or 30 years from now.  The near term price and economic swings will all even out as the 3% or so 30-year mortgage will become the greatest asset and buyer will have.

The near term issue is not attractive for Governor Newsom.  How does he handle the rent and mortgage moratorium to make lender, land lords, renters and home owners whole.  With the state some $54 billion in the red and the Federal Government debt expanding it looks bleak!

The May unemployment report does offer a sign of the end.  Part-time employees are a good and historic sign of an end of a recession.   Employers are more willing to hire part-time as labor laws, contracts, pensions and other impediments get in the way.  

Most economist have agreed ( not officially) that the 2020 recession will be a short one.  ( From their mouths to God's ears).  All add to reasons why buy on bad news is the best advise given.

Gary McKae

"V" Shapped Recovery?

The S&P 5000 and the NASDAQ have all bounced back into what has been referred to as a "V" shaped recovery.  The axiom is the stock market moves in anticipation of the economy.  Coming out of Shelter in Place is so unique that it is impossible to forecast a V Shaped Recovery for Silicon Valley.

We are now into our 3rd month of the Shelter in Place.  San Mateo County Board of Supervisors have extended the rental freeze on evictions and the terms to it until June 30th.  The death of an Afto-American man has created riots in various parts of America and our County.  The results have been to further toss back the retail and restaurant industry  from the virus lock down.

Rents are collapsing in Silicon Alley.  How much they will decline is a guess.  The publication linked in the previous sentence also has some 66% of those questioned willing to move from the area to lesser costly place if their jobs will allow.  Facebook has already gone that way along with Twitter, and Linked in.  I myself joined eXp Realty a cloud based realtor with some 29000 agents nationally and international as other realtors begin lay offs and close or limit operations.

Across the US short term rentals are facing consolidation as start ups and small landlords offload properties.

The most telling effect of the unemployment roles surpassing the 2010 Great Recession is the damage done to communities not expected to suffer.  According to the Country Almanac.  Atherton and East Palo Alto are now at 12.4%. Atherton is an enormous surprise as the starting price in central Atherton is $8 million and more.  Everyone of the 11 industry sectors lost jobs.

When looking at rentals for Redwood City on Zillow the amount is 177.  On the multiple listing service there are 14.  On "Hotpads" there are 61.  5 rentals closed in May in Redwood City.  Trouble ahead in Redwood City?  One day ago the SF chronicle stated "Rents Plunge".  With people moving out, social media workers able to work from home and Facebook employees ranking some 60% wanting to move out of the area, it makes sense to see rental prices plunge  The question is how long? To add to the rental plunge CNBC has put in their comments on the rest of the United States.

Realtor.com says Home Buying activity may heat up fast.  Interest rates are at all time lows.  If the credit score is there and the 20% down payment is there homes can be gotten.

What is obvious is that Cheaper Cities will gain from "Work at home" now to consider how to make lemonade out of the lemons.

Near term outlook: home prices will soften with rental prices declining.  When mom and pop landlords tire of subsidizing rents for unemployed tenants the "For Sale" sign will go up.

Begin to look at offering prices, and watch for price cuts, expired listings and withdrawals.  They will be your best gauge  to get value for your purchase.  For sellers, don't look for a pop.  The highs and opportunities are gone, today is today, not yesterday.  Look at the price of a recent comparative sale and price it 10% under the comp.  Take your profits sit back and wait for opportunity to follow.  It may take 5 years for that to occur.  If you don't have the patience to wait.  Begin to look to cheaper cities.  Cheaper cities will stand to gain from our restructuring,    The proof will be seen in the New Housing Starts.  They are improving and increasing  the Hoauing stock at or near at highs should be enough proof that relocation is in order.  As people look to relocate many would rent before they buy.  This is an opportunity for a 1031 exchange.

The next 6 months to a year will be trying.  Riots in the streets, COVID 19 may come back with the rioters, help  Chinese land owners maybe wise to liquidate and move their money back home.
Hong Kong tensions will add risk to the world economy.  That adds up to opportunity and being prepared to act.

Within the next week the numbers will be ready for new listings, pending and sold.  The market direction cold begin to show signs of direction.  Look out for reoccurrence of the pandemic from marches and improper contact.  The participation looks to be 18-50 and that represents 50% of the infection reports.  Close extended contact is the greatest risk for the virus to transfer.


Regards to all and stay healthy

Gary