2021: Lessons from the Pandemic

On this day December 31, 2021, the last day of 2021 it seems prudent to look back and determine the lessons we have learned from the experiences in 2021.  Lord Toynbee stated that History Repeats Itself.  So then, as the Lessons below should be a guide to what will repeat in 2022.

I.   70% of buyers have been younger consumers.  This was reflected in their financial ability to escape from metropolitan or highly populated areas.  Covid 19 and the mutants had an impact on future lifestyles.  Superior homes with large spaces and multiple rooms that gave authenticity to their life styles and provided a positive environment for the "work-at-home" attitude.

II.  Location and property types and sizes were no longer the only consideration.  An increased knowledge on the importance of achieving more well-being, deeper consciousness, and cultural relevance, that would ultimately empower buyers to make ethical decisions, were important motivations.

    This was clearly reflected in the demand and absorption rate of homes that offered more sustainable, environmental, and wellness functionality of interiors and exteriors.  Properties fitting those parameters sold within days, subject to multiple offers and over asking prices.

III.  Buyers that moved to rural communities decided to stay, finding that the quieter and smaller communities suited the new lifestyles.  The suburbs provided an alternative to rural living with easy commuting when it was necessary.

    There was an uptick in families becoming more involved in their newly adopted local communities, not from a social aspect, but more importantly from sustainability and a diversification context.  The new buyers recognized to refocus their values and adapt with a changing societal landscape.  One of the most significant trends in 2021 was the world of interactive innovations; the growth and diversity of technology. 

IV.  The youth led the online market in product purchases, while the purchase of homes, especially Luxury Homes, was and is still controlled by Gen-X and Baby Boomers.  Interestingly many of the purchases were completed remotely. The Pandemic accelerated the trend, digital processes already in place have now become the norm; rather than, the exception. A recent study states that 40% of the global buyers polled would now purchase a home without physically visiting it first.

V.  Technology and platforms made the process efficient and effective; as well as, interactive.  Both are now very much part of the real estate experience.  While technology is important, 87% stated, and 8% were unsure, they would use a real estate professional to guide them through the process.  Personal service, local knowledge, industry contacts and the art of negotiation were ultimately the most important aspects of buying or selling a property that could not be replaced by a digital platform.

 VI.  2021 may not have been the easiest year.  the world still faces uncertainties from the Pandemic and its environmental, economic and domestic/international political issues.  People are recognizing the need for social and environmental change.

CONCLUSION:  The art of selling and buying in this market needs a critical and analytical approach, understanding the realities and setting expectations accordingly will ensure that goals are achieved.  For home owners looking to buy or sell in today's market working with a realtor that can capitalize on the preferences, trends, and demands in they dynamic and evolving environment is essential.

HAPPY NEW YEAR!  MAY WE LIVE IN A CHANGING WORLD AND SURVIVE, ADJUST  AND PROSPER

* SOURCES: PERSONAL OBSERVATIONS,  DECEMBER LUXURY MARKET REPORT INSTITUTE FOR LUXURY HOME MARKETING. 

In Hoc Anno Domini

 When Saul of Tarsus set out on his journey to Damascus the whole known world lay in bondage.  There was one state, and it was Rome.  There was one master for it all, and he was Tiberius Caesar.

Everywhere there was civil order, for the arm of the Roman law was long.  Everywhere there was stability, in government and in society, for the centurions saw that it was so.

But everywhere there was something else, too.  There was oppression for those who were not friends of Tiberius Caesar.  There was the tax gatherer to take the grain from the fields and the flax from the spindle to feed the legions or fill the hungry treasury from which divine Caesar gave largess to the people.  There was the impressor to find recruits for the circuses.  There were executioners to quiet those whom the Emperor proscribed.  What was a man for but to serve Caesar?

There was persecution of men who dared think differently, who heard strange voices or read strange manuscripts.  There was enslavement of men whose tribes came not from Rome, disdain for those who did not have the familiar visage.  And most of all, there was everywhere a contempt for human life.  What, to the strong, was one more man more or less in a crowded world? 

Then, of a sudden, there was a light in the world, and a man from Galilee saying,  Render unto Caesar the things which are Caesar's and unto God the things that are God's.

And the voice from Galilee, which would defy Caesar, offered a new Kingdom in which each man could walk upright and bow to none but his God.  Inasmuch as ye have done it onto one of the least of my brethren, ye have done it unto me.  And he sent this gospel to the Kingdom of Man into the uttermost ends of the earth.

So the light came into the world and the men who lived in darkness were afraid, and they tried to lower the curtain so that man would still believe salvation lay with the leaders.

But it came to pass for a while in divers places that the truth did set man free, although the men in darkness were offended and they tried to put out the light.  The voice said, Haste ye.  Walk while you have the light, less darkness come upon you, for he that walketh in darkness knoweth not whither he goeth.

Along the road to Damascus the light shone brightly.  But afterward Paul of Tarsus too, was sore afraid.  He feared that other Caesars, other prophets, might one day persuade men that man was nothing save a servant unto them, that men might yield up their birthright from God for pottage and walk no more in freedom.

Then might in come to pass that darkness would settle again over the lands and there would be burning of books and men would think only of what they should eat and what they should wear, and would give heed only to new Caesars and to false prophets.  Then might it come to pass that men would not look upward to see winter's star in the East, and once more, there would be no light at all in, the darkness.

And so Paul , the apostle of the Son of Man, spoke unto his brethren, the Galatians, the words he would have us remember afterward in each of the years of his Lord:

Stand fast therefore in the liberty wherewith Christ has made us free and be not entangled again with the yoke of bondage.

Page 1-16 Friday December 24, 2021 Wall Street Journal Opinion , Review & Outlook, editorial written in 1949 by the late Vermont Royster and has been published annually  since.

MERRY CHRISTMAS FROM THE MCKAE PROPERTIES TEAM: GARY MCKAE, LISA GOULARTE & EVELING ALVAREZ

Serendipity+FED+Inflation+Property Tax Ploys=Real Estate Prices in the Bay Area

 Serendipity is the "Occurrence and Development of Events by Chance in a Happy or Beneficial Way."

This is how the development of Facebook and its growth was established.  At least in the eyes of Facebook.  But there is many professions in which that occurred.  Traders, whether they be stock, bond or commodities; all had their instances of a serendipitous event while in a trading room, on the floor or in the local bar after trading hours.  It is this event that has been centered in large cities or a metropolis; in which the profession was centered.

The result is, or was, that the cost of living all expanded to fit the large incomes that the profession provided.

Take that and look at Silicon Valley.  Prices have escalated and the cost of living and home prices all went up accordingly.  While there has been a calling of a top and calling for a correction in home prices, it has all been for naught!  Once incomes continue to expand and the related benefits of working in such an area, home prices will rise and they will continue to rise.  Unless there is an economic catastrophe, this is the natural order.  When the incomes collapse, the equity markets collapse people out of work, home prices will collapse.  So focusing on that possibility is fool hearty! You might as well plan your death and fail to enjoy your life.  A fool's plan!

I listened to Art Cashin on CNBC recently talk about his experience of a life as a young trader on the NYSE. "The rumor was in that the missiles were launched during the Cuban Crisis and I went looking for my mentor.  Finding my him in the local bar across from the NYSE, I wanted to buy puts, due to my limited income and assets.   My mentor said, buy all the stock and calls you can.  If the missiles are true. we have lost everything.  If it is wrong we make a handsome profit."

So if there is the thought among any of you buyers you are going wait for the crash, you are in a fools paradise.  If it crashes, you have no job, no income and all your assets are lost.  If you are wrong property values will continue to rise!

The Federal Reserve, AKA the FED, was established December 23, 1913.  The FED is the central bank of the United States.  It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system.  To date the FED has created over $8 trillion to help support of economy.  That is $8-9 trillion of additional money in our monetary system.  The creation of "new money" has driven down interest rates to near "0" that has created a flow of funds away from bonds to equity and equity related investments, ergo stocks and real estate.  Until interest rate increase to a level that makes bonds and fixed interest rate investments attractive, equity and equity related vehicles will be  the choice of investment.  

Inflation has been said to be a temporary!  The FED has now stated that inflation is not temporary.  If you look at food prices and energy prices as over 25% of the inflationary measurement, it is hard to fathom a temporary situation.  Nitrogen is a major factor in farming.  Nitrogen is made from a combination of chemicals, the most dominant part being natural gas.  The recent "green" movement has made natural gas a limited product.  Farmers have not been able to get quotes for nitrogen fertilizer and have cut back on production.  Grains are essential part of our food source.  Grains as Wheat, Corn and Soy Beans are used to feed livestock.  With the limitations on production prices increase. inflation is not temporary as crop growth is seasonal.  The competition for the natural gas that is available is taken over by the highest bidder.  The highest bidder is LNG producers who are shipping LNG to Europe and Asia were prices are substantially higher and great profit spreads exist.  The farmer looses and we pay higher prices.  Inflation is not a temporary situation!

Oil and oil related products are essential to farming and building.  Wood prices have escalated and appear to be in a new "bull market" of higher prices.  Homes are constructed of wood.  Prices of new homes will increase.  Inflationary pressure will continue until the shortages are addressed.

Property taxes in California are a % of the sales price of a house at the time of purchase.  It is about 1.25%.  The Trump administration put a $10,000 limit on the personal income tax deduction for property taxes.  For most states it is not meaningful until you consider Silicon Valley Real Estate.  That means that once a home is purchased for more than $800,000 the property tax paid is a limited personal deduction on individual tax returns.  Now consider that the average home sales are well above the $800,000 bar.  Why would a buyer pay over that amount and pay handsomely over list prices without the consideration of the property tax limitation.  The State of California and other states with the penalty tax deduction by the Trump Administration have come to the rescue.  The rescue is for those who have substantial incomes and work under contract with their personal LLC or Sub-Chapter S Corporation.  California has allowed the property tax to be paid and deducted by the LLC or Sub-Chapter S Corporation.  California will issue a "credit" for the individual to use for property taxes due.  The end is the total property tax over $10,000 is now deducted in total from income and the net flows from the LLC or sub-Chapter S Corporation to the individual as taxable income.  The result is home prices will continue to increase irrespective of the property tax limitation.  

Unless there is a major change in the formula referenced in the subject of this article, home prices will remain strong and go higher.  Waiting for a decrease in home prices will be futile.

What can upset this calculation?  

A BLACK SWAN EVENT, a phrase commonly used in the world of finance is an extremely negative event or occurrence that is impossibly difficult to predict.  In other words, black swan events are events that are unexpected and unknowable...Nassim Nicholas Taleb, Fooled by Randomness, 2001