When You Have Lemons, Make Lemonade
I thank all of those who have complimented me and encouraged me on the posting for McKae Properties Silicon Valley Market Commentary. It is encouraging to know that it is appreciated and encouraged.
WOW, what a week! Listings falling, prices being reduced and terms being adjusted. All this in the face of a Shelter in Place that has been most challenging. From Face masks to booties, to gloves and hand sanitizers just for a starter. Then there are the new forms that the California Association of Realtors have included in the listing, visitation, marketing and sale and closing. To add to the frustration of both sellers, buyers and agents, the new conditions eliminate brochures, open houses and brokers tours. These are to be replaced with virtual tours to be added to the Multiple Listing Service and a requirement that final or first viewing of the property must be done with a firm desire to purchase the property listed. In other words, no more Lookie Lews. Visitations will require buyers to have viewed the property via a virtual tour, reviewed all the disclosures and provided proof of funds and a commitment letter the lender. When viewing a property only two people are allowed in, the property must be vacant, buyers and agent must wear a face mask, gloves, booties. Of course, Social Distancing is a must! Virtual Staging is now a common practice. Owners are being asked to open all doors, and drawers so that the buyers do not have to handle them to view closets, cabinets and rooms.
Still, properties are selling. Many have seen price cuts to get interest in the property. On a national level listings have declined some 29% of the total supply and homes for sale down some 19%. Homeowners are dropping prices as the coronavirus chokes the economy. Depending on the severity of the Lock Down prices have cut from 5-10% on average to areas where the lock down is most severe a 20%- 34% cut has not been uncommon. On the bright side areas that have had loose lock downs; such as, Sacramento where a 3% cut has been most common.
The next shoe to drop will be in July as the U.S. Economy will react to the relaxation and or elimination of the lock down. Of course, this is all dependent on how we all react to coming back to moving forward. So much damage has been done it is hard to envision a snap back to the way things were in January and February 2020.
The lack of income for Doctors, Dentists, Restaurants, Barbers, Hair & Beauty Salons and most of the "brick and mortar" retail businesses has put tremendous pressure on survival. With their survival in question the empty store-fronts, empty small offices will be a signal of our resilience and ability to snap back.
The action of many Silicon Valley Employers to help in lock downs has put many residents in a work at home mode. To those who can come back to work, the work place will be completely different. Plastic shields between workplaces, body temperatures at the entrance door, hand washing, social distancing will all wreak havoc on an environment that has prospered on the ability of workers to create ideas and the ingenuity that has made Silicon Valley so profitable and successful. Will Facetime, Zoom, Meet, Facebook be able to keep the ingenuity and progressive ideas for a better economy and society possible. Coming to a consensus on that is like listening to forecasters in the stock market's future direction.
The work at home will have many casualties. Many are re-evaluating whether to stay in a high priced small rentals to working from home in a lower priced locale. 2019 had already seen and movement out of our area. Will 2020 see that movement increase. Will the movement become a wave or a tidal wave? $2650 one bedroom rental in South San Francisco can easily be transformed into a 3000 square foot home in El Dorado Hills. The addition of a move to Nevada or Texas will add to the savings and reduction in cost of living when State taxes are eliminated. It cannot be ignored that an increase in both income tax rates and sales taxes will not occur when one considers the $54 billion deficit in California and deficit the counties and cities and towns face. Counties who rely on revenue sharing and sales taxes have already viewed the probability of increasing income. Some Counties, Towns and Cities are considering selling excess land on their balance sheets. Sell to Whom, I ask? There are already developers and builders questioning who will rent their project under construction.
Renters and homeowners are already facing the ability to pay rent and make mortgage payments. Forbearance programs are being established to help home owners, but the forbearance does not help mortgage servicing companies. Mortgage servicing companies are not the banks who granted the loans. They are non-banks who have a very profitable business of collecting mortgage payments and making payments to the end owners of the mortgages. They must still make payments when the homeowner is unable to make his payment and request forbearance. How long will they be able to handle the negative cash flow? To matters worse is that 49% of mortgages that have been created are by Non-Bank Banks. The servicing company can only go back to the creator of the mortgage to claim the lender was not properly screened. The Non-Banks then just close their doors. The only recourse is foreclosure. Does this sound familiar. 2009 is Deja Vu All Over Again, right Yogi?
A client of mine, who just canceled her listing to update and make the property more saleable while the lock down is in force, said to me, " I am worried about the economy Mr. McKae. But I am not worried about the US . We have talented sons and daughters who will create the future as we and our parents created their future".
From Lemons You Make Lemonade. For every person who sells their property they will buy elsewhere where prices are lower and cost of living is lower. In the Stock Market we called that "Same Day Substitution". Does it really matter if the seller gets a little less to buy a great deal less elsewhere? The buyers will be able to get discounted property that will increase in value. It is a Win Win situation.
Property will increase in value because we have inflation in front of us. The best way to fight inflation is real estate! The only risk in real estate is LIQUIDITY! Buy a home you and your family will live in for the future.
We will see a transition that will create opportunities. The landlord who does not want to have non-paying tenants will sell and look elsewhere for income property. That property will come on the market. Work at home will have property facing the "same day substitution" rule. Then there is the ugly head of foreclosure. Look at where we were in 2009 and what we became in 2019!
Interest rates are low and payments at lower interest rates is far more attractive than saving on purchase price. The inflation previously written about will come from commodities. Hogs are being slaughtered due to slaughter house closings. Cattle are put out to pasture and the cost of carry will increase. When the slaughter houses open pigs will be needed. Competition will find higher prices to meat processors and find their way to the dinner table. When pork prices go up so will all meat prices.
Internationally things are a bunch of lemons. It is not only Trump banging the China Drum. The Pandemic all comes back to Wuhan and a suspicious lab in Wuhan. New Zealand and Australia have blamed China for the pandemic. African nations have joined in and so has Europe. Japan has set up a $ multi billion fund for Japanese manufactures to bring plants from China back to Japan. Taiwan Semi Conductor is moving a plant to the U.S. Sooner or later that will happened for U.S businesses in China. What is China's recourse....They won't buy our food products? What will their people eat? China uses others technology and ingenuity to build their economy, they cannot improve only copy. China has more to worry about than food, it is employing the masses. Unemployed and out of work is not something that the populace will endure. Isn't there an old Chineses curse of may you lie in a changing world?
The United States was built on immigrants who came here for a better way of life to operate in freedom and being allowed to be successful. DONT SELL SHORT AMERICA!
Collect those lemons get ready to make lemonade to sell when the time is right. Do your research, plan your purchases, do not forget to think about "What if" Also, dont; forget about your friendly realtor Gary McKae to help you sell or buy your home and refer him to your friends and family.
Until next week
Gary
WOW, what a week! Listings falling, prices being reduced and terms being adjusted. All this in the face of a Shelter in Place that has been most challenging. From Face masks to booties, to gloves and hand sanitizers just for a starter. Then there are the new forms that the California Association of Realtors have included in the listing, visitation, marketing and sale and closing. To add to the frustration of both sellers, buyers and agents, the new conditions eliminate brochures, open houses and brokers tours. These are to be replaced with virtual tours to be added to the Multiple Listing Service and a requirement that final or first viewing of the property must be done with a firm desire to purchase the property listed. In other words, no more Lookie Lews. Visitations will require buyers to have viewed the property via a virtual tour, reviewed all the disclosures and provided proof of funds and a commitment letter the lender. When viewing a property only two people are allowed in, the property must be vacant, buyers and agent must wear a face mask, gloves, booties. Of course, Social Distancing is a must! Virtual Staging is now a common practice. Owners are being asked to open all doors, and drawers so that the buyers do not have to handle them to view closets, cabinets and rooms.
Still, properties are selling. Many have seen price cuts to get interest in the property. On a national level listings have declined some 29% of the total supply and homes for sale down some 19%. Homeowners are dropping prices as the coronavirus chokes the economy. Depending on the severity of the Lock Down prices have cut from 5-10% on average to areas where the lock down is most severe a 20%- 34% cut has not been uncommon. On the bright side areas that have had loose lock downs; such as, Sacramento where a 3% cut has been most common.
The next shoe to drop will be in July as the U.S. Economy will react to the relaxation and or elimination of the lock down. Of course, this is all dependent on how we all react to coming back to moving forward. So much damage has been done it is hard to envision a snap back to the way things were in January and February 2020.
The lack of income for Doctors, Dentists, Restaurants, Barbers, Hair & Beauty Salons and most of the "brick and mortar" retail businesses has put tremendous pressure on survival. With their survival in question the empty store-fronts, empty small offices will be a signal of our resilience and ability to snap back.
The action of many Silicon Valley Employers to help in lock downs has put many residents in a work at home mode. To those who can come back to work, the work place will be completely different. Plastic shields between workplaces, body temperatures at the entrance door, hand washing, social distancing will all wreak havoc on an environment that has prospered on the ability of workers to create ideas and the ingenuity that has made Silicon Valley so profitable and successful. Will Facetime, Zoom, Meet, Facebook be able to keep the ingenuity and progressive ideas for a better economy and society possible. Coming to a consensus on that is like listening to forecasters in the stock market's future direction.
The work at home will have many casualties. Many are re-evaluating whether to stay in a high priced small rentals to working from home in a lower priced locale. 2019 had already seen and movement out of our area. Will 2020 see that movement increase. Will the movement become a wave or a tidal wave? $2650 one bedroom rental in South San Francisco can easily be transformed into a 3000 square foot home in El Dorado Hills. The addition of a move to Nevada or Texas will add to the savings and reduction in cost of living when State taxes are eliminated. It cannot be ignored that an increase in both income tax rates and sales taxes will not occur when one considers the $54 billion deficit in California and deficit the counties and cities and towns face. Counties who rely on revenue sharing and sales taxes have already viewed the probability of increasing income. Some Counties, Towns and Cities are considering selling excess land on their balance sheets. Sell to Whom, I ask? There are already developers and builders questioning who will rent their project under construction.
Renters and homeowners are already facing the ability to pay rent and make mortgage payments. Forbearance programs are being established to help home owners, but the forbearance does not help mortgage servicing companies. Mortgage servicing companies are not the banks who granted the loans. They are non-banks who have a very profitable business of collecting mortgage payments and making payments to the end owners of the mortgages. They must still make payments when the homeowner is unable to make his payment and request forbearance. How long will they be able to handle the negative cash flow? To matters worse is that 49% of mortgages that have been created are by Non-Bank Banks. The servicing company can only go back to the creator of the mortgage to claim the lender was not properly screened. The Non-Banks then just close their doors. The only recourse is foreclosure. Does this sound familiar. 2009 is Deja Vu All Over Again, right Yogi?
A client of mine, who just canceled her listing to update and make the property more saleable while the lock down is in force, said to me, " I am worried about the economy Mr. McKae. But I am not worried about the US . We have talented sons and daughters who will create the future as we and our parents created their future".
From Lemons You Make Lemonade. For every person who sells their property they will buy elsewhere where prices are lower and cost of living is lower. In the Stock Market we called that "Same Day Substitution". Does it really matter if the seller gets a little less to buy a great deal less elsewhere? The buyers will be able to get discounted property that will increase in value. It is a Win Win situation.
Property will increase in value because we have inflation in front of us. The best way to fight inflation is real estate! The only risk in real estate is LIQUIDITY! Buy a home you and your family will live in for the future.
We will see a transition that will create opportunities. The landlord who does not want to have non-paying tenants will sell and look elsewhere for income property. That property will come on the market. Work at home will have property facing the "same day substitution" rule. Then there is the ugly head of foreclosure. Look at where we were in 2009 and what we became in 2019!
Interest rates are low and payments at lower interest rates is far more attractive than saving on purchase price. The inflation previously written about will come from commodities. Hogs are being slaughtered due to slaughter house closings. Cattle are put out to pasture and the cost of carry will increase. When the slaughter houses open pigs will be needed. Competition will find higher prices to meat processors and find their way to the dinner table. When pork prices go up so will all meat prices.
Internationally things are a bunch of lemons. It is not only Trump banging the China Drum. The Pandemic all comes back to Wuhan and a suspicious lab in Wuhan. New Zealand and Australia have blamed China for the pandemic. African nations have joined in and so has Europe. Japan has set up a $ multi billion fund for Japanese manufactures to bring plants from China back to Japan. Taiwan Semi Conductor is moving a plant to the U.S. Sooner or later that will happened for U.S businesses in China. What is China's recourse....They won't buy our food products? What will their people eat? China uses others technology and ingenuity to build their economy, they cannot improve only copy. China has more to worry about than food, it is employing the masses. Unemployed and out of work is not something that the populace will endure. Isn't there an old Chineses curse of may you lie in a changing world?
The United States was built on immigrants who came here for a better way of life to operate in freedom and being allowed to be successful. DONT SELL SHORT AMERICA!
Collect those lemons get ready to make lemonade to sell when the time is right. Do your research, plan your purchases, do not forget to think about "What if" Also, dont; forget about your friendly realtor Gary McKae to help you sell or buy your home and refer him to your friends and family.
Until next week
Gary
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