The Problems Are The Path: 2025 Starts the Year Off With Carry Over from 2024

 HAPPY NEW YEAR!

The year starts out with the California Legislature passing additional laws in the Rental Marketplace.  

AB 2493 – Tightens Rules for Application Fee Screening
This new law authorizes a landlord or their agent to charge an application screening fee only if the landlord or their agent, at the time the application screening fee is collected, offers an application screening process, as specified. This bill would also prohibit a landlord or their agent from charging an applicant an application screening fee when they know or should have known that no rental unit is available at that time or will be available within a reasonable period of time.

AB 2347 – Alters Rules for Eviction
This law extends the time in which a defendant, in a summary proceeding for obtaining possession of real property, must file a response from 5 to 10 days, excluding specified days, after the complaint is served on the defendant.

AB 2801 – Changes in Security Deposit Rules
This law limits claims against the tenant or the security for materials or supplies and for work performed by a contractor, the landlord, or the landlord’s employee to the amount necessary to restore the premises back to the condition it was in at the inception of the tenancy, exclusive of ordinary wear and tear. It also prohibits a landlord from requiring a tenant to pay for, or asserting a claim against the tenant or the security for, professional carpet cleaning or other professional cleaning services, unless reasonably necessary to return the premises to the condition that it was in at the inception of the tenancy, exclusive of ordinary wear and tear.

The law also prohibits the landlord from using the security deposit for deductions for repairs or cleanings that are not identified in the required itemized statement of conditions, if an initial inspection is conducted and, at the time of inspection, the premises do not contain tenant possessions that prevent the landlord from identifying repairs or cleanings due to the presence of those possessions.

This law requires, for tenancies that begin on or after July 1, 2025, a landlord to take photographs of the unit immediately before, or at the inception of, the tenancy. The bill would also require, beginning April 1, 2025, the landlord to take photographs of the unit within a reasonable time after possession of the unit is returned to the landlord, but prior to any repairs or cleanings for which the landlord will make deduction from or claim against the security deposit, as described, and within a reasonable time after such repairs or cleanings are completed. The law additionally requires the landlord to provide, as described, these photographs along with and at the same time the itemized statement is sent, along with a written explanation of the cost of the allowable repairs or cleanings. The law prohibits the landlord from making a claim against the tenant or the security if the landlord, in bad faith, fails to comply with these itemized statement requirements.

SB 611 – Elimination of Fee to Tenant for Serving a Notice of Eviction
This law prohibits a landlord or its agent from charging a tenant a fee for serving, posting, or otherwise delivering any notice.

This is wonderful protection for Renters...BUT....who is there to enforce them?  Landlaord live in a neither world of the past.  Caveat Emptor or Buyer Beware was eliminated in the Legistation of the mid 80s the a full disclosure on the sale and purchase of residential 1-4 units.  Not so in rentals.  Landlords and their agents can still rent under the comment "It's ready to be occupied'".   No termite inspection, no home inspection, no notification of work done or permitted work is disclosed.  Landlords are not even licensed witht he State Department of Real Estate.  So while the the Legislature passes laws.  Landlord are not obligated to comply.  It is left up the the Renter to file complaints hire attorneys.  If the law is broker in a residential sale, the same department has the ability to work with buyers thorough the complaint process of the DRE.

Landlords, protect yourself from legal disputes – 5 renter complaints to never delay dealing with

Now here is where I go into the lack of inventory.  46% of the homes in California are rentals.  Of the 54% that are owner occupants, 87% are with mortgages of less than 6% mortgage rates.  Logic tells me, "Why would I sell my home and then refinance a new home at 7% rates and pay a higher property tax on the new home?

Insurance!  Daily I receive pleas for help with home insurance needs.  From insurance companies doubling or tripling insurance to new conditions that require upgrades to renew old policies with higher premiums.  This will be the issue that makes home owners begin to wonder about staying in California.  As beautiful as it is. The cost of insurance has gotten to be a burden on the Baby Boomers who have retired on a fixed income.  The recent fire in LA will only increase the exit of insurance companies and the increases in premiums.  Pressure will be felt more dramatically on the rental market as landlords will find it hard to pass on premiums to renters.  The shift out of residential income properties will aim toward the NNN or Triple Net marketplace where the commercial renter pays taxes, utilities and maintenance.  A good Deal for investors as they receive a cash flow net and maintain property that has a scheduled increase in rents.

That leads me back to rental homes.  If the rental market were cleaned up and the same full disclosure rules are applied, then we may see less evictions and more rentals being sold due the reluctance of the owners to follow the Full Disclosure Law that applies to 1-4 unit sale in the residential market.  

The indications are clear that the rental market is in store for change.  8 States, including California has started actions against the use of AI to calculate Rents. 

“Every day, millions of Californians worry about keeping a roof over their head and RealPage has directly made it more difficult to do so,” said California Attorney General Rob Bonta in a written statement. 

There is one source where renters are moving to that is getting good marks, TikTok, https://sfstandard.com/2024/01/31/tiktok-san-francisco-apartment-rentals-real-estate/. Check it out

Sooner or later someone in Sacramento will look at the disclosure inconsistency.  Then the landlords who treated the tenants like russian Serfs will face retribution.  Unfortunately it is the minority who will make the honest tenant interested investor who will suffer with added costs.  Or they too will sell and put their proceeds out of the state or into commercial properties that are on the bargain market.

Commercial Real Estate is seeing some changes nationally.  In New York City the largest Office Rental Owner is SL Green.  Business is so brisk they plan on adding to their portfolio of office rentals by year end 2025.

In Silicon Valley Commercial vacancy rates remain high at 20%.  There is a change in the numbers that have recently been published in the San Jose Mercury News.  At least 8 tech companies with AI have taken new offices.  A positive move for a market that was once under intense pressure.  As the commercial market begins to change and the return to the office begins to gather force.  It will be seen in housing demand. Leasing Boom Propels Commercial Market

Residential housing in Silicon Valley is never an issue to forget and wait to buy.  The cost of housing will always be high, but the benefits of living in Silicon Valley far outdistance the cost of living. Proposition 13 is one of the greatest benefits to residential owners.  The ability to lock in property taxes without the fear that increase property taxes will force owners to sell is great.  Of the Counties of California Two Counties are at the top of the list benefiting from the lock in of Prop 13.  The SF Chronicle recently had an article on it.  Read it here: https://www.sfchronicle.com/projects/2025/prop-13-subsidy-california/

2025 will see a diverse market in real estate.  The Luxury Market will continue to see demand irrespective of prices.  All fed by the TECH Stock rally.  The starter home market will continue to see demand while prices forecasted by Zillow for the next year will be off 2% or so.  Any weakness in price will be taken up by the quality of life and the beauty of living in Silicon Valley with Silicon Valley's Diverse Population, Highly Educated Population, Educational Opportunities, Medical Superiority, Climate and Social Activities.  Forecasts 2025 Housing Market

Over the next 2 years we will see interest rates as dictated by the FED go down to 3% level, from the present 4.25% level. That will mean mortgage rates will go down with it. Buy now and refinance in 2-3 years will be a benefit in having a permanent home.  It will benefit investors as their commercial property bought with a net return to them of 6.5-7% will increase in value from the decline in cap rates and the comparative analysis on the new rates available. Not bad for a No Brains decision.

As before, call or write for any question you may have and think of me of your "in the know real estate professional".