Wednesday, November 25, 2020

Post-Election and California Propositions Real Estate Impact

The elections and California propositions bring some changes ahead in the area of real estate and other areas will remain much the same.


Presidential Election

We do not see many changes in the short run that will have a direct impact on the area of real estate. With the government working to provide necessary stimulus as we try to sustain and recover from the pandemic, one of the key areas of focus will be to ensure that Americans have the ability to pay their rents and mortgages. This will keep interest rates low for the foreseeable future and hopefully provide enough relief paired with forbearance to keep foreclosures from happening. Currently, there is a shortage of real estate especially in the area of Single-Family Homes, but at risk are Condominiums in metropolitan cities and Townhomes as well.


California Propositions

 There were a few propositions that were focused on Real Estate on the California ballot.

 

Propositions 15 and 21 - Defeated


u Proposition 15 – Change in Commercial Property Tax – “Taxes such properties based on current market value, instead of purchase price. Fiscal Impact: Increased property taxes on commercial properties worth more than $3 million providing $6.5 billion to $11.5 billion in new funding to local governments and schools.”


u Proposition 21 - Local Government Rent Control – “Allows local governments to establish rent control on residential properties over 15 years old. Local limits on rate increases may differ from statewide limit. Fiscal Impact: Overall, a potential reduction in state and local revenues in the high tens of millions of dollars per year over time. Depending on actions by local communities, revenue losses could be less or more.”


 Proposition 19 – Passed - Impact on Seniors and Transfer of Real Estate


“Allows homeowners who are over 55, disabled, or wildfire/disaster victims to transfer primary residence’s tax base to replacement residence. Changes taxation of family-property transfers. Establishes fire protection services fund. Fiscal Impact: Local governments could gain tens of millions of dollars of property tax revenue per year, probably growing over time to a few hundred million dollars per year. Schools could receive similar property tax gains”


This is the proposition that has the most impact on our local real estate market. The focus was upon those that were impacted by wildfires so that they could transfer their property taxes. However, lumped in this proposition is more flexibility for seniors with their property taxes and also changes to how inherited properties are handled.


Tax Base Transfer for Owners 55 Years and Older


In years prior, a senior over 55 transferring their property tax was allowed a one-time transfer, limited to 10 counties and there were value limits usually forcing the owner to trade down mostly.

With the passage of Proposition 19, seniors can now transfer their tax base up to three times, move to a county anywhere in the state of California and a home of any value can be purchased with adjusted transferred values if the price is over 100% of their departing home sale price.

These rules will come into effect on April 1, 2021.

Here is an informative chart from the Board of Equalization:


Source - https://boe.ca.gov/prop19/


Property Tax Transfer to a Child or Grandchild


In the past properties that were transferred to a child or grandchild, the property taxes were allowed to carryover and there was a $1,000,000 limit no matter what type of property.

With the passage of Proposition 19 there is a limit to the value (current taxable value plus $1M) and also this transfer will only apply to the primary home of the deceased. It is assumed that they Child or Grandchild will reside in the home to maintain lower property taxes.

These rules will come into effect February 16, 2021.

Another informative chart from the Board of Equalization:


Source - https://boe.ca.gov/prop19/


Conclusion


Overall, the expansion of property tax options to seniors giving more flexibility is a positive and also allows more revenue to the state in certain scenarios. Limiting the property transfer base to children and grandchildren although not ideal for the surviving family, allows more revenue to the state. In reality the family inheriting a property in our area will be at excellent prices, to pay the property taxes seems only fair. Of course, they could choose to sell the property and they still have a step-up basis in taxes if they choose not to keep the property.


Contact Us


Real Estate is complex and tailored to each family’s unique scenarios. For a planning meeting please call or text Alan at (408)313-4352 or e-mail me at alan@alanwangrealty.com so that we can build a strategy unique to you and your family!


Disclaimer


We are not experts in tax law or estate planning. You are highly recommended to talk to your Tax and Estate Planners or Lawyers to see how these propositions affect you and your family directly.


Credits


-       All descriptions in “quotes” are from the California Secretary of State, California General election November 3, 2020 Official Voter Information Guide https://voterguide.sos.ca.gov/propositions/

-       Board of Equalization Summary Charts for Proposition 19 - https://boe.ca.gov/prop19/


Tuesday, October 6, 2020

2020 Curveballs and Impact to Silicon Valley Real Estate

First of all, apologies for not getting the second quarter blog out to you. We are honored by so many of you asking us about the blog and that so many of you read our quarterly updates. This update will encompass the second and third quarter update of 2020.

Other Content Mediums

 

2020 Challenges-to-Date

 

The year 2020 could not be over soon enough. The challenges we have faced as a society we have never been seen in our lifetimes. We are fighting challenges on multiple fronts; first with the threat of coronavirus still looming, learning how to shelter in place with our families and many with children of all ages, learning to cope with online schooling, social distancing in public areas, local businesses fighting for survival, social unrest in many parts of the country, a country divided on many issues and in the last month wild fires across our state creating unhealthy conditions outdoors further trapping us in our homes not to mention those that have lost their homes. Despite all of these challenges, residential real estate continues to boom in certain sectors while struggling in others. This article will explain in depth the various phenomenon’s that we are seeing.

 

A Momentary Freeze


When the Shelter-in-place ordinances were announced, all of us were extremely concerned about what would become of the real estate market. In fact, Realtors were not considered essential at the onset although Banks and Title Companies were. In March and April all activities mostly grinded to a halt, except for those Sellers or Buyers who were already in contract.

 

Temporary Halt of the “City Center”

 

Traditionally, societies around the world revolved around major metropolitan cities and in our area that is pre-dominantly the city of San Francisco. People flocked to San Francisco due to its’ historical ambience and character, multiple night life and entertainment options, an abundance of jobs and career opportunities. These characteristics drove down the supply of housing, confined people to smaller spaces, pushed rental rates as well as home prices upward. When the Shelter-in-Place ordinances were put in place and companies were forced to allow employees to work from home, the justification to live in confined spaces at high prices were no longer justified when people could no longer enjoy all that San Francisco had to offer. Without the nightlife, enjoyment of the outdoors and the need to go to work, people left San Francisco in droves quickly.

 

Out of State Migrations and San Francisco

 

The first group to leave the area were individuals or young couples that weren’t from the area to begin with. Their reasons were simple, move back home to their families as their jobs no longer required them to live in the high-priced Bay Area and therefore they were saving money on high rents in the area. There was simply no need to physically be in the Silicon Valley and remote work options were always a part of the foundation of the tech sector. The impact of this has hit the San Francisco housing market especially hard. Moving trucks were seen throughout San Francisco and landlords have been forced to compete with a sudden influx of rental properties thereby driving down the rental rates in an effort to fill their vacancies and stop the loss of cash flow on their investments. Homes sales especially for Condominiums and Townhomes had a major increase in inventory causing home prices in both of those sectors to drop. Buyers suddenly had an overwhelming amount of choices and it really boiled down to price as the key differentiator. The Mercury News reported “Monthly rent dropped 17.8 percent in San Francisco, the steepest decline in the nation, 9.5 percent in San Jose, 7.9 percent in Oakland and 6.3 percent in Fremont” – Source Mercury News Louis Hansen - 10/1/2020 - https://www.mercurynews.com/2020/10/01/rent-falling-fast-in-bay-area-cities-during-pandemic/. Leveraging Supply and Demand curves, let’s take a look at what happened.

 

Exhibit 1a – San Francisco Supply and Demand Pre-Covid

 


 

Exhibit 1b – Migration Out of San Francisco Caused a Reduction in Rental and Home Prices

 



Exhibit 1c – Increase of the Supply of Rentals and Homes for Sale Further Pushed Down Prices

 


 Government Stimulus and Interest Rates

 

The government acted swiftly to initiate The Cares Act with programs such as the Payroll Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) for small businesses. Although not all businesses were able to get these funds many did. A new concept called forbearance granted relief for a homeowner or landlord from having to pay their mortgage or at a lower rate. Many states, cities and counties initiated tenant payment relief programs as well. Last but not least, extra stimulus payments for qualified earners and additional unemployment benefits helped to keep families afloat.

 

The Federal Reserve having learned from the last downturn, acted very quickly in dropping interest rates to zero and adding more liquidity to the financial system. What resulted was yet again the lowest interest rates ever seen especially for mortgages.

 

Exhibit 2 – 30 Year Fixed Mortgage Rates


 

Source Freddie Mac - https://fred.stlouisfed.org/graph/?g=NUh

 

Technology, Finance and Medical Sectors

 

We are certainly mindful of small business owners/workers that are having the toughest time during this pandemic. Many small businesses and franchisees have shuttered their businesses unable to continue during the strict restrictions as we continue to shelter-in-place. Consumers have been hesitant to return to dining and multiple businesses still remain closed although local counties are attempting to re-open. Even outdoor dining still equates to limited capacity and reduced revenue for local business owners. California’s unemployment rate went from 3.9%, peaked at 16.4% and is currently settling at 11.4% for the month of August. The impact of the coronavirus pandemic is simply staggering.

 

Exhibit 3 - State of California Unemployment Rates



 

Source – US Bureau of Statistics -https://data.bls.gov/timeseries/LASST060000000000003?amp%253bdata_tool=XGtable&output_view=data&include_graphs=true

 

There is one bright spot in this news, key Silicon Valley skilled industries such as the Technology, Finance, Medical, Legal, Construction, sectors of the Real Estate industry continue to thrive despite the pandemic.

 

NASDAQ

 

The technology heavy NASDAQ took a major hit when the pandemic came to bear in March. There was widespread panic across the board. Defying all odds the NASDAQ has now recovered to record levels even pre-covid. This is important for our local home buyers as this is the source of the down payments for their homes.

 

Exhibit 4 – NASDAQ Index Last Two Years


 

Source – Verizon/Yahoo Finance! – 10/2/2020

 

New Requirements in New Times

 

For most families, none had planned to be in their homes with their spouses, children and work 24 hours a day. For most families our days were spent working, driving children to school or day care, enjoying the outdoors, partaking in night life, attending children’s sports and other activities and traveling. Suddenly every home buyer came to us with four key requirements; more living space, more bedrooms to accommodate at least one office, a good size backyard especially for those families with children and lastly a move-in ready home. The key product segment that fulfills this requirement is the traditional Single Family Home which has seen a major increase in demand. Condominiums and Townhomes on the other hand are sitting longer on the market if they sell at all. This is simply not the product segment that people need at this time in their lives.

 

The Flight South East

 

As the migration out of San Francisco occurred, Bay Area residents flocked to the suburbs desperately looking for that space and a yard. In the past, hot markets were defined as flights towards the city centers for the first time we have a flight away. One factor is abundantly clear, housing is an essential need and which is why real estate is in fact booming. Cities in the past that were considered far for most Buyers are seeing multiple offers. Some examples of heavy competition are taking place in Pleasanton, Dublin, San Ramon, Danville and Morgan Hill. Homes are selling before Buyers can get there on the weekend to see the home. Essentially all markets with Single Family Home inventory are seeing a hot market.

 

Exhibit 5a – Supply and Demand of Single Family Homes Pre-covid

 

 

Exhibit 5b – Reduction in Supply Caused and Increase in Prices


 

Exhibit 5c – Increase in Demand Due to Shelter-in-Place Further Increased Prices

 



State of the Market

 

Fueled by a strong job market at skilled positions, a rising stock market, low interest rates, combined with the desperate need for more indoor and exterior living space; these factors have driven the Single Family home market into low supply and high demand across most cities in the Silicon Valley and across the nation and created heavy competition across the board. Condominiums are the hardest hit sector following by Townhomes especially in San Francisco and Commercial real estate has been impacted as well.

Taking Santa Clara County as an example let us take a look at the Single Family Home sector. Inventory has stayed more or less the same however homes are taking longer to sell than last year. This is not surprising given that there is more friction with the home showing process with waiver, forms, booking times and and also the desire of Buyers to have a move-in ready home. What is very interesting are the pending and sold units are overtaking the active homes on the market. What that means is that the demand is extremely strong in this sector. The homes that are selling are selling 29% faster than they were last year. Homes that are priced right and are in move-in ready condition tend to fly off the market. The Condominium and Townhome market tells a slightly different story. Inventory is up 35% from a year ago and the days on the market have increased as well. As mentioned this not the product group that folks are flocking to during the pandemic however the pending and sold units seem to have been picking up momentum though not as aggressive at least in the southbay.

 

Exhibit 6 - Q3 2020 Santa Clara County Snapshot



Real Estate Outlook 2020 and Beyond

 

Companies are allowing workers to work from home until at least June of 2021. Even if employees were permitted to return to work, they will most likely be in a hybrid model first, before having to go back into the office full time. This is all dependent on the status of a vaccine and how the overall coronavirus numbers are trending. 2021 will likely be certainly more than half time at home and indoor and outdoor space will continue to be a premium. Single Family homes will continue to be in high demand while the Condominium and Townhome sector may or may not be on a road to recovery in 2021. There are certainly multiple dependencies before we get back to normalcy.

 

We are living in a unique location where jobs are secure overall fueled especially by the tech sector and those have always been the demographic of people buying homes. I anticipate interest rates to continue to stay low and if the NASDAQ holds at current values or continues its’ upward trend, home prices will continue on that trend as well. The two key variables are the upcoming election and the health of the rest of the nation. The big question is will monetary policy change due to the next president and although we live in a unique place, the health of the rest of the nation should be monitored. If the rest of the nation falls into a recession, then even the mighty Silicon Valley could be impacted and that may slow down this strong real estate market.

 

Sunday, March 15, 2020

Q1 2020 Real Estate Review - Coronavirus and Real Estate

At first glance, the Coronavirus and Real Estate have very little in common. The coronavirus is an un-precedented global health pandemic with the situation seemingly escalating by the week locally and globally. First and foremost, please keep you and your families safe. In the long run, we as a society will overcome this, however in the short run this will not only disrupt our lives, but the situation will also have a major impact to all parts or our local, domestic and global economies. Of the most concern, is how quickly things have changed literally in the last 2 weeks. The stock market has lost over 20%, throwing our bull market into a bear market. Workplaces have mostly asked employees to work from home, schools have been canceled anywhere from 2 to 4 weeks, mass gatherings have been almost eliminated and we are on the brink of a lock down.

The Market Prior to March 2020

Prior to March of 2020, the real estate market told a different tale. Closing out 2019, the Federal Reserve cut interests rates for the 3rd time. This rate adjustment got Buyers who were in discount mode, out in droves as they fought for seasonally low winter inventory. This momentum carried into the spring of 2020 as Sellers once again had multiple offers and some areas were close to wiping out their losses during the real estate market correction of 2018 to 2019. Inventory continued to be low and bidding wars continued for the months of January and February.

The March Avalanche

In the first week of March, the first indications of the coronavirus began to appear with many cases in Santa Clara County. The stock market dropped on the uncertainty and the federal reserve acted quickly by dropping rates by a half point. By the second week, the World Health Organization declared this as a pandemic and the stock markets continued to fall and more drops could be coming.

Real Estate Going Forward

In the short run, there should be enough momentum from this prior group of Buyers for a short period of time. Many in this last group have already liquidated their assets and have been bidding and ready to buy. However, given the uncertainty, unknown impact, duration and magnitude of this pandemic, Buyers are quickly getting nervous on multiple fronts. With the volatility of the stock market down from 18% to over 20% at this moment, remember that tech stocks are the key sources of Buyer down payments in the Silicon Valley. This sudden drop will affect Buyers especially here in the Valley in a major way. We are seeing drop-offs of Buyers during our offer reviews on our listings due to the current crisis. Much will depend on how much worse the situation becomes.

The first scenario is that the situation trends in a positive direction, then the momentum from earlier in the year would lead us into a recovery. Interest rates are at record lows once again and it is very likely that rates could go down further which would be attractive to homebuyers. The second scenario is if we go into lock down; similar to China, Italy and Spain. No rate cut of any kind will help if we end up requiring staying in our homes. If that scenario arises, then the real estate market will come to a screeching halt as with every other part of our economy.

Buyer/Seller Advice

As a Seller, if the situation improves then we most likely haven’t lost too much momentum from earlier in the year. If we end up trending towards the worst-case scenario, there is possibly a small window to get your home sold, but that window is closing very quickly in the short run.

As a Buyer at this very moment in time you will likely have fewer competitors than the last 4 months. If you do get into contract, just be cautious that there might be disruptions in the real estate supply chain such as with lenders, appraisals, inspectors, title companies, etc. I would prefer to take advantage of the market to buy if things do get worse, however if the entire supply chain cannot perform their jobs, then it would be very difficult to close a transaction. Cash would be the least dependent scenario, where most everything could be done virtually with very little interaction needed. If there is a Seller that must sell, and you could buy the home virtually, it is possible that a deal could be had.

Some argue similar to the dot com bust that people flooded to real estate for safety. That is possible, assuming the transaction could be completed virtually which would be difficult in the short run.

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Wednesday, January 22, 2020

My Next Play – Owning a Real Estate Brokerage

It has been six years since I led LinkedIn’s market entry and product launch into China. I was frequently challenged by complex business problems that required sophisticated technical solutions. I enjoyed working with and managing extremely talented, cutting-edge teams paired with complex technical solutions in order to deliver projects and programs under tight timelines. Leaving the Technology sector was a big decision for me after 13 years, but I was in search of more challenges.

Real Estate Industry

Real Estate was an industry that I was already working in for over 11 years at the time. I saw an opportunity for innovation in an industry often leveraging legacy processes; not just in technology, but in the area of Agent quality and the overall customer experience. I wake up each and every day driven by the desire to help as many of our customers as I can, and to provide them with a real estate journey filled with trust and integrity, much needed real estate education, strategic planning and a smooth and wonderful customer experience. The last 6 years have been an amazing journey of growth and discovery, both personally and for the business as a whole. I am excited to announce my next play is to continue to build out more high-quality Agents to further define and lead our industry into the next century!

Keller Williams Santa Clara Valley

I am pleased to announce that I will be launching a new Keller Williams Brokerage as Founder and Operating Principle, named Keller Williams Santa Clara Valley. Before this area was known as the Silicon Valley, the South Bay was called Santa Clara Valley, which pairs nicely as our headquarters is based in Santa Clara as well. We are also exploring future expansion into surrounding areas. Located in the heart of the Silicon Valley, we believe that we provide the optimal location for our Agents to more effectively serve their customers. This new venture will allow us as Agents to further establish high quality Agents in the industry.

Why Keller Williams?

I have explored many brokerages and Keller Williams is still the company that was built by Agents for Agents. This opportunity is a prime example of a company that gives their Agents opportunities that I have not seen with any other firm. We don’t brand the company; rather, we allow you as the Agent to brand yourself, subject to the rules of the Department of Real Estate. Their systems and models are pushing the envelope and they have researched and defined not only how to create successful Real Estate Agents, but also to ensure that these agents are financially sound and running profitable businesses. Last but not least, their latest investment in technology is focused upon empowering us as Agents to perform less backend work, and to streamline our processes so that we can do what we do best: Educate, strategize and service our customers. I am proud to be a part of an organization that not only sees the value that each and every one of us brings to our industry but is also working hard to continue pushing us into the future.

Agents - We Are Hiring!

If you or someone you know would like to join us in our newest venture, we are looking to speak with you! Send me a direct message or contact me at (408)313-4352 or e-mail at alan@alanwangrealty.com

Join the Conversation on Linkedin!

https://www.linkedin.com/pulse/my-next-play-owning-real-estate-brokerage-alan-wang

Monday, January 6, 2020

2019 Silicon Valley Real Estate Year in Review


We wish you and your families health and prosperity in the new year! This is a time for us to reflect on 2019 and look forward towards 2020 and what real estate adventures await us in the new year.


Q1 2019 – Uncertain Buyers, Uncertain Market

2019 started off with major concerns over the health of the real estate market. The latter half of 2018 was the toughest real estate market in a decade-long bull market since the sub-prime meltdown. In the first quarter, that same Buyer sentiment continued as there were few homes being transacted. Buyers had concerns over affordability, the trade war with China and the volatility of the stock market, which took a major hit in December of 2018. Homes were sitting longer on the market with very little showings. Sellers were shocked by this, yet many held onto 2018 price points and many homes sat on the market and were eventually taken off the market.

Q2 2019 – Stimulus Generates a Positive Reaction

In the second quarter, real estate activity started to show signs of life led by an interest rate drop by the Federal Reserve. The two key requirements for Buyers were locations closer to work, paired with areas with excellent school districts, which we define as “Prime Locations.” Prices saw slight drops but held steady in these areas; Buyers had fewer competitors if any at all. Areas that did not fit this template had longer days on market - anywhere from 30 to 45 days or more depending on the Seller’s resolve on the final sale price. If Sellers held onto a price that the market would not pay, they would either continue to sit on the market or take their homes off the market altogether.

The Condominium and Townhome sector has been majorly impacted if the homes are not located in a prime location. There have also been multiple new home construction complexes all around the Bay Area that have flooded the market with inventory. At times they have lowered prices to where it simply made more sense to buy brand new verses a re-sale home on the market. We have been able to negotiate heavily with these new home builders.

Q3 2019 – Momentum Continues with Yet More Stimulus

In the third quarter, the Federal Reserve dropped interest rates once again. This stimulus helped to kick off a flurry of refinances as well as lower rates for home purchases. This stimulus helped to get more Buyers out and about, however other than markets in prime locations, these Buyers were looking for deals and many were to be had in the market. Nonetheless there were certainly more Buyers making offers and getting into contract.

Q4 2019 – Even More Stimulus in a Low Inventory market

In the fourth quarter, the Federal Reserve dropped rates yet again, kicking off frenzies in certain markets due to the seasonal low inventory in this time in the market. With price reductions and low rates, Buyers continued to buy homes until the holidays came into effect.

Buyer and Seller Advice

As a Buyer, much will depend on which market and what category of home you are purchasing. Homes of any category in a prime location will likely come with multiple offers or sell in a short period of time. Single Family Homes outside of a prime location are still desired, and deals could be had depending on the location. It is yet to be seen if Condominiums and Townhomes will see a recovery in 2020. These are prime for a deal for Buyers looking for one.

As a Seller the inverse is true from the Buyers perspective. Pricing is key. If you over price your home, your home will sit with very little showings. The market dictates price and Sellers that continue to hold onto 2018 peak pricing must realize that the peak has passed. This is a reality that Sellers must accept before even considering going on the market. The latest data must be taken into account in your pricing decision. These will vary by home type and location. Homes will sell but not for more than what the market is willing to pay.

2020 Outlook and Beyond

The concerns about the China Trade War seem to have subsided as the stock market continues to trend upward. The expectation is that there will be a resolution closer to the election. This concern is now replaced by the uncertainty with Iran and what their next move maybe after the incident in Iraq. For our Silicon Valley economy, the health of the job market continues to be strong, the interest rate stimulus and momentum from 2019 will likely carry forward into 2020. We have yet to see the impact of the Tech IPO’s as some have had mixed results. The major uncertainty will be what happens post-election and will depend on who wins the election. For now, if the majority of factors remain the same, we should have enough momentum to have a stronger market but still a market in equilibrium overall.

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