Happy May and Week 8 of our “Stay in Place” market. Much has happened in the last two weeks. The biggest news was on April 29th – SAR gave us the green light to allow showings of occupied homes, following the same protocol as vacant homes. Guess what sellers did? Exactly as I said they would do. Here comes the New Inventory. Big activity across the board. My team at AMG has never been busier. You’ll see why below…
Here’s My Weekly Update and Insights:
I have been watching our local markets closely. Pendings and Active Listings declined heavily in March with March 30th looking like our bottom. Since April 8th (real estate considered essential) there has been an increase in activity across the board. The DOW has also rebounded with many of my investors selling out of their equity positions and into income property. More on this below.
Sacramento Residential Real Estate: 8 Week Activity Thru 4/27-5/4
|Week||Active||Off Mkt||Net Active||Pending||Sold|
|Last Wk %||191%||119%||230%||93%||83%|
|8 Wk %||175%||123%||199%||96%||72%|
What does this mean?
Inventory has been increasing since early April and has really taken off in the last week. Overall new listings have DOUBLED since the start of our stay order. Pending Sales are healthy, running at the same rate as early March. However they have NOT doubled to keep in line with New Listings. Closed transactions are a lagging indicator as they will reflect Pendings from early April (at their lows) – currently down 28% from Early March.
Most current Median Home prices is from March, barely changed from February. We should have April numbers shortly. Buyers and Sellers seem accustomed to our new norm, limiting their physical tours, and still writing offers and closing deals. Historically low inventory and crazy low interest rates, combined with spring buying season, are driving this artificial sellers market. The big questions are – how many buyers do we have? And will they absorb this new inventory? I have my opinion on this – read more below and Join Me This Thursday in my “State Of the Market” Zoom Meetup HERE.
What about the Credit Markets?
Mixed news in the credit markets. First the Good: Interest rates are down again to 3.52%. Jumbo loans are slowly coming back with a few CA lenders now offering Jumbos with 20% down; 700+ FICO. The Bad News: Non QM loans are all but gone. As of May 1, GSE guidance with the new CARES ACT, agency and government cash out refinances have new price adjustments. You are now looking at paying 5-7 points. OUCH! Debt-to-income requirements and overall underwriting standards continue to be tightened across the board. It’s important to shop your rates and terms. My partner, Rodney Rose at Fairway is my go to on everything mortgage.
What about the Foreclosures; Delinquencies and the Economy?
2.2 Million Workers Have Filed for Unemployment in California during the past 4 weeks – which is more than the total filed for unemployment during the entirety of the great recession of 2008. With millions more filing for unemployment, the level of job market distress continues to worsen. That is why I expect that the share of delinquent loans in forbearance to continue to grow, particularly as new mortgage payments come due.
The Mortgage Bankers Association’s latest Forbearance and Call Volume Survey revealed that the total number of loans now in forbearance increased to 7.54% as of April 26, 2020. According to MBA’s estimate, a total of 3.80 million homeowners are now in forbearance plans. Although this should help some homeowners navigate the crisis, it is also concerning. After the crisis these homeowners will be financially compromised, leading to an increase in defaults and foreclosures as they are forced to catch up.
The Federal Housing Finance Agency confirmed that borrowers with Fannie Mae and Freddie Mac will not have to repay their missed payments in one lump sum. The missed payments will have to be paid back by the borrower. For those borrowers who opt for forbearance, their mortgage servicer will contact them about 30-days before the end of the forbearance plan to see if the temporary hardship has been resolved and discuss a variety of repayment options. If the hardship has not been resolved, the forbearance plan can be extended. These guidelines, however, do not apply to Jumbo or Non-Conforming loans – which make up 45% of the CA mortgage market.
How Will Eviction Moratoriums and Rent Strikes Affect You?
It’s bad enough that folks are out of work and can’t pay their mortgages. Add to that the many landlords whose tenants are not paying their rent. Currently California’s Eviction Moratorium is in place for 90 days past the lifting of the Stay Order. But if you’ve read our Governors 4-Phase plan to lift our stay order, it’s not clearly defined WHEN the 90 day clock will start ticking. Assuming our stay order is lifted July 1st – that gives tenants until October 1st before they have to worry about an eviction filing. Maybe your tenants paid in April. But what about May? or June? How long can you hold out with no rent payments – through October or possibly longer?
According to the National Multifamily Housing Council, 31% of renters across the country didn’t pay rent on April 1. We expect May 1st non-payers to be much higher. Activists are now calling for rent cancellation. Rep. Ilhan Omar introduced legislation on April 17 to cancel rent and mortgage payments nationwide during the pandemic. San Francisco Supervisors Hillary Ronen and Matt Haney, along with city leaders across the state, have pushed for Newsom to enact the change statewide through an executive order. He hasn’t yet responded publicly to their demands. But the rent strike movement is gaining momentum. As for catching up their payments, assuming tenants are willing, it will be near impossible, unless more financial relief is given, or their income somehow doubles during the recovery. By the time eviction and bankruptcy cases catch up in the courts, the properties will have to be sold or will be heading into foreclosure.
How about a 25% Rent Cut? You read correctly. Pending legislation AB 828 will allow the CA courts to force landlords to reduce rents by 25% — even if a tenant cannot show a COVID-19 hardship or need. It will allow the courts to set rents and change rental agreements already in place. It will assume every tenant is facing a COVID-19 hardship and must be compensated for it. It will mandate that rental property owners demonstrate an economic hardship to collect the contracted rent. Sound crazy? It is and it’s on the table as an alternative to the Rent Cancellation movement. If passed every rental property in CA will have an automatic 25% price reduction – and a large number of property owners will simply turn over their keys to the bank – just as they did with the Tax Reform Act in 1986.
What Should You Do Going Forward?
This NOT the time to take a “wait and see” approach. I have urged my team, my clients and everyone who will listen to me – if you are thinking about selling your residential property, you need to get it on the market NOW – before the pending surge of new inventory hits the market.
Remember these Quotes from My Week 6 Blog?
“By mid May the “stay order” will be lifted and many owners who’ve been waiting on the sidelines to sell will be putting their homes on the market.” Done and inventory is ramping up as you read this.
“Once the Foreclosure and Eviction Moratoriums are lifted, you can expect to see many new NOD filings; to be followed by foreclosures in about six-twelve months.” Stay tuned for data on this. Join me this Thursday for my Live “State of the Market” Zoom Meetup at 7pm. Details and RSVP Here.
Now is the time to have a plan, and act on your plan.
Landlords with cash flow issues, plus owners who paused their payments, have a window right now to sell, before inventory floods the market.
Property owners who want to downsize or move within the next 12 months should absolutely make that move right now and ride out the storm in their new home.
We all know what happens when we have too much inventory and not enough buyers. My team is talking to these owners right now about taking action to preserve their equity, before it is gone.
Let’s take advantage of this uncertainty, and with my direction, create the right plan for you. If you are a cash buyer, please reach out to me. We have many deals in the pipeline and will have many opportunities for you to buy distressed residential properties in the not too distant future.
Many of my residential income property owners are currently selling (or 1031 exchanging) out of residential and into commercial self-storage, medical-dental office, or drug stores – all great recession hedges. With 35 years experience in both commercial and residential real estate you are in good hands with AMG!
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