It’s official. Half the year is gone! In escrow, we prorate using 180 / 360 days; we are coming to the end of California’s property tax fiscal year, so June 30th is an important date. We are very much aware that we are on the slow slide to the end of the year.
STATE OF THE REAL ESTATE INDUSTRY
As I talk with people (over the phone, on Zoom) everyone (including me) is always asking, how is the real estate market doing? And as I review press releases from the big industry organizations like the Mortgage Bankers Assoc.,the National Association of Realtors and their California counterparts, the market fluctuations are like roller coasters – one week it’s up, one week it’s down. For those who want to know and don’t want to get whiplash, here it is in a nutshell as of the end of June – forbearances have leveled off, refi mortgage applications have dropped week to week, but new purchase mortgage applications are increasing. New sales are jumping! Here are my opinions on the following subjects.
⧫ Forbearance – Borrowers are not provided with clear understanding of what happens. They need to understand “forbearance” is not “forgiveness” and it certainly is not a “loan modification”. Amounts that are not paid will have to be paid at the back end of the loan or per agreement. Let there be no misunderstandings in the future when the Borrowers look to get the loan paid off.
⧫ Refinances – If your contemplated refinance amount is around $400,000 or less with no cash out, no forbearance request in your history, clean credit history and you are still gainfully employed, then there is a good chance you can complete the transaction. If you are looking for a jumbo loan amount, your loan will have to be shopped to Lenders who have a program and be prepared to wait a long time for the approval.
Meanwhile, pre-pandemic, the Top Ten of mortgage lending in 2019 data accumulated by the Consumer Financial Protection Bureau (CFPB) is summarized by HousingWire. I bet next year’s report for 2020 will be a doozy!
⧫ Residential Purchases – Booming in different parts of California and the nation! There are guidelines on how the real estate agents can show the property so checking it out virtually first will save you time. Different parts of the nation have different protocols but most of them call for scheduling in advance, ie., making an appointment to show. Masks, gloves, booties, hand sanitizer, no touching, social distancing, and even disclosures and release of liabilities before you walk in that door.
Property values are staying steady and even rising! COVID-19 has not seen any slide in values. Low range properties – in California that means $500,000 or less – are much more easily sellable. Those over $1 million are not seeing traction yet, particularly in areas which attract foreign investment. I imagine it’s still a question of the have’s in the world trying to recuperate financially.
And that brings me to this update: All of you are aware of the turmoil in Hong Kong caused by China’s imposition of a National Security Law on Hong Kong. What could be the financial effects that will affect us?
This is my humble opinion: Hong Kong citizens who already have a financial foothold in other countries will seek to transfer more cash assets overseas. Those who can immigrate will try to do so – Great Britain, Canada, Australia are destinations of choice. The U.S., unfortunately, may not be in that category with President Trump’s newest Executive Order on stopping the issuance of new visas. (See my commentary below). What is happening in Hong Kong is causing considerable nervousness across the strait in Taiwan. The Taiwanese will also be looking to ship out their assets and like Hong Kong, the U.S. has always been the first choice . What does this mean for us? Putting 1 + 1 together we hope that our real estate market will be the recipient of 2. For the real estate agents who are reading this, position yourself! This will be the time to connect with your Chinese Buyers and prep your U.S. Sellers. This is my forecast for the second half of the year. Let’s see if it is “on the money” or missed the mark!
⧫ Business Purchases – Slowly starting back up. As the Shelter Orders have been lifted and then imposed again, businesses are in a difficult position. Do we open? Do we stay shut? Unfortunately many businesses have been left with no choice but to close down or sell. Buyers who are looking to purchase can get a good deal but they are, understandably, much more cautious: what if the Shelter Order is revived? What changes do they have to make to the physical operation? Those who make the decision to buy have to have considerable faith that they have a viable business plan and can make it.
⧫ Commercial properties – My sad outlook is that in the short long run (meaning from now to 2 years or more down the road), commercial properties will have been hit the hardest by this pandemic. With the work-at-home experience under their belt, many companies will seek to reduce their commercial space requirements. Will a 5-10 year lease costing hundreds of thousands per year really be necessary? Those corporate budget adjustments will not favor commercial landlords. And that’s not even broaching the subject of all the bankruptcies and big chain stores closing down ….
CONCERNS ABOUT “EXECUTIVE ORDERS”
With Congress in deadlock and California’s legislature out for much of the 1st and 2nd quarter it’s no wonder “Executive Orders” are the tool of choice for President Trump and Governor Newsom (as for many state governors). Sure these orders were used before but it took the pandemic to highlight its use. What a way to run the country/state. Bypass one branch of the government and just DO IT!
The latest and greatest from the President – the halt to new visas for foreigners – is, in my opinion, a big concern that could impact the edge that the U.S. has in science and technology. It will also impact our daily lives because we depend on workers who provide “essential” services (for instance – food production) that might not be so easily or willingly provided by American workers. This is a country of immigrants and these immigrants are the bedrock of research and innovation. Cutting off a chance for them to bring their talent here and contribute to our society seems to be cutting off our nose to spite our face. This CNN opinion article leaves food for thought, particularly in the important area of medical sciences.
Another Executive Order felt seriously in California – Governor Newsom’s requirement that face coverings MUST be used in public. The order further states that noncompliance may result in “financial penalties” (see LA Times article here) and there is talk that the State may stop sending COVID-19 funding to certain counties which do not follow this order. We know the Governor has all of our citizens wellbeing in mind, but no matter what, an Executive Order takes away the ability of other branches of government to provide a check and balance to the Executive branch and to be heard effectively.
FEDERAL TRADE COMMISSION (FTC) TIP OF THE MONTH
My public announcement this month has to do with contact lenses. Yes, you read that right. Did you know there is “The Contact Lens Rule” ? It is the right to get your contact lens prescription from your optometrist and buy elsewhere where the cost is cheaper. Yep. Didn’t know that Rule. Could be a game changer! I remember hating to ask for the prescription and ending up always paying too much at the optometrist when I could have just gone to Costco…..
You have arrived at the funnies section. It is your prize for reading through all the above. Here are a few picked up through cruising the internet (the only type of cruising we can do now):
“Yesterday my husband thought he saw a cockroach in the kitchen. He sprayed everything down and cleaned the room thoroughly. Today I’m putting the cockroach in the bathroom.”
“Here in Tennessee I am not officially allowed to open my pub. But real estate agents are allowed to buy and sell houses with viewings. So… I am officially putting my pub on the market as of tomorrow. Viewings are between 11AM and 11PM, no appointment necessary, but you must buy a beer while viewing.”
“How do we warn our past self about the future of 2020?” https://www.youtube.com/watch?v=Ms7capx4Cb8
And finally, the ubiquitous Zoom Shirt article from the New York Times for all of you who are in the same position as my poor brother, who has had full day virtual meetings every single workday since 1st of March with no end in sight.
THINK ESCROW! I am now on YouTube Link to promote an understanding of the escrow process for my escrow industry. “Knowledge is power!” Do you have questions regarding FIRPTA – the Foreign Investor Withholding issues ? Check out my video regarding the topic at this link. No long article to read! Just enough info to get you started. A Q & A video is also on the channel.
You Have Questions? We Have Answers!
Juliana Tu, CSEO, CEO, CBSS, CEI, SASIP
“Escrow is my FOREMOST language!”
The opinions expressed in this blog are solely the author’s.