As we get close to wrapping up this six part report on the devastating affect the Coronavirus crisis has had on the California economy, and the housing market throughout the state, let’s clarify one thing – not all the news is negative. There are positives, or upsides, in view.
California, unlike most other states in America, still provides citizens with property tax relief benefits from Proposition 13 and Proposition 58 with loans to trusts (or loans to irrevocable trusts), the legal right to transfer parents property taxes when inheriting property and inheriting property taxes.
With Proposition 13 and Proposition 58, California gives beneficiaries and property owners the ability to keep parents property taxes no matter how low the base rate is — upon property tax transfer…. with parent to child transfer or, as estate lawyers refer to it, “parent to child exclusion”. No other state gives citizens property tax breaks anywhere near this type of property tax relief. So no matter how challenging things get as a result of the current health crisis, Californians can always turn to these property tax benefits for positive options when dealing with inheritance assets such as real property, trust loans, sibling property buyouts and related matters.
Aside from that, there are a series of objective, updated conclusions and assumptions that the California Association of Realtors has recently provided; that they want residential and commercial as well as industrial property owners, and beneficiaries, to be aware of:
(a) Mortgage rates are expected to remain low, or even go lower, as Coronavirus outbreaks continue nationally, as well as in California. Therefore, economists anticipate that this will most likely help lower the cost of borrowing money and this is expected to make housing more affordable over the short term, which, if this projection is accurate, will help mitigate some of the uncertainty and negative impact on housing demands in California.
(b) Potential home buyers might be discouraged by increasing uncertainty and fear of oncoming recession. However mortgage rates recently fell to an all-time low of 3.13%. Down from 3.80% at the beginning of the year, representing cost savings over the life of a 30-year loan. These anticipated short-term economic risks are genuine, however they may be offset by the long-term benefits of lower rates for individual borrowers.
(c) Economic volatility in California may lower demand for luxury housing, as overall household wealth declines; however this volatility may also create unique opportunities for luxury home buyers. With less luxury buyers in the market, there could be opportunities for price discounts for buyers who remain in the high-end market.
(d) Demand from foreign home buyers could be vastly reduced. As domestic buyers generally finance homes in much larger proportions to their foreign counterparts, low rates could be stimulating more domestic demand in California – offsetting the negative impact that typically goes hand-in-hand with foreign buyer demand.
(e) Much of California’s Building Industry materials are purchased from Asian countries such as Japan and China or Malasia. As the Coronavirus crisis disrupts these supply chains, the cost of these materials may increase over the short-term and become limited, thereby increasing cost of construction and reducing the pace of already tightening residential development in 2020 – 2021.
(f) Improved affordability may emerge from lower rates plus fewer new homes being constructed – as the material supply chain is impacted. This may lead to an upward pressure on home prices in California. Unsold inventory is already at low levels, so reduced construction means that is likely to continue – especially if buyers respond to lower rates.
(g) The situation in California remains fluid, and conditions could deteriorate beyond the current severity of the virus outbreak. Yet if current economic forecasts of modest declines in GDP growth are realized, the effects of lower rates should help offset the effects of a slow economy with increased economic uncertainty so California could still experience improved home sales and prices this year.
It’s clear that the Coronavirus is having, and will continue to have, a material impact on the California economy, and in particular the housing market through 2020 on into 2021… However, it is also safe to say that this is not necessarily the right time to panic.
The effect of lower rates will help to offset some of these movements in the housing market, and forecasts of economic growth by the California Association of Realtors and other organizations have been revised in a downward direction, but only by tens of basis points – not hundreds.
The situation in California remains fluid; therefore C.A.R. along with attentive and realistic economists at the Public Policy Institute of California or Howard Jarvis Taxpayers Association, and other responsible organizations, will certainly be closely monitoring all of these property matters and financial issues… and will be providing all of us with accurate data, as updated information continues to develop and surface.
>> Click Here: To Continue to Part Six…