Corona Virus California Real Estate
The Coronavirus Pandemic is indeed the very last thing California and the California real estate market needed! Even though the effort is to continue mitigating housing instability during a Pandemic, no one really expected a health crisis to enter the picture in 2020, aggravating and accelerating problems that already existed within the real estate market, and other critical markets, in the sunshine state…
Problems in the real estate market, with respect to a steady decline in home sales – was spreading across the entire state of California well before residential & commercial property sales clearly began to be affected by Pandemic lock-down buyer-alienation – now over five months into an out of control Pandemic and job-loss based depression – severely impacting the real estate business pretty much everywhere, not just in California. But for the sake of argument, and convenience, we’ll limit our view to California.
For example, California house sales decreased 11.5% in March of 2020, down from February levels (which were already shrinking), which stunned realtors; as it was the first double-digit, month after month home-sales plunge in nearly ten years. The largest drop in California residential property sales since August of 2007, reported the California Association of Realtors on April 15, 2020.
Median house prices, however, held their own with a statewide gain of 8.3% from March 2019 levels, rising to almost $600,000 average price, per home sale. Smaller than realtors would like – and certainly way off the mark for realtors looking for lucrative high-end property sales. Compared with 2019, Los Angeles metro sales increased 13.7% from 2018. No such increases now. Los Angeles median house price was $556,250 per sale in March, up 7.6% from a year ago.
The California Association of Realtors’ report was the first proof that statewide stay-at-home orders from the governor due to the Coronavirus outbreak was severely impacting the housing market in California, as in-person home viewings, statewide, were being cancelled week after week, with realtors unable to avert the slide.
And let’s not forget that this is data from California, where home buyers are of course informed that home owners have Proposition 13 and Proposition 58 tax breaks available to them, along with a loan to an irrevocable trust to resolve beneficiary property retention and buyout conflicts. Imagine the decrease in home viewings and residential property sales in all those states where there are no property tax breaks mandated by state law! One look at dwindling incomes, due to work-at-home salary decreases (up to 60%); and waning bank account savings – and you can accurately predict that home sales are going to fall off, no question about it. It doesn’t take a rocket surgeon to figure that one out.
Moreover, California was already seeing a noticeable slowdown of home sales to begin with, well before the Pandemic. Some vocal realtors and special interest politicians blamed shrinkage of the residential property market on senior and elderly home owners holding on to their aging property, refusing to place their homes on the market – and, instead, simply transferring their real property to their adult children.
Naturally, blaming a shrinking real estate market, with so many potential buyers under-employed or laid off (with a lot less cash to throw around), on elderly home owners and their offspring, when in fact normal cyclical real estate market and job market shrinkage was the real culprit – makes very little sense to most Californians.
Moreover, critics primarily blame the 1978 Proposition 13, and Proposition 58 tax benefits, a loan to an irrevocable trust, and benefits arising from this process; avoiding property tax reassessment, home owners’ ability to take full advantage of property tax transfer to offspring, and beneficiaries’ right to keep parents property taxes, to transfer parents property taxes in general upon inheriting property taxes; while holding in deep contempt laws allowing parent to child transfer, or parent to child exclusion as it’s commonly called. These critics of California property tax breaks insist on blaming Proposition 13 for supposedly motivating this interest in holding onto family property, rather than putting these homes up for sale. Most California home owners believe this is nothing short of ridiculous.
Nonetheless, most Californians do not agree with any of these fictionalized notions advanced by these critics of property tax relief, and in particular CA Proposition 13 tax breaks that are universally popular throughout the state. Critics frequently insisted that this shrinkage in the real estate market was a deliberate act on the part of elderly and in particular rich home owners holding on to family property simply to stifle the real estate market – upset that property owners have been transferring these homes at extreme low tax rates to their offspring. Naturally, in accordance with CA Proposition 13 property tax benefits; and often enough in concert with Proposition 58, utilizing a loan to an irrevocable trust to resolve property conflicts among siblings, locking these family homes into a Prop 13 low 2% tax rate… often with no home sale in sight. Clearly not what many realtors wanted to see.
These critics of tax relief also insist that this is a process for, and utilized only by, wealthy Californians – such as the one and only example critics have ever used to make this dubious point, as you know, the Lloyd Bridges family… Repeated so often, pointing at unknown, invisible wealthy property owners, as to be almost comical in the repetition – as they falsely claim that only rich folks can get a loan to an irrevocable trust, to supposedly rent out this type of inherited expensive beach-front property, at largely astronomical rents to other rich people, etc. ad nauseum.
This makes about as much sense as any other conspiracy theory put forth by people of questionable intelligence. Anyone with any common sense at all can see that none of these half baked allegations make any sense, are not properly examined or analyzed from a factual basis, and do not have any traction from a logical or analytical context.
As a matter of fact, no political or media-based group of critics of California Proposition 13, or Proposition 58 for that matter, has ever produced a collection of factual data that backs these assertions up. In fact, most home owners, business property owners, and renters in California have always expressed disbelief in these theories, and have generally felt that these arguments could not be taken seriously.