Post-Election Market Update: Recovery Continues & Proposition 19 Analysis
Woo Hoo. The Election is over and I can finally turn off CNN for election results. So let's talk about our Real Estate Market today and one Statewide Proposition that will impact our market next year.
The Market Snapshot: Where we Were versus Where we are Today
Looking back on the market, even just a few months, feels like years. But I do think it is valuable to reflect on where we were after the systemic shock of Shelter in Place and compare that to where we are today. Back in March and April, many pundits were predicting a 30% decline in Real Estate; a return to the crash of 2007 and 2008; and rampant foreclosures. But what we saw in the market was strong demand with a considerable lack of inventory. Layered on top of that was having to create a whole new Standard of Care for our industry to ensure a new and safe method of doing business. Unlike 2007, Real Estate and the Mortgage Industries were not the problem with the economy. The Pandemic was the problem. We were convinced early on that Real Estate would be in the lead for economic recovery and that COVID-19 would not destroy the Real Estate Market, but only delay it. As you will see, the numbers below confirm that belief. Here is a comparison of where we stood at the end of June versus the end of October. Remember that we are comparing Year To Date data of 2020 versus 2019.
Unit Volume and Dollar Volume of sales continues to improve across all of our markets
- Unit Volume is only down about 11% versus last year. We were down 31% year to date at the end of June.
- Piedmont is down 9% versus down 33% in June.
- Berkeley is down 17% versus down 39% in June.
- Oakland is down 10% versus down 30% in June.
- Dollar Volume continues to narrow the gap with 2019. In our entire market area, we are down only 3%. Whereas, at the end of June, we were down 27%.
- Piedmont is Up 7% versus down 23% in June.
- Berkeley is down 12% versus down 36% in June.
- Oakland is down 2% versus down 25% in June.
The Median Price rise is confirmed
- Our entire market is up 7% in Median Price.
- Here are some of the Bright Spots in our market with Median Price increases for the year:
- Piedmont is up 17% this year.
- El Cerrito is up 6%.
- Albany is up 8%.
- Kensington is down 3%, but if you are a Kensington resident, don't be too concerned. This is a very small market and plus or minus 2 sales per month swings the numbers wildly. So this is not statistically significant.
- North Berkeley Hills up 2%.
- Thousand Oaks and Solano Avenue area of Berkeley up 6%.
- Elmwood/Claremont area of Berkeley up 9%.
- 94602 in Oakland is a large area comprised of Glenview, Upper Dimond District, Oakmore, upper Laurel District and the Mormon Temple area. This area is up 12%.
- Temescal area of Oakland is up 2%.
- Montclair and Piedmont Pines is up 1%.
- And 94619 in Oakland, comprised of Laurel District, Redwood Heights, Upper Redwood Road, Crestmont, Ridgemont, Hillcrest Estates and other areas of the south hills is up over 11%.
Proposition 19 Passes by a narrow margin
Prop 19 expands upon and replaces the old Prop 60 and 90. Under Prop 60 and 90, homeowners 55 years of age or older could sell their primary residence and purchase a replacement home of equal or lesser value and transfer their existing property tax base to the new home. Currently, this is mostly done within the same county of current residence as almost all counties in California have opted to not allow inter-county transfer of tax base.
Prop 19 takes effect on April 1, 2021. It is a confusing law that is going to have to be cleaned up by the legislature prior to implementation. I have read the entire text of Prop 19 many times and there are numerous errors in it, probably due to over-editing. Here is a synopsis of the measure and the most important takeaways:
What does it do?
- Allows transfer of personal residence tax base:
- Eligible homeowners must be 55 years of age or older, or disabled, or victims of natural disasters or hazardous waste contamination.
- Allows for purchase of equal or lesser value with no increase of property tax.
- An upward adjustment will be made on a purchase of greater value.
- Presumably, the adjustment will be the full assessed value of the additional price paid for the replacement home.
- Property Tax Base can be transferred anywhere in the state.
- Eligible persons can use the transfer up to three times.
- Victims of natural disasters or hazardous waste contamination can use it only once.
Other Tax implications
- Changes to inheritance transfers:
- Currently, a Personal Residence can be transferred from Parent to Child or Grandparent to Grandchild without reassessment to Market Value.
- This exemption is eliminated unless the Child or Grandchild uses the home as a primary residence.
- No exemption to use the property as a rental or second home.
- If exempt and the property is eventually sold for $1M or more than the taxable value, an unknown upward assessment is made.
- This assessment will first be set on February 16, 2021, and adjusted each February 16th going forward.
- Other property types:
- Other types of properties, such as vacation homes and business assets can also be transferred this way with the first $1,000,000 in value being exempt from reassessment.
Analysis and Outlook
Proposition 19 had very heavy backing by the California Association of Realtors. Personally, I felt there was some good news in it and some bad news. The good news is reflected in our current situation during the Pandemic. It will certainly give greater flexibility to older Californians to move closer to children and grandchildren that live in other counties within the state. It will also provide some relief to those whose lives have been devastated by the plague of wildfires. Prop 19 may also have a net positive effect by increasing the amount of inventory coming to the market and meeting the demand for Buyers in our area. Clearly, the bad news is that some who inherit property will pay higher property taxes if the home is not converted to their primary residence.
Well, this has certainly been a year. I remember New Year's Eve, 2019, and thinking how glad I was that the year was finally over. I had hopes that 2020 would be a year of 20/20 clear vision. I now realize that I owe 2019 a serious apology! With the Holidays arriving, all of us at The GRUBB Company wish you the Happiest Thanksgiving Holiday.
Until next month, stay safe and healthy.
