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By Mike Rains, Mar 25 2020 11:02PM

The Covid-19 virus has our country gripped in a crisis that we haven’t seen since the great recession of 2008. While the concern and fear about the future have much similarity between the two, there are many things different about today’s crisis. 2008 was a real estate crisis, not a health crisis. The fundamentals of the two real estate markets are very different indeed.

The 2008 market was a house of cards built upon poor real estate fundamentals. Home builders were building excess inventory at a clip of 2 million homes built annually creating excess inventory. Easy money loans were the norm; with no money down; no income documentation loans; pick a payment loans offering payments below an interest only loan payment were being used by everyday people not investors, and being underwritten to qualify at the lowest payment option, to name a few of the many poor fundamentals in place. When the cards started to fall, there was no strong foundation to keep it from falling down, and the first people that walked away, had nothing to lose but their credit, and they walked, and so on and so forth. The last people out were the ones who had a strong down-payment, but one or both spouses lost jobs, and despite burning through savings and possibly 401k monies to try and save the home, they still lost it.

Today’s fundamentals are very different, and when I talk about fundamentals I am talking about the economy, jobs, wage growth, supply of homes, demand for homes, and interest rates. As of February 29th, 2020 the real estate fundamentals were this for the Orange County California area: 1) lower inventory by 53% over 2019 available for sale 2) interest rate for a 30 year fixed rate averaged 3.25% 3) expected market time to sell was 35 days, (down from 65 days from 2019), for homes under $1 million which made up half of the inventory available and 76% of the demand of what buyers were searching for 4) There were 25% more home sales January 2020 than January 2019 5) Job numbers reported as of March 6th 2020 for February were up 273,000 for non-farm payroll with an unemployment number of 3.5% 6) stock market had reached all-time highs. So suffice it to say, all these fundamentals were in high gear and doing great! And then the Coronavirus pandemic hit the US in full force.

While I am writing this in the midst of the crisis, as a realtor, I want to help people have a level of concern and care of the crisis, without a doubt it is serious, and yet have a calm understanding of the fundamentals of the real estate market. So when we do come out of this crisis and time will tell whether that is a few weeks or several months, we need to understand that the STRONG fundamentals in the housing market going into this crisis are still in place, and will be the launching pad from where it goes from there. Here are some considerations for why I can say that.

Home builders have not been building homes at a pace to currently keep up with the demand for housing. This is one reason that we have endured a housing shortage for multiple years and a cause for home prices and rental prices to steadily rise. Currently the home build rate is about a million new units annualized, which has been behind the demand by a half a million units per year. So, low inventory will continue after we come out of this crisis.

Interest rates are currently averaging 3.375% and will be fuel for buyers demand to purchase homes, to take advantage of this. One benefit in today’s market is less buyers to compete with, which translates to less competition and possibly more opportunity to negotiate a fair price. The market time to sell is currently up at 39 days to sell with the same mix of demand and supply numbers for homes under $1 million.

Listen, there is little doubt that we are in strange times, but I have buyers who want to buy after this settles down and sellers who want to sell, so I just want to encourage you that there is a lot to be confident about for the future based on the fundamentals, despite the difficulties we are all having right now.

(Stats by OC Housing Report)

Mike Rains- Realtor RE/MAX TerraSol Huntington Beach CA

By Mike Rains, Mar 11 2020 10:31PM

Everywhere I go, people want to talk about real estate, and no even more so as the world is dealing with the Coronavirus pendemic. Whether you think it is overblown or not, it has affected behavior, and that can lead to an impact on markets, as we have seen lately in the stock markets, bonds, and price of oil, gold and silver. The best way to fight fear is with facts my mentor Brian Buffini, real estate coach and speaker/teacher, say.

So, how will the Coronavirus outbreak affect housing? There is no absolute, 100% certain answer. Instead, it all boils down how long this crisis will last and how large of an impact it will have on United States soil and the rest of the world. In China, the number of new cases is dwindling, a glimpse of hope that this too will end. Currently, the data does not indicate any change in the local housing market. The supply of homes to purchase in Orange County is at its lowest level for a start to March since 2013, and demand (last 30-days of pending sales) is at its highest level since 2016. With not enough supply and strong demand, the Expected Market Time (the time between pounding in the FOR-SALE sign and opening escrow) is at 48 days, a HOT Seller’s Market and its lowest level since 2013.

As a direct result from the COVID-19 outbreak, mortgage rates have dropped to a record low and will most likely drop even further. There is a chance that they break below 3% and into the 2’s. This inevitably will provoke many more to purchase, juicing demand. For a $750,000 mortgage, today’s 3.25% rate amounts to a $492 per month savings compared to March 2019’s 4.4% rate. That’s a savings of $5,904 per year. If rates drop to 3%, it’s a $594 per months savings, or $7,128 per year. And, at 2.75%, it’s a savings of $694 per month, or $8,328 per year. In doing the math, it is easy to see how lower rates will stimulate demand. The impact on affordability is astounding.

If you are considering a purchase or in need of selling your home, it is essential to, now more then ever, work with a professional that has your best interests at heart! Mike Rains- Professional Realtor

By Mike Rains, Mar 15 2019 01:44PM

Do you own property for investment and manage it yourself? Are you thinking of buying investment property and want to save money by managing it yourself? While I think it is true that no one will care for your property like you do, I still believe there is tremendous value in having a property manager, and this article will explore those reasons.

What are the biggest concerns that an investor has when it comes to their properties? Being an investor myself, I think that most people want to have the BEST Tenants, earning the HIGHEST market rents, staying compliant with all of the tenant laws and regulations that exist, and finally, being PROTECTED and SEPARATED from tenant issues that arise by having the right contracts and agreements in place.

The #1 killer of good investment property is VACANCY. When a unit sits empty, the owner is losing money every day that it sits there. Vacancy happens, but there are distinct reasons for prolonged vacancy. The first and most important reason is poor tenant screening. The pressure to fill that property with a tenant can be tremendous for an owner, and they might cut corners on having proper screening, only to find out later, that the applicant looked great on paper, but had issues in the past rentals. The second is also important, and that is having poor property condition, which leads to tenant dissatisfaction, which can lead to chronic vacancy as tenants constantly switch out at the end of the lease. By the way, poor property condition can also be detrimental to the long term value of the asset as well, especially in areas where market appreciation is big like in California. Many properties are evaluated by investors by CAP rates; which is your rate of return on the investment, and when used with what the actual rents less the expenses in a formula, turns out a number that determines the value. So you can see if the property condition isn't as good, you get less in rents, therefore less in value of the asset.

The KEY to a good investment for an owner, in my estimation, is having good property management! Whether you do it yourself or hire one. The property manager screens tenants thoroughly; collects rents so you get paid on time; handles the tenant issue that arise at a moment’s notice; periodic inspections; monthly and annual reporting; uses proper contracts and helps you make the right disclosures to keep you compliant with tenant laws; does rental analysis to keep you apprised of current market rent trends.

Other benefits include simple things like being able to take vacations without worry of tenant issues or collecting of rents. It also assures that even long term tenants are not paying "under-market" rents. I have met owners who have had the same tenant for years and years, and have had a great friendship develop, so much so that the owner doesn't feel like they should raise the rents when it is time, and thus after a number of years find themselves significantly lower than they should be. Now I will grant you, that there is tremendous value in having a long term tenant, as it addresses the "vacancy" issue raised above, but that being said when ten years goes by and your $500 lower in monthly rent than you should be, that is VERY costly indeed.

One of the biggest advantages of having a professional property manager is that liability. The property management company is licensed, insured, and stands in the gap to mitigate your liability, shielding you from potential tenant issues that can often lead to lawsuits. The costs of a property manager are easily made up with this protection as well as addressing issues quickly to maintain the property, and having current market rents.

Find yourself a good one, who has good problem solving skills, great communication skills and cares about your investment like you would care for it. Should you ever have any questions about property management or investment properties in general, please email me at mike@mikerains.com or visit my website at www.MikeRains.com #askMikeRains #mikerainsrealtor

By Mike Rains, Nov 29 2018 09:39PM

There are voices from many corners saying many things regarding what will happen in 2019 in the housing market. Time will tell who is correct, but then again hindsight is always twenty-twenty. In this article we will explore some of what can be expected. As an agent, I offer boots on the ground, "what it feels like" perspective, but since real estate is local, it is imperative to look at all sides.

The Remax Housing report came out this month for October's numbers and demonstrated, nationally, that for the third consecutive month of year over year lower home sales has now led to the first year over year inventory increase in ten years’ time. The RE/MAX National Housing Report for October saw sales decline 4.6% from a year ago – compared to sales drops of 11.6% in September and 1.1% in August – and was the eighth month of 2018 to record lower sales than 2017.

As a result, inventory is slowly being replenished, with the number of homes for sale in October increasing 1.0% over October 2017. October 2018 was the first month to show a year-over-year increase in inventory since October 2008 when two and a half times as many homes were for sale. The Month’s Supply of Inventory is now 3.5, compared to 3.3 a year ago.

“The market continues to move toward equilibrium. The modest inventory increase is a much welcome sign for buyers,” said RE/MAX CEO Adam Contos. “Although home sales were down year-over-year, it’s encouraging to see the magnitude of the decline decrease from the sharp drop we witnessed in September. The trend of easing price increases remains and that’s also a positive.”

California Association of REALTORS® Senior Vice President and Chief Economist, Leslie Appleton-Young, presented the 2019 Housing Forecast on November 27, 2018 to Orange County REALTORS® members. In this report for California forecasts the most likely case to be that homes sales of homes will decrease by a -6.9% with the average homes sale price to also decline by a -.2%. This is obviously the first time in a while that Californians have seen homes values decline, albeit it is a very small amount.

As a Realtor in Southern California, Orange County, I have personally seen that many agents like myself have seen a slowdown in sales numbers, and in many cases, it is due to lack of inventory from new sellers to the market, or a traffic jam of sorts from sellers who would like to sell their home and move, but have not had the confidence that they too would find a suitable replacement. The phenomenon at the very least has contributed to the lower inventory numbers. Also as agent, with fewer sales, and more agents in the marketplace, there has been less to go around. This will cause many agents in the near future to exit the real estate business.

What does all this mean? Well with interest rates due to continue a gradual rise, I believe that this represents a great time to be a buyer in the market place and not experience the frenzy and multiple offer situation. Sellers too can continue to reap a really great rise that has taken place and make the move that they have been wanting to make to other areas or upsize or downsize their current living space. There are contingencies that we as Realtors can put in place to protect both buyer and seller to give the time needed to find another home. It is a win-win for all sides. As usual I am available to talk with anyone considering making a move in or to the Orange County, CA. market. Call me anytime at (714) 293-4786. #askMikeRains #mikerainsrealtor

By Mike Rains, Aug 15 2018 07:12PM

Who doesn’t want to get the best deal in buying a home or investing in real estate? What are the factors that make up getting a great deal, especially in the market we have today, August 2018? Is it the price? Location? Style of the home? Yes, Yes and Yes are the answer to those things, but there is one more thing that has a huge impact on what is paid for a home. Want to know what the secret is?

Before I tell you that, let me first say that if you are paying cash, then the price you pay and condition for a property in the best location available will matter the most. I am addressing the rest of us that will likely have to take out a loan. In Orange County California where I live, the Median Sales price across all property types is $560,000.

With 20% down on that median price gives you a loan amount of $448,000. As of this writing, if you had good credit and you are going to live in the home and put a 20% down payment, the interest rate would be at 4.375% for a no point 30 year fixed loan. The APR for this by the way is 4.411% (which includes the cost of the loan- aka APR)

Now I am going to mathematically show you the answer to what is the secret to a great deal in today’s real estate. The answer of course is INTEREST RATE. We have enjoyed an historic drop in interest rates over the last 7 plus years as the government stepped in and drove the interest rates to below market rates. At one point that rates bottomed at about 3.5% for a 30 year fixed loan. It has already gone up almost 1% so far from then and experts agree that now that the government is no longer a buyer of those bonds, but a seller of them, the interest rates are predicted to go up to the mid to upper 5-6% range in the next year or so. This of course is a return to the mean, as they say, as historic rate averages show that the average rate of about 6%.

Just ten years ago in 2008 the interest rate averaged 6.03% according to Freddie Mac. Twenty years ago in 1998 the average interest rate for 30 year fixed mortgages were 6.94% and even thirty years ago in 1988, the average rate for a 30-year mortgage rate was 10.34%

Now let me demonstrate why the secret to a good deal in real estate has everything to do with interest rate. Let’s take the same purchase price as above at the median sales price of $560,000 with 20% down giving you a loan amount of $448,000. If the interest rate were to rise just 1% from where it is today, you would now pay $4480 more each year for the interest you pay and a total of $134,400 over the life of the loan more. If the rates got back to the historical average of 6%, which is still a great rate by the way, then you about pay 1.625% more in interest of the loan amount, or $7280 each year and $218,400 over the life of the loan. Can you now see why INTEREST RATE MATTERS in buying real estate?

You might say, hey I am just going to wait for the market to pull back because it has gone up and up and up for ten years and the market is due for a pull back and I can get the house I want for a lower price! I agree that real estate values rise and come down in cycles. That is a fact. However, you would have to buy that same $560,000 house for $425,600 and interest rates only go up 1% from here or at $341,600 if interest rates go back to 6%. I would humbly submit to you that when the market does pull back, it will not be as extreme as this would need to be. You will still pay more for the home that what you would pay for it today with lower interest rates; The math doesn't lie.

So what should you do? I would say that if you have been thinking of purchasing a home, then talk to your mortgage professional and get with a pro realtor that can lay out your options for your individual scenario. Even if you don't have a full 20% down payment, you can still buy a home and take advantage of the low rates today! If you are in the Orange County California market, you can reach out to me for help and I can refer you some great lenders and answer any questions you might have. #mikerainsrealtor

It's a Good Life,

Mike Rains





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