Question of the week: What was the result of the ballot initiatives that impacted real estate?
Answer: In early October we covered three propositions on the California ballot that if passed would impact property owners in the State. As I write this the final results for elections in California are not yet official. Per California law the results must be certified by the Secretary of State no later than the 38th day after the election, this year that date is December 11th.
That said, the final outcome of the propositions are pretty much decided, absent a flood of uncounted ballots that change the outcomes.
Proposition 15 NO 52%
Proposition 15, if passed, would have split the property tax rolls and stripped the Prop 13 protections form commercial property. The voters’ rejection of this proposition should send a message to elected officials in Sacramento and those who have tried to reverse Prop 13 for several decades. But the message will again be ignored and we can expect the issue to continue to come up on future ballots.
Proposition 19 Yes 51.1%
By passing this proposition voters did make an major adjustment to Prop 13 in restricting the ability of tax-basis to be passed down from one generation to the next. As an example, under the current code, parents can transfer their home to one of their children with a current value of $1 million, but due to Prop 13 their assessed value is $400,000 and the children obtain ownership and their tax basis is the $400,000. Under Prop 19, this direct parent-to-child(ren) transfer can still occur, but it must be the primary residence of the child(ren). This also impacts the transfer of property from grandparents to grandchildren; and generational transfers not only directly but through trusts and inheritance.
Prop 19 also amends Props 60 and 90 that enabled homeowners over the age of 55, those with disabilities, and/or victims of natural disasters, which enabled them to sell their primary residence and transfer their tax basis to the purchase of a new home. Props 60 and 90 limited the transfer to counties to participating counties, Prop 19 enables the portability of the tax base to any county in the state.
As well, instead of only being allowed to transfer their tax base once in their lifetime, Prop 19 allows three transfers. This is a benefit for those who have been through a divorce or widowed.
The increased tax proceeds generated by the Proposition will be split between statewide wildfire response needs and to counties that suffer losses from the passing of Prop 19.
But Dennis, how can Prop 19 generate revenues if it is costing counties money? Great question (thank you). Counties with lower median sales prices were against Prop 19 as they feel, correctly, that many eligible homeowners would be selling homes in higher cost counties and buying in lower cost counties. Consider the retired couple who sell their home in Palos Verdes for $1.2 million, with an assessed value of $400,000, and purchase in a new home in Palm Desert for $600,000. Riverside County will be collecting taxes based on the $400,000 tax base that is being transferred from Los Angeles County. Los Angeles County will be collecting taxes on a basis of the $1.2 million sales price of the home in Palos Verdes.
Riverside loses the taxes on the $200,000 difference between the sales price basis and the transferred basis on the home. LA County gains on the extra $600,000 in tax basis between the seller’s prior basis and the buyer’s new basis. As you can see, LA County, and the state by the way, benefits greatly from the transfer, and some of that benefit will accrue to Riverside County.
Proposition 21 No 59.9%
Proposition 21 would have fundamentally changed the rental housing markets in the state as it would have given much greater leniency to local governments to enact rent-control on residential units. Time after time, election after election, residents in local and statewide elections have rejected rent control, knowing it is a short-term panacea to rental costs and only benefits those renting at the time the laws are passed. Low-cost housing advocates, and their allies in government, will continue to push rent control as the solution to growing populations of homeless persons and adding affordable housing to markets.
It is very likely that the 2022 statewide ballot will have propositions that are identical, or extremely similar to failed Props 15 and 21.
Have a question? Ask me!
Retail sales continue to increase, but at a much slower rate. Sales were up 0.3% in October, well below September’s large 1.6% spike in sales, and the lowest monthly increase since May. The increase in sales were driven by higher ticket items, such as vehicles, electronics and home-improvement. It should be no surprise the on-line purchases continue to be driver of retail purchases, growing over 3% from September. The slow down in the growth is being attributed to rise in positive tests for the Covid-19 virus in October. While this is an obvious cause for a decline, I feel another factor contributing to the slower growth is the tremendous spike in September sales. Historically, when there is a very sharp increase in a month in consumer spending or retail sales it is followed by a much smaller increase due to consumers taking a break from big ticket and splurge purchases the month before. Yes, the virus is a factor, but don’t discount the prior-month factor. Regardless of the cause, the news is positive for rates to remain low as the data could portend a slowdown in the economy.
Rates for Friday November 20, 2020: I give up…trying to predict rates and the actions of investors. Primarily how low rates can go. I have said for many months that there is little room for rates to go lower, yet over the last three weeks, after seven weeks of stability, rates have done just that. I underrated how money would flow into stocks and equities based on the pending availability of a vaccine would not choke out investments in bonds and mortgages. Reasonably, the expectation should be for economic growth, higher company revenues and profits, and also higher rates. However, funds are flowing out of cash and into both stocks and fixed rates causing stock markets to continue to grow and rates to fall. For how long?
Please note rates are for purchase transactions, refinance rates are higher, please call for quotes to meet your situation.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:
30 year conforming 2.375% Down 0.125%
30 year high-balance conforming 2.625% Down 0.125%
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
It appears Californians have come together with a common cause—lambasting our Governor over his incredibly poor decision to attend a dinner party that violated the standards he has been touting to the state’s residents. The ignorance of the optics, or the arrogance of perceived impregnability to criticism for his actions, is baffling. If Governor Newsome was aware that his attending a dinner party may cause some rumblings, he completely missed the possibility that he would do something that hasn’t occurred in this state in sometime, unifying residents from across the political spectrum in heaping criticism and calls of hypocrisy on his reputation. Well done Governor, now what will be your next, and hopefully more globally beneficial, act that will keep this newfound coalition together? Suggestions welcome.
Whether you intend to abide by the Governor’s guidelines of limiting the number of guests and households in attendance and keeping your gatherings to less than two-hours, or intend to “French Laundry” your gatherings, Leslie and I wish you all a very happy and joyous Thanksgiving.
As for us, as every year, we are very thankful for those who support our business by trusting us to work with you on your transactions and referring your family, friends and co-workers.
That said, none of this works without the incredible team at Stratis Financial who support us and our clients with their diligence, hard work, experience and constant positive attitudes. Our staff is as good as any in the industry, which has proven to be true in this year of historic challenges.
Thank you everyone for your support and confidence.
Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog