Episode Transcript
[00:00:01] Speaker A: The Michael Hatfield Remax team presents real.
[00:00:04] Speaker B: Estate and more Bay Area real estate is different than all of America and why? What's up with buyers? What's on sellers'minds? How is the market and much, much more. Now here's your host, Michael Hatfield.
[00:00:20] Speaker A: Welcome to the real estate and more show. I'm Michael Hatfield. Let's do an assessment of the Bay Area housing market first thing and then bring in today's news in our Bay Area housing market, first of all, the market itself is still somewhat in equilibrium. I would say pretty much it is. And that is between the sellers or possible sellers who are of retirement age and the millennial age buyers that make up the biggest portion of our buyers at the moment, and they're not really.
[00:00:53] Speaker C: Motivated due to interest rates.
[00:00:56] Speaker A: If we were to back out seasonal fluctuations, we still find home prices are remaining somewhat the same and buyers may have some difficulty in qualifying for the home that they want.
Interest rates today, recall that we've been talking about next year being an election year and that we expect interest rates to drop accordingly. On Tuesday. To hear our plea, mortgage rates had their biggest one day drop in nearly four years. An encouraging inflation report came out and convinced bond market investors. The Federal Reserve is done hiking the Fed rate for a while. Interestingly, according to the Mortgage Bankers association, homebuyer demand for purchase money mortgages before Tuesday's rate drop had already picked up for a second straight week. As an example, we have buyer clients who had just locked their rate Monday the 13th at 6.76%. Then we have this Tuesday, November 14 rate drop of 20 basis points. So what is this rate drop going to do to our clients that already locked Monday? Well, fortunately, some lenders allow one last look at the mortgage rate before the loan closes. Some do, and in this case they have that option and the bank will take a look at it and say, okay, well, maybe we'll just come down just a little bit for you, and that's hopefully what will happen. What about the rest of the potential homebuyers that are looking for purchase money mortgages?
[00:02:39] Speaker D: Let's talk about loan affordability. One difficulty a homebuyer may run into in purchasing a home is mortgage loan qualification. Why to talk about this, I've asked Mike Goldstein, president of Coast Capital Mortgage, to chime in. Hi, Mike, and welcome to the show.
[00:02:56] Speaker E: Hi, Michael, and thank you for having me.
[00:02:59] Speaker D: My pleasure. Let's go through a scenario where a buyer qualifies for a 30 year fully amortized purchase money loan at 6% and then compare it with qualifying at 7% mortgage interest.
[00:03:13] Speaker F: Well, a 6% loan will give you is a payment of $4,196 a month, and a 7% is at 46 57.
[00:03:26] Speaker E: That's $461 a month. What does that mean to the average borrower? Well, the banks look at your debt to income at 50% or less in order to qualify for the loan. So to go from 6% to 7%, that means that the borrower has to actually make $940 more a month to qualify for the same loan.
[00:03:56] Speaker D: That's significant at times, isn't it?
[00:03:59] Speaker E: It really can, yeah.
[00:04:01] Speaker D: What is included? When you say debt, what is debt? I mean, can we define that a little bit?
[00:04:08] Speaker F: By all means. It's your principal interest, taxes and insurance.
[00:04:14] Speaker E: On the new loan, plus the minimum payment on all of your revolving debt. That's your minimum payment on your credit cards, your car loan, and any student loans and any other debt that you would have.
[00:04:27] Speaker D: Well, that'd be a great reason if a person just qualified for a loan to not go out in the process.
[00:04:33] Speaker C: And buy a new car before their.
[00:04:34] Speaker D: Home closes, wouldn't it?
[00:04:36] Speaker F: We've seen that, and that's not a pretty sign at the end of closing.
[00:04:40] Speaker D: No, it's not. It's a real thrash to do that. If you were to take a look at this and you say, well, this is qualifying for the loan, but there's a lot more involved in purchasing a home than just qualifying for the loan. One is you got to be able to afford it, which obviously you can if you're qualified by a mortgage lender. But there's something that's more important here.
[00:05:03] Speaker C: In the San Francisco Bay area, and.
[00:05:05] Speaker D: Maybe, let's just hit it a couple of times, what that could be. What about home appreciation? Have we actually taken a look lately at the difference between a mortgage interest rate as 7%, say, and see what you'd pay over three years, and then compare it with what home appreciation would be over three years for a home that's roughly 800, $900,000. Have we ever really compared that?
[00:05:33] Speaker C: I have, but I don't think I.
[00:05:35] Speaker D: Brought it out recently.
[00:05:36] Speaker C: Have you looked at that, Mike?
[00:05:38] Speaker F: Well, what I talk to my clients about is a few different factors. There's what you qualify for, and there's the number that makes you sleep well at night. But above and beyond that, people have.
[00:05:51] Speaker E: To remember that real estate is a long term investment.
It's not a one year investment. It is a 510 1520 year investment. And statistically, over the last 50 years or more, homes appreciate.
[00:06:10] Speaker C: Absolutely, they do.
[00:06:12] Speaker D: I would say that home appreciation, just as a. I use the term wag, and I don't want to say exactly.
[00:06:19] Speaker C: What that is, but as a wag.
[00:06:22] Speaker D: You can usually count over a period.
[00:06:25] Speaker C: Of five to ten years of having maybe a three to one.
[00:06:29] Speaker D: So you're paying one being the mortgage, but your home appreciation could be as much or more and three times that amount. Nobody's guaranteeing this, but we're just talking about the concept out loud. And that's not to include the fact that, okay, you pay rent now, you're paying $3,000 a month for rent, which could likely get worse moving forward.
And that amount of money could go to your mortgage loan payment. Also, you're going to be able to take a look at the mortgage interest deduction. You also have depreciation, which is non.
[00:07:07] Speaker C: Cash for tax purposes. And you have the ability to live.
[00:07:13] Speaker D: In your own home as to live under the rules of someone else's property. Thank you for coming on, letting us know your thoughts.
[00:07:21] Speaker A: Mike Goldstein, coast Capital mortgage more to.
[00:07:23] Speaker D: Come we look forward to the next time of being able to chat.
[00:07:27] Speaker F: Thank you for having me, Michael.
[00:07:30] Speaker A: So let's think about this for a moment. What matters more than mortgage interest rate?
How about the home appreciation that we've talked about? Why? Because home appreciation can likely be equity appreciation, and you would have the equity as the homeowner. Okay, we've all scared ourselves with what is likely buying the biggest asset in our entire lives and with interest rates not as nice as they were two years ago. What should a buyer do? If you are a buyer, you should buy.
Interest rates should not control the sum total of a buy decision. They are important and an important element. They are. But historically, the mortgage interest rate is just not as important as home appreciation in the San Francisco Bay Area.
Historically and over time, the appreciation of your home's value, which incidentally increases your equity in the home virtually while you sleep, it's equated to much more value than paying more than you would like in a mortgage interest payment. Interest is rent on the money that does not belong to you. Buy your home, enjoy your home. Go through the process while values are still affordable, not later on, as values may be higher and you may need more cash down payment and need more loan.
Reviewing historical Bay Area appreciation, one will conclude to buy your home sooner than later. Live in that home, enjoy that home. You have to live somewhere, and it's so much better to own your home than to rent. You won't be paying rent and you will have tax benefits of the mortgage interest rate, deduction and depreciation. Let's think a little bit more on this.
We have a shortage of homes for sale and recently reduced interest of buyers due to lofty interest rates. But now those rates may be easing and likely to ease in the election year of 2024. Just around the corner. Taking it farther with homes for sale inventory low and not expected to increase much, what is going to happen if you put buyer demand on it? Basic economics says home prices are likely to increase in the Bay Area as we go forward over time, of course, and that will create even more difficulty for buyers who have waited. Now homeowners insurance some folks ask me what is going on with homeowner insurance in California. Simply put, the gist of it is that several months back, many primary homeowners, insurance providers like State Farm that had 20% of the homeowner market, became discontented by being prevented by the California Insurance Commissioner from raising rates, even though they were having to pay out millions in forest flyer claims. Thus, they said they are unable to sustain business at a loss and remove themselves from writing new policies in California. So in September, if one's home is in a high fire area where it is difficult to insure, you're able to get a policy written with the help of government's California fair plan. Therefore, the insurance is provided by a combination of a standard insurance carrier and a government's fair plan.
Importantly, when we have buyers, especially for a home in a higher fire area, as soon as we go into contract, we start working with insurance brokers to acquire a new policy and have it bound as soon as possible.
It may take a few more days to get homeowner insurance, but our clients have all been successful.
The next subject adus auxiliary dwelling units. They are a hot topic for existing homeowners as well as potential home buyers. Adus are units placed on an existing property and for permitting purposes. As per Ab nine, the track to get approval by county and city planners is expedited. That means that it should be much easier to get permit approval for one of these units that it would have been difficult or more difficult to get in the past. Generally, the size is 700. They're quite attractive for having the in laws come, elderly people that want to stay with you without having them underfoot. At least that is the possible use for an ADU.
Now there is a chapter two in the Adu saga. If a city or county is opted in to AB 100:33, that's AB 100:33. Then a homeowner can actually get an address as you would a condo and later sell it separately from the main address.
That's right. Under AB one zero thirty three, you may be able to get plans easily. Build your ADU, then get an address for it, then turn around and sell it as a separate home. Check with your local city or county planners to see if they have opted in to ab one zero thirty three and also to see if county or city planners have some preapproved plans that might meet your needs. We are off for a moment for just a short break. Be right back.
[00:13:30] Speaker G: What does an agent do to get a home sold?
[00:13:32] Speaker H: Typically, an agent will prepare a comparative market analysis so he knows the home's value, then creates a marketing plan tailored just for your home. With these plans, he promotes the home globally and locally in social media, publications, open houses, all for the purpose of getting your home front and center with prospective buyers.
[00:13:51] Speaker G: As an agent, how do you get it sold?
[00:13:53] Speaker H: Michael we do each and every item in the plan. Negotiate vigorously on the client's behalf, on inspection, repairs, staging and importantly, the deal itself. We do everything we can to get the deal done and closed.
[00:14:07] Speaker G: Call 925-32-2775 now to schedule an appointment or complimentary home analysis for excellence in real estate. Call the Michael Hatfield remax team at 925-322-7775 or go to michaelhatfieldhomes.com. Now back to our show.
[00:14:26] Speaker D: We've been talking about the real estate.
[00:14:28] Speaker C: In the San Francisco Bay area and I wonder how home markets are doing elsewhere. So let's check in with our good friend, the well known radio host Pat Batucci, who's on vacation and holiday on the big island in the state of Hawaii.
[00:14:43] Speaker A: Hi, Pat.
[00:14:44] Speaker C: Thanks for coming on and sharing what you see in the island state.
[00:14:47] Speaker I: Aloha. Hope you are.
[00:14:49] Speaker D: Well, we're doing just peachy over here.
[00:14:53] Speaker C: I understand there are a little more than 1.45 million residents on all the islands in the state of Hawaii, about the same size of population as Phoenix, Arizona. And would you happen to know the breakdown of what percent of those residents are permanent residents as opposed to non permanent residents?
[00:15:15] Speaker I: Well, generally in all the islands, only 75% are permanent. That means 25 are not permanent.
Some islands, like the big island, are 40% non permanent residents. So clearly Oahu is the capital and Honolulu is the thriving metropolis and a big majority of those folks are permanent residents. But you get to the outer islands, it's much more of a vacation, kind of a second home environment, not only.
[00:15:55] Speaker C: Because of the beauty of the islands, which obviously where you're at is really beautiful. And Maui will be once again soon. But I think property taxes are incredibly low, in fact, the lowest in the state of Hawaii in the entire country. On a million dollar home purchased in, say, Alameda county, one would have to pay about $12,900 per year for real estate property taxes in Hawaii.
[00:16:26] Speaker I: Well, Hawaii, for that same million dollar home, you're only going to pay $3,500. So about a fourth of what you pay on the mainland, I think, with.
[00:16:38] Speaker C: Vacation sites is that when the economy does a downturn, they're the first to start the downturn and the last to recover. Do you think that's probably a true statement?
[00:16:50] Speaker I: Yes, absolutely.
The highs and lows in Hawaii are significantly higher and lower and longer. The bull markets stay a little bit longer, but the bear markets, the down markets are dramatically longer. And typically, when the mainland goes into a recession about six or nine months later, Hawai feels the effect and it stays in it for about six to nine to twelve months longer than mainland people. So it's slower to get in, but really slow to try and recover.
[00:17:30] Speaker C: I remember back in the, was flying Hawai with the airline and the captain was talking about, wow, we're in a downturn here in the market. And the market is really presenting a lot of potential buy deals here in Hawaii. And everybody was crying over there that the real estate market was bad and they were just crying a lot. And he went in and bought a lot. And like you did when financial advising, you would go in and you would buy at the lows and then enjoy the highs. And it seems like that would be a good time to buy as opposed to a good time to sell. You don't want to sell at the low anyway.
[00:18:13] Speaker I: Yeah, right now, Michael, the highs are really high. I think they're artificially high, like in the mainland. I think we're going to see a downturn. I think Hawai real estate peaked about three or four months ago. Of course, interest rates hit that 8% month number. They're down about 7.5 now. And I think you're beginning to see a slide in Hawaii, given the fact that interest rates are so high. And I think the enthusiasm for buying in Hawaii is beginning to wane.
[00:18:47] Speaker C: Yeah, it's an interesting know on Tuesday.
[00:18:51] Speaker D: The feds stayed pat and an inflation.
[00:18:55] Speaker C: Report came out and the bond traders went crazy. And the next thing we know, zero point 20 basis points came off of the mortgage interest rates. But already a week and a half before that, the buyer's markets had spurred quite a bit of activity. And I think now we're starting to see some real pressure on what there is available for sale here. As you know, there's not a lot to be bought. There's just no excess inventory over there.
I don't know. So that's why I'm deferring to your thought.
[00:19:34] Speaker I: Yeah, the inventory, Michael here, is very low, and that's why prices have gone insane. And by the way, cash buyers make up about 30% of the total purchases in the state. So that's a pretty high number compared to the mainland. But again, it's predominantly a second home market. Certainly retirees come here to retire, and if they list last more than a year, they tend to stay for several years. But I'm told a lot of first time paradise people who come here to live move out within the first year. It gets boring, I guess, 85 degrees and sunny every day, and it rains seven inches a year on this side of the big island. And I guess people get tired of the same old same all, and they like the four Seasons, or they miss their family, they miss their friends. It's any combination thereof. But amazingly, people don't last. A lot of them don't last a year here.
[00:20:37] Speaker C: Going back to the part about the Fed rate, I'm wondering how much the effect of the Fed rate change would affect their buying, the number of houses that they would be buying or homes that they would be buying. I just wonder about that.
[00:20:53] Speaker I: Yeah, I think the luxury market, the homes that are 6810, 12 million and higher, I don't think the cost of money is an issue because those buyers come in predominantly with cash. It's that condo buyer that's looking for the five or $700,000 nice condo. Those are generally financed to some degree. And by the way, I think the Federal Reserve is done raising rates. Their next meeting is December twelveth. I think we're going to see another pause. And as we move into 24, listen to this. I think they're going to start reducing rates. How about that? It's a presidential election year, and the administration will whisper in the Federal Reserve ear, hey, bring rates down. We want to make the economy look a little better than it really is. So I think we'll start to see a decline in interest rates in the first and second quarter of 24.
[00:21:52] Speaker C: And I totally have that opinion. Also, it's like our friend Gabe said. He said that when he was buying quality sheets of plywood for 100, everyone was buying. But when they started stair stepping up to $300 a sheet, everyone stopped buying. Then they came back by $15 or $20 and it spurred the buying on that was almost at an unbelievable level. Well, I think that may be what we'll have for those few homes that we have for sale on the mainland after the first of the year. So we're totally in the same viewpoint. There are vacation rentals in Hawaii doing well or not so well.
[00:22:29] Speaker I: This know, Hawaii has had a slow year and I think the logic goes something like this. During COVID people came to Hawaii because they couldn't go to Europe. Now, this past year in 2023, there was a giant migration to Italy and France and England. And so visitors to Hawai, the numbers were down something like 12%.
The prospects for 24 certainly look better now that people got their european vacation out of their system and they want to come back to a quieter week on the beach. The projections are that 2024 will be another superlative year.
[00:23:16] Speaker C: I have to think that that might be the case. One indicator of a bustling economy can be told by how many residents actually own their own home as opposed to renting. Would you happen to know, Pat, approximately what percentage hawaiian residents own their own homes?
[00:23:37] Speaker I: 58% of residents own their home own homes in all of Hawaii. That's a pretty good home ownership number. Very few native Hawaiians. Right. Most of us are from typically the west coast. People east of the Mississippi tend to go to the Caribbean. Right. To Florida or any of the islands off the coast of Florida.
[00:24:01] Speaker C: Interesting. Is there much building going on in Hawaii specifically? Well, I guess you'd have to say on the big island. I don't know how you're going to see the other islands at the moment, but the big island, do you see much building going on over there?
[00:24:15] Speaker I: No, Michael, there is not. And certainly, sadly, with the catastrophe in Lahaina, I think a lot of the folks who would normally go to Maui are going to either Big island or Kauai or, you know, let's face it, Lahaina had whole lot of great restaurants and places to visit and sadly, that's going to take a number of years to build that town back up.
[00:24:47] Speaker C: In your view, has the home values over there increased a lot in the last two years in Hawaii?
[00:24:52] Speaker I: They've gone through the roof. It's just incredible because inventory is so low and demand is high. Keep in mind there's 10,000 baby boomers retiring every month and will do so for the next eleven years. So 10,000 boomers, some of those boomers with a lot of cash from 401 ks, iras, maybe they're going to sell their mainland home, have the propensity to come to Hawaii and want to live life on the beach. And so they come here with a lot of cash. And because there hasn't been much building in the last several years, the limited inventory, as you well know, supply and demand says when supply is low, demand is high, prices are going to, are going up a lot.
[00:25:41] Speaker C: It's definitely an overriding factor. Well, I think I'm a Boomer, but I don't have lots of cash like those other 10,000 or we're retiring every year on the mainland. We talked about cash buyers. Do you foresee going forward the continuance of most of the buyers in Hawaii being cash buyers?
[00:26:04] Speaker I: I think, though, that seems to be the trend, that when you come over here, you're looking for freedom and you're looking for less stress. And if you equate mortgages with stress and you're not going to come over here and get an 8% mortgage, I mean, you would probably stay where you are in your hometown a couple of years ago, as you well know, when rates were 2%, you come over here and borrow money every day of the week because if homes are appreciating five, six, 7810 percent, it's only costing you 3% tax deductible. So you net that down to one and a half or 2%. That's a screaming buy, right?
[00:26:49] Speaker C: That's unbelievable.
Well, Pat, I really appreciate you taking the time out of your hawaiian vacation over there to enlighten us with your great thoughts and observations. It's always a pleasure, my friend. Thank you for coming on this morning, and I hope that you just enjoy the rest of your vacation. We'll see you when you get back.
[00:27:13] Speaker I: Aloha and God bless. Thanks for having me, Michael.
[00:27:16] Speaker A: It's most certainly our pleasure. A big thanks to Mike Goldstein, president, coast capital mortgage, and to radio host and financial advisor Pat Fatucci. It's always a pleasure to have these gentlemen on the show.
You have been listening to real estate and more. I'm your host, Michael Hatfield. Interesting people, topics of the day, and, of course, real estate. You can listen to archive real estate and more shows by going to michaelhatfieldhomes.com slash radio. That's michaelhatfieldhomes.com slash radio. We'll be right back with our next special guest.
