SOTM 61: Biden’s Housing Plan, the K-Shaped Recovery, and Real Estate

Aaron: Real Estate Rockstars, this is Aaron Amuchastegui and I am back for a state of the market. The state of the market is the podcast where I come on and sometimes it’s me and sometimes I’m on here with some friends or some other real estate experts and we’re talking about the real estate news and what’s going to be happening in the world. It’s funny because if we think back to January, a lot of our news was like, “Hey, this company is selling more stock.” Or, “Ring doorbells are in trouble for videos.”

We had a lot of real estate news, but man, it seems like the news of today just seems more important. Everything that’s happening right now, it’s just been a wild year with real estate news, but it is funny even back in February, I remember Pat Hiban and I on here doing a State of the Market Podcast and one of the articles we were talking about was an in-demand article that said, “Could coronavirus kill the real estate market?”

The funny part of that was now we all know that while we got that wrong, the real estate market– I guess it depends on what does kill the real estate market. It killed volume, there’s way less sellers out there and there’s a way higher demand and so prices are going up. You’ll ask a lot of people and they’ll say, “Hey, did it kill the real estate market.” We have a ton of listeners that have had the best years they’ve ever had, but then you’ll have other people that’ll say last year they did 60 transactions and this year they’ve done eight or five.

Maybe coronavirus did kill the real estate market, or maybe it really made it boom. It is the story of multiple, multiple recovery types. Today as I record this, it is November 11th. We had a Presidential election last week and that was– I was expecting this week to talk about it. It’s just a weird election. We do know it’s a weird election, it was much closer, regardless of who ends up winning at this point. It is not what they said was going to happen.

It was not what the forecaster said was going to happen out there. If Biden ends up winning, and right now it looks like Biden is going to win. It was a lot closer election than anybody said it was supposed to be down to 7,000 or 10,000 votes in some of those states that really matter. Then it was also really super weird first time ever going to bed thinking one person is going to get elected and wake up that somebody else is, and then having all of the vote counts stop in the middle of the night.

It was very anti-climactic and everybody’s usually staying up until midnight on election night and all of a sudden around eight or nine o’clock everything stopped. Nothing was happening anymore. Funky, funky year, but as I jump into today’s real estate news of what’s going on out there, that’s one of the things I wanted to start talking about. You’ve seen a lot of articles now, Joe Biden, if he is the President, what’s that mean? What’s that going to mean for real estate? What’s that going to mean for taxes? What’s that going to mean for investing? What’s that going to mean for agents? That is some of the stuff that we’re going to dig into right now.

One of the very first articles I want to talk about today, it’s a CNN article and it just says, “Are your taxes going to go up? What’s really going to happen?” Something that’s really been a lot of the news today because people have said, “All right, so now Joe Biden is elected and the house is still Democratic.” There are all these things that could happen and in the article I’m going to go into next of all the possible things that could happen this year.

One of the biggest things that I think is really interesting and somewhat undecided right now of how that will impact, is the reality that Joe Biden is a new President-Elect and– Sorry, the media is announcing Joe Biden is the new President-Elect. The Congress still goes to the Democrats and the Republicans run the Senate. Traditionally, if the Republicans have more of the Senate and the President is Democratic, there isn’t much tax change that’s happening.

There are going to be some runoffs in January in– I forget what state it’s in, where they’re going to be going into some runoffs where they could actually make some Senate changes, but I think the biggest news that I read today that it’s on CNN and Fox News and any of the places that you look at, is if the Senate has majority Republicans and Biden is the President, we will probably not see any substantial tax change for a couple of years.

I think that is one of the reasons that that stock market went up a few days ago, as things are starting to go in. It was the realization that when it comes to taxes over the next few years we’ll probably see more of the same. One of the other news pieces we saw this week was the big announcement that, “Hey, there’s a vaccine that is almost ready.” And the stock market really, really liked that.

We saw airline stocks jump way up and I tell you what? From a personal level, not a news level, from a person level, I really hope the world gets to open up again. I really hope we get to travel again. I really hope that we get to go places and from the looks of that was a lot of people were starting to have hope too that maybe we would. Hawaiian airlines going up. Their stock went up 50% in a day with that news.

I’m happy with that and happy that we’re going to see some more of that. Next one I want to get into. This article says what a Joe Biden Presidency means for real estate and housing. This was in the article and it was published just a couple days ago. It said the after days of a suspenseful voting, Joe Biden has been declared the 46th President United States.

The Biden and his Vice-President pick Kamala Harris have a lot on their plates to say the least, but here’s some of the things they’re going to be doing and it highlight several things. They make changes in affordable housing and housing discrimination laws and rentals and evictions and housing-related taxes, homelessness, 1031 exchanges. It’s a few big things on there that I think regardless of if the Republicans have a majority in the Senate, these are things that I think the President does have the power to do.

The Biden campaign’s housing proposal pinpointed the dearth of housing supply as the driving force behind the affordability crisis. In response, Biden is pledging about $640 billion in housing over the next 10 years. Among other things, they’re planning to provide financial assistance to help hardworking Americans to buy or rent safe, quality housing. As you look into that as an agent, that could give you hope for the entry-level buyer.

If they are going to put money into first-time buyer programs again, and to help people buying housing put you infusing money into people, so they can get started to be able to buy a house without having those savings, that could make a big difference. I don’t remember what year it was but several years ago, they did a tax credit where they moved it up where you could buy a house, and I think it was back, maybe 2011, 2012, where they had a tax credit that you could get, and you could use that for your down payment preemptively.

If usually, you were going to get a tax credit, you get that tax credit but they would give it to you ahead of time, so that way, you could use that for your down payment. I’ve heard a lot of things that they’re going to be thinking about doing some things like that to help people to buy houses. We will see where that is for the opportunity, but just know they’re going to be spending a lot of money on affordable housing and as an agent, you could try to figure out where you might fit in with that.

Housing Discrimination Laws, it says Biden’s housing proposal tackles redlining and other discriminatory practices in the housing industry head-on. He specifically wants to create a homeowner and renter Bill of Rights, similar to the California law Bill of Rights. The Bill of Rights would prevent landlords from discriminating against tenants who received federal housing assistance, among other things.

That could be an interesting change too. California has had those laws for a long time now. I think every place out there has anti-discrimination laws when it comes to housing and renting and things like that. A nationally established homeowner and renter Bill of Rights is not something that’s been on the table yet. As you hear that, what’s that’s going to say is that’s going to protect occupants of houses.

That’s going to protect somebody that owns their house and lives in it. There could be things that maybe it’s going to be harder for them to be foreclosed on or harder for them to get unfair lending practices or some of the things they’ll be diving into with that. When it comes to, let’s see, the other part, the protection for the renters is going to be, options to be able to pay rent late options, be able to not have eviction, option be able to work out some other programs, and that’s another thing that they were talking about next.

The next thing in the plans is rentals and evictions. Biden’s plan for rentals calls for local eviction diversion programs will include mediation payment plans and financial literacy education. In an earlier version of this plan to beat COVID, Biden also stated that no one should face foreclosure eviction because they’re affected by COVID-19 calling for a mortgage and rental relief programs for people with that.

That’s something that’s happening right now. Right now there are no evictions allowed, and no foreclosures allowed. There are some exclusions to that but in general, foreclosures are on hold until January fourth, evictions are on hold until January fourth, for normal homeowners and normal tenants, not investment loans, not special type properties. They’re talking about extending that for a whole other year.

Next, it says Biden said if elected, he will roll back Trump’s tax cuts, presumably including the deduction for rules like things like mortgage interest in local and state taxes. Now, that’s one thing that I think could have a major, major impact. It’s a big thing that when we’re telling people to buy their houses, like, “Hey, you’re going to be able to deduct that property tax or that mortgage interest.” And so if you rent a house for $1,000, you could actually pay a mortgage of $1300 a month, and it’s going to be the same thing for you after taxes.

Now, I’m not sure how far that will go with a Republican Senate, but that is one of the plans that are out there. Homelessness, another entire section of Biden’s housing proposal is dedicated to homelessness. A national strategy for making housing a right for all. The proposal calls for emergency funding for things like shelters, and vouchers. There’s another article that I’m going to talk about. It’s pretty interesting and talks about a way that maybe they’re going to try to tackle homelessness and affordable housing.

Another thing they talked a lot about was they wanted to get rid of the 1031 exchange for investors with annual incomes above $400,000. What a 1031 exchange is if somebody is selling a house, and they’re making a profit when they sell that house, if they are going to buy another property, and they can 1031 exchange, so if they sell a house for 300,000 and they buy another property for 300,000 they’re going to have to pay taxes on that increase.

That was a very common way that people could get a lot of real estates and now they’re talking about eliminating that. I’m unclear right now if that’s something they can do without the House and without the Senate or if it’s something that will happen no matter what. All right. Next article we jump into Bloomberg article. It says record-low mortgage rates widen the historic US economic divide.

This one just came out said minority homeowners are losing ground in the K-shape recovery. Times are good for most us homeowners right now. As record low-interest rates spur a surge in refinancing and rising home prices. They’re not so great for. Most of them are African-American and don’t have the final financial resources to compete with well-heeled New York City buyers. They’re losing ground.

It says, in another scene from the K-shaped economic recovery across America, cheap credit for those who qualify as widening wealth inequality. We talked about this K-shaped recovery a couple of months ago on here. What that is, is saying there are two different recoveries going on. In the financial sector right now, unemployment is maybe 5 to 7%, when we came out with that article, which really means there is no unemployment, that’s normal employment.

In the housing or in the services industry, like hotels and things like that, unemployment was at 30% or 40%. It’s saying in some industries, people are really struggling, they’re not going back to work. In other industries, nothing has changed. They’re making just as much money if not more than they ever had before and they have more savings. Those are the people that are been reaping the benefits from the new interest rates. People that have those good solid jobs, are getting new lower payments, for their houses, they can buy bigger houses, everything like that.

People that are unemployed right now, they’re not able to refi. They’re not going to be able to refi into those new rates. That article is saying, the income inequality is getting worse, because the people that are doing well, right now are going to be doing even better with these low-interest rates and the people that are struggling aren’t going to be eligible to get them.

The quick article I just wanted to touch on that I thought was kind of interesting as a sign of the times. Blackstone backed firm targets Brazil, Mom and Pop investors. This is an article from Bloomberg from November 11. It says, Blackstone backed Patriot Investments, one of the large ones of the largest alternative asset management firms focused on Latin America is hunting for mom and pop investors in Brazil for the first time since its founding.

They are investing in real estate funds in Brazil right now. The rates are still very popular investment vehicles in the US. As they talk about trying to find new investors into these funds, they’re doing real estate funds now in other countries and looking to go fund those locally as people are trying to find real estate-based investments out there. As we see people going into other countries, the real estate is a worldwide phenomenon, and so it’s fun to just get a little look a little bit at that.

The next article is another one of those that is a pretty fun one. This was a Bloomberg article. It says, the global rich trigger 1900% sales surge for UK country estates. This is a lot of the things that we’ve seen in the US right now. We’ve seen higher demand for properties on acreage, for large properties because people are going to spend more time in their houses. This is a funny one. It says last month saddles listed to Bowden park estate for £35 million, $46.4 million.

The property included 15,900 square feet 18th century mansion. 22 gardens on 1400 acres of farmland and Wilshire which is about two hour drive from central London. In any other year this property would just sit on the market, but this year it’s different. It says, we would not have been able to tell the owner before we could sell this in three months. Last year for insurance only one property sold for more than 15 million. Now since COVID in 2020 they’ve had over 19 of those houses sell or be pending.

It’s really interesting to see a super high demand for these giant properties. If you go look at the article on Bloomberg you’re going to see these giant mansions now that they are very specialized properties. Like I said, it used to be one would sell a year. It would take years to sell it and this year as they’re coming on the market it’s actually a sellers market. I’m looking at giant mansions in London. It’s actually a sellers market.

I’m actually going to share the screen on that really quick, so we can see it for you guys that are watching on YouTube right now. Here’s the article, global rich trigger 1900% sales surge. Take a look at that picture. Look at that. Those properties are now selling right away when they’re going on the market which is completely different than what they had seen years past.

Next article says, imagining a second life for Midtown Manhattan empty offices. As workers stay home and office buildings sit vacant, some see a new role for New York’s business district as a site for affordable housing. Could you move that? Can you think about that? We’re thinking what is next for New York? What’s next for all those places? Now I’ve seen just as many people saying, “People are going to come back to New York. They survive 911. Everything’s going to recover. People are going to come back. People love living in the city. It’s limited space. It’s a totally different environment.”

This article is saying– This one came out right before the elections. It’s says of office towers normally pushing activities is being called a ghost town now. Many times you’d expect to see tumbleweeds rolling through Bryant park. The occupancy rates on city hotels like those in Midtown South tied to tourism corporate level plunged below low 10% occupancy rates on hotels in downtown Manhattan plunged below 10% and more significantly the workers who wants crowded the sidewalks on their way to the office have stayed away.

Commercial brokers CBRE found that just 10% of Manhattan’s workers have returned. There’s a lot of articles of people out there now talking about can they change this to affordable housing or could that be as Biden goes after affordable housing and he goes after homelessness, is he going to put some incentive into that? Because you also have to pay the companies for that. You have to give them a reason or an incentive to be able to switch over to that.

I have to imagine that they would. Next article on Inman says temporary rental provider Tweener Homes strikes deal with Expedia. The Chandler Arizona based real estate company offers fully furnished homes on short-term leases for families in between permanent residences. Another alternative moderate for temporary housing standalone residential has launched tweener homes positions itself as a part-time housing solution for families in between homes.

Marketing lease options from one month to a year and for a month it’s a technology-based real estate company filling the gap for people that need an in-between residence. Homes available to Tweener Homes clients are fully furnished and the process is conducted online. Families need to rent a home or find some temporary housing in common especially in very tight sellers markets.

This will be interesting for agents. I think all of you agents could actually use a service like this when you’re out there. Right now. they’re primarily around Phoenix and we’ll see if that model affects people in their places, but there’s a lot of times right now when people sell their house but they don’t have a place to move into yet. They do these temporary lease backs where they get to go.

It’s really common to have a two or three month period between selling a house and buying a house. Very seldom do you actually get to buy a house on the same day you close and coordinate those. This is a company that’s focusing on that. They’re saying we can give you a one month rental, we can give you a six month rental while you’re buying your other house or something like that.

As they are filling that mark– I would expect to see more companies like that coming out in a market like this where demand is high. Demand is high for real estate, so the properties are selling but then– People are selling their properties at top dollar. Sometimes people are saying I’ll list it just to see if I get that great offer. Now they get that great offer but they don’t know where they’re going to be moving to yet. That’s where companies like that will come into play.

Another one. At the beginning of the year, we were talking about Ring as some of the news that would come up. Today’s news says fire risk prompts recall of hundreds of thousands of Ring video doorbells. Amazon has recalled more than 350,000 have its second generation smart doorbells following reports of certain ring products catching fire. The recall notice which was posted by the consumer product safety commission states that battery can overheat when the incorrect screws are installed for installation posing fire and burn.

At a price of $100, hundreds of thousands of second-generation doorbells were still in Amazon between June and October 2020. 23 reports of fires causing minor property damage and eight reports of minor burns were filed. That’s a big recall. It’ll be interesting to see who that impacts and how that– It’s obviously going to impact Ring. Personally, am I going to uninstall my Ring to go send it back because I think there’s a chance that– I don’t know.

I think most people would probably. I guess, if it’s an optional recall not everybody’s going to go send everything back in. To see what the actual impact could be, might take some time to figure that out. Next are these two articles from Wall Street Journal that I think you guys should get to hear about. This first one says the race for space is pushing up Suburban’s rent. America’s mega landlords have thrived since COVID-19 setting off a scramble for suburban homes.

Now most people that are landlords know that since COVID has hit occupancy are at all time highs because people that have houses are staying because they want to stay somewhere secure and they don’t want to move if they don’t have to, the people that are being forced to move because they need more room are. Everyone that I talked to they’re at 99% occupancy when they were at 90% occupancy going in pre-COVID.

Collections are still at 97% where they have been for the most part which is opposite of what this next article I’m going to show you is. For the people with mid-level housing ABC level housing, we’re seeing a varying increased demand. A couple of things that they say in here is in October these big hedge funds like Invitation homes and all the people that own a bunch of real estate, their asking rents have jumped 7.5% in October year over year.

They’ve had the fifth street month of year over year increases. That means every month July to July August to August they’re raising prices. We’re seeing that too with our rentals out in Texas. Right now as renewals are happening rents are getting raised 8% to 9% over the year prior. It says, mom and pop operators and individual investors, they’re also raising rents, just not quite as aggressively.

September single family home rents climbed an average of 3.8% from a year earlier across 63 markets. It says many new tenants are arriving from expensive coastal cities. The number of Californians applying to lease from American homes for rent in Arizona, Nevada and Texas has twice what they were from your prior. That’s something everybody’s been hearing about also as things change.

We’ve had some different articles where there’s these big companies saying now you can go, live wherever and work from home. We know for a fact that the people that were living in downtown San Francisco are much happier moving out of San Francisco into other places that are a lot less expensive if they’re going to be getting paid a similar amount. That’s one of the things that they’re seeing happen out there, but the demand for space resulting in increased rent prices as the Wall Street Journal article came out on November 10th.

Next one says a little bit of the opposite but this was the one that really stuck out to me when we we’re talking about the opportunity of what’s ahead and some of the changes that should be out there of so many of the different things that we talked about today but says– It’s called the struggling rental market could usher in the next American housing prices crisis.

Some 30 million to 40 million people from New York City and San Francisco faced potential eviction once moratoriums expire. It says, the tens of millions of people potentially caught in a web of home rental debt– Home rental debt right now is somebody that gave a CDC notice a few months ago and said, “Hey I can’t pay my rent right now and I’d be homeless.” Their eviction was put on hold but they still owe that.

If they were paying $1,000 a month now come January they’re going to owe $4,000. Tens of millions of people potentially caught in a web of home rental debt would be debt would far exceed the 3.8 million homeowners who were foreclosed on in 2007 to 2010. That’s a crazy thing right there. When you’re trying to see how many people are in default tens of millions maybe 30 to 40 million people are behind on their rents and potentially going to get evicted.

When we had foreclosures, the bulk of our foreclosures from 2007 to 2010 that was 3.8 million homeowners. 10 times as many people are facing eviction from rental debt than we had foreclosed in the great crisis of 2007 to 2010. That is super significant when you try to see what’s happening out there. The economic research firm calculate 12.8 million Americans within an average of $5,400 from missed payments.

That’s really crazy that that was from a Moody’s analytics part of it. The outstanding rent debt could reach 7.2 billion before the close of 2020. What does that really tell you? If there are that many people getting evicted either two things. One is it’s going to force government intervention. If they’ve got 10 times as many people about to get evicted than they had go through the foreclosure crisis in 2007 to 2010, then government intervention to try to slow that down will not be a surprise.

If there isn’t any government intervention or let’s say there’s government intervention that deals with half of that or 75% of that you’re still going to see a mass number of people being forced to leave their homes because of debt, debt that takes a long time to get back, it takes years to recover and in those times we saw storage unit stock go up because people were downsizing, they’re moving their stuff into storage units. We see housing demand go up for lower income housing or stuff outside the city.

A lot of the stuff we’ve been talking about over the last few months of where could that opportunity be. That opportunity could be in services. That opportunity could be in affordable housing. That opportunity could be in markets that are outside the city core where people will be downsizing too and that opportunity could be figuring out how they do downsize. Helping people downsize and figure out how to function in that life.

In a bunch of interesting articles today, and I am just so glad to be back and talking to you guys. When I had my interview last week, I reminded everybody, I’ve been gone for about a month. I was driving around the country in an RV, trying to see what was going on everywhere. It was amazing to see that some states were doing amazing and some states were struggling significantly.

From place to place, everybody had like we’ve said, the K-shaped recovery. 2020 has been different for everyone. Some people would say it was a great year and some people says the worst year of their life and depending on the city and depending on the state and depending on their job, depending on the things they like to do for fun and being able to go improvise and try to change that.

I am excited that 2020 is almost over. I am really excited about the fact that I am hoping that by the time this year is over, politics and elections is something that is not all over the news anymore and we’re getting to focus back on how do we take our businesses, find new opportunities and continue to grow them. I always appreciate all of our listeners. If there was something on here that you guys listened to, that you like today, I would beg you to just share it with a friend.

We have more people listening to this podcast and any other real estate agent podcasts out there and we’re trying to deliver so much more stuff. If you’ve got somebody that you want me to interview, I want you to send me a message, go find me on Instagram and send me a message and say, you got to interview this one. That’s @rerockstars or @aaronamuchastegui on Instagram say, “Hey, you got to interview this guy. You got to get on there.”

If you have not checked out our new sponsor yet RentRedi, R-E-N-T-R-E-D-I. don’t know how long they’re going to be giving this promotion, but it’s a dollar a year for this property management software. You collect payments, work orders, everything if you use the code Rockstars. Check out rent ready. Let me know who you want to have me interview next. If there was something on here that you liked, please go share it. I’m sorry if I was a little slow and a little rusty today as I was going through it, but I can’t wait to be recording these again for you every week. Thanks for listening.