Multi Family Forecast Due to Covid-19
The skyrocketing unemployment rate could have a significant impact on the rental sector as tenants struggle to pay rent while out of work.
In his most recent forecast for CoStar, John Affleck, vice president of CoStar market analytics, noted that the demand losses will be relatively mild, but the heavy supply underway gets vacancies to levels not seen this century. In the baseline scenario, demand will fall through the rest of the year to 8% and return in late 2021, though won't return to pre-pandemic levels until 2024. In a severe downturn, demand losses will exceed 250,000 units and vacancies will rise above 10% without peaking until late 2022. In an upside scenario, demand pauses for just two quarters, but leasing resumes in early 2021.
Rent growth for four-and-five-star units have already fallen 1.2% since March highs, and continuing the trend would result in an 11% decline in rents over the next year. He notes that historically, we would expect to be up about 0.6% over the same period, so rents are about 2% lower than they would be during normal times. In a worst case scenario, rents will decline by 16%.
"These are all asking rent forecasts, and don't include the effects of higher concessions, and along with falling rents we are already seeing higher concessions," he noted. "Among stabilized properties, one in five communities has reported offering some concessions around free rent or cash back offers. That's up from about 15% on average." Among four-and-five-star properties, the percent offering concessions now approaches 100%, up from 40% earlier this year.
California Assembly Bill AB 828
Temporary moratorium on foreclosures and unlawful detainer actions: coronavirus (COVID-19).
Existing law confers a power of sale upon a mortgagee, trustee, or any other person to be exercised after a breach of the obligation for which the mortgage or transfer is a security. Existing law requires a trustee, mortgagee, or beneficiary to first file a record in the office of the recorder a notice of default, and establishes other requirements and procedures for completion of a foreclosure sale. This bill would prohibit a person from taking any action to foreclose on a residential real property while a state or locally declared state of emergency related to the COVID-19 virus is in effect and until 15 days after the state of emergency has ended, including, but not limited to, causing or conducting the sale of the real property or causing recordation of a notice of default. Existing property tax law attaches taxes that are owed on that property as a lien against that property. Existing law generally requires the tax collector to attempt to sell residential property that has become tax defaulted 5 years or more after that property has become tax defaulted. This bill would require a tax collector to suspend the sale, and not attempt to sell, tax-defaulted properties while a state or locally declared state of emergency related to the COVID-19 virus is in effect and until 15 days after the state of emergency has ended. Existing law requires a county recorder to record any instrument, paper, or notice that is authorized or required to be recorded upon payment of proper fees and taxes. This bill would prohibit a county recorder from recording any instrument, paper, or notice that constitutes a notice of default, a notice of sale, or a trustee's deed upon sale during the above-specified declared state of emergency relating to the COVID-19 virus. The bill would also prohibit a court from accepting a complaint in an action to foreclose. Existing law establishes a procedure, known as an unlawful detainer action, that a landlord must follow in order to evict a tenant. Existing law provides that a tenant is subject to such an action if the tenant continues to possess the property without permission of the landlord in specified circumstances, including when the tenant has violated the lease by defaulting on rent or failing to perform a duty under the lease. This bill would prohibit a state court, county sheriff, or party to a residential unlawful detainer case from accepting for filing, or taking any further action including executing a writ of possession or otherwise proceeding with an unlawful detainer action during the timeframe in which a state of emergency related to the COVID-19 virus is in effect and 15 days thereafter, except as specified. The bill would also authorize a defendant, for any residential unlawful detainer action that includes a cause of action for a person continuing in possession without permission of their landlord, to notify the court of the defendant's desire to stipulate to the entry of an order. The bill would require the court, upon receiving that notice from a defendant, to notify the plaintiff and convene a hearing to determine whether to issue an order, as specified. The bill would require the court, if it determines that the tenant's inability to stay current on the rent is the result of increased costs in household necessities or decreased household earnings attributable to the COVID-19 virus, to make an order for the tenant to remain in possession, to reduce the rent for the property by 25% for the next year, and to require the tenant to make monthly payments to the landlord beginning in the next calendar month in accordance with certain terms. The bill would require declarations under these procedures to be filed under penalty of perjury. The bill would make these provisions effective in a jurisdiction in which a state or locally declared state of emergency is in effect until 15 days after the state of emergency ends and would repeal these provisions on January 1, 2022. By imposing new duties on county officials and also expanding the crime of perjury, the bill would impose a state-mandated local program. The bill would contain related findings regarding the economic hardships imposed by the COVID-19 virus. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that with regard to certain mandates no reimbursement is required by this act for a specified reason. With regard to any other mandates, this bill would provide that, if the Commission on State Mandates determines that the bill contains costs so mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above. This bill would declare that it is to take effect immediately as an urgency statute.
MISSED RENT WILL NOT BE DUE UNTIL JULY 2021
The Long Beach City Council voted Tuesday to craft an ordinance extending the ban on COVID-19 related evictions and giving tenants months longer to pay back-rent to landlords if they miss payments.
Assuming a final version of the ordinance passes when it comes back for a vote, landlords will now be forbade from evicting tenants financially impacted by the pandemic through July, and renters will have until July 2021 to repay any full or partial payments missed prior to that point.
The original moratorium had allowed renters to miss their March and April rents and gave them until November 2020 to repay the balance. The new ordinance, which could be voted on as early as next week during a special meeting of the council, is expected to include language that encourages renters to pay partial amounts of rent during that time but doesn’t require it.
That request came from Councilwoman Jeannine Pearce who introduced the item and said that making mandatory partial payments part of the ordinance could open up renters to evictions.
The moratorium would also extend to commercial properties with the exception of large companies (500+ employees), those that are publicly traded, multinational entities, and those renting from the Port of Long Beach, Long Beach Airport or in the city’s tidelands area.
“It’s my hope that at the end of this vote that we have support for tenants but also for property owners,” Pearce said.
The late-night vote came after a long discussion where other council members tried to tweak the item to include language mandating partial payments.
Councilwomen Suzie Price and Stacy Mungo advocated for this in an attempt to shrink the potentially large “balloon payments” that could face renters next July if they don’t pay during the moratorium widow.
A motion that would have required up to 50% of the total missed rent be repaid within six months of the end of the moratorium failed in a 4-5 vote.
The council’s vote to extend both their moratorium and the repayment window will put Long Beach more in line with the city of Los Angeles and Los Angeles County, both of which have already extended their ordinances protecting renters from eviction.
The state of California will soon consider legislation that could help offset the losses seen by landlords through missed payments during the eviction moratoriums passed by local governments.
State legislators could vote on a bill that would offer tax credits to landlords equal to the amount of rent they lost during the pandemic and would require tenants to repay the state for those tax credits over a 10-year period.
Tuesday’s vote came amid the backdrop of the announcement by county officials that it is aiming for a re-opening of the region by July 4, potentially providing an opportunity for more people to go back to work and begin making regular rent payments by the time the city’s new moratorium expires.
Long Beach has its own health department, so it’s not required to follow the county’s plan, but it often moves in unison with the region.
Courtesy of John Ruiz of LB Post
WHAT IS PROGNOSIS FOR HOUSING
Written by First American Chief Economist, Mark Fleming
As we are all too aware, the coronavirus outbreak has taken hold of the domestic and global economy. The housing market is not immune to its impact but may be in a better position than many believe. Recent data shows that weekly unemployment claims soared to a record, which will, in turn, work to depress household incomes and consumer confidence. While mortgage rates have fallen due to the economic uncertainty, potential home buyers that are confined to their homes cannot necessarily take advantage of the affordability boost. Many still bear scars from the Great Recession and may expect the housing market to follow a similar trajectory in response to the coronavirus outbreak. But, there are distinct differences that indicate the housing market may follow a much different path. While housing led the recession in 2008-2009, this time it may be poised to bring us out of it.
“This time, housing is a casualty of a public health crisis turned economic, not the cause of an economic crisis.”
The Housing Market Then Versus Now
Let’s examine several differences between the pre-Great Recession housing market and the housing market at the cusp of the coronavirus outbreak.
Housing Market is Not Overvalued: The graphic below compares house-buying power and the median sale price of a home from the year 2000 through January 2020. If housing is appropriately valued, house-buying power should equal or outpace the median sale price of a home. The only time period when the median sale price was greater than house-buying power was from 2005 through 2007, indicating an overvaluation of housing, or a “housing bubble.” Today, house-buying power is nearly twice as high as the median sale price of home, implying that housing is not overvalued, and is in fact in a much better position entering this potential recession than it was ahead of the last.
The Housing Market is Underbuilt: Housing enters this potential recession underbuilt rather than overbuilt, a significant difference compared with the pre-Great Recession housing market. In fact, since 2009, housing demand has outstripped housing supply. In 2018 – the latest full year for which we have comprehensive data – 1.2 million households were formed, while only 860,000 units were produced, resulting in a shortage of 340,000 units. Prior to 2009, the opposite was true, as housing supply significantly outpaced demand. The limited supply of homes positions the housing market to lead the recovery, once the impact from the coronavirus outbreak fades. In fact, it’s important to remember that the housing market has traditionally aided the economy in recovering from a recession. Consumers who are less affected by a downturn are willing to buy and sell, which can help get other parts of the economy moving.
Equity is at Historical Highs: The housing market today is not driven by liberal lending standards, sub-prime mortgages, and highly leveraged homeowners, as shown by the fact that the household debt-to-income ratio is at a four-decade low. The housing crisis during the Great Recession was fueled heavily by the fact that job losses were paired with a significant share of homeowners who had little, if any, equity in their homes. Homeowners today have very high levels of tappable home equity, providing a cushion to withstand potential price declines.
What’s the Prognosis for Housing?
Unfortunately, the service industry – hospitality, retail and leisure specifically – will likely feel the sharpest and most immediate economic pain from the coronavirus outbreak. There are over 130 million workers in the overall service sector, which accounts for 86 percent of total nonfarm employment, so job losses are expected to be high in this labor-intensive sector. Of course, the housing market will not go unscathed, as consumer confidence and a strong labor market are essential in the decision to purchase a home. Yet, this time, housing is a casualty of a public health crisis turned economic, not the cause of an economic crisis.
City of Long Beach, CA. Residential Rental Ordinance
In June 2019, Long Beach City Council adopted an ordinance requiring landlords to pay relocation payments to residential tenants who are displaced by no fault of their own. The ordinance was developed through a research and stakeholder engagement effort, which is summarized in the Report on Tenant Assistance Policies (TAP) and its associated policy recommendations, which were presented to the City Council in April 2019.
On November 12, 2019, the Long Beach City Council adopted Ordinance No. 19-0029 (Ordinance) temporarily prohibiting no-fault notices and evictions through December 31, 2019, unless the vacation of the unit is required by a government agency or a court. The urgency Ordinance took effect immediately on November 12. The Ordinance was adopted to protect tenants until the State of California Tenant Protection Act of 2019 (State Tenant Protection Act) takes effect on January 1, 2020
Through December 31, 2019, the Ordinance prohibits owners of residential rental properties in Long Beach from removing a tenant unless the tenant is at fault (unless the vacation of the unit is required by a government agency or court).