Coronavirus infection cases have grown with exponential speed.
Stock markets have reacted negatively with incredible speed.
News seems to be changing at remarkable speed.
Speed, speed, speed.
Conversely, residential real estate moves very, very slowly.
Thanks to a slow moving asset class, we really do not know what effects this “new normal” is having on residential real estate just yet.
It takes a couple of weeks to prepare a property for sale, then a few more weeks to make a deal on a listing, and perhaps a month or longer to close an escrow.
It is too early to tell and it will be impossible to project until we get more certainty on how the Coronavirus will affect the health of Americans and the economy.
In this post, I will cover two topics:
- Some rough data estimates coming in on the economy and, in my opinion, the best way to protect your real estate by refinancing your current leverage.
- A new listing in Manhattan Beach that will be an important test for that local market, and perhaps set the tone for other markets as well.
Rough Data & Refinancing
I want to report that this is very, very rough from news sources and the White House, but the potential economic fallout is concerning enough to absorb and protect yourself “just in case.”
- State unemployment claims look to be 10 times higher, suggesting that if it continues, we could see 2 million jobless claims next week alone. Treasury Secretary Mnuchin said unemployment could hit 20%, although he walked back on those statements later. Source: CNBC
- There was an absolutely incredible conference call transcript with President Trump and major hotel operators. Hilton is operating at just 10% to 15% occupancy across the globe. Marriott saw a 90% drop in business in China with Macau occupancy rates hitting 2%. Source: White House
- AirBNB hosts must fully refund all stays booked before March 14th. And, I am sure their occupancy rates mirror that of the hotel operators. Source: Forbes
There are more grim reports throughout the economy, but these articles specifically affect real estate.
Job loss makes it hard to pay mortgages or rent. And, other aspects of the real estate economy like hotels are going to feel the squeeze.
So, if you own a home or income property, what can you do to prepare and protect yourself from a layoff or lost rents?
Answer: Interest-only mortgage.
I got a lot of flak last week for suggesting an interest-only mortgage from commenters on my social media channels. There seems to be a lot of misunderstanding. So, I want to address it.
This is NOT a negative-amortizing loan and these loans are not given out to no document buyers or owners.
Interest-only loans allow you to boost cash flow in not so good times, but you can still pay down the loan like a standard P&I loan, if you so choose.
Let’s look at an example…
- $900,000 at 3.5% P&I AND $900,000 at 4% interest-only
- The P&I payment is $4,041/mo.
- The I/O payment is $3,000/mo.
If you lose your job or do not receive rental income, that $1,000 in extra savings per month can be a huge financial benefit.
Many people have the stanch belief that loans need to be paid down and I will not fight that. But, a P&I forces you to pay down the loan no matter what while an interest-only loan can give you some much needed breathing room if cash flow gets tight.
Not to mention, if you can find an interest-only loan that calculates your payment monthly, you can actually pay-down your loan faster than a P&I loan with the same payment.
We can save that “trick” for another time.
**Fun fact: I did home loans straight out of college and had a lot of time to make calculations!
Important New Listing in Manhattan Beach
Recently, I have written a lot about the 100 and 200 block walkstreets in Manhattan Beach. However, there is so much fabulous data from land sales to new construction homes that it makes it easy to see what is going on.
Take a look at a new tear-down duplex came to market in a great location.
- 116 16th Street
- Two units, 3 beds, 2 baths, 2,699 sq. ft. lot
- Asking Price: $4,500,000
This is a great price.
In 2016, 212 16th Street sold for $4.625 million as a tear-down lot. They were asking $125,000 more four years ago!
That lot resold sold last year as a spec for almost $8.4 million. Take a look…
- 212 16th Street
- 4 beds, 5 baths, 4,100 sq. ft., 2,700 sq. ft. lot
- Sold Price: $8,395,000
A few blocks away at 221 19th Street, another spec home just sold for $9.7 million, which bucked the trend of downward prices on some specs between Manhattan Beach Blvd and Marine.
- 221 19th Street
- 6 beds, 7 baths, 5,650 sq. ft., 2,707 sq. ft. lot
- Sold Price: $9,700,000
That was a record north of the pier.
For sale off of Highland, this would be the second lowest MLS land deal between 16th and 19th Street since 2013.
It is priced to sell!
And, hopefully, it will.
This is an incredibly important listing to see if buyers or builders have the confidence in this market to step in and buy this property now…in these unique and uncertain times.
It will take time to see the final results on this listing and that is why real estate moves so slowly.
This new listing on 16th Street might be the first good example of a “canary in the coal mine,” or it could just be another quick sale in the ever desirable Manhattan Beach market.
We’ll be watching closely.