Dealing With the Dark Side of Low Interest Rates

https://www.nytimes.com/2020/05/15/business/strategies-investing-interest-rates.html

When you borrow, low interest rates are fabulous. But if you need to live on your savings, you will be receiving far less income.

By Jeff Sommer

• 
  
• May 15, 2020

The extraordinarily low interest rates in place today are a boon when you’re buying a house, refinancing a mortgage, leasing a car or paying off student debt. If you qualify for a loan, low rates can help you spend less and get more.

But there is a dark side to falling interest rates. While they are helpful for qualified borrowers — and have contributed to tremendous returns for people who have held bonds for many years — they are terrible for savers.

Live on less, dip deeply into savings or take on more risk in the stock market: Those are the nasty choices that many people will probably be facing. The dilemma is most pressing for those planning for retirement or already in it.

“People who have done everything right, and managed to put away some money, didn’t expect this, but they’re in a tough spot,” said William J. Bernstein, an investment adviser and author. “A lot of them will have to consume less in their golden years, unless this turns around.”

The fundamental problem is that with interest rates as low as they have ever been, people with modest nest eggs can’t get much safe income.

Interest on new U.S. government bonds, which paid more than 6 percent 20 years ago, has dropped to laughably low levels: On Thursday, the yield for 10-year notes was less than 0.7 percent annually, and for 30-year bonds, less than 1.3 percent.

That means that if you were to retire today and stash your $1 million nest egg in long-term Treasuries, you could only count on an income stream of less than $13,000 a year, and perhaps even less than that. Treasuries are generally judged as quite safe for return of principal. But at these rates, they don’t generate much to live on.

The situation for savers isn’t likely to improve soon. Interest rates are so low largely because the economy is so weak. That economic frailty has damaged other important sources of investor income as well.

Dividends are shrinking. As I’ve written recently, a wide range of companies that are tight on cash are suspending or cutting these disbursements to shareholders. S&P 500 dividends are expected to be slashed by 25 percent to more than 30 percent in the current downturn.That implies investors could collectively lose between $100 billion and $150 billion in dividend cuts in this recession, on top of losses from stock price declines.

Low interest rates have also reduced the payout from commercially available annuities, another important source of investor income. The simplest of them, known as single premium immediate annuities, are essentially bonds wrapped in insurance.

With these basic annuities, an insurance company will provide you with income, for as long as you live, in exchange for a sum of cash, said Wade Pfau, a professor of retirement income at the American College of Financial Services. Social Security is an annuity and an enormously important one for most Americans. What’s more, as long as the system remains solvent, its payments are unaffected by interest rates.)

But because of low interest rates, the payout on commercial annuities has dropped by more than 50 percent over the last 30 years. In New York, where I live, a 65-year-old man would receive only $494 a month, or $5,928 a year, in return for a $100,000 payment, according to ImmediateAnnuities.com, an independent site that tracks these rates.

You might think that interest rates are already so low that they must start rising, so thebest strategy is to wait before making decisions about bonds, stocks, annuities or other assets. That’s logical, but you may have to wait a long time.

Consider that the futures markets have been predicting the Federal Reserve will take short-term rates even lower — in fact, below zero. Rates below zero are known as negative interest rates; you would have to pay someone interest for the privilege of lending them money. That has not happened in the United States but it is already the case for many bonds in Germany and Japan, and it is a sign of severe economic distress.

Jerome Powell, the Federal Reserve chair, judged the issue to be hot enough to say publicly on Wednesday that the U.S. central bank does not intend to institute negative rates. But it still could conceivably happen, if low rates and other measures don’t revive the economy. Mr. Powell called on Congress to use deficit spending to get things moving again. But, by all accounts, as long as the coronavirus keeps spreading, the economy is almost certain to weaken further.

The unemployment rate, which reached 14.7 percent in April, may rise above 20 percent by June, Trump administration officials say. Job losses are still mounting and the economy is shrinking rapidly, perhaps at its greatest pace since the Great Depression.

TVUSD to explore return to full-time learning, online-only instruction or hybrid option

https://myvalleynews.com/tvusd-to-explore-return-to-full-time-learning-online-only-instruction-or-hybrid/

The Temecula Valley Unified School District Governing Board at its June 9 meeting directed district leaders to continue planning for three possibilities of how instruction will look in the fall: full-time online learning, a return to traditional in-school learning or a hybrid model that’s somewhere in between.

Before beginning a discussion on how to move forward, the board heard a presentation from outgoing Superintendent Timothy Ritter, soon-to-be Superintendent (and current deputy superintendent) Jodi McClay and other district staff on parent surveys and “think tank” meetings the district has conducted to analyze options for restarting classes in the 2020-2021 school year after the previous year was brought to an abrupt end by the coronavirus pandemic.

In surveying parents, the district found nearly two-thirds of families support returning to traditional full-time, in-school instruction, while about 12% favor online-only instruction in the fall, an 27% support a hybrid of online and in-school instruction.

Ritter said TVUSD looked at what other school districts in the region are planning,

Murrieta Valley Unified is looking into all three potential modes of instruction — all-online, all-in-person and hybrid. Meanwhile, Lake Elsinore Unified, Ritter said, is investigating only a hybrid and an online-only model, while Menifee Union is attempting to return to all-in-person classes but is preparing itself to implement a hybrid model if necessary.

Remember, one of the issues we have here is this is a public health issue, it’s not really an educational issue,” Ritter told the board. “County Public Health had the authority to make the call in terms of what districts could and couldn’t do. It was their call.”

An order from Riverside County’s public health officer to close all schools is expected to expire June 19, but the possibility always remains that, should coronavirus cases worsen locally, further orders will come down.

Staff members from four different “think tanks” of TVUSD educators looked into four options: reopening in the fall with little to no changes but with the possibility of distance learning later; offering a choice for students to return as normal or to remain in a distance-learning environment for anyone uncomfortable with in-person classes for the time being; preparing for no students returning in the fall and beginning the year in an online-only format; and preparing for a hybrid model in which students could be mandated or volunteer for partial in-school learning and partial online learning.

McClay told the board members that staff essentially was seeking direction on which of two different paths to take: pursue planning on three instruction plans, including in-person learning, a blended model or online-only ; or only pursuing a cohort model (two days in class and three days at home) and an online-only modell.

McClay stressed that any plan for returning to full-time, in-classroom learning “does not meet the current standards for social distancing within a classroom,” although there are currently no actual mandated rules for classroom learning in the fall, only recommendations.

“We don’t believe we can get to that on a full-time model,” McClay said. “We do believe, however that we could implement some modifications that do help with social distancing in the classrooms.”

She said that would be easiest to do at the elementary level, where the district can plan to try and keep students primarily within their classrooms, but would be more difficult for middle and high schools.

McClay also said that while a return to full-time, in-classroom learning would be the closest thing to a return to normal, there is really no way to 100% get everything back to the old normal.

“We do believe that when we come back, regardless of what it looks like, there will be changes, there will be new challenges,” McClay told the board. “We’ve had students out of school for nine weeks.”

There will, she said, be academic gaps as well as social and emotional problems resulting from the sudden cancellation of school and whatever problems that may have caused for families.

“Even though we want to say it will be as close to normal as possible, we all need to acknowledge there will be some new normals even if we were to come back tomorrow with everything looking the same,” McClay said.

She also said any online learning that takes place will look very different from the “distance learning” that was implemented to close out the last school year, in which students were graded on a “hold harmless” policy — essentially an extra-credit-only policy after in-person classes ended in March.

“This would be very different, the same rigorous standards going on in this classroom as there would be in our traditional classroom settings,” McClay said. “Students would be required to attend, required to participate, there would be grades, so very, very different and far more intense.”

She also said there would be some kind of social and emotional support for students regardless of the learning plan or plans the district eventually implements.

While the board ultimately settled on continuing to explore all three options, Board Member Lee Darling expressed skepticism of how a hybrid or blended model of learning would work.

“My thought, I have a student who’s going to be going to school in the fall now for the first time ever and we’re either gonna allow our kid to go to school or we’re not,” Darling said. “To me, I don’t know if there’s gonna be a big difference between, I’m gonna send my kid to school with 15 students in the class versus 20 or 25.”

Board Member Julie Farnbach also initially said she didn’t see, particularly for elementary schools, how a blended or online-only model would work.

“I think for me, as a mom, I would only do full traditional for elementary,” Farnbach said. “I would not try to break them up unless we got a government mandate down the road where we had to go to cohort. I don’t know how you could do elementary online or split. It’s not emotionally health, it’s not physically healthy, it’s not realistic.”

Ritter gave the board his thoughts, saying he initially would not have supported a hybrid model but was forced to reconsider after looking at the district’s survey results.

“We don’t know what each family dynamic is and what they need, and my concern is if we didn’t provide the option, do we stand the risk that there’s 5,000 families out there somewhere that are looking for another program, because we’re not providing the program that they need right now?” Ritter said. “I was of the mindset that you just come in and you do the two models, but looking at the data and what we have now, I’m concerned that might have been shortsighted on my part, because obviously we have families right now that see value in that hybrid model.”

By the end, the board was mostly in agreement on looking at traditional instruction, hybrid and online-only learning, with Board Member Kristi Rutz-Robbins being the only one opposed to continuing to explore a normal, in-classroom plan, and even then only marginally.

“I actually prefer hybrid and online, because i think it’s safer in the long-run for maintaining continuity this year given covid, but i’m willing to accept a return to full time as long as we (have) the hybrid option,” Rutz-Robbins said.

The board will continue to receive updates on district staff’s progress on planning for each model.

Will Fritz can be reached by email at wfritz@reedermedia.com.

Temecula bans short-term rental homes, sets $1,000 fine

https://www.

pe.com/2020/01/18/temecula-bans-short-term-rental-homes-sets-1000-fine/

Temecula Short Term Rental status

https://temeculaca.gov/1241/Short-term-Rentals

What is a short-term rental?

A short-term rental is considered a dwelling unit which is shared, in whole or in part, for temporary occupancy for periods of up to 30 consecutive days. 

What are the rules for short-term rentals in the City of Temecula?

Short-term rentals are an unpermitted use under the City’s permissive zoning code as well as the General Plan’s residential use descriptions. This permissive zoning applies to areas within the City of Temecula. 

The Temecula City Council voted to re-affirm the existing prohibition on January 14, 2020. Additionally, the City Council voted to increase the fine on prohibited short-term rentals to $1,000 per day.

What about areas outside of the City?

Temecula Wine Country, De Luz, and other unincorporated areas of Riverside County are regulated by the County of Riverside. Information on the County of Riverside’s short-term rental regulations is available here.

Please join our e-mail list for additional updates.

The Temecula Municipal Code can be accessed here.

Coronavirus Impacts on California’s Housing Market

https://www.car.org/knowledge/pubs/newsletters/Newsline/Coronavirus

The rapid growth of COVID-19 (“Coronavirus”) cases continues to create turbulence in the global economy and in domestic financial markets. However, C.A.R. is not revising its current 2020 housing market forecast, but will continue to monitor the market for negative macroeconomic impacts on the demand for housing as well as the supply chain impacts that could adversely affect the cost of new home construction in the coming months and quarters. C.A.R. has created a list of the Top 10 potential impacts that could elicit questions from buyers and sellers over the near term.

Forecasts Have Been Downgraded, But Few Economists are Calling for Recession Yet: Last week, the International Monetary Fund (IMF) cut its forecast for global economic growth by 0.1%, but is still calling for an expansion in 2020, albeit at a slower pace. Similar orders of magnitude have been forecast for the domestic economy, with groups like Wells Fargo and others expecting GDP to grow by 10-20 basis points slower than their pre-Coronavirus forecast. Growth is expected to be slower, but the economy is still expected to grow.

Mortgage Rates Will Likely Remain Low, Or Even Fall Further As A Result of Coronavirus: The Federal Reserve issued an emergency 50 basis point cut to their target interest rates, and guidance suggests that the Fed may be open to future reductions in order to counteract the negative impacts to financial markets. This should help to reduce the cost of borrowing and make housing more affordable over the near term, which should help to offset some of the negative impacts to housing demand associated with rising uncertainty.

Domestic Buyers May Be Discouraged By Rising Uncertainty and Recession Risk, But Is It Still a Good Time to Buy?: This week, mortgage rates fell to an all-time low level of just 3.13%. That is down from 3.80% at the start of the year and represents significant cost savings over the life of a 30-year loan. For buyers who can afford their monthly payments, the economic uncertainty that is driving rates lower provides an opportunity to capitalize on significantly reduced borrowing costs that they will enjoy for years to come. Short-run risks to the economy exist but are arguably offset by long-run benefits of lower rates at the individual level.

Financial Market Volatility Could Reduce Demand For Luxury Homes, But Also Create Potential Opportunities for Luxury Home Buyers: The recent turbulence in financial markets has already impacted household wealth. This could reduce demand for luxury homes in California in particular. However, with less luxury buyers, there could be opportunities for price discounts for buyers who choose to remain in the market for high-end properties. Real estate may also act as a buffer against potentially larger declines in the financial markets.

Demand From Foreign Home Buyers Could Be Curtailed Over the Near Term: Reduced economic growth in China, specifically, could stifle demand for California real estate this year. However, foreign buyers represented just 3.9% of California’s home sales last year, so the impacts statewide will be muted compared to 6 years ago, when foreign buyers represented 8.0% of the market. In addition, because domestic buyers typically finance their homes in much larger proportions to their foreign counterparts, low rates could stimulate more domestic demand that would help to offset the impact to foreign buyer demand.

Foreign Home Sellers May Face Closing Delays: Because the Embassy and many consulates are closed or may have limited hours in China, and elsewhere, there may be difficulty in providing a properly notarized deed to the property that escrow will accept and title will insure.Advise sellers to make efforts to obtain the deed early in the transaction. If sellers are currently in the U.S., make efforts to comply before returning to their foreign home country. If contract has not been accepted, foreign sellers might want to consider a contingency allowing a seller to cancel if they are unable to obtain notarized deed.

New Home Construction in California Could Slow Further, Exacerbating Already-Tight Supply: Many of the inputs to California’s Building Industry are sourced from Asian countries including China. As the Coronavirus disrupts these supply chains, the cost of those materials may increase over the short run or become limited, which will increase the cost of construction and potentially reduce the pace of new residential development below its already-lackluster pace in 2020.

Low Rates and Fewer New Homes Constructed Should Place Upward Pressure on Home Prices: Improved affordability stemming from lower rates combined with fewer new homes being constructed as the construction supply chain is impacted could lead to more upward pressure on home prices in California. Unsold inventory is already at low levels, and reduced construction activity means that is likely to continue—especially if buyers respond to lower rates.

Offsetting Effects Leave C.A.R.’s Housing Market Outlook Unchanged, For Now: The situation remains fluid, and conditions could deteriorate beyond what is currently envisioned depending on the severity and duration of the outbreak, but if current economic forecasts of modest declines in GDP growth are realized, the effects of lower rates should help to offset the effects of a slower economy and increased economic uncertainty such that California would still achieve a modest improvement in both home sales and prices this year.

Eventual Rebound Will Take Longer Than It Did With SARS in 2000: At the turn of the century, the negative impact of the SARS virus began to fade within 6 months of the outbreak coming under control. However, unlike with the Coronavirus, SARS did not have significant impacts on either consumer spending or domestic financial markets. The size of the impacted population and the death toll is also much larger with Coronavirus, which suggests that the eventual recovery will play out over a longer period of time.

It’s clear that the Coronavirus will have an impact on the economy and the housing market in 2020, but it is also clear that it is not time to panic. The effect of lower rates will help to offset some of the headwinds in the housing market, and forecasts of economic growth by C.A.R. and others have been revised down, but only by 10s of basis points—not hundreds. The situation remains fluid and the California Association of REALTORS® will be monitoring this situation closely and providing updates as information comes to the fore.

Biggest Real Estate Trends in 2017

https://www.google.com/amp/www.marketwatch.com/amp/story/guid/5A8A421E-AAA5-11E6-B5CD-BE684BF30636?client=ms-android-att-us

Real Estate: Escrow and Obama Care..... A MUST READ!!

Tuesday morning, Feb. 18, at the Southwest Riverside County Association of REALTORS® (SRCAR) weekly marketing meeting, Gene Wunderlich, SRCAR Government Affairs Director (GAD), alerted REALTORS® to an alarming trend that is developing and spreading heartache across the State of California, soon to be here in the Temecula-Murrieta Valley.

Without advocating for or against our president and his legendary Affordable Health Care Reform Act, commonly known as Obamacare, there are two issues that will affect real estate sales from this point forward.

New capital gains tax on the rich

The first issue is not going to have a direct effect on very many transactions – but those that it does will feel the consequences. There is now a 3.8 percent tax on high income home sellers, earning in excess of $200,000 or $250,000 for married couples filed jointly. The income is for adjusted gross income (AGI). The new tax is on their capital gains in excess of $250,000 for the single seller or $500,000 for the married taxpayers.

This is obviously a very quick snapshot of the new tax and if you want to know more, you really need to discuss the matter with your tax professional for advice that is pertinent to you.

Your health insurance and your new mortgage

When qualifying for a mortgage, the lender has always looked at your debt to income ratio, or DTI. Under the new rules of the Dodd-Frank Act, mortgages have to meet the new "qualified mortgage" (QM). The new QM has a ceiling of 43 percent DTI for most government-sponsored agencies (GSA) like VA, FHA, Fannie Mae, Freddy Mac, USDA, etc. It was 45 percent DTI last year for those of you keeping score.

Again, there is much to this discussion and certainly not enough room here to discuss in any detail. I just wanted to lay the foundation for the scenario Mr. Wunderlich shared at the SRCAR weekly marketing meeting.

Lenders have always looked at the borrower’s monthly bills and obligations in determining debt. This includes rent/mortgage payments, utilities, un-used gym memberships, 
child care and everything else the borrower spends their money on. This is revealed on the loan application and verified by reviewing three months (or more) of bank statements.

Simply put, the law now requires everyone to be covered or pay a fine. It’s no longer an option as some lenders up north see it. Therefore, if you never had insurance in the past, you must have it today. If it’s something you must have, then it is one more debt that needs to be factored into your DTI. Even if you have had health insurance for years, chances are very good that you’ll be paying more for it, resulting in more debt each and every month. Check with a trust insurance agent to confirm.

What should you do?

I suppose that depends if you are in favor of the law or not. Either way, contact your local politicians and let them know how you feel.

If you are planning on buying a home anytime soon, I’d look hard at doing it sooner rather than later. Apparently, this trend has started in Northern California where one title company has had nine escrows fall out so far this year because of the DTI factoring in health insurance that the borrower did not have prior to this year. While there are no known cases here in the Temecula-Murrieta Valley, or elsewhere in Southern California, it’s believed to only be a matter of time before it reaches us.

Check with your trusted local REALTOR® and lender to make sure you are covered. They will make sure you find that right home within your budget meeting all your needs. Call us today and get the information you need to make the right decision. The info is free, call now! (951) 296-8887.

John Occhi, Mike Mason

Friday, February 28^th, 2014

Issue 09, Volume 18.