Santa Cruz Real Estate  Digest,  Ed. 15
November, 2016 - In This Issue:
In This Month's Issue

In this month's Digest, you will find national and local news as well as informational pieces on topics that we have found to be increasingly important in the real estate industry. 

Nationally, we examine the consequences  of the recent election on Real Estate . Financial markets seem to be responding favorably to the new president-elect's early policy proposals. However, a lack of confidence amongst one of the nations largest home buying populations makes the long term affects on real estate uncertain. 

The California Bullet Train is under construction and we predict that by 2025, this big project will have a significant effect on real estate. 

Locally, the we explain why earthquake-prone soft stories pose a threat to you and/or your tenants. Whether you already own a soft-story building or come across one on the market, it's imperative that you understand the risks involved.

Baby-boomers , we've written an article just for you . We want to make sure that you understand Prop 60 and how you can transfer your tax base . We also have provided information on the benefits of downsizing and what to look for in a new home.

Everyone should understand Capital Gains Tax. If you are unsure how this tax applies to you, or have any questions, please read the article below and gives us a call. 

If you are looking for monthly real estate statistics for Santa Cruz, Santa Clara, and/or Monterey County, find them direclty below. 

Real Estate Market Statistics 
For Santa Cruz, Santa Clara, and  Monterey

The reports contain median home prices, real estate price statistics, valuable information about mortgage rates and much more.

National Real Estate Articles
A New President - What Does this Mean For Real Estate?

With a new president-elect, Senate, and House members, you may be wondering, what does this mean for my real estate? Economist and housing specialist are coming to radically different conclusions, making it clear that we face a lot of uncertainty.

As the election results become clear, the Dow Jones dropped more than 800 points late Tuesday and early Wednesday. However, as seen in this graph, it quickly rebounded and began increasing steadily to new heights, as president-elect Trump announced policy actions that are considered favorable to markets.

This means that markets may continue as usual, and could see an upswing in activity. Rising stock prices lead to higher incomes which can stimulate the real estate market. However, this is a short-run view and only time will tell how new policies will influence financial markets and subsequently, real estate.

How will the new government ameliorate the housing affordability issues that many of us are all too familiar with? The answer to this question is also unclear. One interesting point made by this article is that a discussion of housing was largely absent from political conversation during the election, even though America is facing a growing housing affordability crisis. Trulia Chief Economists Ralph McLaughlin points out that "[Trump] has hinted to 'Make America Great Again' by boosting the homeownership rate through demand-side policies, such as financial deregulation, rather than through supply-side policies such as reducing local impediments to new supply." Furthermore McLaughlin states that "like other markets, prices are likely to rise further if policies lopsidedly target demand without also addressing supply". In many industries, if policymakers address the demand side, supply will follow. However, in real estate there are a myriad of legal and practical reasons that increases in supply can lag behind increases in demand.

It is fair to say that there was a large range of reactions to this election. Some were overjoyed, others quite unhappy. Most millennial's are likely on the less-positive end of that spectrum. Of all voters under 29, exit polls reported that only 39% voted for Donald Trump (source). Th is age group is expected to come into the market as the nation's largest home buying population to date. With uncertainty and a lack of confidence in the future of the US economy, millennials may be hesitant to make such a large investment as a home purchase. However, Selma Hepp, chief economist at Pacific Union International claims that when the "dust settles" housing fundamentals will hold true and as long as the job market is strong, millennials will likely begin purchasing homes as predicted. Could the stock market be an omen for consumer confidence: a dramatic drop followed by a rebound and possible increase? While this projection would be a positive outcome for the housing market, this election is highly meaningful to many, and it is hard to say if business will continue as usual.

In time, the fog will lift, policy measures will become clear, and we will all become less uncertain. Throughout this process, we will continue to stay abreast of policy measures that could influence your real estate and keep you informed.

California  Real Estate Articles
California Bullet Train: 
An Update and What it Means for Real Estate

The high-speed train planned for California will eventually encompass over 800 miles of rail, with up to 24 stations. Because the project is so large and will run through areas of the state with extremely different geographical, environmental and economic issues, the project has been broken into ten separate sections. Learn more about each section here .

What should you know about the project? 

  • The rail authority has planned to create a blended system. This means that the high-speed rail will be integrated with existing intercity and commuter/regional rail systems via coordinated infrastructure and scheduling, ticketing, and other means.
  • The rail will be constructed in two phases, the first having already begun. To better visual of the entire rail system upon completion see this interactive map which includes phases, sections, and stations.
    • Phase 1: Connecting San Francisco, the Central Valley, and Los Angeles/Anaheim through a combination of dedicated high-speed rail infrastructure blended with existing urban systems.
    • Phase 2 (north and south): from Los Angeles to San Diego via the Inland Empire and between Merced and Sacramento.
  • The High Speed Rail Commission has reported that they are spending currently less than projected and estimated costs for the project have been reduced by 8%.
  • A top priority for the High-Speed Rail Authority is to obtain the still needed environmental clearance on the system.
  • In the first few months of building structures, 300 tons of 100% recycled steel were used; this was about 70% of the steel used up to that point.
  • Official groundbreaking was on January of 2015. There are now more than 119 miles of construction related activities underway. As of October, there are nine active construction sites in the Central Valley between Madera and Fresno. You can find the October construction update here and find more updates and information about current projects here .

The question on the minds of many: when will it be finished?

  • With the recognition that there is an affordable housing crisis in the Bay Area, the Commission plans to build the line from Silicon Valley to the Central Valley first. It is projected that it will be ready for service by 2025. According to the CA High Speed Rail Commission, the Silicon Valley to Central Valley Line will reduce a three-hour trip via car from Fresno to the Bay Area to about an hour on high-speed rail. If things go as planned, there should be an increase in real estate related activities in the Central Valley. This may be a great time to invest in this region.
  • Phase 1 should be done by 2029 as long as the funding is obtained. No completion dates have been given for Phase 2.

Click here for the general website for the High Speed Rail Commission, which you can use to stay up to date on changes and updates on this project. The Wikipedia page found here is also very informative.

Local Real Estate Articles
Soft Story Buildings
Some of us have been around Santa Cruz long enough to remember the Loma Prieta Earthquake. This catastrophic event sent shockwaves through our local and state-wide governing bodies, causing a surge of earthquake-safety related building code additions and modifications. However, there are still buildings that were constructed before these changes which remain highly susceptible to earthquake damage. If you plan to buy or currently own real estate, it is imperative that you know about these weaknesses.

Soft story buildings have a parking or commercial space, often with large glass windows and little structural reinforcement, on the first floor. They are some of the most susceptible structures to shaking damage in an earthquake. These buildings were built before recent codes were written and a number of cities have taken action to inspect and reinforce them to prevent future damage. Here in Santa Cruz, building codes have been updated to ensure that new construction is safe. However, existing buildings have no inspection or retrofit requirements. The county does warn about soft story buildings in its Earthquake Preparedness Guide found here

San Francisco, Los Angeles, Oakland, Berkeley, and other cities have taken action to ensure these buildings are evaluated and properly retrofitted. It may be time for Santa Cruz to consider doing the same. Why? A new model was recently created by a group of geologists which predicts the following probabilities of earthquakes in the next three decades. Their findings may shock you.

See this report for a description of the model and page 4 for an in-depth explanation of this table.

While it is challenging to know when and where the next major earthquake will take place, according to this article, it is possible that a major California earthquake could happen in the next few years.

Here are four examples of the damages done to soft story houses during the Loma Prieta Earthquake:

If you live in a soft story building, either as a renter or an owner, you should be aware of the risks involved. Soft story collapse can have particularly disastrous consequences considering that can they crush cars and can kill people occupying the lower open areas, not to mention the costly damage to the building itself.

You may be asking "What do I do if I live in one of these buildings?":

The fix is called a seismic retrofit and according to this contractor usually includes:

  • Adding a steel moment frame, concrete footing and drag line to keep the first floor from rotating and collapsing.
  • Adding plywood or concrete shear walls to existing or new walls.
  • Replacing existing support columns.
  • Adding continuity ties.
Here is a link giving steps to follow if you know or suspect that you own or live in a soft story building. If you need contractor referrals, give us a call: (831) 600-6550
Educational Real Estate Articles
Baby Boomers - A Guide to Buying and 
Selling Real Estate in Santa Cruz County

As you move into your later years of life, with your kids having moved out retirement approaching, you may be wondering, what now? As a baby boomer, you are moving towards the opportunity to both downsize and upgrade. Here are some questions and answers to consider during this process:

Should I get a home that is smaller in size and upkeep?
  • Downsizing and relocating to a smaller home have many benefits. Six reasons to downsize are given here and include a smaller mortgage, moving to a more affordable locale, and  lifestyle upgrades. While growing up, we at Schneider Estates remember being sold the idea that greater material possessions bring happiness. With age and wisdom, we often see that is not the case. By downsizing, we find more freedom to focus on what is most important in life.

If I downsize, how can I transfer the tax base of my original residence to a qualifying replacement dwelling and keep my low tax bill?

  • If you are 55 or older and considering downsizing, Proposition 60 is a very important piece of legislation. Prop 60 allows you to transfer the assessed value of your original residence to a qualifying replacement dwelling. This lets 55+ taxpayers downsize without being penalized by higher property tax payments.

  • If your property applies, you must file a claim for relief within three years of the date the replacement property was purchased.

  • Get the details on Prop 60 here.

What has changed since the last time I bought and sold real estate?

  • Many people no longer rely on real estate agents to send them properties and notify them of homes for sale. With websites like Zillow and Trulia, anyone can browse the market. These services are free and give you the ability to make profiles and save homes that you like online. Once you are ready to see a home, contact your real estate professional. He or she will set up the showing and, if you love it, help you to write an offer.

  • The way we market real estate properties has improved greatly. 
    • Video is more accessible and according to this article homes listed with a video get four times the number of inquiries as homes listed without one. Be sure to ask your real estate agent if they use video to market your property. 
    • Social media has also become an important platform and, if your agent uses it wisely, these sites can dramatically increase the number of people who see your home's for sale status. Be sure and ask your agent about their social media marketing strategy.

  • With rapid changes in technology, the way we buy and sell real estate is constantly changing. It has become increasingly more convenient for many people to write and accept offers, sign disclosures, and even have face-to-face (via video) meetings online. This means less paperwork, however if you are uncomfortable with these options, be sure to let your real estate professional know. What is most important is that you are well informed of what is happening at every step of your real estate deal.

What properties will allow me to age gracefully?

  • If you are relocating, there are certain architectural features you may want to look for in a home so that you can live there for a long time. These features include less stairs, wider doors, and accessibility to local amenities. This website  gives useful ways you can modify your home so that you can comfortably "age in place".

  • For other interesting ideas of how we as a society can design our buildings and communities to better serve all ages, check out this post. As an author and architect, Matthias Hollwich says, "Think about how you would want to live your entire life. Too many people wake up on the topic of aging when they retire, and that's too late. We're active and influential today; now is the most important moment to take charge and make an impact."

Questions? Call us: 831-600-6550

Capital Gains Tax:  What You Need to Know to Save Money

What is/how much is capital gains tax?
  • Simply put, capital gains tax is tax collected on profit made from the sale of an asset. There are long and short term capital gains taxes with the former usually being less. This means that there is an incentive to hold an asset rather than engage in frequent buying and selling (such as day trading).

  • To calculate capital gains tax, you subtract the sales price of the item from its basis. Usually the basis is the amount that you paid for the asset. In the case of real property, the basis also includes the following:
    • Expenses accrued while making improvements to the property
    • Real estate taxes (or reimbursement you paid for taxes)
    • Settlement Costs (not including loan origination cost and fees)

Read more about what you can and cannot include in your real property basis here .

  The Capital Gains Tax Real Property Exemption

  • When you have a capital gain from the sale of your main home, you may exclude up to $250,000 from your income or $500,000 if you file a joint return with your spouse.

  • To qualify for this exemption you must meet the following conditions:

    • You have owned and used your home as your main residence for a aggregate period of at least two out of the five years prior to its date of sale.
    • You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale.

  • Generally, you are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.


( source)
The IRS is a good source to find the official rules on capital gains tax (see links above). We also found this article to be very helpful.

Christine's Corner

It's a hot topic and a hot planet! Some facts: according to this report,  published by the United Nations, the building sector contributes up to 30% of  global annual greenhouse gas emissions and consumes up to 40% of all  energy. Additionally, with the growth of new construction in developing economies, the greenhouse gas emissions from buildings will more than double in the next 20 years. This means that real estate and climate change are closely related. So, before reading on, take a moment, please, and ponder this graph:


This is a graph of the atmospheric CO2 levels, going 400,000 years back from today. According to NASA, humans have increased CO2 levels by 33% since the Industrial Revolution began. As many of you know, CO2 gas traps heat, meaning an increase in atmospheric CO2 is directly correlated with an increase in global surface temperatures. According to the UN, 2016 will very likely be the hottest year on record and a new high for the third year in a row (source). See a neat graphic of global temperature changes since 1880 here . Most of us simply buy and sell houses rather than construct them, so we may feel that we have little power to make significant contributions; that is simply not true.

First, we can increase our awareness of our individual and national energy footprint. On a small scale, we can work to reduce our home's energy consumption. This can include everything from investing in solar panels, turning off lights, unplugging unused electronics, sealing windows and more (see an extensive list here ). By making small changes in our homes and daily lives, with great love for our children and the environment that they will live in, real change is possible.

Some will point out that, at our current rate of greenhouse gas emissions and global warming, these small-scale changes simply will not be enough. We believe that change at every level will be necessary to face this problem head on. With that said, this argument is a valid one. According to this report , published in 2009 by the United Nations Environment Program, "in forty years we need to have reduced greenhouse gas emissions by at least 50% to avoid worst-case scenarios of climate change. In eleven years we need to have achieved at least 25% reduction in emissions". The United States is the second largest emitter of CO2 and according to this report, 39% of all CO2 emissions in our country are from commercial and residential buildings. Larger-scale action will be necessary in the near future. If our current situation as one of the largest greenhouse gas producing nations is something you decide to focus on and want to play an active role in changing, let your voice be heard. 

Big and small changes in our domestic real estate industry have the potential to make very positive changes in this world. Know that we routinely research sustainable and eco-friendly housing options and can be a resource for you.