By Jondi Gumz
Robert Bailey has a lifetime of real estate experience so when he speaks, people listen.
On April 11, a crowd gathered at the Aptos Chamber of Commerce luncheon at Seascape Golf Club to hear him.
Bailey Properties, founded in Aptos by his father Bob, will celebrate 50 years in business in July.
Bailey said a majority of clients own rentals — “It is their retirement,” he explained.
Robert Bailey, second from left, with nephew Joe Bailey, brother Paul Bailey and son Nick Bailey. They all work at Bailey Properties, founded in Aptos in 1974. • Photo Credit: Jondi Gumz
But even though Santa Cruz County, nestled between the ocean and redwoods, is a very special place, assessing the future is no easy task.
Home sales in California have dropped from 457,000 in 2021 to 274,000 in 2023.
Interest rates are hovering between 7% and 7.5% today, after five years of extremely low interest rates, 2% to 3%.
As a result, “people are locked into homes,” not willing or able to pay those higher interest rates.
The chairman of the Federal Reserve, which sets the interest rate of what banks charge each other for overnight lending, had indicated those rates would be cut if inflation moved toward 2% but the rate cuts have not materialized as inflation data spiked in January, prompting more caution.
Bailey explained how this affect clients. One homeowner having difficulty going up and down stairs decided not to sell but to remodel instead. Another client moved into the accessory unit rather than sell and pay taxes on capital gains.
Then along came the insurance crisis.
“We never gave insurance a second thought,” Bailey said.
But now State Farm, California’s biggest insurer, which paid out an average of $224,000 for wildfire claims in 2022, won’t renew 30,000 policies.
If you can get insurance to protect your home from fire and storm damage, it will be costly.
Bailey gave one example: Home insurance at $658 a month wiped out $100,000 of purchasing power.
Proposition 103, passed by voters in 1988, doesn’t require all residents be covered. Rates must be based on historical data but exponentially high losses have led insurers Allstate, The Hartford and Kemper to say they won’t renew homeowner policies in California.
Insurance Commissioner Ricardo Lara’s proposed reforms go to a public workshop online at 2 p.m. April 23. Register at: https://us06web.zoom.us/webinar/register/WN_5qoIrbAmRdqzrunzpjpblw
The so-called FAIR plan, insurance of last resort for homeowner dropped by insurers, is funded by the insurance companies. As insurers pull out of California, the burden is left on ever fewer companies.
“They can’t balance the rates they need to function,” Bailey said.
Construction is not keeping pace with the demand for homes. What’s being built is multi-family rental units — such as Aptos Village Phase 2.Then there’s the settlement by the National Association of Realtors of a 5-year-old class action lawsuit relating to commissions.
Bailey said the NAR’s Multiple Listing Service, where agents share real estate listings, open houses and transactions, will no longer have a reference to commissions. Instead, commissions will be negotiated and an agreement signed for an agent to represent the buyer.
Bailey sees “less transparency but hopefully over time, it will work itself out.”
Bailey, who was president of the affiliated California Association of Realtors 22 years ago, admitted “we have flaws” but took umbrage at the Wall Street Journal calling the real estate community a cartel. He defended the NAR, describing it as “the chamber of commerce for personal property rights.”
Case in point: He spoke to Melanie Barker, a Yosemite area real estate agent who is current president of the California Association of Realtors, on her way to talk with the Secretary of State and Insurance Commission Lara about the home insurance so expensive that first-time buyers can’t get in.
“Who will lobby on behalf of the first-time home buyer?” Bailey asked.
TOP PICTURE: Rentals on Aptos Village Way under construction by Swenson are to be completed in 2025. Phase 2 includes 29 rentals with one garage space assigned to each, 76 parking spaces disbursed among the buildings, two bike lockers and 32 bike parking spots. • Photo Credit: Jondi Gumz