The effects of the coronavirus pandemic continue to grow with each passing day disrupting almost every industry sector and market. As a result of the virus, the Florida real estate market has also been turned upside down, in both negative and positive ways.
2019 ended with Florida single family sales up nearly six percent, with townhomes and condos mostly flat. South Florida had a more modest two percent growth rate for single family homes, but townhomes and condos fell by nearly two percent over 2018. Prices continued to climb with the average single-family homes selling for $360,000.00.
2020 started with a bang, with single family sales through February 2020 up thirteen percent and townhomes and condos up twelve and one-half percent. Nationally, new home sales jumped nearly eight percent, to a seasonally adjusted annual rate of 764,000 units last February, the highest level since July 2007.
Then the virus hit, dramatically changing the real estate landscape. Reaction in the financial sector was swift. At the beginning of March, the Federal Reserve cut interest rates by one-half percent, then two weeks later, another rate cut to make the borrowing rate from the Federal Reserve essentially zero percent. The goal was to make money cheaper and protect the economy from falling into recession.
Despite these moves, and now a promise of an over one trillion-dollar infusion by the federal government, the stock market has dropped dramatically, losing nearly 1/3rd of its value since record highs on February 12. This has caused the yield on treasury bills to also fall dramatically, falling nearly one percent in one month. The 10-year treasury yield, the rate most correlated with mortgages, has fallen from 1.5% in mid-February to below one percent on March 21.
This has led to a drop in home mortgage rates, perhaps the one silver lining in this otherwise catastrophic problem. Thirty-year fixed rates have remained low, dropping from five percent in late 2018 to three and three quarters to start 2020. Rates dipped as low as to three and one quarter (a record all-time low) on March 5 amid worsening virus news but have now increased to mid to high threes in response to the large number of loan applications inundating lenders.
Once the backlog lessens, and assuming the commitment to buy mortgage back securities by the Federal Reserve continues (started at 200 billion and could go over 1 trillion), rates will likely again fall, with some predicting rates at or below three percent by June 2020. If you are currently paying over four percent on your home mortgage you should watch these rates carefully and be prepared to lock in timely. On a typical $300,000.00 loan, a one percent drop in interest will save over $2,000 the first year.
Closing on these new loans, as well as existing home sales, has become a challenge for attorneys and title companies due to all the movement restrictions. However, a new law that went into effect on January 1 is providing some relief for those still willing to close on sales and refinances. The law now allows for remote online notarization of legal documents, including affidavits, deeds and mortgages.
Using a computer equipped with a webcam, two forms of photo identification and a cellphone that can take pictures and upload the images will be what is needed to conduct a remote closing from any location, including overseas (for United States citizens). A seller or buyer/borrower will be given an email link to log into a special website to conduct the closing.
A common setup will have a text messaging window and instructions on the left, documents to sign in the middle and three video windows on the right. Once logged in the consumer will see themselves in a video window, along with the notary public and the closing agent. The user will hold-up their two IDs for the notary to review, and once confirmed as valid, the consumer will use a special application on their cell phone to upload pictures of the IDs for further verification. Once verified, a set of common, consumer credit derived multiple choice questions, will further verify identity, such as what street did you live on 1995 and what color car do you own.
Once identity is verified, the closing agent will direct the consumer to read and sign the documents on screen using their choice of simulated signatures and initials. As each document is signed, the notary will notarize where needed, and for documents requiring witnesses, such as deeds, both the notary and the closing agent will sign as witnesses to the document. Once all closing documents are signed, the consumer can either download a copy or wait for an emailed copy. The closing agent will take the documents that have to be recorded, such as mortgages and deeds, and electronically submit them to the Clerk of the Circuit Court using an e-filing program to official record the document
So now a sequestered seller in California can sell and a vacationing buyer/borrower stuck in Italy can buy and close on their loan as if they had flown in and closed at the closing agent’s office. With low rates and remote closings, the devastation to the real estate industry from the virus will be partially blunted, but make no mistake, it will hurt sales dramatically and may take months or the rest of the year to recover.
Michael J Posner, Esq., is a partner at Ward, Damon a mid-sized real estate and business-oriented law firm serving all of South Florida, with three offices in Palm Beach County. He specializes in real estate law and can assist sellers and purchasers remotely with closing and financing of residential and commercial real estate. Michael can be reached at 561.594.1452 or at firstname.lastname@example.org.