The Bay Area Real Estate Report - May 2020
Covid-19 having a huge impact on Bay Area Real Estate, but not yet in terms of home prices
Nearly 2 months into the statewide Covid-19 shelter-in-place, the effects of the virus, sheltering in place, and wide ranging business shut-downs continues to plague the country, California, and the Bay Area in more ways than imagined.
As it pertains to Real Estate, Inner Bay Area residential property sales declined 37% Month-to Month in April (vs March) and even more significantly, dropped a whopping 57% Year-to-Year vs last April. California Home sales are also down 28% since early March.
But while the full effect of the “Covid-19 economy” won’t be seen until the April statistics come out, the Greater Bay Area median home price was actually “up” 11% Month-to-Month in March, rising to $1,009,790 from $910,000 in February. The $1,009,790 March median was also a 7.4% Year-to-Year increase from the $940,000 Median in March/2019. This is more an indication of how strong our market was “going into” the Covid-19 situation, but according to the most recent Price/SqFt data for the Bay Area, the median sold Price/SqFt has only dropped 4.3% between the beginning of March and the end of April.
The recent economic date is as rough as expected, although there are also signs that we may have bottomed out. Let me summarize the bad news first.
In March, we saw the biggest 1-month decline in consumer confidence in nearly 50 years and there was a major pullback in consumer spending reflected by a 66.6% decline in retail sales, the biggest month-to-month decline in recent history and the biggest decline ever recorded since we started to track this data many years ago. And that’s not even accounting for a fully Covid-impacted month of March (since the shelter in place and shut-downs started in the “middle” of March).
Based on GDP growth tracked between 2010 and 2019, consumers play a huge role in today’s economy, representing 69% of U.S. real GDP. Thus there was a 4.8% decline in economic growth (GDP) for Q1. Since all of Q2 will be happening during the “Covid-19 economy”, industry experts are expecting Q2 numbers to be far worse at somewhere between 30-40% decline in GDP.
California job growth also went negative in Q1 for the first time in 10 years, losing nearly 100K jobs. Nationwide, over 30 million people have filed for unemployment over the past month alone. By comparison, during the “entire”18-20 months of the “great recession” (from early 2008 to mid 2009), a “total” of ~37 million people filed for unemployment. There’s an estimated unemployment rate of 18.6% for California as of the end of April and the rate is expected to eventually exceed 20%. By comparison, at the height of the “great recession”, the California unemployment rate was just 12.3%.
So far, none of this has had a palatable effect on Bay Area home prices since Sellers have taken as big a step back as Buyers have. C.A.R. has been polling Realtors weekly since late March and more than 40% of those Realtors have had a Buyer withdraw an offer due to Coronavirus. But on the Seller side, more than 50% of Realtors have had a Seller “remove their home from the market” due to Coronavirus.
And in the most recent (May) survey of the California consumer housing sentiment polling, only 31% of consumers felt that it’s a good time to buy a home in California, but conversely only 29% of Sellers felt it was a good time to Sell.
Thus, with Sellers taking as big (or “bigger”) of a step back as Buyers, pricing hasn’t yet been greatly impacted according to the latest available home price statistics. As I mentioned earlier, March home prices were up 7.4% Year-to-Year and the most recent Price/SqFt data for the Bay Area shows that the median sold Price/SqFt has only dropped 4.3% between the beginning of March and the end of April.
There’s also a big divide in the perception of the market from each side. 82% of Buyers recently polled are “expecting” that they’re going to see Seller price concessions now vs pre-pandemic. However, only 27% of Sellers recently polled are expecting/thinking that they will have to slash their price.
And nationally, nearly 75% of Realtors report that their sellers have not lowered listing prices to attract buyers during this time, according to a new survey conducted April 19-20 by N.A.R (the National Association of Realtors). This suggests that most home sellers are avoiding “panic selling” during the COVID-19 pandemic.
The other good news is that we’re starting to get a feel for the bottom. The last week of April saw the 1st week-to-week uptick in sales for California since early March, even though just by .09%.
Bay Area week-to-week home sales also only dropped 3.8% the last week of April. New listings have been increasing the past 3-4 weeks, both statewide and in the Bay Area. And pending sales have been rising slightly week to week in the Bay Area the past few weeks and in California as a whole. New Purchase Loan applications have also been on the rise since mid-April.
The negative labor market impact is also decelerating. 6.87M unemployment claims were filed in the last week of March. But the # of claims has declined every week since then (down to 3.84M claims filed the last week of April)
Month-to-month double-digit declines for California home sales is expected until at least June, but price impacts are expected to remain in single digits in light of record low mortgage rates and only a small fraction of Bay Area home owners “needing” to sell.
This is a very different situation than the great recession in that the economy was on much more solid footing “going into” it, most home owners have low fixed rate mortgages, and most had much more equity in their homes going into this.
The big wildcard is as to whether the next wave of the virus ends up resulting in further nationwide business shut downs and shut-ins.
In the mean time, the Coronavirus pandemic situation and the lingering uncertainties surrounding it are having a huge impact on the Bay Area Real Estate market. Sales volume is way off, many Buyers have backed out of purchases, and consumer confidence is way down. Widespread unemployment, greatly reduced consumer spending, and negative GDP growth highlights the economic issues facing both the US and California. There are signs that key economic and real estate market indicators have already bottom out, but there’s also a wildcard as to what further effects a 2nd big wave of the virus might have later this year. While there hasn’t yet been a noticeable effect on Bay Area home prices, we won’t really know how “much” of an effect there’s been until April sale price statistics are released.
For now, until/unless a large swath of Bay Area home owners “need” to sell and/or a large portion of Bay Area tech workers are laid off, there’s no reason to think that home prices will take a nosedive in the near future.
Mortgage Rate News - May 2020
The average rate for a 30-Year Fixed Mortgage
appears to have hit a bottom point at the end of April at 3.19%. Since then, it has bounced up and down week
to week, and today it dropped back down to 3.19%
Assuming good credit and at least 20% down payment/equity, the rate for a
typical 30-Yr Fixed Conforming Loan (w/0 Pts) is now at about 3%, while a
typical 30-Yr fixed High Balance Conforming Loan (w/0 Pts) is at about 3.625%.
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