Dear Clients and Friends:
First, I hope you and your family are staying healthy and doing well. Sadly, we all know someone that is directly affected by the pandemic. Now is the time for empathy, generosity, and gratitude as we navigate a very challenging situation. Health and your well being are the top priorities we should all be focused on, but I have heard from many of you wondering about the real estate market given the current situation. I thought I’d share some insights.
For obvious reasons, activity is down as we are limited as to what we can do in regards to showing and promoting property. However, many sales are moving forward, some with extensions of time to allow for delays in processing sales, with modifications such as virtual tours, face-time tours, virtual open houses, extensive PPE measures when in person appraisals and inspections are necessary, and of course social distancing. There are other sales being pushed out until life begins to return to normal. For a variety of reasons, there are still people that need to sell now and there are many buyers that remain active in the market. This is happening for many reasons and I am happy to have a conversation with you over the phone or via email.
The underlying market fundamentals for real estate in California remain strong, and while there may be challenges in the short term, many economists believe this is an external event that will pass. I am optimistic that we as Americans are a resilient bunch and we rally when times are most challenging. Before things really shut down inventory was at an all-time low and mortgage rates were testing historic lows, making real estate much more affordable than it has been in recent years.
If you are a buyer, this is a time to pay attention. Those sellers that are hanging on to hope in this market just may be willing to make a deal, that otherwise they wouldn’t even consider. Sure that’s a bold move depending on your risk tolerance in a time like this, but if you take the long view on real estate, history is on your side.
Long term, I believe housing will remain strong. As we are told it is “safer at home,” home has never played a more important role in our daily lives. As a result we have been forced to examine what home means to our needs, our family’s needs, and how we live in our homes. I believe this will have a profound impact on housing needs going forward. Some people have discovered working from home may be a long term solution to long commutes, while others may feel the need for more, or even less space. I know I have been thinking more about these things over the past couple weeks and have dreamed up an elaborate backyard makeover for when this is all over!
While there are definitely short term headwinds to buying and selling residential real estate, I believe that people will return to the market soon after things calm down. I also expect more people to gravitate toward asset diversification, such as residential investment properties, to avoid volatility in the stock market. Finally, the expected low interest rate environment should be the catalyst for a sharp rebound in the real estate market once the pandemic abates.
Here’s a quick snapshot of South Bay market activity from the last week:
New Listings: 57
New Escrows: 41
Closed Sales: 66
Listings put on hold: 37
Back-on the Market (fell out of escrow): 25
Price Reductions: 18
Price Increases: 6 (some optimists!!!)
In short, new listings are down significantly compared to one year ago. It’s the same story with new escrows as buyers are concerned about the current state of the economy. And as expected, prices are starting to drop to meet the buyers at their level of comfort. What I am advising my most active clients thinking about selling is to sit tight and let the bad news pass. Unless you need to sell, this is not the market to try and find a new buyer for your home. However, this will change and I will be the first to let you know when it is the right time to sell.
What about refinancing and interest rates?
I reached out to a trusted mortgage professional who for regulation purposes cannot be mentioned here, and here is what he could share about what is going on in the mortgage industry: “The recent Fed Rate cut did not have a direct effect on mortgage rates other than to indirectly cause them to go up by .25% to .5% depending on the specific mortgage program. The rates that did see downward shifts include the shorter term debt such as home equity lines of credit, credit cards, auto loans and commercial loans. The mortgage rates, in a normal economic environment, would typically be sliding down given all other economic indicators such as rising unemployment, plunging consumer confidence and a dropping stock market. However, mortgages are an “elastic” product meaning that when the rates go down, demand goes up instantly. Because of that, many of the big bank lenders, who are already taking stock of their investment risk, are not overly encouraging borrowers to come and fill their pipelines. That said, rates are still just a tick above all-time lows and in fact, within the last 48 hours, they have now ticked down to match the all-time lows that were reached 3 weeks ago. As the economic effects of the pandemic evolve daily, the mortgage interest rate market will maintain its unpredictability.”
What if you can’t pay your mortgage?
4 lenders have recently extended mortgage deferrals, some for up to 90 days. I would check with your bank to learn more details; but if you can pay, I highly recommend paying. Here is a link to more information.
Everybody’s health and safety are first and foremost, but we are here for you, whether it be for real estate needs, or just to chat. I find that the more people I talk to each day, the better and more confident I feel about the future! Stay strong, we will get through this together.
“Hope is the most powerful force in the universe.” Make Your Bed, Admiral William H McRaven