Glen’s SF East Bay Real Estate Market Update August 31, 2020

Glen’s SF East Bay Real Estate Market Update

August 31, 2020

 

Here’s a summary of what’s going on in the San Francisco East Bay real estate market as of August 31st. I’d like to start out with a quick quote coming from Zillow and Rismedia:

“More sellers are making their way onto the market, but it’s still not enough to offset a supply shortage as a frenzy of buyers look to take advantage of low interest rates. According to Zillow’s most recent Weekly Market Report, buyer demand is still outpacing new supply.”

Yes, sales are up. Pendings are up by 24% compared to last year. Inventory on the other hand is down. In fact, it’s the lowest I’ve seen for an August since I started tracking statistics going back to 2008. We have a 36 day supply of homes for sale today. Last year at this time, there was a 45 day supply.

Here are some highlights for the 39 East Bay Cities that I track:

Sales are up from last month, but similar to what we saw last year at this time. Although there was a big “pause” in the market mid March through mid May due to COVID-19 Shelter in Place, we’ve bounced back, picking up where we left off early spring in what now looks to be a strong sellers market again. Prices continue to move upward, showing an 8.7% increase from last August’s median price point. However, it’s a bit of a mixed bag. More homes seem to be “sitting,” and taking longer to sell. We’re seeing more price reductions with more transactions falling out. Buyer’s are attracted to affordable, move-in homes with curb appeal as long as these rates remain at record lows.

Inventory remains relatively flat in August. This again, as in June and July, was unexpected. We normally expect to see more inventory by now. Our inventory available is 28.2% lower than what we saw last year at this time. This represents a 36 day supply of homes, compared to a 45 day supply last year at the end of August. This is the lowest I’ve seen for an August since I started tracking numbers in 2008. I’ve made this statement now four months in a row. The number of pendings improved only slightly compared to July, a good sign that we still have buyers. The number of pendings are 24.4% higher when compared to last year at this time.

The pending/active ratio continued to move upwards, moving even more into a sellers market similar to what we saw at the beginning of the year.  This is much higher when compared to last years’ number of .85. We’re now at 1.47. It’s the strongest market favoring sellers since the beginning of 2018. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (less inventory with more pendings) favors sellers. A number below 1 favors buyers.

  • The month’s supply for the combined 39 city area is 36 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. Supply is less when compared to last year at this time, of 45 days.

  • Our inventory for the East Bay (the 39 cities tracked) is now at 2,125 homes actively for sale. This is fewer than what we saw last year at this time, of 2,958. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales increased to 3,131, higher than what we saw last year at this time of 2,516.

  • Our Pending/Active Ratio is 1.47. Last year at this time it was .85.
  • Sales over the last 3 months, on average, are 2.3% over the asking price for this area, lower than what we saw last year at this time, of 3.0%.

 

Recent News

 

The Future of California Real Estate: Can the Golden State Survive?

By Clare Trapasso, Realtor.com, September 3, 2020

California has long captured the nation’s imagination with its promises of the rich life, from the days of the gold rush to the rise of Hollywood and its star-making machine, to today’s booming tech sector. With its breathtaking shoreline and strong economy, the state has become indelibly known as a place abounding in opportunities—for those eager to seize them.

Lately, however, California’s luster seems to be dimming.

A severe housing shortage, exacerbated by the coronavirus pandemic, had led to the most expensive home prices in the nation. Wildfires this summer have devastated the northern part of the state. In the midst of a deep recession, many Californians are being priced out of their communities. Others are questioning why they’re shelling out so much money each month to live there—especially with companies in places like Silicon Valley allowing employees to work from home, wherever in the world that home may be.

It’s all converging at once to test the state’s true appeal. Despite the odds, can the Golden State’s real estate market remain, well, golden?

“Nobody in their right mind would bet against California,” says real estate professor Christopher Leinberger of George Washington University, in Washington, DC. However, “the Golden State can’t be golden forever with the ridiculousness of the home prices.”

California’s home list prices reached a record high in August—and have experienced the second-loftiest increases in the nation, according to the latest data from realtor.com®. (Only Utah saw bigger price gains.) Nine of the 10 most expensive metropolitan areas in the nation are in the state. (We included only the 300 largest metros, which encompass the main city and surrounding suburbs, towns, and smaller urban areas.) The state’s median price tag was $720,050 in August—up a jaw-dropping 23.7% from a year earlier.

That’s more than 10 times California’s median household income of $70,489 in 2018, according to the latest U.S. Census Bureau data.

The price hikes are due to the dearth of homes for sale. The shortage has been going on for years, but it’s been compounded by the COVID-19 crisis. Shut in their abodes for months on end, Americans are seeking larger homes for working and schooling their children. But there simply aren’t enough properties to satisfy demand, with the number of new listings down nearly 11.1% from August of last year on realtor.com.

Leslie Appleton Young, chief economist of the California Association of Realtors®, attributes some of that rapid run-up in prices to rich, white-collar workers who can now telecommute buying up luxury properties in more remote locations. In July, sales of homes priced at $3 million and up increased by about 76.6% year over year, she says. Homes priced at $1 million and up now make up about 20% of the state’s sales.

“The challenge is, you have the next generation of home buyers, [but] it’s very difficult to buy in California,” she says. “We’re losing people who simply can’t afford to be here.”

Many Californians were already being priced out

The lack of affordable housing is partly responsible for the nearly 3.25 million Californians who left the state from 2014 through 2018, according to the latest U.S. Census data. It’s also led giant tech companies like Google and Facebook, whose well-paid employees are partly responsible for the acceleration of prices in the San Francisco Bay Area, to pledge to build affordable housing in the area.

Looking at migration patterns in the U.S., “people have been leaving California and the Bay Area in higher numbers than they have been arriving,” says Patrick Carlisle, chief market analyst in the Bay Area for real estate brokerage Compass. “That outflow was being balanced by foreign immigration for years.”

More recently, however, that inflow of foreigners has declined.

Before the pandemic, Gov. Gavin Newsom boasted California had the fifth-largest economy—in the world. But COVID-19 has dealt the state’s economy a blow. California had a 13.3% unemployment rate in July, the sixth-worst in the nation, according to the U.S. Bureau of Labor Statistics.

“The housing supply in California is the No. 1 priority,” says Dowell Myers, a housing demographer at the University of Southern California, in Los Angeles. If the situation doesn’t improve, the lack of housing “will stifle employment growth and undercut the economy,” he says.

The quality of life could deteriorate enough to spur more folks to leave and deter others from moving in, he says.

Wealthier tech workers can still afford to drop nearly $1.2 million on a median-priced home in Silicon Valley’s San Jose metropolitan area, according to realtor.com’s August list prices.

But many others realize they can pay a fraction of that to live in other hip cities with growing tech hubs, like Austin, TX, with a median list price of roughly $400,000; Salt Lake City, at $490,000; and Nashville, TN, at $396,000. Even other West Coast tech hubs like Seattle and Denver are significantly cheaper, with median prices of $625,000 and almost $540,000, respectively.

Departing residents are “much more of a threat than a fire or an earthquake” to the state, says Myers. Although it attracts well-educated, high-earning millennials from other states as well as foreigners, California might see these higher-earning transplants leaving after a few years.

“They feel like they can’t possibly live where they want to live and buy a house,” says Myers. “California could hold more of the recruits if it had cheaper housing.”

George Washington University’s Leinberger blames NIMBY (“not in my backyard”) attitudes, which have stymied the creation of new housing throughout the state. While many residents support new construction, they don’t want it in their own communities. They worry that creating more dense housing, such as apartment, condo, and townhome complexes as well as smaller homes, could lower their own property values. They also say it would tax the existing infrastructure, like schools and local services, and exacerbate traffic issues.

Even well-meaning local regulations can drive up building costs and lead to long delays that can stretch over a decade between an application being submitted and a shovel going into the dirt.

“This is a self-inflicted wound,” says Leinberger of the housing shortage.

Could the pandemic prompt more people to leave California?

Although there has been a steady stream of Californians leaving their home state for years, the pandemic could accelerate that trend.

With more white-collar workers able to work remotely, some are heeding the siren song of more affordable homes, lower taxes, and a cheaper cost of living outside California’s borders. Others are remaining in state, but forsaking the expensive cities and moving into less-expensive areas.

“In the short term, California is going to see more people leaving due to the high cost of living combined with the ability to work remotely,” predicts realtor.com Senior Economist George Ratiu.

“People are willing to pay a premium to live there,” says Ratiu. “Perhaps that premium is being reevaluated by a lot of younger people.”

California could see winning and losing real estate markets

While some of California’s housing markets may be forced to slow down, others will likely keep accelerating.

“California’s a big place. You’re going to have winners and losers within the state,” says Mark Zandi, chief economist of Moody’s Analytics. “The housing markets in those urban cores are struggling. That will continue throughout the pandemic.”

In the Bay Area, sales for single-family homes in San Francisco and larger residences in the more suburban counties have been brisk while condo sales within the city limits have dropped off as a result of the pandemic, says Bay Area analyst Carlisle. That’s driven by wealthy, white-collar workers who are able to work remotely.

In addition to the surge in interest in expensive, sprawling homes north of San Francisco, in Marin County and  Napa and Sonoma, buyers with means are trading their rentals and smaller homes in high-priced, urban areas for larger homes in more affordable, inland communities in California. Some are leaving the state altogether for hip cities with strong job markets.

However, many more are staying put. Southern California, including Los Angeles and San Diego, could fare better than Northern California’s Bay Area as it’s a little less expensive, says Matthew Gardner, chief economist of Windermere Real Estate. Residents who work in the entertainment and other Southern California industries may be less able to work from home as the Bay Area tech workers.

“We’re not talking about cities being abandoned,” says Carlisle. “Shifts in markets are shifts in degrees. Except for something like the housing bust of 2008, [markets] slow down.”

And no matter what trials it’s currently going through, California is still, well, California.

“It’s hard to envision a large exodus,” says Appleton Young. “We are [still] the tech hub, we’re the entertainment hub, we’re rich in natural resources and natural beauty.”

Zillow: Buyer Demand Continues Outpacing New Supply

By RISMedia Staff, August 31, 2020

 

More sellers are making their way onto the market, but it’s still not enough to offset a supply shortage as a frenzy of buyers look to take advantage of low interest rates. According to Zillow’s most recent Weekly Market Report, buyer demand is still outpacing new supply.

For the week ending Aug. 22, newly pending sales were up 16.5 percent YoY—the biggest increase since mid-February. In addition, homes are selling faster—coming off the market in just 13 days, which is also 13 days sooner than last year.

While the inventory gap is narrowing, new for-sale listings were still down 10.6 percent YoY that week. And because of the quick market turnaround, total for-sale inventory has fallen further below last year’s level—as of last week, there were 29.8 percent fewer homes on the market than the same time last year.

This is causing prices to continue rising. For the week, the median U.S. list price was $345,255—8.3 percent higher YoY and the biggest annual change since the week ending July 13. The median sale price was $277,500—5.1 percent over last year’s number. 

 

Home Prices Hit Record Highs. Is It a Bubble About to Burst?

By Clare Trapasso, Realtor.com, Aug 24, 2020

The nation’s surging home prices don’t seem to care about the recession the country is mired in. They can’t be bothered by the deadly coronavirus pandemic or the double-digit unemployment that’s come as a result. Instead, prices are defying logic, expectations, and even belief, as they shoot up to record highs amid an unprecedented health and economic crisis.

It has all led some to wonder: Are some markets getting too hot? Could a significant correction be around the corner?

Such questions have become louder in recent weeks, in the face of some startling growth numbers, particularly in some high-priced California and less expensive Rust Belt, Midwestern, and Southern markets.

In some of these metropolitan areas, prices have shot up by more than 20% in the past year alone. Just how sustainable is this seemingly irrational home price exuberance, anyway? Could we be entering the dreaded bubble territory once again?

Nationally, the median home list price rose 10.1% year over year in the week ending Aug. 15, according to the most recent realtor.com® figures. No one predicted such a dramatic increase compared with 2019—when the economy was strong, no one had heard of COVID-19 and social unrest hadn’t exploded.

In fact, many experts predicted prices would flatten, if not fall.

Reality check: If there is a current-day bubble, it bears little resemblance to the gigantic bubble created by subprime mortgages, which burst into the Great Recession. Then came the mass foreclosures, plummeting home values, and the scores of homeowners suddenly underwater on their mortgages.

This year’s sky-high prices are driven by a rush of buyers competing for a very limited supply of properties. More demand than supply equals higher prices.

“Some markets are overvalued,” says Javier Vivas, realtor.com’s director of economic research. “Growth of prices in a recession is pointing in that direction. Some markets are seeing increased risks of price corrections.”

Instead of another real estate fire sale, certain parts of the country could see price hikes slow down or flatten, or prices even come down—by just a little. That could happen if prices rise so high that homeownership becomes too expensive for the majority of would-be buyers.

So instead of a bubble popping, it’s more that home prices could come back to reality.

Typically, market corrections happen fairly quickly, within two or three months, as priced-out buyers make a beeline for the sidelines, says Vivas. This year, record-low mortgage interest rates are muddying the picture.

Rates under 3% for the first time ever are driving more buyers into the market and allowing them to stretch higher on what they’re willing to pay. Lower rates mean lower monthly mortgage payments. That’s allowing sellers to ask—and receive—more for their properties.

Those who weren’t able to buy in the spring because of the pandemic—along with buyers desperate for larger, single-family homes with big backyards after sheltering in place for months—are adding to the rising demand.

However, worries about the pandemic have led to a record-low number of homes for sale, as sellers decided to wait out the health crisis. Meanwhile, many builders were forced to pause projects in some parts of the country. That’s led the scrum of competing buyers to bid up prices in an effort to secure a property.

Most striking in 2020’s home price ramp-up is the fact that’s happening in some of the nation’s most expensive and cheapest markets alike.

“In the inexpensive markets, you have a ton of space for prices to grow. You can see them overheat and absorb that overheating better,” says Vivas. That’s unlike the already high-priced coastal areas.

“The outlook for them is a faster and broader correction, [with] slight declines in home prices.”

Price corrections could happen by the end of the year in areas where prices have risen very high—along with local unemployment rates, says CoreLogic’s chief economist, Frank Nothaft.

Why won’t we see another Great Recession-era housing bubble?

The sky-high prices of 2020 are being driven by an influx of buyers bidding up prices on a historically low number of homes on the market. Until more properties come online, that dynamic is unlikely to change.

The Great Recession had the opposite problem: There were many more homes available than qualified buyers.

In the aftermath of the housing bust, it’s become harder for buyers without good jobs and strong credit to score mortgages. This weeds out riskier borrowers. And unlike the last go-around, when builders were erecting residences at what seemed like a break-neck pace, the under-building of the last few years has exacerbated the housing shortage.

Even if the economy doesn’t improve by next year and a vast swath of Americans remain unemployed, we are not likely to see the flood of foreclosures that characterized the housing crash, partly because government protections could be extended.

“It doesn’t feel at all like last time, when the market was getting all pumped up by easy mortgage credit,” says Mark Zandi, chief economist of Moody’s Analytics.

Some of the nation’s most expensive housing markets are getting costlier by the day.

Median list prices surged in the Santa Maria, CA, metropolitan area, which includes tony Santa Barbara, CA. They were up no less than 44%annually in July, to reach $1,795,050.

That was the largest increase in the nation, despite the relatively high percentage of locals out of work (12%). In the Los Angeles metro area, prices increased by 24%, to a median $994,150.

They were considered two of the country’s potentially most overvalued markets, due to their massive price hikes, despite double-digit unemployment rates.

Gerd-Ulf Krueger, president of Krueger Economics, doesn’t expect prices in the Los Angeles area to slow down, let alone fall, unless residents on the higher end of the income spectrum (i.e., the 1%) lose their jobs or receive salary cuts.

While the unemployment rate in the Los Angeles metro area topped 18%in June, those at the top have been largely spared the financial pain experienced by those on the lower income rungs.

“The income gaps are very severe” in the Los Angeles area, Krueger says. The problem has also been exacerbated by a lack of new construction in the region, making it even more difficult for buyers to find affordably priced properties.

Sellers “are a little over-enthusiastic. They are realizing the wealthier or more affluent middle class still have money to buy homes.”

Pennsylvania has the most metropolitan areas that have experienced both the highest price increases and high unemployment. This puts them at risk of price corrections.

In the Pittsburgh metro, median list prices rose 25% in July compared with a year earlier, a rise that could make the market overvalued. (Metros include the main city, surrounding suburbs and towns and smaller urban areas.)

“It’s just a product of supply and demand,” says Pittsburgh-based real estate agent Bobby West of Coldwell Banker Realty Services. “There are so few homes that are coming on the market, those that do are selling within 24 hours, with more than one offer.”

“It was a mad rush” when real estate services reopened after the pandemic shutdown, says West. “My bet is things will cool down into the fall and the winter months as far as pricing goes.”

However, with a median list price of just $249,950—about 40% less than the national median—prices still have room to rise.

The old steel town of Allentown, PA, and the surrounding metro area, have seen price increases comparable to Pittsburgh’s, as the supply of homes for sale has dwindled. Median list prices shot up 21% year over year, to reach $278,500 in July, according to realtor.com data.

The area is benefiting from folks leaving the New York City and Philadelphia areas and heading to Allentown, where they can afford more spacious homes—particularly if they’re now able to work remotely due to the pandemic, says local Keller Williams real estate agent Faith Brenneisen. The city is about 90 miles west of New York City and 60 miles north of Philadelphia—and its homes are selling for a fraction of the prices in those two cities.

She’s receiving seven to 10 offers per listing and offers running $20,000 to $30,000 over asking for homes priced in the sweet spot of $150,000 to $250,000.

Median list prices were up in Reading, PA, by 24% to $272,450 in July, compared with the previous year. In Wichita, KS, they rose 22% to $246,150, they were up 19% in Fayetteville, NC, to $219,800; they increased 18% in Philadelphia to $340,000; they grew 17% in Canton, OH,to $190,000 and 16% in Mobile, AL, to $215,350. All of these areas also had unemployment rates at or above 10% in June, according to the most recent data from the U.S. Bureau of Labor Statistics.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on September 7, 2020 at 5:52 pm
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Real Estate Market Update July 31, 2020

Glen’s SF East Bay Real Estate Market Update

July 31, 2020

As a reference in describing the market we’re in, I’d like to start by quoting Leslie Appleton-Young, the Chief Economist for the California Association of Realtors, from an issue in the July/August magazine.

“Since the pandemic hit the 2020 forecast has been a moving target. We are now monitoring market stats on a daily and weekly basis — waiting for the monthly sales and price report is not helpful in a market that is constantly changing. In a normal year we model demand and supply, making reasonable assumptions about the strength of the economy, frequently creating different scenarios to prepare, at least mentally, for exogenous factors. This year that has all been thrown out the window because just about everything is unknown. At the end of the day, the recovery in the economy is inextricably tied to the path of the virus, the relief response of the government and consumer behavior. In short, we simply don’t know.”

No doubt that the COVID-19 has had its effects on our local real estate market. We haven’t seen dramatic changes just yet. What we have seen is a “mixed” bag. Low inventory levels and low interest rates continue to be the story of this market.

What we’ve seen since COVID-19 began, is that many sellers decided to delay or postpone coming onto the market until some of the uncertainty subsides. Many buyers have jumped back on the fence and are holding off. The uncertainty of their job being in jeopardy, a loss in income, health fears, or seeing a “big hit” in their stock portfolio has taken its toll. Although there may be fewer buyers out there, there are still even fewer homes for sale. Many are getting gobbled up now.

The C0vid-19 market is such a “mixed” bag right now that it’s difficult to wrap your hands around it or even try to predict what’s coming down the pike. As I’ve said before; this is unchartered territory. Affordable homes in the right location that are in somewhat move-in condition seem to be getting the most attention. For a while, many buyers were reluctant to make big commitments on cash reserves for the “high end” market or big time fixers. That market seemed to be a little “soft” in many areas but now looks to be changing yet again. Buyers may also be shying away from the “close quarters” of the more expensive condos. However, the “right” house, in the “right” location will still experience a competitive market with multiple offers.

Income properties are more sensitive to risk aversion. Eviction moratoriums, rent reductions, local pre-tenant ordinances being passed, COVID-19 related payment deferrals, have all taken their toll and made these properties less attractive to buyers.

Here are some highlights for the 39 East Bay Cities that I track:

Sales are up from last month, but 23.3% lower than last year’s numbers. Prices have been up slightly through spring but are now beginning to flatten out during the summer months. More homes seem to be “sitting,” and taking longer to sell. We’re seeing more price reductions with more transactions falling out.

The seasonal drop in inventory followed our normal pattern during the holidays. We watched the number of homes decrease by nearly 60% over November and December. Last year was somewhat unusual because we saw a late season start and early season end. Inventory at the end of December was at its’ 2nd lowest level since I began tracking these 39 cities in 2006, with only 1163 homes for sale at the end of December. Our expectations normally are that new home listings begin to appear on the market as early as mid-January with a steady increase of inventory every month through to September, traditionally our high point.

Inventory decreased slightly in July by 1.2%. This again, as in June, was unexpected. We normally expect to see more than that in both months. That’s 36.4% lower than what we saw last year at this time. This represents a 36 day supply of homes, compared to a 51 day supply last year at the end of July. This is the lowest I’ve seen for a July since I started tracking numbers in 2008. I’ve made this statement now three month in a row. The number of pendings improved by a 8.3.7% compared to June, a good sign that we still have buyers. We’re also 17.8% higher when compared to last year at this time.

The pending/active ratio continued to move upwards, moving even more into a sellers market similar to what we saw at the beginning of the year.  This is much higher when compared to last years’ number of .78. We’re now at 1.44. It’s the strongest market favoring sellers since the beginning of 2018. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (less inventory with more pendings) favors sellers. A number below 1 favors buyers.

  • The month’s supply for the combined 39 city area is 36 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. Supply is less when compared to last year at this time, of 51 days.

 

  • Our inventory for the East Bay (the 39 cities tracked) is now at 2,159 homes actively for sale. This is fewer than what we saw last year at this time, of 3,395. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales increased to 3,118, higher than what we saw last year at this time of 2,646.

  • Our Pending/Active Ratio is 1.44. Last year at this time it was .78.
  • Sales over the last 3 months, on average, are 1.7% over the asking price for this area, lower than what we saw last year at this time, of 3.4%.

 

Recent News

 

Leslie Appleton-Young Chief Economist, CALIFORNIA ASSOCIATION OF REALTORS®

July/August 2020 Magazine Issue

 How has C.A.R. revised its housing forecast for 2020 to account for the coronavirus pandemic?

Since the pandemic hit the 2020 forecast has been a moving target. We are now monitoring market stats on a daily and weekly basis — waiting for the monthly sales and price report is not helpful in a market that is constantly changing. In a normal year we model demand and supply, making reasonable assumptions about the strength of the economy, frequently creating different scenarios to prepare, at least mentally, for exogenous factors. This year that has all been thrown out the window because just about everything is unknown. At the end of the day, the recovery in the economy is inextricably tied to the path of the virus, the relief response of the government and consumer behavior. In short, we simply don’t know.

Last August when we developed the 2020 forecast, we were looking at a good market constrained from being great by the twin hurdles of affordability and supply. On the foundation of a strong economy and attractive mortgage rates, we forecast that sales would be up slightly by 0.8 percent and the statewide median price would be up 2.5 percent to $607,900.

Fast-forward to the beginning of May with two months of pandemic-infused data under our belts, including horrific job losses: We revised the 2020 forecast done last fall to reflect the realities of the COVID marketplace with a -16.7 percent in sales and -3.7 percent in the median price. Just one month later, we had a few more weeks of data that were stronger than expected, revising the outlook for 2020 to -12.7 percent and the median price off just -1.1 percent. So we are updating our projections regularly, hoping for the best but always committed to getting an accurate picture of how the market is likely to evolve.

Some are worried about a repeat of the housing slump we saw during the Great Recession. How does the current situation compare to that of 2008?

So far it is very different. The Great Recession started in the housing finance sector with subprime lending and cash-out refis, putting those homeowners in harm’s way without a cushion to protect against falling prices. At the same time, the mortgage-backed securities created from these loans were rated to be less risky than they were and sold to investors around the world. When borrowers started to default on their loans, the crisis reverberated throughout the global financial system, financial institutions required government bailouts to survive, stock markets dove, and the economy slowed — the Great Recession was on.

Looking back, we can appreciate how relatively gradual the ramp up to September 2009 was compared to the speed of today’s drop. For example, it took two years for the cumulative total of initial claims for unemployment assistance to reach 37 million people. In 2020, there were 42.6 million Americans in this category in 11 weeks. Yes, 11 weeks.

Back to the housing slump. The key characteristic of the housing market in this period was the high level of foreclosed properties, the increase in inventory and, in California, the almost 60 percent drop in the statewide median home price. U.S. foreclosure filings increased 81 percent in 2008; in January 2009, 60 percent of the closings in California were REO (bank-owned properties). It was a time when short sales were the growth opportunity in real estate. Could that happen again today? It’s not likely for several reasons. The underwriting behind mortgages today is solid, household wealth is robust, the underlying fundamentals of the economy are strong, and demand for housing far outstrips the limited supply. Never say never, but a realistic look at today’s landscape does not suggest a repeat of the housing slump of 2009.

Do you think the pandemic will have a long-term impact on housing prices in California?

Not likely. The trajectory of California with a robust economy and an inadequate supply of housing is for continued appreciation of home prices over the long run. There are always scenarios in which a fall in prices in possible, but I don’t see any of them as likely at this point. In fact, as the economy emerges from its forced hibernation, the demand for different types of housing to accommodate the work-from-home world, along with geographic shifts fueled by the “work-from-anywhere” reality, will be game-changing. And on the foundation of low mortgage rates, these changes bode well for a continuation of the strong demand, constrained supply world the California market has inhabited for quite some time. That’s been our new normal.

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on August 9, 2020 at 4:42 pm
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Real Estate Market Update June 30, 2020

SF East Bay Real Estate Market Update

June 30, 2020

By Glen Bell   (510) 333-4460

No doubt that the COVID-19 has had its effects on our local real estate market. We haven’t seen dramatic changes just yet. What we have seen is a “mixed” bag. Low inventory levels and low interest rates continue to be the story of this market.

What we’ve seen since COVID-19 began, is that many sellers decided to delay or postpone coming onto the market until some of the uncertainty subsides. Many buyers have jumped back on the fence and are holding off. The uncertainty of their job being in jeopardy, a loss in income, health fears, or seeing a “big hit” in their stock portfolio has taken its toll. Although there may be fewer buyers out there, there are still even fewer homes for sale. Many are getting gobbled up now.

The C0vid-19 market is such a “mixed” bag right now that it’s difficult to wrap your hands around it or even try to predict what’s coming down the pike. As I’ve said before; this is unchartered territory. Affordable homes in the right location that are in somewhat move-in condition seem to be getting the most attention. Many buyers are reluctant to make big commitments on cash reserves for the “high end” market or big time fixers. That market seems to be a little “soft” in many areas right now. Buyers may also be shying away from the “close quarters” of the more expensive condos. However, the “right” house, in the “right” location will still experience a competitive market with multiple offers.

Income properties are more sensitive to risk aversion. Eviction moratoriums, rent reductions, local pre-tenant ordinances being passed, COVID-19 related payment deferrals, have all taken their toll and made these properties less attractive to buyers.

Here are some highlights for the 39 East Bay Cities that I track:

Sales are up slightly from last month, but 38% lower than last year’s numbers. Prices have been up slightly through spring but are now beginning to flatten out during the summer months. More homes seem to be “sitting,” and taking longer to sell. We’re seeing more price reductions with more transactions falling out.

The seasonal drop in inventory followed our normal pattern during the holidays. We watched the number of homes decrease by nearly 60% over November and December. Last year was somewhat unusual because we saw a late season start and early season end. Inventory at the end of December was at its’ 2nd lowest level since I began tracking these 39 cities in 2006, with only 1163 homes for sale at the end of December. Our expectations normally are that new home listings begin to appear on the market as early as mid-January with a steady increase of inventory every month through to September, traditionally our high point.

Inventory decreased slightly in June by 4%. This was unexpected. We normally expect to see more than that in June, typically one of our strongest selling m0nths of the year.  That’s 34.2% lower than what we saw last year at this time. This represents a 39 day supply of homes, compared to a 51 day supply last year at the end of June. This is the lowest I’ve seen for a June since I started tracking numbers in 2008. The number of pendings improved by a 23.7% compared to May, a good sign that we still have buyers. We’re also 7.4% higher when compared to last year at this time.

The pending/active ratio continued to move upwards, crossing more into a sellers market similar to what we saw at the beginning of the year.  This is much higher when compared to last years’ number of .81. We were at 1.02 last month. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (less inventory with more pendings) favors sellers. A number below 1 favors buyers..

 

  • The month’s supply for the combined 39 city area is 39 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. Supply is less when compared to last year at this time, of 51 days.

  • Our inventory for the East Bay (the 39 cities tracked) is now at 2,185 homes actively for sale. This is fewer than what we saw last year at this time, of3,317. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales increased to 2,878, higher than what we saw last year at this time of 2,679.

  • Our Pending/Active Ratio is 1.32. Last year at this time it was .81.
  • Sales over the last 3 months, on average, are 2% over the asking price for this area, lower than what we saw last year at this time, of 3.4%.

 

Recent News

Stunning rebound: Bay Area home sales surged nearly 70% from May to June; prices rose 3.6%

By Katheen Pender, SF Chronicle, June 16, 2020

The Bay Area home market saw an enormous resurgence in sales and a modest increase in prices from May to June, as pent-up demand and record-low interest rates collided with sparse inventory, according to a California Association of Realtors report issued Thursday.

Sales of existing, single-family homes rebounded 69.2%, the largest month-to-month sales jump since the association started keeping records for the Bay Area in 1990. Compared to June of last year, sales were down 7.8%. The median price rose to an even $1 million, up 3.6% from May and 4.2% higher year over year.

Because deals typically take around a month to close, June sales and prices largely reflect deals that started in May, as shelter-in-place orders eased and the economic outlook became “less-opaque,” said Jordan Levine, the association’s deputy chief economist. “I think the last couple weeks we have seen uncertainty increase,” he added.

On Monday, Gov. Gavin Newsom took steps to close down parts of the state’s economy that had reopened. On Thursday, the government reported that 287,732 Californians filed unemployment claims last week, up 8.7% from the week before and the highest since early May.

June’s sales surge represents a sharp turnaround from the May, April and March, when Bay Area home sales fell 51%, 37% and 12%, respectively, on a year-over-year basis as shelter-in-place orders and widespread economic uncertainty kept buyers and sellers on the sidelines.

“Pending sales hit bottom in late April,” Levine said. By late April and throughout May, demand was coming back as “the economy opened up slightly.” Also by May, people who were tired of living — and working — in cramped quarters were looking to expand.

What they found on the market was — not much. In June, there were just 5,304 active listings in the Bay Area, down 31% from 7,655 in June of last year. The only Bay Area county with an increase in active listings was San Francisco.

Falling mortgage rates also helped with affordability. On Thursday, the average rate on a 30-year fixed-rate mortgage fell to 2.98%, the first time it had ever dipped below 3% in the nearly 50 years since Freddie Mac has been tracking the rate on government-backed mortgages.

The association’s report does not include sales of condominiums, newly built homes and ones not advertised on a Multiple Listing Service.

The market for condos was generally weaker than for single-family homes last month. The median condo price fell to $701,000, down 0.6% from May and down 6.5% year over year. Condo sales were up 82% from May but down 22% from last June. The association reports condo numbers separately from its main report.

Jing Fang, a broker associate with the Compass real estate firm who works mostly with condo buyers in San Francisco, said he is seeing “a lot of momentum and activity. Buyers think there is a little bit of an adjustment in the market, and interest rates are below 3% now.” For one-bedroom units, “I’m not seeing much of a price reduction.” Two-bedroom units selling for close to $2 million “are a little soft.” She added that “sellers are pretty motivated. Otherwise they wouldn’t put their home on the market right now.”

Jessica Tsai and Marvin Lam are purchasing a one-bedroom unit with patio and den in a new condominium building that’s nearing completion on Third Street, in San Francisco’s up-and-coming Dogpatch. The couple put a deposit down in November because “we are engaged and wanted to spend a little bit more time in the city. We weren’t ready for the burbs yet,” Lam said.

They like Dogpatch for its proximity to the waterfront and new Warriors arena. Lam was planning to open a new business in the neighborhood. After the coronavirus hit, they monitored condo prices south of Market Street and found “more volatility” than before. “Some close above asking, some under, some still on the market longer,” Lam said.

“A lot of price reductions were in other areas. The new buildings in Dogpatch seem to have retained their value,” Tsai said. They’re going ahead with the purchase because “we still really like the property.”

Statewide, single-family home sales rose 42.4% between May and June and the median price rose 6.5% to $626,170, a record high. “A change in the mix of sales was one primary factor that pushed the median price higher in June, as sales of higher-priced properties bounced back stronger than lower-priced homes,” the association reported.

That was true in the Bay Area as well. In April, lower-priced homes were selling faster than higher-priced ones.

In June, “high-price home market segments around the Bay Area were extremely strong,” Patrick Carlisle, chief market analyst for Compass said in a report last week. “In San Francisco, houses selling for $2.5 million and above constituted 30% of all house sales, well above the 2-year monthly average of 18%.”

San Francisco overall, which has had some of the strictest shelter-in-place rules, has been the “weakest performing market as measured by supply and demand indicators (but not median price change) in the Bay Area in the last 4 months. However, it too has seen a very strong rebound from the huge declines immediately following (shelter-in-place) rules being implemented in mid-March,” Carlisle wrote.

He added that the San Francisco rental market “has been hammered by declining rent rates and increasing vacancy rates as newly unemployed residents leave the most expensive apartments in the country. Unemployment typically hits the rental market much harder than the for-sale market.”

If unemployment continues to rise, the “ripple effect” will be felt throughout the housing market, Levine said.

Bay Area home sales plummet during coronavirus, but prices rise

Home prices up in 5 of 7 counties

By Louis Hansen, Bay Area News Group, July 11, 2020

Bay Area home sales plummeted in May, falling by more than one-third in most counties and by nearly half in San Francisco as COVID-19 fears chilled buyers and sellers.

But the slowdown in transactions did little to slow prices — median sale prices rose noticeably in Santa Clara, Alameda and Contra Costa counties, according to Zillow data. The median home sale price for seven counties came in at $866,900.

Bay Area demand for scarce homes remained strong despite the shutdowns and constraints caused by the pandemic. “These numbers are pretty impressive. Pretty striking,” said Zillow economist Jeff Tucker.

The smaller pool of Bay Area house hunters shrugged off historic job losses, an ever-lengthening health crisis and economic uncertainty to snap up the few homes for sale at rates not seen since the peak of the market in 2017. Even limited in-person home tours and less personal meetings with brokers did not discourage these buyers.

The lure of record-low interest rates — hovering around 3.1 percent — has also encouraged many to start shopping.

Median prices for single family homes rose, year-over-year, in five of seven counties in May, according to Zillow. The median price for a home in Santa Clara County rose 4.6 percent to $1.25 million, grew 2.4 percent to $660,900 in Contra Costa County, increased 2.1 percent to $889,700 in Alameda County, jumped  5.9 percent to $462,100 in Solano County, and climbed 2.9 percent to $646,300 in Sonoma County.

Prices fell in the region’s two most expensive spots, but provided no bargains. The median sale price in San Francisco fell about one percent to $1.53 million and dropped 1.6 percent to $1.45 million in San Mateo County, according to Zillow.

Data for Marin and Napa counties was not available.

The market for condominiums in core Bay Area counties continued to crumble, with price drops nearing 15 percent in Santa Clara County, and smaller declines in San Francisco, San Mateo, Alameda and Contra Costa counties.

Tucker said the appeal of single-family homes — with yards and private space — has grown during the pandemic. Many condo units now have limited access to common areas, community gyms and outdoor spaces, and tighter living conditions could be a turn-off for some buyers.

Agents say buyers remaining in the market are serious and prepared to move. Some are reporting bidding wars for Silicon Valley properties, with low inventory fueling the market. And despite the growing reliance on remote work, few have noticed a run for distant suburbs with lower prices and bigger spaces.

Core Silicon Valley communities, including Palo Alto, Mountain View, Cupertino, Sunnyvale and Saratoga, have seen growing interest and sales over listing prices.

Compass agent Mark Wong of Saratoga said business remained brisk with motivated buyers. During the pandemic, he’s seen several clients looking to move from San Francisco high rises to single-family homes in the South Bay.

The tech economy has also remained solid, he added. “People are still buying and selling every single day,” Wong said. “They seem to be bullet-proof on their income.”

Buyers are shopping online and making quick decisions, he said, with offers being accepted as quickly as a day after a property has been listed. “Buyers just can’t wait,” he said.

Agent Tina Hand, president of the Bay East Association of Realtors, said demand remains strong along the I-880 corridor. Low mortgage rates have boosted buying power. “It’s free money,” she said.

Realtors have adapted to new rules, staggering home showings in one-hour intervals because open houses have been banned. The inventory of homes for sale in the East Bay has fallen, like the greater Bay Area.

The pandemic has changed some buyers’ habits. “People are now seriously looking at traditional single-family homes,” she said. “They’re looking for yards again.”

 

Home Sales Exceed Pre-Pandemic Levels for the First Time as Mortgage Rates Hit Another Record Low

By Sheharyar Bokhari, Redfin, July 15, 2020

Key takeaways for the week ending July 5

  • Home sales were up 2% from pre-pandemic levels and are likely to continue rising; pending sales were up 10% during the same period.
  • Weekly average mortgage rates fell to a new low of 3.03%, fueling homebuyer demand.
  • New listings recovered to pre-pandemic levels for the third straight week, but can’t keep pace with buyer demand; the number of homes for sale was down 29% from last year.
  • Nearly half of homes that sold during the week spent two weeks or less on the market, making the market feel “chaotic” for buyers.
  • Low rates and low inventory pushed home sale prices up 7% from a year earlier.

With mortgage rates at a record low, pending sales and homebuyer demand remain above pre-pandemic levels

The housing market continued its recovery in the week ending July 5 despite the rise in COVID-19 cases. For the first time, home sales exceeded pre-pandemic levels from January and February, up 2% on a seasonally adjusted basis. Demand is being propelled primarily by record low mortgage rates; the average 30-year fixed rate was down to 3.03% for the week ending July 9. 

“The industry is responding to an avalanche of applications for refinances and purchases.” said Rob Foos, a mortgage advisor with Redfin Mortgage in Boston. “A combination of rock-bottom rates plus pent-up purchase demand has resulted in the highest levels of purchase applications in about a decade.”

Several leading indicators suggest that home sales will continue to increase in the coming weeks; pending sales grew 10% from pre-pandemic levels on a seasonally adjusted basis and the Redfin home-buying demand index has hovered around 20% above the pre-pandemic levels for seven straight weeks. Mortgage purchase applications were also about 15% above pre-pandemic levels. 

Potential sellers worry about finding their next home

New listings were at their pre-pandemic levels for three straight weeks, up 1% on average on a seasonally adjusted basis. But there aren’t enough new listings to satisfy the strong homebuying demand. As a result, the total number of homes for sale was down 29% from a year ago. Redfin agents report that sellers are now rarely citing coronavirus concerns as a reason not to list, but more often cite the lack of homes for sale itself as the thing that’s holding them back. 

“Some of my clients are considering selling, but it’s a matter of finding a home they can buy,” said Redfin agent Thomas Wiederstein in Phoenix. “Even if they do find a home that checks all the boxes, many move-up buyers can’t buy a new home before they sell their current one. With bidding wars so common, it’s very hard to get an offer accepted that’s contingent on the sale of the buyer’s current home.”

Lack of homes for sale fuels competition

Buyers face competition more often than not, as more than half of Redfin offers faced a bidding war in June for the second month in a row, and homes are going off-market quickly. The share of listings that went off market within two weeks stood at 45% this week, up from 35% a year ago. Shoshana Godwin, a Redfin agent in Seattle, is seeing a return to bidding wars and buyers waiving contingencies to make their offers more attractive. 

“We’re back to buyers waiving their rights to cancel the contract if something pops up during the inspection or they can’t get their loan approved. Buyers used to try to inspect the home before writing an offer, but now sellers are providing an inspection report upfront. That brings in even more bidders because they don’t need to spend $500 on an inspection just to make an offer,” Godwin said.

Redfin San Francisco agent Chad Eng describes a housing market that feels “chaotic” in the absence of pre-pandemic norms.

“Due to COVID-19, agents are scheduling back-to-back 15-minute in-person home tours instead of holding traditional open houses. If you miss your appointment, you’re out of luck. Sellers often set a deadline for buyers to submit offers so they can review all of their options at once, but now that there’s so much uncertainty, sellers who receive one strong offer are less willing to wait around to see what else trickles in. I’ve seen multiple sellers accept an offer before the deadline, meaning buyers who wait miss out on their shot at buying the home.”

With competition comes rising home prices. The average sale price for the week ending July 5 was $310,000, up 7% from a year ago. The big question is how high prices will go? Asking prices for newly listed homes continue to accelerate as well, rising 16% over the same week last year to $324,900. 

What’s ahead?

Right now the market shows no signs of slowing down, but it will face a new test at the end of July. Thanks to the CARES Act, roughly 30 million Americans are receiving an extra $600 in weekly unemployment benefits. That extra benefit is set to expire July 31, unless lawmakers pass an extension or new legislation to supplement income for folks who are out of work. 

The expiration of these enhanced unemployment benefits could adversely affect personal spending, a crucial component of the economy that makes up 68% of GDP. A pullback in consumer spending could hit industries outside of travel, service and hospitality which so far haven’t been as impacted during the pandemic. That’s notable because so far, highly-paid employees have been largely insulated from the recession and the high unemployment rate in service jobs has had a limited impact on housing demand. If job losses creep into new industries, all bets are off. 

Why California’s housing market isn’t tanking

Rents are falling in some areas, but home prices remain stubbornly high

BY MATT LEVIN, Cal Matters, JULY 6, 2020

It’s the worst economy since the Great Depression. Nearly 1 in every 6 California workers is out of a job, and those lucky enough to remain employed confront reduced hours, slimmed wages and mounting uncertainty over what the next few months will bring. The state budget is in shambles, and cities and counties are already laying off workers.

And yet California home prices aren’t dropping all that much.

Despite the economic carnage induced by the novel coronavirus pandemic, the state’s stubbornly expensive housing market appears headed for a relatively soft landing. While rents in some markets show signs of a steeper cliff, the value of a California single family home last month — $570,000 — is actually higher than what it was a year ago, according to the real estate data firm Zillow.

 

 Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on July 16, 2020 at 9:34 pm
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Glen’s SF East Bay Real Estate Market Update May 31, 2020

SF East Bay Real Estate Market Update

May 31, 2020

By Glen Bell   (510) 333-4460

 

Everyone seems to be asking the question of how will the COVID-19 “shelter in place” mandate effect the real estate market and how will we come out of it later in the year. There’s been so much speculation with a number of different opinions coming from a number of sources. Keep in mind that this is “unchartered territory” and we won’t have definitive answers for quite some time. So much has changed. We as agents are very limited in what we can do during this period. A lot will be riding on how long it takes before we’re able to really go back to work, how long it takes for the COVID-19 fears to subside, how will the economy fair and what will the jobs situation looks like by then.

As agents, the market has paused as our lives have. Preparing a home for market has been delayed, and fewer new listings are coming on, due to the many challenges of being able to properly market them. Brokerages temporarily closed their doors with agents primarily working remotely from their homes. There are no open house showings while physical individual showings are discouraged and have come to a crawl. COVID-19 has disrupted all of our lives. The uncertainty and concern for our health and well-being for not only ourselves, but our family and friends, is foremost in all of our minds.

That being said, let’s take a look at how the market stands at the end of May. We haven’t seen dramatic changes just yet. What we have seen is a “mixed” bag. However, I say that only by looking at the numbers up until May 31st. Everyone asks me to pull out your crystal ball and tell us what’s going to happen.

For me, I’ve always been a firm believer in supply and demand concepts. For example, in real estate, the number of houses for sale always represented our supply, while the number of homes that have gone into contract, or pendings, represented our demand. What kind of a market, a buyers’ or a sellers’, is determined based on the relationship of these two numbers at any given time. During the REO days, there was a huge inventory, with few buyers, thus a buyers’ market. For most of the past 6 years, markets experienced a strong sellers’ market with very few listings and lots of buyers. For most of last year, we had moved back towards a more neutral or balanced market. When inventory “fell off the cliff” in November 2019, a month earlier than normal, it set up for a strong sellers’ market again early spring and that’s exactly what happened. Very little to look

at with lots buyers trying to take advantage of extremely low interest rates. We saw more competition and increased prices early on. Then COVID-19 hit.

What we’ve seen since COVID-19, is that if sellers did not already have their home listed for sale, many decided to delay or postpone coming onto the market until some of the uncertainty subsides. Many buyers have jumped back on the fence and are holding off. The uncertainty of their job being in jeopardy, a loss in income, health fears, or seeing a “big hit” in their stock portfolio has taken its toll.

The lack of inventory early this year had “flipped” our markets back into a sellers’ market temporarily. However, it seems to be setting up for another big change to come by as early as this summer. There’s a large number of sellers who took a wait and see attitude over COVID-19 who may come back onto the market then. This could come in waves with some wanting to see first how the market is doing before they put their home up for sale. There may even be more who took financial hits and feel that they now “must sell.” So, we’ll probably see a fairly large supply of homes come onto the market over the summer. Many buyers on the other hand have backed off and may not be in a financial position to purchase by then. So perhaps the strong demand that we’re used to seeing in the Bay Area will begin to decrease. This will probably pull us back into a more neutral or balanced market, or possibly even into a buyers’ market for the first time in years.

Here are some highlights for the 39 East Bay Cities that I track:

Sales are down slightly from last month, but 36.8% lower than last year’s numbers. Prices have been up slightly through spring but are now beginning to flatten out as we enter into the summer months. More homes seem to be “sitting,” taking longer to sell. We’re seeing more price reductions and more transactions fall out. Fewer buyers are going into contract.

The seasonal drop in inventory followed our normal pattern during the holidays. We watched the number of homes decrease by nearly 60% over November and December. Last year was somewhat unusual because we saw a late season start and early season end. Inventory at the end of December was at its’ 2nd lowest level since I began tracking these 39 cities in 2006, with only 1163 homes for sale at the end of December. Our expectations normally are that new home listings begin to appear on the market as early as mid-January with a steady increase of inventory every month through to September, traditionally our high point.

Inventory increased slightly in April by only 4% We normally expect to see more than that in May, typically one of our strongest selling m0nths of the year. That’s still 29% lower than what we saw last year at this time. This represents a 39 day supply of homes, compared to a 48 day supply last year at the end of May. The number of pendings improved by a whopping 48.5%, a good sign signaling that we still have buyers. However, when we compare that number to last year, we’re still 17% lower. In fact, this is the lowest number that I have recorded of pendings for a May since I began tracking statistics in 2007. This is primarily due to low inventories as well as the influence of the COVID-19 and the “shelter in place” mandate during the last two months.

The pending/active ratio reversed its trend, moving towards a more normal balanced market now at 1.02. This is higher when compared to last years’ number of .88. We were at .72 last month. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (less inventory with more pendings) favors sellers. A number below 1 favors buyers.

  • The month’s supply for the combined 39 city area is 39 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. Supply is less when compared to last year at this time, of 48 days.

  • Our inventory for the East Bay (the 39 cities tracked) is now at 2,275 homes actively for sale. This is fewer than what we saw last year at this time, of 3,185. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 2327, much lower than what we saw last year at this time of 2,81

 

  • Our Pending/Active Ratio is 1.02. Last year at this time it was .88.
  • Sales over the last 3 months, on average, are 3.1% over the asking price for this area, slightly lower than what we saw last year at this time, of 3.4%.

Recent News

Bay Area home sales fall by half in May vs. last year; prices off 2.5%

By Kathleen Pender, SF Chronicle, June 16, 2020

The coronavirus pushed Bay Area home sales off a cliff in May.

The number of existing, single-family home sales that closed last month fell 51.1% compared with the same month last year and the median price dropped 2.5%, according to a report issued Tuesday by the California Association of Realtors.

Between April and May, sales fell 6.7% and the median price dropped 1.5% to $965,000, said the report, which excludes condominiums, newly built homes and homes that were not advertised on a Multiple Listing Service.

“May is going to be where you see the full brunt” of the COVID-19 crisis, said Jordan Levine, the association’s deputy chief economist. Because it generally takes 30 to 60 days for a sale to close after an offer is accepted, a lot of May sales went into contract in April, when the Bay Area was still under a strict lockdown. Since then the rules have eased a bit, the stock market has rebounded and it’s a little clearer which sectors of the economy are most affected.

Statewide, sales fell 41% year-over-year in May, following drops of 11.5% in March and 30.1% in April.

“It was the first time we saw three back-to-back months of double-digit declines,” Levine said.

Pending sales — the number of homes going into a contract — is a more forward-looking indicator than sales. They rebounded 67% between April and May statewide, and by a similar percentage in the Bay Area.

“We saw the pit for pending sales in mid-April,” Levine said. The sales rebound continued through the end of May but “the last couple weeks we have seen slower growth in pending sales.”

Normally, sales peak in the spring and tail off in the summer but this year “our summer will be more like spring and summer combined, or two springs combined,” said Brian Witchel, an agent with Corcoran Global Living in Marin.

Considering the drop in May sales, the 2.5% drop in prices year-over-year, which followed a 0.8% drop in April, seems fairly tame.

One reason prices haven’t dropped more is that there are fewer fundamental problems in the housing market than there were during the financial crisis, which was fueled by shoddy mortgage underwriting. And most of the job losses this year have been in service industries, where employees are more likely to be renters than buyers in the expensive Bay Area, Levine said.

“On the inventory side, sellers took a much bigger step back than buyers,” Levine said. So even though there are fewer buyers, they are competing for a much smaller number of homes.

Sellers who did not have to move have been reluctant to put their homes on the market during the pandemic.

In the Bay Area, open houses, for brokers and the public, are not allowed. One-on-one showings are allowed only if a virtual showing is not feasible, and then only by appointment with strict social distancing and health rules enforced. Before early May, agents could not even show a home unless the occupants had moved out. Now they generally can, but the occupants must be gone at the time of the showing. Even if their homes can be shown, many owners are reluctant to have strangers coming through.

Finally, low mortgage rates have made buyers eager to make a deal, perhaps more than sellers.

Among Bay Area counties, median prices rose the most year-over-year in Solano (8.1%) and Marin (7.1%). They fell the most in Napa (-7.2%) and San Mateo (-6.6%), according to the report.

Month to month, prices rose the most in Marin (9.9%) and Sonoma (2.6%) and dropped the most in Napa (-10.3%), Alameda (-7.3%) and San Francisco (-4.2%).

Anecdotally, agents in the Bay Area suburbs say they’ve had a surge of interest from potential buyers coming from San Francisco, as the coronavirus has made working from home at least part time a more viable option long-term. Many are looking for larger homes with space for one or two offices, a yard and — since they’re spending more time at home — a pool.

“Every year a certain amount of people move from San Francisco to Lafayette, Moraga, Orinda. It’s the natural flow, they get to their early 30s, have a child or aspirations of a child. This year we are getting this year’s people and next year’s,” Compass agent Paddy Keohe said. “San Francisco is one of the most beautiful cities but between COVID and restaurants and bars closing down, that romantic feature is gone,” he said. “Now (they’re) working from home in a two-bedroom apartment and it’s like, ‘Get me out of here.’”

Nicole Allen and her husband have been looking to move from their one-bedroom apartment in San Francisco’s Marina district to Berkeley, the Oakland hills or Rockridge.

“The biggest thing for us is how much more you can get for your money outside the city. We are looking for something with more space, a yard, flex room, something where you can raise a family and not feel completely crammed for a couple years,” she said. “With companies updating their work-from-home policies, we are more excited about the prospect of being outside of the city. We wouldn’t necessarily have to take BART every day.”

Chris Meadors, a Compass agent in Napa, said, “The only phone calls we have received in the last three months” are from people wanting to move from San Francisco to someplace like Napa County. He and his partner “have put five deals in contract with that exact buyer at a couple different price points in the last month,” he said. Second-home buyers are acting “with more urgency” than usual, he added. They want to know “How fast can I move in? I want to use the pool the July 4 weekend.”

Paul O’Neil, a Corcoran agent in Marin, started working with three clients wanting to move from San Francisco since before the coronavirus hit.

“They were on the fence for a while, all of a sudden they are active,” he said. All can work from home more than they used to. As a result, some are willing to look at homes farther from the city, for example in Fairfax rather than Mill Valley.

Tim Johnson, a Compass agent in San Francisco, said “it’s a little early” to say whether this is more than a seasonal trend, since summer is when families with children often move from the city to suburbs before schools reopen. He said families are also looking for bigger homes within San Francisco, with room for offices and home schooling.

“That tends to drive people toward larger accommodations rather than out of the city,” he said.

Paul Barbagelata of BarbCo Group in San Francisco has heard of people wanting a second home “in the Wine Country, Tahoe, or a place where … there is fresh air, some elbow room and they won’t go crazy” sheltering in place, he said. But “I have not personally experienced any fallout yet” from people moving out of the city entirely. “By September or fall we will have a better understanding if there is a flight to the suburbs or not.”

In a report earlier this month, Compass Chief Market Analyst Patrick Carlisle noted that San Francisco “was more deeply and more quickly affected by COVID-19 and shelter-in-place” than other local markets. It saw larger initial drops in activity. “Even with the remarkable rebound of buyer demand in May, its recovery is, so far, lagging other counties on a year-over-year basis.”

In a chart, he plotted the number of homes going into contract last month compared with May 2019. Among Bay Area counties, the highest was Sonoma at 100%, which means Sonoma’s activity was about the same as last year. The next highest were Solano (98%) and Marin (88%). The lowest were San Francisco (62%) and Alameda (68%).

But, he added, “one cannot come to conclusions in the middle of a crisis. In 1989, right after the earthquake, there was talk about turning the entire Marina district into a park. After 9/11, it was said in New York City that no one would want to live in condo penthouses anymore.”

Homebuying Demand Just Keeps Getting Stronger

By Glenn Kelman, Redfin, June 12, 2020

Key Takeaways

  • Demand is 25% above pre-pandemic levels. Buyers haven’t “batted an eyelash” over the possibility of a resurgent pandemic or now protests.
  • Bidding wars are “bananas” with homes “flying off the shelves.” Sale prices are up 3.1%; asking prices are up 9.9%.
  • New listings are still 15% below last year’s levels. More listings may hit the market soon, though sellers still have more health concerns than buyers. A buyer can decide how many homes to visit, but a seller has to “let an open-ended number of people walk through until the home is sold.”
  • Many renters in the city are buying in more affordable outlying areas; home-ownership levels may meaningfully increase for the first time in 15 years.
  • But continued unemployment could pull first-time buyers out of the market; “Condos are tough to sell right now… The ball is going to drop and it will be interesting to see how it rolls down the hill.”

Nothing Seems to Deter Homebuyers

It seems that nothing can deter homebuyers. Seasonally adjusted demand for the week of June 1 – June 7 is now 25% higher than it was pre-pandemic in January and February, marking the eighth straight week of rising demand.

 

Our abiding concern in May was about the number of homes for sale, but that’s improving too. After falling to 21% below last year’s level the week of May 25 – 31, new listings last week continued their recovery; last week’s new listings were 15% below last year’s level.

 

 

 

Listings accepting an offer improved as well. Two weeks ago, this number was down 11% year-over-year, but for the week of June 1 – June 7 it was 9%. With demand surging and supply recovering, we expect sales to strengthen; mortgage purchase applications were up 7% year-over-year in the last week of May and up even more, 13%, in the first week of June.

Buyers Unfazed by Protests and Pandemics

Agents from Seattle to LA to Philadelphia have been surprised that protests didn’t deter more buyers. “It has been a speed bump,” said Alec Traub, an LA-based team manager for Redfin. Hazel Shakur, Redfin Maryland agent, reports that “between the virus and now the protests, folks are not batting an eyelash.” What’s driving demand is low rates and, now, easing credit. According to Sarah Martin, a Redfin mortgage advisor in Washington DC, “credit has pretty much loosened up except for self-employed borrowers.”

Sellers Re-Entering Market, Worried About Health Risks

And sellers, always more careful than buyers, are finally responding to increased demand. “A lot of what I’m listing are not new clients, but people I’ve met with over the past few weeks and months,” said Seattle Redfin Agent David Palmer. “I’ll be bringing on double-digit listings in the month of June and expect the same for July. Those people who were looking to get top dollar and wanted to wait to list until they could get the most buyer attention, they can definitely get that now.”

It’s also easier for buyers than sellers to accept the health risks of touring. “We’ve had a lot of clients who are going to list with us but they’re just not ready yet,” said Mr. Traub, the LA team manager. “Especially when you live in your house, it’s more difficult to let an open-ended number of people walk through until the home is sold. When you’re a buyer, you can control the number of listings you see in-person. I think a lot of people still don’t feel comfortable with that and what that means for their own health.” Adds Charles Davies, a Redfin agent in Philly, “If it’s vacant, I can get those listings all day long.”

Bidding Wars Common

Until supply catches up to demand, prices will rise. For the week of June 1 – 7, year-over-year growth in asking prices was up 9.9%, compared to 7.9% the week before, and 3.9% in January and February. Sales prices for the first week of June are up 3.1% year-over-year, an improvement from 1.3% in May, when offers from late March and April were still closing. The percentage of newly listed homes accepting an offer within 14 days of their debut increased from 42% in May to 47% in the first week of June.

The major theme of our conversations with agents across the country this past week has been about bidding wars. “It’s just bananas, with so few listings and so many buyers,” said Ms. Shakur, the Redfin agent in Maryland. “Having lived through the 2008 bubble, I just want to be cautious. Maybe it’s nowhere near the same size as it was in ’08, and maybe it’ll turn out not to have been a bubble at all. But buyers are desperate. If a property is in a desirable neighborhood, buyers will overpay. Bidding wars, escalations, no inspections, agreement to pay over appraised value, all of that’s becoming the norm.” Adds Mr. Palmer, the Redfin agent in Seattle. “Anything I’m pricing correctly right now is flying off the shelf.”

No one knows for sure how long this will keep up, but very tight credit in recent months has at least limited housing speculation; price increases have been the result of record-low mortgage rates and inventory. “One thing I’ve noticed on my listings are our seller dashboards,” Mr. Palmer said. The seller dashboard shows Redfin listing clients and their agents how much online traffic a listing is getting, and how digital ad campaigns for that listing are performing. “The views are up definitely for what I would normally see for a week’s worth of views compared to this time last year. Usually 1,000 – 1,500 views would be a solid week for your first week. I’m having listings hit that on the first day.”

Buyers Prefer Three-Dimensional Scans to Video-Chat Tours

Online interest in listings now takes many forms. As shelter-in-place rules subside in parts of the country, much of the demand for virtual showings is from relocating homebuyers who want to avoid a long drive or a flight to tour a home. Fifteen percent of tours are happening via video-chat rather than in person. This is half of its April peak, but still 30 times higher than it was pre-pandemic.

The popularity of three-dimensional scans has been even more durable, with views of these scans on Redfin.com increasing 42% from April to May. In markets like Orange County and Seattle, a quarter of new listings include a scan, and we now believe this will be the most popular way to virtualize a showing, with buyers preferring to move through the home at their own pace, whenever they want.

People Are On the Move

Many of these relocating buyers are pursuing the suburbs, or smaller, more affordable cities. “It’s odd, because I’ve got two different sellers moving to Oklahoma, both for jobs,” said Ms. Shakur, the Redfin agent from Maryland. “That big migration we’re all expecting, it’s beginning to happen. People are now moving more to the interior of the country. I also have a lot of clients who are retiring and moving down south to more tax-favorable states.”

“I think some sellers are now at the point where they don’t want to be in the city anymore or keep paying high prices to stay here,” said Mr. Traub, one of Redfin’s LA team managers. “A lot of people relocate to LA for work, but now they realize they could go back home and their money would go further, especially when they can work remotely.”

It has been a point of debate within Redfin whether the movements of people we’re now seeing are mostly to the outlying areas of the same city, or to entirely different parts of the country. What we can be sure of now is that this latter group of cross-country movers is already increasing in size, albeit only modestly: in April and May of 2020, 27% of Redfin.com users searched outside their metropolitan area, compared to 25% in April and May of 2019.

We now speculate that the flexibility to work remotely, combined with low interest rates, will lead to higher levels of home ownership in the U.S., which have mostly been declining since 2004. “With interest rates so low, a lot of people want to buy who are currently renting in the city,” said Redfin Boston Agent Elynn Chen. “They want to go somewhere for more space.”

Long-Term, Still Clouds on the Horizon

But even though demand is strong now, no one can say for sure what the long-term outlook is. The whole reason we’re reporting on demand every week instead of every month is because we have seen such a volatile real estate market. “A lot of jobs are not coming back,” said Mr. Palmer, the Redfin Seattle agent. “Would-be first-time buyers are gonna say screw it. They are just thinking about how to pay rent and survive. We have a lot of band-aids with unemployment insurance right now, but those aren’t going to last forever. Condos are tough [to sell] right now. The ball is going to drop and it will be interesting to see how it rolls down the hill.”

 

Despite COVID-19 Crisis, More Than Half of Homebuyers More Likely to Purchase a Home Soon

By Crissinda Ponder, Lendingtree, 6/10/2020

The coronavirus pandemic — coupled with historically low mortgage rates — is motivating a majority of homebuyers to purchase a home in the coming year, according to results from LendingTree’s latest survey.

To get a better handle on how the outbreak is impacting homebuyer behavior, LendingTree commissioned a survey of more than 1,000 prospective buyers about their plans to jump into the housing market — or not.

Key findings

53% of homebuyers are more likely to buy a home in the next year, due to the coronavirus outbreak.

This is especially true for first-time homebuyers (73%) and millennials (66%). For all buyers who are planning to purchase in the next 12 months, their top two motivations are:

  • Taking advantage of record-low mortgage rates (67%).
  • Being able to save a larger down payment because of reduced spending (32%).

Nearly two-thirds (65%) say the coronavirus pandemic has impacted how much money they plan to spend on a new home.

Among this group of prospective homebuyers, 44% plan to buy a less expensive home and the remaining 21% want a more expensive home. Among the latter group, 28% of first-time buyers say they’ll buy a pricier home, while just 17% of repeat buyers agree.

About 6 in 10 (61%) homebuyers have toured a house virtually over the last two months.

Another 33% of respondents said that although they haven’t yet participated in a virtual tour, they plan to do so. Additionally, 3 in 10 buyers say they’d buy a home without physically touring it in person.

Buyer concerns about qualifying for a mortgage

More than 4 in 10 (44%) homebuyers are more worried about qualifying for a mortgage because of the pandemic. First-time buyers (58%) and millennials (52%) are especially anxious.

There’s some cause for concern. Lenders are becoming less flexible with their minimum mortgage requirements. Access to mortgage credit fell by 12.2% in April, according to the Mortgage Credit Availability Index from the Mortgage Bankers Association.

Less credit access means lenders are likely to raise their minimum credit score and down payment requirements. They may also request additional documents during the mortgage underwriting process.

Other takeaways

Of the 1 in 5 homeowners across all ages who are less likely to buy a home because of the coronavirus outbreak, the most-cited reason was economic uncertainty (70%), followed by the inability to tour homes in person (42%) and loss of income (38%).

More than half (53%) of first-time buyers said they’d buy a house without an in-person tour; just 18% of repeat buyers would do the same. The percentages of buyers in each age group who would purchase a home based solely on a virtual tour are:

  • 42% of millennials
  • 31% of Gen Xers
  • 10% of baby boomers

Additionally, 43% of men would skip an in-person tour before a home purchase. Only 16% of women agree.

Bay Area’s dropping rents will reshape housing market

By J.K. Dineen, SF Chronicle, June 9, 2020

The coronavirus pandemic is driving rents down in San Francisco and across the region, reshaping a housing market that for the past decade has generated enormous profits for residential developers while displacing tens of thousands of workers from the inner Bay Area.

Rents are down 9% from a year ago in San Francisco and over 15% in some tech hubs in the South Bay, according to a recent report by Zumper, a rental housing search engine. That trend will likely accelerate as layoffs mount and workers, newly liberated by work-from-home options, flee the Bay Area for cheaper cities, according to housing experts.

While it’s too early to say whether the current health crisis will be a short-term dip or a longer-term correction in the cost of housing, it’s clear that in the next few months, renters looking for housing in the Bay Area will get a lot more for their money than they did a year or two ago. Owners are increasingly scrambling to get tenants to sign leases, offering months of free rent, signing bonuses and other discounts. New market-rate housing development is likely to stop, as builders wait to see how far rents tumble.

“The balance of power has shifted to the tenants — there is no question about it,” said Joe Tobener, an attorney who represents tenants.

Many landlords are proactively cutting rent — usually by 10% or 15% — as an incentive for tenants to stay, Tobener said. Other tenants are taking the matter into their own hands — reaching out to see if their current landlord will give them a better deal.

That was the case for Zenab Keita, who lives in the Landing, a 282-unit apartment complex in Oakland’s Jack London Square. Keita signed her lease in June 2019 for $2,600 a month. While she has managed to hold onto her job managing corporate partnerships in sports and entertainment, 66% of her compensation is contingent on deals, and those have vanished during the pandemic.

With her lease set to expire in June, Keita approached her landlord, Essex Property Trust, to see if she could get $400 or $500 taken off her monthly rent.

“They came back and offered $67 off,” she said. “I was like ‘You should not have even written that email. That was a waste of everybody’s time.’”

Meanwhile, as she started looking around for new places, she saw that her landlord was giving away eight free weeks of rent and a $1,000 signing bonus to folks willing to sign a year lease in her building. When she asked if she could get a similar deal, she was turned down. It wasn’t until she told them she would be moving out that they offered her eight free weeks in addition to the $67 reduction, which averaged over a year means that she will be paying $2,111 a month.

She signed the lease. “It was a big lesson that closed mouths don’t get fed,” she said.

Essex Property Trust did not respond to a request for comment.

While Oakland saw so much rent appreciation in the first half of 2020 that it is still up 4.7% from June 2019, that will likely not last. Oakland, which has been furiously producing housing over the last two years, has about 10,000 units either under construction or recently completed. This includes 2,600 units being built around the Broadway-Valdez neighborhood.

John Pawlowski, a senior analyst covering the apartment market for Green Street Advisors, said that Oakland housing — most of it targeting high-wage earners — could take a long time to fill up with renters. And competition will be fierce with continued free rent incentives. He said demand for new condos will be “very, very thin as the impact of job losses spreads across industries.”

Experts: Spring’s Missing Home Sales Will be Added to Coming Years

By Skylar Olsen, Zillow, June 3, 2020

  • In a survey of 106 economists and real estate experts conducted by Pulsenomics and Zillow, 41% of panelists expect the U.S. recovery will follow a ‘U’ shape, with the recession lasting several quarters before returning to growth.
  • Once the pandemic begins to subside, experts agree, there will be an increase in demand for suburban and rural living.
  • On average, panelists expect home values to decrease 0.3% in 2020, a sharp decline from expected growth of 3.3% when surveyed three months before.

When coronavirus turned the economy upside down, anxiety and uncertainty about the future initially kept many homebuyers and sellers at bay. Inventory and sales have picked up over the past month, though, and a panel of housing experts and economists say the U.S. housing market hasn’t lost those missing springtime transactions for good.

The Zillow Home Price Expectations Survey, sponsored by Zillow and conducted quarterly by Pulsenomics LLC, asks more than 100 economists, investment strategists and real estate experts for their predictions about the U.S. housing market. The Q2 survey focused on the impact of coronavirus on the market and expected recovery patterns, and also asked for predictions on how the pandemic will shape home-buying decisions in the future.

Coronavirus and subsequent stay-at-home orders resulted in lower-than-expected transaction volume during what was primed to be a busy spring home shopping season. While it was thought the spring buying season could shift to the fall, the pandemic effects are poised to continue into summer and only 10% of the survey panelists said they believe those transactions will materialize later in 2020. More than twice as many experts (22%) said they expect a “double up” during next spring’s shopping season, and the vast majority predicted that recovery will be spread out over the next several years.

This prediction is in line with how the experts expect the U.S. economy to recover overall. Forty-one percent said they think economic recovery will follow a ‘U’ shape, and 33% say it will be a bumpy, multi-year return back to trend growth. Both patterns are characterized first by a sharp decline and then match how experts see transaction volume recovering, with the consensus generally being a more gradual journey back to normal.

Prices nationally are now projected to fall 0.3 percent this year according to the panel-wide average forecast — down from an expected increase of 3.3 percent just three months ago.

“This is the first time since 2012 that the panel-wide price outlook has turned negative, and the quarter-to-quarter swing in expectations is the largest we’ve seen in more than a decade,” said Terry Loebs, founder of Pulsenomics. “Longer term, the outlook for home values nationwide is mixed — price projections for 2022 and beyond actually inched higher from levels recorded prior to the Covid-19 outbreak. However, nearly seven in ten experts now indicate that their five-year forecast has downside risk. Last quarter, fewer than four in ten panelists foresaw downside — of course, that was before the Covid-19 crisis, its economic devastation and unprecedented government response.”

Zillow’s own forecast calls for a 1.8% drop in home prices by October 2020, expecting home prices to return to Q4 2019 levels by the Q3 2021. While predictions on home prices continue to steepen, the outlook on pending home sales continues to become more optimistic, and Zillow now shows sales hit bottom in April with a 44% drop, and are on their way back up, compared to the original forecast of a 60% dip.

Experts’ forecasts on the future of housing vary widely at this early stage of the recovery. Zillow’s own forecast has become more optimistic as we ingest new data and watch pending sales pick up faster than expected. What does seem more consistent in this wisdom of crowds is that full recovery is a couple years away — much faster than in the last housing downturn — and remote work will eventually work its changes on the housing market.

Experts also said that where people choose to live will look a little different once the pandemic subsides. Panelists predict future homebuyers will show more interest in suburban and rural areas, at the expense of urban density. Previous Zillow research has indicated that a future that sees more people working from home could make the suburbs more appealing, and the panelists echoed the likelihood of this demand. Although panelists believe there will be a shift in location preference after coronavirus, they also say buyers will want larger homes equipped with home offices moving forward. Stay-at-home orders quickly emphasized the need for more space while stuck at home, and panelists think more space will be a determining feature for future home-buyers.

Even with lower sales volumes compared to 2019, the U.S. housing market has shown resilience during the pandemic and has already begun to rebound. Pending sales are up 40.8% in the past month, and new home sales in April were up 0.6% from March.

Year      Average Home Value Growth Expectations – Q1 2020 Survey Average Home Value Growth Expectations – Q2 2020 Survey
2020 3.3% -0.3%
2021 2.7% 0.9%
2022 2.7% 2.9%
2023 3.0% 3.3%

 

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net

 


Posted on June 15, 2020 at 8:58 pm
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Real Estate Market Update April 30, 2020

SF East Bay Real Estate Market Update

April 30, 2020

By Glen Bell   (510) 333-4460

Everyone seems to be asking the question of how will the COVID-19 “shelter in place” mandate effect the real estate market and how will we come out of it later in the year. There’s been so much speculation with a number of different opinions coming from a number of sources. Keep in mind that this is “unchartered territory” and we won’t have definitive answers for quite some time. So much has changed. We as agents are very limited in what we can do during this period. A lot will be riding on how long it takes before we’re able to really go back to work, how long it takes for the COVID-19 fears to subside, how will the economy fair and what will the jobs situation looks like by then.

As agents, the market has paused as our lives have. Preparing a home for market has been delayed, and fewer new listings are coming on, due to the many challenges of being able to properly market them. Brokerages temporarily closed their doors with agents primarily working remotely from their homes. There are no open house showings while physical individual showings are discouraged and have come to a crawl. COVID-19 has disrupted all of our lives. The uncertainty and concern for our health and well-being for not only ourselves, but our family and friends, is foremost in all of our minds.

That being said, let’s take a look at how the market stands at the end of April. We haven’t seen dramatic changes just yet. What we have seen is a “mixed” bag. However, I say that only by looking at the numbers up until April 30th. Everyone asks me to pull out your crystal ball and tell us what’s going to happen.

For me, I’ve always been a firm believer in supply and demand concepts. For example, in real estate, the number of houses for sale always represented our supply, while the number of homes that have gone into contract, or pendings, represented our demand. What kind of a market, a buyers’ or a sellers’, is determined based on the relationship of these two numbers at any given time. During the REO days, there was a huge inventory, with few buyers, thus a buyers’ market. For most of the past 6 years, markets experienced a strong sellers’ market with very few listings and lots of buyers. For most of last year, we had moved back towards a more neutral or balanced market. When inventory “fell off the cliff” in November 2019, a month earlier than normal, it set up for a strong sellers’ market again early spring and that’s exactly what happened. Very little to look at with lots buyers trying to take advantage of extremely low interest rates. We saw more competition and increased prices early on. Then COVID-19 hit.

What we’ve seen since COVID-19, is that if sellers did not already have their home listed for sale, many decided to delay or postpone coming onto the market until some of the uncertainty subsides. Many buyers have jumped back on the fence and are holding off. The uncertainty of their job being in jeopardy, a loss in income, health fears, or seeing a “big hit” in their stock portfolio has taken its toll.

The lack of inventory early this year had “flipped” our markets back into a sellers’ market temporarily. However, it seems to be setting up for another big change to come by as early as this summer. There’s a large number of sellers who took a wait and see attitude over COVID-19 who may come back onto the market then. This could come in waves with some wanting to see first how the market is doing before they put their home up for sale. There may even be more who took financial hits and feel that they now “must sell.” So, we’ll probably see a fairly large supply of homes come onto the market over the summer.  Many buyers on the other hand have backed off and may not be in a financial position to purchase by then. So perhaps the strong demand that we’re used to seeing in the Bay Area will begin to decrease. This will probably pull us back into a more neutral or balanced market, or possibly even into a buyers’ market for the first time in years.

Here are some highlights for the 39 East Bay Cities that I track:

Sales are up slightly, but still 18.5% lower than last year’s numbers. Prices are up slightly as well. However, that looks to be more of a result of our earlier spring influence. This looks to be changing. Now, more homes are “sitting,” taking longer to sell, and we’re seeing more transactions fall out. Fewer buyers are going into contract.

The seasonal drop in inventory followed our normal pattern during the holidays. We watched the number of homes decrease by nearly 60% over November and December. Last year was somewhat unusual because we saw a late season start and early season end. Inventory at the end of December was at its’ 2nd lowest level since I began tracking these 39 cities in 2006, with only 1163 homes for sale at the end of December. Our expectations normally are that new home listings begin to appear on the market as early as mid-January with a steady increase of inventory every month through to September, traditionally our high point.

Inventory increased in April by 41%, however, that’s still 25% lower than what we saw last year at this time. This represents a 36 day supply of homes, compared to a 45 day supply last year at the end of April. The trend with pendings continued to slide, dropping by 21% in April. This is the second decrease in a row during a period of time when we normally see an increase. This is the lowest number I’ve seen since January 2008. This is primarily due to low inventories as well as the influence of the COVID-19 and the “shelter in place” mandate during the last month and a half.

The pending/active ratio saw a huge decrease to .72. This is lower when compared to last years’ number of .92. We were at 1.28 just last month. I can’t remember ever seeing such a large drop in just one month. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (less inventory with more pendings) favors sellers. A number below 1 favors buyers..

 

  • The month’s supply for the combined 39 city area is 36 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. Supply is less when compared to last year at this time, of 45 days.

 

  • Our inventory for the East Bay (the 39 cities tracked) is now at 2,188 homes actively for sale. This is fewer than what we saw last year at this time, of 2,915. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 1,567, much lower than what we saw last year at this time of 2,695.

  • Our Pending/Active Ratio is .72. Last year at this time it was .92.
  • Sales over the last 3 months, on average, are 3.5% over the asking price for this area, slightly higher than what we saw last year at this time, of 2.8%.

 

Recent News

Zillow Forecasts a Dip in Home Prices, Rebounding By Next Year

By Claire Boeing-Reicher – Matthew Speakman on May. 4, 2020

The continued economic fallout from the spread of COVID-19 has introduced immense uncertainty into the housing market as consumers step back from large purchases and social distancing puts a chill on necessary market services. As a result, Zillow expects home prices will most likely fall 2%-to-3% through the end of the year from pre-coronavirus levels, and home sales to fall as much as 60%, before both begin to slowly recover to baseline levels by the end of 2021.

The latest forecasts, based on published and proprietary macroeconomic and housing data, also include more pessimistic or optimistic projections based on the duration of the pandemic and the depth of its impact on the broader economy.

The forecasts center around a baseline prediction of a 4.9% decrease in United States GDP in 2020 and a subsequent 5.7% increase in 2021. Under the baseline scenario, we expect:

  • A 2%-3% drop in prices through the end of 2020, followed by a slow recovery throughout 2021. Prices will return to Q4 2019 levels by Q3 2021.
  • A 50% decline in home sales from their pre-coronavirus levels, as measured at the end of 2019. Home sales will bottom out in Q2 before beginning to improve near the end of Q2 2020.
  • Sales volume will recover to about 97% of Q4 2019 levels by the end of 2021.
  • The pace of recovery is what distinguishes our three scenarios from one another.

Each of our scenarios implies very different paths for home prices and sales volumes. Our optimistic scenario features a small dip in house prices in Q2-Q3 followed by a robust recovery. The baseline medium scenario features a U-shaped trough in Q4 followed by a slower recovery and our pessimistic scenario features continued weakness through all of 2021 (more of a “long U” shape). Under our more-optimistic assumptions, the market could experience a fast, V-shaped “snapback” similar to what happened in the Hong Kong real estate market after the 2003 SARS outbreak. The medium scenario features a “check-mark” shaped recovery and our pessimistic scenario features more of a “wide-U” recovery, with a longer bottom and more gradual pace of improvement.

Overview of Our Scenarios 

At time of publication, we believe the medium scenario to be the most likely outcome, followed by the pessimistic scenario and then the optimistic scenario. These scenarios and our assessment of their likelihoods are open to revision and will be revisited periodically as more information regarding the timing, scale and success of relaxed social-distancing measures, among other factors, is released.

How Did We Get Here?

The housing market was beginning to heat up at the end of 2019 and into early 2020. Home price appreciation had begun to reaccelerate after a fairly tepid 2019. Sentiment across most market participants (buyers, sellers, lenders, homebuilders) were all at or near their survey highs. Sales volume and construction levels were both rising at an increased rate. Mortgage delinquency rates were near all-time lows, and record-low for-sale inventory was fueling competition for the few homes on the market.

In addition to a generally strong housing market, the broader U.S. economy was also showing signs of strength, despite some looming concerns. The labor market was riding high: The overall unemployment rate was 3.5%, tied for its lowest level in 50 years; an average of 224,000 jobs were created in the three months ending February 2020; and labor force participation was near a seven-year high. The manufacturing sector, which struggled through much of 2019, was beginning to recover as global tensions (trade war, Brexit etc.) eased and simplified. And consumer spending levels remained steady through February.

Of course, not everything was perfect. Corporate debt levels have risen markedly in recent years, and the quality of debt was beginning to be questioned even before the pandemic. Non-financial corporate debt securities and loans increased to almost 47% of GDP in the last quarter of 2019, up from a post-recession low of 40% in Q4 2010. As of January, only two U.S. companies (Microsoft and Johnson & Johnson) had AAA debt ratings — indicating the highest level of credit-worthiness. Businesses were also scaling back on investments in capital, suggesting they viewed their longer-term prospects as tenuous. Manufacturers’ spending on nondefense capital goods was lower in February 2020 ($68.8B) than it was in February 2012 ($69.7B), despite eight years of economic expansion. And ten years into a record-long economic expansion, the key Federal funds rate as set by the Federal Reserve was very low, leaving the Fed with less wiggle room than usual to stimulate the economy in the case of a downturn.

Even before the onset of the crisis, these factors combined to somewhat dampen our forward-looking outlook. But in general, macroeconomic conditions were sturdy heading into the spring. And this relatively strong economy, coupled with strong demand from home buyers and relatively friendly buying conditions thanks to low mortgage interest rates, meant the housing market was well-positioned for a strong spring selling season.

But over the course of just a few weeks, that all got turned on its head. More than 30 million (and counting) unemployment insurance claims have been filed since the middle of March, representing about one-in-six of all previously employed people counted in the March jobs report. Retail sales levels plummeted in March, falling 8.7% from February, the biggest one-month decline since the Commerce Department began tracking the data in 1992. Industrial production fell 5.4% over the same period, the largest one-month decline since the 1940s.

These and other disruptions have been shocking in both their speed and scale. But even so, we believe many of them to be transitory and will be addressed as the economy opens up again.

Scenario Specifics

In creating this forecast, we relied heavily on macroeconomic forecasts created by Goldman Sachs and the International Monetary Fund, both of which call for a 5%-to-6% decline in GDP in 2020, followed by a 4.5%-to-5.5%% increase in GDP in 2021. A number of high-frequency data points published by Goldman Sachs offering insight into many industries and sectors, including housing, also allowed our team to make frequent updates to our outlook based on hard, industry-specific data.

Our forecast follows a similar structure to Goldman’s, which estimates how much of the gap between actual and potential GDP disappears in the following month for different industries. Our baseline forecast for GDP assumes the same persistence in the gap between actual and potential GDP as Goldman Sachs does. To translate the GDP forecast into a forecast of home prices and transactions, we conducted two separate econometric analyses — relating both long-term home price growth and home sales to GDP — and applied the findings to our GDP scenarios. For home price movements over time we used data from the S&P CoreLogic Case-Shiller home price indices. For sales volume over time we used data from the National Association of Realtors. More information on the specifics of our econometric analysis can be found in the appendix below. We also overlaid scenario-specific factors based on the spread of COVID, the strength of social distancing measures and early signals of recovery in order to come to our conclusions. Specifically, our baseline predicts that about 10% of the gap between actual home transactions and baseline trend disappears in the following month. Differences in the persistence of this gap are what differentiates the three scenarios from one another. The optimistic scenarios for home prices and transactions suggest this gap will recede about twice as quickly as it would in the medium scenarios. The pessimistic scenarios, meanwhile, suggest the recovery rate will be half that of the medium scenarios.

To track the probabilities of these scenarios and to alert us to the need for potential changes (especially to the shape or speed of recovery paths), we are focusing mainly on forward-looking indicators, outside forecasts and empirical studies. On the forward-looking indicator side, we are most-closely tracking survey data and selected financial statistics. The survey data are currently telling us that we should expect much more short-term disruption than longer-term. For instance, the Philadelphia Fed Manufacturing Business Outlook Survey from April 2020 indicated that while most manufacturers view current conditions negatively (worse than 2008-09), they are much more optimistic about future conditions (unlike 2008-09). Similarly, the University of Michigan Surveys of Consumers for April 2020 show a large fall in consumer sentiment reflecting current conditions, while the fall in consumer expectations has been less extreme. Meanwhile, financial data (especially measures of implied volatility such as the VIX, policy uncertainty, mortgage rates and bond spreads) are indicating that financial risks during late March briefly approached the conditions of late 2008, but have since subsided somewhat. That said, we will closely monitor financial data to see if we need to revisit the possibility of creating an even more pessimistic scenario that includes a more fully fledged financial crisis.

Housing-specific data have also validated our assumption of a ~50% decline in sales, while also beginning to offer some clues as to what the next phase of this crisis is going to look like. For-purchase mortgage applications have fallen 31% from a year ago, but have recently shown some signs of stabilization. At their worst, home showings fell as much as 50% since the beginning of the year, but subsequently rose to a level “only” 27.5% below where they were to start the year. Internal measures of newly-pending home sales and new for-sale listings have also shown signs of turning the corner.

Downside Risks and Go-Forward Plan

While our internal and external data currently point to a bottom in real estate transactions at the beginning of April 2020, we are watching for signs of either a renewed contraction or other indicators of a slowing recovery. We are also monitoring the results of ongoing epidemiological studies showing the efficacy of efforts to help curb the spread of the coronavirus and early economic reopening efforts, to help inform us on the likely speed and shape of a recovery. We are also monitoring and commenting on macrofinancial data including corporate bond spreads, mortgage rates, implied volatility and delinquency rates for signs of unexpected weakening.  Widespread deterioration in these and other key data risks the economy landing closer to a 2008-style financial crisis scenario, on top of the direct effects of the pandemic.

On top of the broader economic dangers, there are also a number of public health and/or policy risks that, if worsened, might warrant an adjustment of our probability weights and possibly the creation of a more pessimistic scenario to consider. These include:

  • A relative lack of coordination between states in their plans to reopen their respective markets, risking the introduction of state-to-state disease transmission, false restarts, risks of new outbreaks and a deeper/longer downturn.
  • A continued shortage of testing and personal protective equipment (PPE), limiting the ability to track and contain the virus’s spread and placing continued stress on the health care system.
  • Ineffective or insufficient federal fiscal relief efforts, resulting in a larger-than-expected impact to labor and financial markets and threatening state balance sheets.
  • As-yet-unquantified risks to the balance sheets of households (people’s ability to pay their debt obligations, willingness to resume normal spending activity) and businesses (how many businesses close and/or resume activity with lower employment?).
  • Ineffective relief in the mortgage industry.

Charting the Trends in the Current Housing Market 

By Alina Ptaszynski, Redfin, April 30,2010

In our weekly market update, Redfin reported home-buying demand continued to recover last week, as states began making plans to begin to reopen businesses. Here are five additional charts that illustrate the latest developments in the housing market as the world continues to grapple with the coronavirus pandemic. Additional charts and local data are available for download in the Redfin Data Center.

Sellers Continue to Hold Off on Listing

There were almost 53,000 new-home listings last week, down about 40% from a year ago. That’s an improvement from the 50% decline we reported last week. The improvement may be partly due to the Easter holiday falling around this time last year. Looking over the past four weeks, new listings are down 45%, with just 210,000 new homes put on the market. The five preceding years averaged 378,000 new listings during the same period.

Price Growth is Now Nearly Flat

Last week the median listing price was $308,000, up just 1% compared to the same period the prior year. The week prior, we reported that asking-price growth had stopped its rapid descent and reversed course, increasing 3% year over year.  Redfin lead economist Taylor Marr says, “Asking prices may be settling into a flat trend line for now. The primary reason for the shift over the past month though hasn’t been an increase in sellers listing below their Redfin estimate, but instead fewer higher-end properties coming to the market—bringing down the average.”

While Redfin agents are still seeing bidding wars, competition has slowed, giving some buyers a chance to negotiate a better price. In the previously red-hot sellers’ market of Seattle, Redfin agent David Palmer says buyers are now able to be a little more aggressive. “There’s fear on both sides. We have a bunch of buyers who want $40,000 price reductions or credit that really should have been $15,000 to $20,000. We’re calling it the ‘coronavirus credit’. I’d say it is getting a little closer to a level playing field, but sellers know that inventory is low and they’re trying to stick to their guns.”

 

Sellers Aren’t Dropping Prices

While sellers may be more willing to negotiate, they aren’t dropping their prices. Just 3% of homes on the market had a price drop last week, which is the same as last year and below the average in January and February of 4%.

“Sellers are opting to delist and wait for a more favorable market rather than take a haircut on the price,” says Marr. Sellers who do reduce the price are dropping it by an average of just 1.6% compared to 3.3% last year. “This may be a sign that sellers are using a price drop as a strategy to drum up new interest in the home. They worry buyers overlooked their home in the early coronavirus panic and know that a price drop triggers a notification to be sent to buyers who have a saved search.”

Sellers Continue to Pull Homes Off the Market

In the four weeks ended April 24, 8% of active listings were pulled from the market. While we appear to be past the peak of delistings, sellers are still removing their homes from the market at a significantly higher rate than they were at this time last year. During the week ended April 24, delistings rose 56% year over year to 15,900 homes, down from the peak of over 100% during the final week of March.

Pending Home Sales Drop to Lowest Level Since 2011 as Coronavirus Takes Its Toll

By Jacob Passy, Realtor.com, Apr 29, 2020

 

The numbers: The index of pending home sales dropped 20.8% in March as the coronavirus pandemic took a significant bite out of real-estate activity, the National Association of Realtors reported Wednesday.

This represented the lowest level of pending sales since 2011.

The index measures real-estate transactions where a contract was signed but the sale had not yet closed, benchmarked to contract-signing activity in 2001. It serves as an indicator for existing-home sales reports in the coming months.

What happened: Compared with March 2019, signings were down 16.3% nationally.

On a monthly basis, pending sales dropped in every region with the West seeing the largest decline at 26.8%, followed by the Midwest (down 22%) and the South (19.5%). In the Northeast, contract signings only decreased 14.5%.

The big picture: While the coronavirus outbreak has not caused real-estate activity to stop entirely, it has put a major damper on what economists had anticipated would be a strong spring home-buying season thanks to low mortgage rates and pent-up demand among buyers. Without the spring home-buying season, home sales are expected to drop 14% in 2020.

“As consumers become more accustomed to social distancing protocols, and with the economy slowly and safely reopening, listings and buying activity will resume, especially given the record low mortgage rates,” said Lawrence Yun, chief economist at the National Association of Realtors. “The usual spring buying season will be missed, however, so a bounce-back later in the year will be insufficient to make up for the loss of sales in the second quarter.”

With stay-at-home orders and social-distancing guidelines in effect for most of the country, the process of buying a home (and then moving) has become more complicated. Nearly one-fifth of Realtors said that stay-at-home orders made it nearly impossible to finish deals, according to a recent poll by the National Association of Realtors. (Another 40% of Realtors meanwhile said some aspects of the home-buying process still required in-person interaction, but that wearing masks and gloves could make it safer.)

Amid these orders, open houses have gone virtual, and documents are now being signed in parking lots rather than the offices of title insurers and attorneys. In some parts of the country, the closure of government offices means that sales cannot be recorded as quickly as usual.

Some would-be sellers have held off on listing their homes, worried about a potential dip in prices or demand. Between the first and last weeks of March, the number of new listing was down 30%, according to data from Realtor.com. Comparatively, the number of listings grew by 15% during that same stretch of time last year.

What they’re saying: “New listings continued to fall in April, as COVID-19 concerns prompted sellers to wait, which means additional declines in pending and closed home sales are likely ahead,” said Danielle Hale, chief economist at Realtor.com. “Although fewer buyers signed contracts to buy as they stayed home to prevent the spread of COVID-19, surveys suggest that most home buyers expect just a few months delay in their journey.”

“How infection rates respond in states reopening will be a telling sign as we move forward on how long we can expect a slump in sales to persist,” said Ruben Gonzalez, chief economist, Keller Williams. “If we see no resurgence in infections, we could see sales begin to stabilize in early June; however, if there is a resurgence in infection rates, a substantial backslide across all sectors of the economy is likely.”

Market reaction: The Dow Jones Industrial Average and the S&P 500 were both up in Wednesday morning trading in spite of the downturns in pending home sales and GDP. The yield on the 10-year Treasury note was down slightly.

 

Coronavirus eviction ban: What Bay Area renters and landlords need to know

By J.K. Dineen, SF Chronicle, April 9, 2020

With many Californians facing economic distress because of the coronavirus, state officials have taken steps to block evictions and protect renters. Here’s what Bay Area tenants and landlords need to know.

Answers for renters

Q: Can my landlord evict me while the health emergency is in place?

A: No. On April 6, state judicial leaders barred courts from enforcing eviction orders against renters. In ruling that eviction orders “threaten to remove people from the very homes they have been instructed to remain in,” the state Judicial Council went a step further than a March 27 executive order by Gov. Gavin Newsom, which required a statewide, two-month halt on evictions of tenants who could not afford to pay rent because of the coronavirus pandemic. The action halts legal procedures used by property owners to initiate and enforce evictions.

Q: What sort of evictions does the ruling cover?

A: The ruling applied to all evictions, regardless of cause.

Q: How long with the ruling be in effect?

A: The order will remain in effect until 90 days after Newsom declares an end to the current state of emergency. That’s likely at least through July.

Q: What if I was served an eviction notice before the Judicial Council order went into effect?

A: Tenants who were served with a eviction court summons prior to the new order cannot be penalized for failing to respond, unless they pose a public danger. For tenants who have already responded, trials are postponed for at least 60 days.

Q: What happens when the order is lifted? How soon will my rent be due?

A: It’s unclear. While these emergency rules effectively put evictions on hold at least through the summer, they do not “establish any new tenant rights or defenses to an eviction, address requirements for notifying landlords or providing documentation when tenants are unable to pay rent due to loss of income or other coronavirus-related reasons, or address how repayment will be handled,” according to the San Francisco Tenants Union. It is likely the state Legislature will address those issues when it returns in May.

Q: Can my landlord raise my rent during the health emergency?

A: It depends on the city. San Francisco Supervisor Aaron Peskin introduced legislation on April 7 that would freeze rent increases and pass-throughs. That legislation passed. The San Francisco Apartment Association has already asked its members not to raise rents during the health emergency. Some cities have also enacted rent freezes. Concord has enacted a rent freeze for most people. Oakland has has capped rent increases at 3.5% in most cases and landlords can’t charge late fees.

What Your Real Estate Agent Wants You To Know About the Housing Market Right Now

By Ana Durrani, Realtor.com, Apr 29, 2020

Spring is typically a busy time for buying and selling homes, but the coronavirus pandemic has pushed homeowners and shoppers into new, uncharted territory. Shelter-in-place orders and concerns about contagion have forced many real estate agents to cancel open houses, while unemployment is at a historically high level.

But even in the midst of a deadly pandemic that is devastating the economy, many Americans still want or even need to buy a home in the near future.

“I definitely have clients that are still interested in viewing homes but have been honest that they won’t put pen to paper and write an offer until they know the health crisis has passed and they can assess the impact on real estate and the economy,” says Noah Grassi, a Realtor® for Compass in San Diego.

So, what does the current state of the housing market mean for buyers? With so much uncertainty these days, buying—or planning to buy—a home during a pandemic requires extra careful consideration. That’s why we reached out to real estate agents to get their honest takes on what’s really happening in the housing market in the time of COVID-19, how buyers can prepare, and what we can likely expect when the pandemic subsides.

There may be some reductions in home prices

The federal government has provided relief through cash payments, and lenders are also offering mortgage forbearance options. But with unemployment numbers rising, more people could be forced to sell their homes or enter foreclosure, potentially leading to reductions in home prices.

“Due to millions of job losses per week, and the long-term impact of COVID, I expect housing prices to shift into a downward trend,” says Justin Brennan with Brennan Real Estate Group, Pacific Sotheby’s International Realty. “To what extent they go down will be determined by how many job losses become permanent versus temporary.”

If the price cuts materialize, that would be good news for buyers in locations where affordability was already stretched thin.

More homes will come onto the market

A bigger inventory of homes on the market may soon be on the horizon for buyers.

“There’s an inventory of sellers on the sidelines, and it is growing every day,” says Grassi. “These are owners that still reside in their property and don’t want strangers—agents and potential buyers—walking through their home at the moment due to the health crisis. Once it is clear the risk is minimal, I think we are going to see a big increase in the number of homes for sale.”

There’s a chance that buyers are also waiting in the wings for the coronavirus pandemic to end and the economy to get back on its feet. But the likely big inventory of homes for sale could put buyers in a good position.

Interest rates are likely to stay low

Over the past few months, mortgage interest rates have been lower than we’ve ever seen. And experts expect that trend to continue.

“The general consensus of the experts is that mortgage interest rates will remain attractive for many months to come,” says Grassi. “If buyers are hoping to try to find a deal on their mortgage during this health crisis, they should be writing offers now.”

If low mortgage rates and being stuck indoors have convinced you it’s time to find a new home, this may be a time to consider buying.

Keep in touch with your mortgage lender

Serious buyers should always have their mortgage lender on speed dial, but in these unprecedented times, this advice is more relevant than ever.

“Make sure you are constantly speaking with your lender on updates in the lending market,” says Brennan. “If you fall in love with a home, focus on the long term and getting a great interest rate and payment versus trying to time the market.”

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on May 5, 2020 at 7:04 pm
Glen Bell | Posted in Real Estate Markets, Uncategorized | Tagged , ,

SF East Bay Real Estate Market Update – March 31, 2020

SF East Bay Real Estate Market Update

March 31, 2020

By Glen Bell   (510) 333-4460

 

Everyone seems to be asking the question of how will the COVID-19 “shelter in place” mandate effect the real estate market and how will we come out of it later in the year. There’s been so much speculation with a number of different opinions coming from a number of sources. Keep in mind that this is “unchartered territory” and we won’t have definitive answers for quite some time. So much has changed. We as agents are very limited in what we can do during this period. A lot will be riding on how long it takes before we’re able to really go back to work, how long it takes for the COVID-19 fears to subside, how will the economy fair and what will the jobs situation looks like by then.

As agents, the market has paused as our lives have. Preparing a home for market just isn’t happening, nor are new listings coming on due to the many challenges of being able to properly market them. Brokerages have temporarily closed their doors and agents are primarily working remotely from their homes. There are no open house showings while physical individual showings are discouraged and have come to a crawl. COVID-19 has disrupted all of our lives. The uncertainty and concern for our health and well-being for not only ourselves, but our family and friends, is foremost in all of our minds.

That being said, let’s take a look at how the market stands at the end of March. We haven’t seen dramatic changes just yet. However, I say that only by looking at the numbers up until March 31st. That can be a bit misleading because most sales that closed in March were already in contract by the time that “shelter in place” came into play. The last few weeks will show its “teeth” in our April numbers.  I think it’s safe to say it won’t be pretty.

I’ve always been a strong believer in the supply and demand principals. What we have been seeing is that if sellers do not already have their home listed for sale, many will delay or postpone coming onto the market until some of the uncertainty subsides. Many buyers have jumped back on the fence and are holding off. The uncertainty of their job being in jeopardy, a loss in income, health fears, or seeing a “big hit” in their stock portfolio has taken its toll. The volatile mortgage market with a jump in rates, programs disappearing, and a secondary loan market pulling back has only made the few willing buyers hesitate and/or reluctant to “pull the trigger” on a new loan. This has also led to a number of transactions falling out of contract.

The lack of inventory early this year “flipped” our markets back into a sellers’ market. However, it seems to be setting up for another big change to come by as early as this summer. There’s a large number of sellers who took a wait and see attitude over COVID-19 who may come back onto the market then. This could come in waves with some wanting to see first how the market is doing before they put their home up for sale. There may even be more who took financial hits and feel that they now “must sell.” So, we’ll probably see a fairly large supply of homes come onto the market over the summer.  Many buyers on the other hand have backed off and may not be in a financial position to purchase by then. So perhaps the strong demand that we’re used to seeing in the Bay Area will begin to decrease. This will probably pull us back into a more neutral or balanced market, or possibly even into a buyers’ market for the first time in years.

Here are some highlights for the 39 East Bay Cities that I track:

The seasonal drop in inventory followed our normal pattern during the holidays. We watched the number of homes decrease by nearly 60% over November and December. Last year was somewhat unusual because we saw a late season start and early season end. Inventory at the end of December was at its’ 2nd lowest level since I began tracking these 39 cities in 2006, with only 1163 homes for sale at the end of December. Our expectations normally are that new home listings begin to appear on the market as early as mid-January with a steady increase of inventory every month through to September, traditionally our high point.

We expected a healthy increase in inventory during the first quarter between January through March, especially since we didn’t see the heavy rains like we did last year. What we saw was a modest increase, of 33.4%. This is 39.2% fewer homes than last year at this time. In fact, it is the lowest amount of homes listed for a March since I’ve been tracking numbers going back to 2007. This represents a 24 day supply of homes, compared to a 39 day supply last year at the end of March. Pendings decreased slightly by 5.8%, 17.7% lower than what we saw last year. This is also the lowest that I’ve seen for a March. This is primarily due to low inventories as well as the influence of the COVID-19 “shelter in place” mandate during the last two weeks in March.

The pending active ratio had been below 1 for 16 consecutive months beginning in the summer of 2018. That was when I signaled a market in transition, moving from a strong sellers’ market to a more neutral one that even favored buyers slightly. We had that huge drop in inventory at the end of last November and since then the ratio has been over one now five months in a row, signaling a sellers’ market. I thought back in December that it’s setting up for a strong sellers’ market early spring? Well it did just that and it’s mostly a function of how many homes are listed. However, the COVID-19 “shelter in place” mandate is set to dramatically change all of this as I mentioned above.

The pending/active ratio decreased slightly to 1.28. This is still much higher when compared to last years’ number of .95. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (less inventory with more pendings) favors sellers. A number below 1 favors buyers. The last five months have been into positive territory with a ratio of over 1 for the first time since June 2018.

The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

  • The month’s supply for the combined 39 city area is 24 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. Supply is less when compared to last year at this time, of 39 days.

  • Our inventory for the East Bay (the 39 cities tracked) is now at 1,552 homes actively for sale. This is fewer than what we saw last year at this time, of 2,550. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 1,988, higher than what we saw last year at this time of 2,414.

  • Our Pending/Active Ratio is 1.28. Last year at this time it was .95
  • Sales over the last 3 months, on average, are 2.6% over the asking price for this area, slightly higher than what we saw last year at this time, of 1.9%.

Recent News

California Housing Market Update (COVID-19)

By Jordan Levine, Chief Economist for C.A.R., April 1, 2020

 

 

 

 

Sharp Drop in Spring Home Sales Predicted While Market Waits for Country to Recover

By: Marc Rapport, Contributor – Million Acres (the Motley Fool), Apr 02, 2020

Stay-at-home orders mean houses don’t sell in a stressed economy and a country wracked by pandemic. But prices should hold steady while America waits.

Can drive-by appraisals and showings on Zoom (NASDAQ: ZM) survive social distancing and an imploding economy to save the spring buying season?

With 90% of Americans under stay-at-home orders, it’s easy to understand the pessimism of observers like property economist Matthew Pointon of Capital Economics, whose U.K.-based firm predicted U.S. home sales could be down 35% this spring compared with the final quarter of 2019.

“Increasingly restrictive measures on people’s movement, and an imminent surge in unemployment,” are the key reasons, Pointon said.

Such a drop would yield annualized U.S. home sales of around 4 million for the first quarter, the lowest since 1991, Pointon’s firm said. The dramatic sag comes after a strong beginning to the calendar year that included a February in which sales rose both year over year and from January, according to National Association of Realtors (NAR) figures released last week.

(More on that from Millionacres here:February Home Sales Were on the Rise, but March May Tell Another Tale)

Typically, more than half of U.S. home sales occur from March through June each year as families try to bridge the school year as they move up or out. This year, however, the pandemic has forced schools to close across the country, with no certainty about when they’ll reopen.

As gloomy as that may sound, the NAR’s chief economist Lawrence Yun says he thinks the market will spring back when the coast is clear.

“We are in uncertain times, but I do think that people who are staying at home right now, once the all-clear signal is given, will be going back into the market,” Yun said in an article published Wednesday (April 1) on HousingWire.

He also said that in the meantime, he expected prices to remain steady because of the decline in listing activity as people stay home to wait out the pandemic, which came along during what already was a housing shortage in many markets across the country.

The NAR has alreadyreported slowing activity among its 1.4 million members, and all the market and the nation can do is wait to see if social distancing can help slow down the COVID-19 outbreak that is expected to get far worse before it gets better.

Meanwhile, the federal government has invested trillions in trying to stimulate an economy that has seen joblessness soar. That includessending out lifelines to businesses through the SBA, injecting liquidity into the mortgage bond market, and giving government-sponsored enterprises likeFannie Mae and Freddie Mac the leeway to ease underwriting and appraisal rules and give financially stressed homeownerssome breathing room on their mortgages.

 

San Francisco housing inventory plunges during coronavirus emergency

Powerhouse market fell off a cliff in November—and it still hasn’t landed

By Adam Brinklow  Curbed San Francisco, Apr 2, 2020

In the midst of the ongoing COVID-19 outbreak in the Bay Area, San Francisco’s home sales inventory have nearly vanished.

In the weeks since Bay Area counties began following shelter-in-place orders, the number of new homes appearing on the multiple listing service (MLS) during what is typically one of the region’s busiest periods is shockingly small, with a great number of once-listed properties disappearing around the same time. The market melted away in a matter of weeks or, by some metrics, days.

Compass Real Estate reports that the rate of new listings in San Francisco fell off a cliff in mid-March, dropping to less than 20 per week by the end of the month. The number of active listings nosedived from roughly 1,000 at the start of March down to just 550 three weeks later. And the number of listings pulled off the market increased more than tenfold in just a single week between March 9 and March 16.

Jeff Tucker, economist for the real estate listing site Zillow, tells Curbed SF that on March 16, the day that six Bay Area counties, including San Francisco announced shelter-in-place orders, SF-centric traffic on the site dropped by one-third. Since then it’s risen slightly, but still down 20 percent year over year last weekend.

A similar trend can be found on the other side of the bay. Red Oak Realty CEO Vanessa Bergmark, who calls the last three weeks “grim,” says that the East Bay saw only 55 new listings last week, a decline of 70 percent compared to mid-March. The East Bay (including Oakland, Berkeley, Alameda) showed 374 homes listed last week, down 37 percent year over year.

Lending markets are actually quite busy these days, but the biggest mover isn’t mortgages but refinance requests. Finance site Lending Tree reports that refinances are up 417 percent year over year in SF, the highest rate in the country. San Jose came in third nationally with 394 percent.

Compass analyst Patrick Carlisle points out that early spring is usually the busy buying season, but the public health emergency has chopped it off seemingly at the roots.

“It is unknown what the ultimate effects will be over the longer term,” he cautions, pointing out that longer-term benchmarks like median prices won’t be affected for months. But right now there’s essentially nothing by way of encouraging signs.

Nevertheless, some real estate agents are sticking with the principles of salesmanship and continuing to tout what they say is the strength of the SF home market, even as it contracts.

Marco Carvajal, a realtor with Vanguard SF, says that with inventory down 40 percent in three weeks and the stock market disintegrating, “In almost every other city this would lead to buyers climbing under the nearest rock.”

Despite the downturn, he persists that the appeal of SF real estate remains a strong motivator, reporting anecdotally that more homes have shied away from the MLS and are instead trading hands privately. If a chance to buy the kind of home that only comes along every ten or 20 years pops up, “the time is now,” he says.

Wilson Leung, owner of Own Real Estate, tells Curbed SF, “People do want to sell, in any market,” and predicts that current declines represent uncertainty about shelter-in-place orders rather than loss of faith in real estate.

“I anticipate inventory will spike once the shelter is over,” he adds.

Zillow’s Jeff Tucker concurs, noting that a lot of missing listings are likely from people afraid of having a property linger on the market without buyers right now and hurting their long-term prospects, or of having a sale potentially fall apart because of economic uncertainty.

“It never looks good to have a sale fall through,” says Tucker. Although the current circumstances could provide some charity about sales snafus, in the end “it’s still adding some risk.”

Questions about how strong SF’s real estate market is right now might be moot, given that it’s unclear whether Realtors are even allowed to perform basic tasks of selling homes. For weeks, shelter-in-place orders have precluded agents from giving tours, taking photos, or visiting listed properties.

Over the weekend, the federal Department of Homeland Security released an advisory designating both residential and commercial real estate as “essential businesses” during the public health crisis. California Gov. Gavin Newsom concurred.

However, local health ordinances, like the one in San Francisco, still do not permit real estate businesses to do anything except work from home, and it’s unclear which set of orders takes precedent. As with all other things, uncertainty is very much the zeitgeist right now.

 

Should I Buy a House During the Coronavirus Crisis? An Essential Guide

By Margaret Heidenry, Realtor.com,  Apr 6, 2020

Spring is upon us, which typically involves a big peak of home buyers checking out properties, negotiating, and closing on new places. But the coronavirus outbreak—with its quarantine measures and economic uncertainties—has many a real estate shopper wondering: Should I buy a home now, or wait?

We’re here to help you navigate this confusing new normal with this series, “Home Buying in the Age of Coronavirus.”

This first installment aims to help you figure out whether you can—and should—shop for a home right now, or hold off until this crisis blows over. Read on for some honest answers that will help you decide what to do.

The impact of the coronavirus on the housing market

So what state is the housing market in right now, anyway? While that depends on how bad an outbreak an area is suffering, most markets are feeling some sort of hit.

“The coronavirus is leading to fewer home buyers searching in the marketplace, as well as some listings being delayed,” says Lawrence Yun, chief economist for the National Association of Realtors®.

The latest NAR Flash Survey: Economic Pulse, conducted on March 16 and 17, found that 48% of real estate agents have noticed a decrease in buyer interest attributable to the coronavirus outbreak.

However, nearly an equal number of members (45%) said that they believe lower-than-average mortgage rates are tempting buyers to shop around anyway, without any significant overall change in buyer behavior.

For those who are determined to buy a home, there is opportunity out there.

“This is the best buyer’s market I have ever seen in my career,” says Ryan Serhant of Nest Seekers and Bravo’s “Million Dollar Listing New York.”

“Sellers are nervous, there’s excess supply, and interest rates have been hovering at historic lows. You can own a home for less per month than you can rent an equivalent property in most areas,” he adds.

With fewer home buyers out there looking, you have less competition in your way.

“Unmotivated and uncommitted buyers have dropped off,” adds Maggie Wells, a real estate professional in Lexington, KY. “Less competition is a huge leg up in this market.”

The window of opportunity for buyers won’t stay open wide forever. NAR data shows that there was a housing shortage prior to the outbreak.

“The temporary softening of the real estate market will likely be followed by a strong rebound, once the quarantine is lifted,” says Yun.

This pent-up demand could eventually push home prices higher. That could mean that the time to strike for bargains is now.

Bottom line: If social distancing has made you realize you don’t love the place where you’re currently spending most of your time, it’s a good time to consider buying.

How the housing industry has adapted to keep buyers safe

Although it’s a scary time to be out and about checking out real estate, it is still possible to do so and stay relatively safe. The industry has rapidly adapted, introducing approaches that minimize exposure to the virus.

For instance, many agents are now working remotely and conducting most of their business virtually.

“Buyer and seller consultations have transitioned to virtual meetings with success,” says Kate Ziegler, a real estate agent with Arborview Realty in Boston.

While open houses or showings may not be easy to arrange because of quarantine or other safety issues, real estate listings have stepped up to the plate by offering virtual tours.

“We can send clients videos of whatever properties they want to see, or we are happy to have our agents FaceTime from a property,” says Leslie Turner of Maison Real Estate in Charleston, SC.

While those who are immunocompromised may want to stay home, if you’re otherwise healthy, it is also still possible to see some homes in person in some parts of the country. You’ll want to take some precautions before you go.

“Hand sanitizer at the door has become the norm, as well as shoe covers, even on sunny days,” says Ziegler.

During the tour, it’s also now customary for the listing agent to open all doors, so that home buyers can explore closets and other enclosed spaces without touching anything as they look.

If you do make an offer that’s accepted and you head to the closing table, real estate agents and attorneys are also adapting to remote closings, to keep you out of a crowded conference room. (We’ll provide more information about virtual tours and remote closings in later installments.)

How to weigh economic concerns

Coronavirus aside, anyone thinking about buying a home is also likely to be weighing whether it’s a smart idea when the economy is in a downward spiral. But in the same way you can’t easily time a stock purchase to make a profit, you can’t easily time a home purchase, either.

“Recession or not, it’s impossible to time the market, whether for buying stock or buying real estate,” says Roger Ma, a New York–based financial planner and owner of lifelaidout.

Just keep in mind that while current market conditions offer an incredible opportunity for home buyers to lock in historically low interest rates for a mortgage, rates are actually going up quickly, because so many people are refinancing.

If you wait too long to buy, you may miss the money-saving boat. So make sure to read up on the latest mortgage rates first.

Besides mortgage rates, home buyers are probably wondering about the stability of their income, as fear of layoffs loom.

“We are entering uncharted territory,” says Michael Zschunke, a real estate agent in Scottsdale, AZ.

On the flip side, putting a property under contract now and locking in a low interest rate gives a buyer some control at a time of relative uncertainty, adds Turner.

The takeaway from all this? It matters more than ever to get pre-approved for a mortgage, to calculate your home-buying budget accurately.

If you’re worried about layoffs, you should buy a home well under budget so you have enough money left over for closing costs, home maintenance, and a rainy day fund. Now is the time to crunch your numbers more carefully than ever before. Below is what you need to consider.

  • Research ways to reduce your closing costs. For instance, many loans allow sellers to contribute up to 6% of the sale price to the buyer as a closing-cost credit.
  • Figure out how much you need to set aside for yearly home maintenance and repairs. A smart budget is to have between 1% and 4% of the purchase price of your home.
  • Be sure to put aside an emergency nest egg for unexpected repairs. On average, it’s a good idea to sock away 1% to 3% of a home’s value in cash reserves.

In our next installment, we’ll explore all the ways to conduct a house hunt safely. Stay tuned! In the meantime, here’s more on buying a home during a recession.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on April 6, 2020 at 10:11 pm
Glen Bell | Posted in Uncategorized |

SF East Bay Real Estate Market Update – February 29, 2020

SF East Bay Real Estate Market Update

February 29, 2020

 

Here are some highlights for the 39 East Bay Cities that I track:

The seasonal drop in inventory followed our normal pattern during the holidays. We watched the number of homes decrease by nearly 60% over November and December. Last year was somewhat unusual because we saw a late season start and early season end. Inventory at the end of December was at its’ 2nd lowest level since I began tracking these 39 cities in 2006, with only 1163 homes for sale at the end of December. Our expectations normally are that new home listings begin to appear on the market as early as mid-January with a steady increase of inventory every month through to September, traditionally our high point.

 

We expected a healthy increase in inventory over January and February, especially since we didn’t see the heavy rains like we did last year. What we saw was a modest increase, of 35.9%. This is 33.4% fewer homes than last year at this time, but more in line with what we experienced in 2018. This represents a 24 day supply of homes, compared to a 36 day supply last year at the end of February. Pendings increased by 30.8%, slightly higher than what we saw last year.

The pending active ratio had been below 1 for 16 consecutive months beginning in the summer of 2018. That was when I signaled a market in transition, moving from a strong sellers’ market to a more neutral one that even favored buyers slightly. We had that huge drop in inventory at the end of last November and since then the ratio has been over one now four months in a row, signaling a sellers’ market. I thought back in December that it’s setting up for a strong sellers’ market early spring? Well it did just that and it’s mostly a function of how many homes are listed. Look at how low our key numbers are for Berkeley, Alameda, Albany, El Cerrito and Oakland. Agents are scrambling to find homes for their buyers and we’re seeing a few more multiple offer scenarios. What’s really striking is the huge drop in days on market everywhere. That’s another signal that we have buyers just not enough to sell. We went from having 61% of homes sitting for 30 days or longer in January to 29% of homes sitting in February.

The pending/active ratio increased to 1.33. This is still much higher when compared to last years’ number of .85. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (less inventory with more pendings) favors sellers. A number below 1 favors buyers. The last four months have been into positive territory with a ratio of over 1 for the first time since June 2018.

The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

  • The month’s supply for the combined 39 city area is 24 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. Supply is less when compared to last year at this time, of 36 days.

  • Our inventory for the East Bay (the 39 cities tracked) is now at 1,581 homes actively for sale. This is fewer than what we saw last year at this time, of 2,373. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales increased to 2,110, higher than what we saw last year at this time of 2,006.

  • Our Pending/Active Ratio is 1.33. Last year at this time it was .85
  • Sales over the last 3 months, on average, are 1.6% over the asking price for this area, slightly higher than what we saw last year at this time, of 1.0%.

Recent News

Mortgage rates fall to all-time low amid coronavirus concerns — here’s why you should think twice about waiting to refinance

By Jacob Passy, Market Watch, March 7, 2020

Unfortunately for home buyers, the drop in mortgage rates isn’t likely to spur more people to put their homes up for sale.

Mortgage rates in the United States have fallen to the lowest level ever on the heels of concerns stemming from the coronavirus outbreak.

The 30-year fixed-rate mortgage dropped to 3.29% during the week ending March 5, a major decrease of 16 basis points from the previous week, Freddie Mac FMCC, -11.489% reported this week.

Previously, the 30-year fixed-rate mortgage hit an all-time low back in November 2012 in the wake of the recession, when the average rate fell to 3.31%.

The 15-year fixed-rate mortgage also fell 16 basis points to 2.79%, according to Freddie Mac. The 5/1 adjustable-rate mortgage dropped only two basis points to an average of 3.18%.

The decline in rates presents a major windfall for millions of homeowners across the country, who stand to save thousands of dollars in interest by refinancing. Furthermore, an estimated 44.7 million homeowners have $6.2 trillion in home equity that they could access through a cash-out refinance, according to real-estate data firm Black Knight, and now they have the chance to access that cash at a lower interest rate.

Mortgage rates have fallen throughout 2020 thus far, mainly in response to concerns related to the economic impact of the COVID-19 outbreak that began in China and has spread around the world. “Much remains unknown with this virus and its potential impact on human life and economic activity,” said Zillow ZG, -8.122% economist Matthew Speakman. “COVID-19 is here, and it will continue to be the main driver of mortgage rate movements in the coming weeks.”

Generally, mortgage rates track the yield on the 10-year Treasury TMUBMUSD10Y, 0.547% , which dropped below 1% for the first time ever this week after the Federal Reserve announced it was cutting its benchmark interest rate in reaction to the potential economic impact the illness outbreak will have.

Coronavirus Impacts on California’s Housing Market

CAR Research Highlights, March 5, 2020

The rapid growth of COVID-19 (“Coronavirus”) cases continues to create turbulence in the global economy and in domestic financial markets. However, C.A.R. is not revising its current 2020 housing market forecast, but will continue to monitor the market for negative macroeconomic impacts on the demand for housing as well as the supply chain impacts that could adversely affect the cost of new home construction in the coming months and quarters. C.A.R. has created a list of the Top 10 potential impacts that could elicit questions from buyers and sellers over the near term.

  1. Forecasts Have Been Downgraded, But Few Economists are Calling for Recession Yet:Last week, the International Monetary Fund (IMF) cut its forecast for global economic growth by 0.1%, but is still calling for an expansion in 2020, albeit at a slower pace. Similar orders of magnitude have been forecast for the domestic economy, with groups like Wells Fargo and others expecting GDP to grow by 10-20 basis points slower than their pre-Coronavirus forecast. Growth is expected to be slower, but the economy is still expected to grow.
  2. Mortgage Rates Will Likely Remain Low, Or Even Fall Further As A Result of Coronavirus:The Federal Reserve issued an emergency 50 basis point cut to their target interest rates, and guidance suggests that the Fed may be open to future reductions in order to counteract the negative impacts to financial markets. This should help to reduce the cost of borrowing and make housing more affordable over the near term, which should help to offset some of the negative impacts to housing demand associated with rising uncertainty.
  3. Domestic Buyers May Be Discouraged By Rising Uncertainty and Recession Risk, But Is It Still a Good Time to Buy?:This week, mortgage rates fell to an all-time low level of just 3.13%. That is down from 3.80% at the start of the year and represents significant cost savings over the life of a 30-year loan. For buyers who can afford their monthly payments, the economic uncertainty that is driving rates lower provides an opportunity to capitalize on significantly reduced borrowing costs that they will enjoy for years to come. Short-run risks to the economy exist but are arguably offset by long-run benefits of lower rates at the individual level.
  4. Financial Market Volatility Could Reduce Demand For Luxury Homes, But Also Create Potential Opportunities for Luxury Home Buyers:The recent turbulence in financial markets has already impacted household wealth. This could reduce demand for luxury homes in California in particular. However, with less luxury buyers, there could be opportunities for price discounts for buyers who choose to remain in the market for high-end properties. Real estate may also act as a buffer against potentially larger declines in the financial markets.
  5. Demand From Foreign Home Buyers Could Be Curtailed Over the Near Term:Reduced economic growth in China, specifically, could stifle demand for California real estate this year. However, foreign buyers represented just 3.9% of California’s home sales last year, so the impacts statewide will be muted compared to 6 years ago, when foreign buyers represented 8.0% of the market. In addition, because domestic buyers typically finance their homes in much larger proportions to their foreign counterparts, low rates could stimulate more domestic demand that would help to offset the impact to foreign buyer demand.
  6. Foreign Home Sellers May Face Closing Delays:Because the Embassy and many consulates are closed or may have limited hours in China, and elsewhere, there may be difficulty in providing a properly notarized deed to the property that escrow will accept and title will insure.Advise sellers to make efforts to obtain the deed early in the transaction. If sellers are currently in the U.S., make efforts to comply before returning to their foreign home country. If contract has not been accepted, foreign sellers might want to consider a contingency allowing a seller to cancel if they are unable to obtain notarized deed.
  7. New Home Construction in California Could Slow Further, Exacerbating Already-Tight Supply:Many of the inputs to California’s Building Industry are sourced from Asian countries including China. As the Coronavirus disrupts these supply chains, the cost of those materials may increase over the short run or become limited, which will increase the cost of construction and potentially reduce the pace of new residential development below its already-lackluster pace in 2020.
  8. Low Rates and Fewer New Homes Constructed Should Place Upward Pressure on Home Prices:Improved affordability stemming from lower rates combined with fewer new homes being constructed as the construction supply chain is impacted could lead to more upward pressure on home prices in California. Unsold inventory is already at low levels, and reduced construction activity means that is likely to continue—especially if buyers respond to lower rates.
  9. Offsetting Effects Leave C.A.R.’s Housing Market Outlook Unchanged, For Now:The situation remains fluid, and conditions could deteriorate beyond what is currently envisioned depending on the severity and duration of the outbreak, but if current economic forecasts of modest declines in GDP growth are realized, the effects of lower rates should help to offset the effects of a slower economy and increased economic uncertainty such that California would still achieve a modest improvement in both home sales and prices this year.
  10. Eventual Rebound Will Take Longer Than It Did With SARS in 2000:At the turn of the century, the negative impact of the SARS virus began to fade within 6 months of the outbreak coming under control. However, unlike with the Coronavirus, SARS did not have significant impacts on either consumer spending or domestic financial markets. The size of the impacted population and the death toll is also much larger with Coronavirus, which suggests that the eventual recovery will play out over a longer period of time.

It’s clear that the Coronavirus will have an impact on the economy and the housing market in 2020, but it is also clear that it is not time to panic. The effect of lower rates will help to offset some of the headwinds in the housing market, and forecasts of economic growth by C.A.R. and others have been revised down, but only by 10s of basis points—not hundreds. The situation remains fluid and the California Association of REALTORS® will be monitoring this situation closely and providing updates as information comes to the fore.

Bay Area dissatisfaction: Rich, poor, young and old unhappy here

By LOUIS HANSEN, East Bay Times, February 24, 2020

Bay Area residents — despite being swept up in an unprecedented economic boom — are growing ever unhappier with the place they call home.

Nearly 3 in 4 residents think the quality of life in the Bay Area has gotten worse in the last five years, according to a new poll of registered voters conducted for this news organization and the Silicon Valley Leadership Group. That marks an astonishing 10-point jump in dissatisfaction from last year.

In another dramatic shift from last year, more residents are thinking about moving, 47 percent, than staying, 45 percent. Nearly 10 percent say they have definite plans to leave this year.

The survey unearths a remarkable paradox — high wages, an expanding economy, record growth in home values, coupled with natural wonders have failed to alleviate the crushing toll of longer commutes, spreading homeless encampments, and budget-breaking prices for houses, apartments, child care and date nights.

Sara Leslie, a Bay Area native living in Los Gatos, sees the mounting stress in her friends and family, made worse by rapidly changing neighborhoods and an eroding sense of community. “I know so many people moving,” said Leslie, 46. “I don’t see that the financial gain is worth the stress.”

Dave Metz of FM3 Research, which conducted the poll, said the high levels of dissatisfaction are almost unprecedented given the region’s strong economy. Last year, 44 percent of residents said they expected to leave in a few years, while half expected to stay. The new survey follows a trend of growing unrest found in 2016 and 2017 polls by the Bay Area Council, where residents saying they planned to move grew from about 33 to 40 percent.

“Nobody is really happy with the way things are going,” Metz said.

The survey of 1,257 registered voters in five core Bay Area counties reflects deep misgivings across the social strata — wealthy, established homeowners, middle-class workers, poor people and younger residents in apartments all sense a decline in their quality of life:

  • Rich and poor:About 77 percent of respondents making less than $60,000 and 74 percent making more than $120,000 felt the region was getting worse;
  • Political affiliation:Republicans (81 percent) and Independents (80 percent) were more pessimistic than Democrats (70 percent)
  • Young and old:Roughly 76 percent of surveyed residents between the ages of 18 and 49 said the quality of life has declined, similar to those between 50 and 64 (73 percent) and over 65 (75 percent);
  • Homeowners and renters:And despite record gains in home values and personal wealth since 2012, homeowners (73 percent) agree with renters (76 percent) that Bay Area life has gotten worse.

Angst about the future also runs deep. About 65 percent of Bay Area residents surveyed say the region is headed in the wrong direction, up from 47 percent last year. Residents now are almost as worried about the region’s future as the country’s future, with 72 percent pessimistic about the direction of the United States.

Residents say they’ve grown frustrated with the inability of state and local leaders to fix long-standing and obvious problems — homeless and RV camps popping up along city streets, rising housing costs sinking the working poor and middle class, and traffic and transit solutions running the bureaucratic gauntlet for years until comatose or dead.

The poll reflects a growing concern about homelessness. This year, nearly 9 in 10 residents called it an extremely or very serious problem, up from 8 in 10 last year. “That is about as bright a flashing red light as you can see,” said Metz.

“It’s the cumulative weight, like rock after rock placed on your chest, that’s come to a breaking point for many of our neighbors, friends and family members,” said Silicon Valley Leadership Group CEO Carl Guardino. “These challenges won’t be solved overnight.”

Guardino is concerned that nearly 10 percent of residents say they have concrete plans to move. They’ve decided other cities are better places to live and work than the Bay Area.

“The choice we have is, are we going to fight or flight?” said Guardino. “I still think our area is worth fighting for.”

Richard Hallsted, 62, recently retired as an operations manager for a manufacturing company in the East Bay. He and his wife have lived in Palo Alto for more than 40 years and raised their two daughters in the city.

During a recent family walk through their neighborhood, he saw four homeless people pushing shopping carts along the streets. It was a new sight in their community.

“What do you do?” Hallsted asked and sighed. “I don’t know. If you built a bunch of condos on El Camino (Real), they couldn’t afford them.”

Hallsted feels the big issues — transit, infrastructure, fixing state pension obligations — have been ignored by politicians more interested in small battles and identity politics. “They need to get back to basics,” he said.

But even the litany of daily annoyances fails to dislodge many long-term residents. Homeowners and those over 65 say they’re likely to stay put.

Donald Prestosz, 71, a retired high school teacher and businessman living in Half Moon Bay, said the Bay Area he has called home since 1969 has become too liberal. He hates one-party, Democratic rule in Sacramento. “If you don’t have diversity of thought,” said Prestosz, a Republican, “you’ll never get anywhere.”

But Prestosz has no plans to leave his mobile home a short walk from the ocean. His doctors and favorite golf courses are all nearby. He’s sliced his handicap to 12. “My quality of life,” he said, “is great.”

Irene Yen, 55, a public health professor at UC Merced, bought her home in north Oakland 20 years ago. The family raised their two sons and sent them to very good public schools, she said. But she’s worried about public employees and other workers getting priced out.

Much has changed — once a predominantly black neighborhood, her community has gentrified as techies and other professionals priced out of San Francisco move in. Yen loves the energy and  plans to stay: “I have a lot of affection for Oakland.”

For renters, the prospect of putting down roots in the Bay Area — even if they grew up here — seems bleak. Roughly 6 in 10 renters say they expect to move in the next few years.

Austin Rickli, 22, grew up in Antioch and Brentwood and expects to finish his computer science degree at Sonoma State in a few months. Despite good grades, low student debt and a marketable degree, his hopes of staying in the Bay Area after graduation are waning.

Most entry salaries at smaller tech companies range around $50,000 — a healthy paycheck at a glance, but one quickly eaten up by rent and loan payments, he said.

He could move back home, he said, but he might choose another city. “I want to do anything in my power to start my own life,” Rickli said.

Many feel they’re reaching the breaking point.

Robert Nueding and his wife, Kelly, arrived in the Bay Area a decade ago from central Ohio with optimism and career opportunities. But in the last few years, Nueding, 38, lost his job at Walmart and his wife, suffering from anxiety, left a well-paid position at Apple. They live in an old RV with a roommate along the streets of Fremont.

“It’s just like being trapped in a corner,” said Nueding, who holds a master’s degree in literature.

They considered moving back to their hometown, but jobs are scarce and pay poorly. Nueding worries that a local school or university would not hire a homeless person to teach classes, even as a substitute. “Until I have an actual legal residence,” he said, “I feel homeless.”

Leslie, the Bay Area native in Los Gatos, lives with her husband in a farmhouse in the foothills. Each has more than an hour-long commute on good days.

Leslie has spent two decades in the tech industry and enjoys her job. Her mother and sister have already been priced out in the past few years. The Santa Cruz native would leave if other family members weren’t still here.

She sees a dark side of Silicon Valley tech — U.S. engineers replaced by lower-cost H-1B visa holders. All workers suffer, she said: The system unfairly pushes down salaries, while foreign-born engineers remain heavily dependent on their employers.

Leslie said many of her friends, especially with young children, are over-stressed. She sees them trying to ease the anxiety with prescription medication and therapy just to navigate daily life.

Leslie rides her three horses or goes to the beach with her four dogs to cope. But she’s not sure how much longer that therapy will work.

The poll of 1,257 registered voters in Alameda, Contra Costa, San Francisco, Santa Clara, and San Mateo counties, was conducted by FM3 Research for the Silicon Valley Leadership Group and Bay Area News Group. The poll, conducted Jan. 11-19, has a margin of error of +/- 2.8 percentage points.

 

Berkeley tenants rights plan would give renters first right to buy their home

By Sarah Ravani, SF Chronicle, Feb. 21, 2020

Berkeley’s mayor proposed an ordinance Thursday that would give tenants the first right of refusal to purchase the home they live in if it goes up for sale.

The legislation is the third such proposal introduced in the East Bay and statewide in recent weeks.

Berkeley’s “Tenant Opportunity to Purchase Act” would apply to all rental properties in the city except for owner-occupied, single-family homes and backyard or basement units known as accessory dwelling units, Mayor Jesse Arreguín said.

Oakland’s proposal, still being finalized, is expected to give landlords an incentive to sell to tenants. And a statewide proposal from state Sen. Nancy Skinner, D-Berkeley would give tenants across California the first right of refusal to buy foreclosed properties.

The Berkeley City Council will vote on its policy on March 24, sooner than the two others, and Arreguín said approval can’t happen soon enough.

“The severity of our housing crisis compels us to take bold and innovative action,” he said at a news conference Thursday outside a home bought last summer by a nonprofit group on behalf of tenants. “TOPA is about leveling the playing field for tenants and affordable housing nonprofits.”

Berkeley’s ordinance would require landlords to offer to sell their property to their tenants before offering it to anyone else, and would allow affordable-housing developers to buy the property on behalf of the renter. If a tenant chose not to make an offer, then an affordable-housing developer could opt to buy the property before it was put on the market.

A coalition representing about 1,500 property owners in Berkeley expressed concern Thursday that such a law would cause property values to go down. A spokeswoman for the Berkeley Rental Housing Coalition said she might sue if the ordinance passes.

“At the end of the day, this legislation is about constraint of sale,” said Krista Gulbransen, executive director of the coalition. “They say that the owner will be able to set the price, but the reality is that there will be a constraint of what that sales price is because it will never go out to the open market if the tenants want to purchase it.”

The proposal comes nearly a month after Oakland proposed its measure, which will be heard in committee next month. Although its language is not yet finalized, the measure is expected to give landlords an incentive to offer tenants first right of refusal to buy the property they live in. It’s also expected to include vacant properties. Berkeley’s does not.

Berkeley’s proposal also comes a day after Skinner introduced SB1079 in the state Senate. In addition to giving tenants the right of first refusal to buy foreclosed properties, Skinner’s bill would allow cities and counties to fine corporations if their properties sit vacant for more than 90 days. Local governments could seize the properties and use them for affordable housing if left empty during that time period.

Berkeley’s action comes in the wake of the overwhelming impact of Moms 4 Housing, a group of homeless mothers that in November took up residence in a vacant West Oakland home owned by a corporation that specializes in flipping houses. They said they moved in to highlight the state’s housing crisis and the role of corporations that bought properties during the foreclosure crisis. Berkeley’s ordinance has been in the works since 2015.

Dominique Walker, one of the mothers who lived in the West Oakland home, joined Arreguín Thursday and applauded the city’s effort to create more tenant protections.

“It feels like this is the beginning of a movement, and it’s going to continue,” Walker said.

After sheriff’s deputies evicted Walker and several other mothers from the West Oakland home, Walker moved to Berkeley.

She now lives at a home bought last summer by the nonprofit Northern California Land Trust, which specializes in buying homes for the purpose of helping tenants remain in them.

Arreguín applauded that arrangement and said that Bay Area homes are so expensive that even he, the mayor, can’t afford to buy one.

“As a Millennial and as a lifelong renter, there is little hope for me to be able to afford a home here in Berkeley or in the Bay Area,” Arreguín said. “TOPA will create an opportunity for not just people like me but many people in our city to become first-time homeowners and to be able to plant roots and stay in this community.”

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on March 14, 2020 at 4:19 pm
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Real Estate Market Update, January 31, 2020

SF East Bay Real Estate Market Update

January 31, 2020

 

Here are some highlights for the 39 East Bay Cities that I track:

 

The market has been in transition for some time now. Affordability continues to be a major concern and as a result we’re seeing more and more people consider making the move out of the Bay Area. Properties are staying on the market longer, we’re seeing fewer offers than before, more price reductions and some incentives now being offered, in effect, all favoring buyers. Yet indecision has many buyers on the fence with a wait and see attitude despite having more choices. The gap between buyer and seller expectations has increased. A softening of the market has many sellers still holding out for top dollar, while buyers seeing a bit of leverage for the first time in years are now looking to possibly take advantage.

The seasonal drop in inventory followed our normal pattern during the holidays. We watched the number of homes decrease by nearly 60 % over November and December. Last year was somewhat unusual because we saw a late season start and early season end. Inventory was at its’ 2nd lowest level since I began tracking these 39 cities in 2006, with only 1163 homes for sale at the end of December. Our expectations normally are that new home listings begin to appear on the market as early as mid January with a steady increase of inventory every month through to September, traditionally our high point.

We expected a healthy increase in inventory over January especially since we didn’t see the heavy rains like we did last year. What we saw was a modest increase, of 15.9%. This is 35.75% fewer homes than last year at this time, but more in line with what we experienced in 2018. This represents a 21 day supply of homes, compared to a 30 day supply last year at the end of January. Pendings remained flat, probably due more to the lack of inventory and similar to what we saw last year.

The pending/active ratio decreased slightly to 1.2. This is still much higher when compared to last years’ number of .78. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (less inventory with more pendings) favors sellers. A number below 1 favors buyers. The last three months have been into positive territory with a ratio of over 1 for the first time since June 2018. It signals that we may be setting up for a stronger seller’s market in the spring.

61% of the homes listed are now “sitting” for 30 days or longer, while 40% have stayed on the market for 60 days or longer. This is slightly higher than what we saw last year (with then 41% remaining active over 30 days and 29% remaining active over 60 days). However, these percentages can be somewhat misleading. It really indicates that we are simply not seeing the number of new home listings come onto the market like we did last year, even without the rain.

The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

 

  • The month’s supply for the combined 39 city area is 21 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. Supply is less when compared to last year at this time, of 30 days.

 

  • Our inventory for the East Bay (the 39 cities tracked) is now at 1,348 homes actively for sale. This is fewer than what we saw last year at this time, of 2,098. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales remained relatively flat at 1,613, about what we saw last year at this time of 1,629.

 

Our Pending/Active Ratio is 120. Last year at this time it was .78

Sales over the last 3 months, on average, are 1.6% over the asking price for this area, slightly higher than what we saw last year at this time, of 1.2%.

 

Recent News

 

Homes Sold Above List Price Fell to Three-Year Low in 2019

By Treh Manhertz, Zillow, Feb. 5, 2020

  • The share of U.S. homes that sold for more than their list price in 2019 fell to 19.9%, the lowest annually since 2016.
  • Even with a significant cooldown from previous years, the California Bay Area remains the most competitive housing market in the country.
  • Homes that sold above list last year typically brought in $5,100 more than the asking price, down from $5,500 the year before.

Roughly one-in-five (19.9%) U.S. homes sold for more than their list price in 2019, the lowest share in years — a reflection of cooling market dynamics and subsequent shifts in pricing and offer strategies in response. But as those market dynamics begin changing direction again, so too will the balance of power in the ongoing price/offer game between buyers and sellers.

The share of homes sold for more than their list price last year was the lowest since 2016, and down from 21.5% in 2018, according to an analysis of transactions in which we could match a listing’s initial list price with its final sale price. The year-over-year decline breaks a streak of four consecutive years in which a greater share of homes sold above list than the year before. The dip coincides with a year in which annual home value growth fell steadily from recent highs recorded in 2017 and 2018, to levels more consistent with both annual wage growth and historic annual norms.

Despite recent year-over-year drops in home value, San Francisco (48.6% of homes sold above list) and San Jose (38.8%) top the list of metros with the greatest share of homes sold above list among the top 35 — a sign of just how competitive the Bay Area remains even after cooling significantly in 2019. Boston (34.7%), Minneapolis-St. Paul (34.3%) and Seattle (31.2%) round out the top five.

The coolest top-35 markets were Miami (8.9% of homes sold above asking), Las Vegas (12.6%) and Tampa (13.3%). The share of homes sold above list in the Las Vegas area fell from 26.8% a year ago; only San Jose’s share decreased by more, from 63.6% to 38.8%.

The median amount above asking that U.S. sellers realized was $5,100, down from $5,500 in 2018 and the lowest since at least 2011. San Jose ($41,000 above asking) and San Francisco ($37,500) lead the country in this measure as well, a product of both intense competition among buyers and the high prices of real estate there making these figures relatively in line. Still, these figures are much lower than a year ago when San Jose homes typically sold for $101,000 above asking and those in San Francisco sold for $50,000 above asking.

The Games We Play

A home-buying/-selling transaction can be a difficult process, full of uncertainty — often especially on the most essential part of settling on the price. The transaction process itself in its simplest form has at least three stages, and no definite end. The seller lists at one price. The buyer offers another. The seller accepts or rejects the offer. If the seller rejects, the process often reverts back to steps one and two — or sometimes falls apart completely.

There are any number of personal financial factors at play in both the asking price and offer price, and a good deal of gamesmanship too: Do sellers start at a low price in an attempt to attract more buyers, more quickly? Or do they start at a high price point in an attempt to get the most for their property, risking a longer and potentially more expensive process?  From the buyers side, do they offer below the list price in hopes of saving money but with the risk of being rejected? Or do they offer top dollar upfront, hoping for a smoother deal but risking overpayment?

As a result of these personal dynamics, the final price can end up substantially above or below the initial asking price. But lurking in the background are underlying local market dynamics, which often exert more influence over final price/offer strategies than any personal calculation. And for the first time in years, 2019 represented a notable shift from prevailing trends, with the first half of the year featuring a short-lived bump in inventory, along with a year-long slowdown in home value growth that threw some established buyer/seller dynamics out of whack.

A Down & Up Year

In 2018, almost 900,000 U.S. homes sold above list, the highest number recorded by Zillow.  Throughout the 2018 spring home shopping season, more than one-in-five homes (22%) sold above list. But that share began falling as the year wore on and the calendar turned to 2019, at roughly the same time as a stock market swoon, spike in mortgage interest rates and a prolonged government shutdown combined to effectively hit pause on what had been a roaring housing market. By January 2019, the share of homes sold above list had bottomed out at 17.7%. In this environment, buyers began to claw back a little more pricing power for the first time in years.

Through the 2019 spring home shopping season, it appears many sellers were seemingly caught off guard by the changing conditions, and ended up accepting offers at or below list prices that may have been expected during the height of the market just a few months prior. Relieved of some pressure, buyers were bidding more conservatively. In April 2019, the share of homes sold above the original list price was lower than April 2018 in 37 of the largest 50 metropolitan areas.

But as 2019 played out, the cloudy outlook for sellers began to clear as the late 2018-early 2019 inventory buildups experienced in several cities were whittled back down to record lows. The stock market bounced back, mortgage interest rates fell back below 4% and the economy kept chugging along — bringing out more buyers to chase a still-limited pool of available homes. So even though there were 26,000 fewer sales in 2019 compared to 2018 in which the seller received more than they were asking, the market ended up coming a long way from its January trough.

2020 Vision

This improving outlook — at least for sellers hoping to realize larger gains — looks set to continue into the early part of 2020, if not beyond. Over the last quarter of 2019, the share of sales above list grew compared to prior months in roughly two-thirds of large markets analyzed, with more expected to follow if recent listing trends manifest in actual sales. Typically, the longer a home is on the market, the lower the likelihood of selling above the list price. But currently, homes are typically on the market 3 days fewer than last year. And at a time of the year when the market usually slows down in the face of cold weather and holiday relaxation, there were almost 20,000 more sales overall in December compared to November.

For now, it all adds up to an environment that should be somewhat more favorable for sellers next year — at least until they have to turn around and become buyers themselves, shifting their calculus yet again in housing’s ongoing game of “let’s make a deal.”

2020 Housing Market Forecast: More Buyers, Fewer Homes for Sale

By Tim Ellis, Redfin, January 29, 2020

The direction of this year’s housing market is clear ahead of the Super Bowl.

The U.S. housing market is off to a strong start in 2020 as a deepening shortage of homes for sale and surging homebuyer demand are set to push prices up at the fastest rate in years. Buyers may be coming out of winter hibernation early, but so far the sellers are few and far between, which is setting the stage for intense competition even as the year has just begun.

Redfin CEO Glenn Kelman has previously called Super Bowl weekend “the weekend where the housing market either goes crazy or it takes a nap.” This year, we may not need to wait until game time to see how the housing market is playing out. Homebuying demand is spiking in January as many potential homebuyers are turning into active homebuyers well in advance of the typical spring peak homebuying season.

Unfortunately, the supply of homes for sale has so far been unable to keep up with surging demand. Recent data from the National Association of Realtors show December housing inventory at just 1.4 million units—the lowest level in at least 20 years. Low mortgage rates could also be to blame for the shortage of homes for sale, as homeowners are content to sit on their cheap mortgages rather than list their homes, even when they choose to move up to a larger house.

“With every new release of data this year, I’m becoming more and more confident that demand will be strong in 2020—just as strong as, if not stronger than, in 2018 and 2017,” said Redfin chief economist Daryl Fairweather. “The big question for the housing market this year is supply. Will homeowners sit on the sidelines, content with their refinanced loans, or will they want to get in on the action too and move up, move down, or cash out entirely? New construction is beginning to pick up in some markets though, so even without new listings of existing homes there will be some relief for homebuyers hoping for more selection. However, due to the high cost of acquiring and developing land in expensive coastal cities, much of that new construction will be built far away from urban centers or in already affordable metros.”

Foreign buyers try to escape American real estate market

By Antonio Pacheco, Archinect News, February 7, 2020

Chinese investors sold off billions more in U.S. commercial property last year than they bought, as other foreigners start to sour on the U.S. market as well.

Foreign investors were net sellers of U.S. commercial real estate last year for the first time since 2012, posing a fresh setback for a market that is already showing signs of strain. — The Wall Street Journal

The Wall Street Journal reports that foreign investors sold $20 billion more in real estate than they bought last year as a number of international economic trends, including Brexit and an ongoing effort by the Chinese government to bring investment back home, converge to make the American real estate market less appealing to these buyers.

In total, foreign buyers sold $63 billion in property in 2019 and purchased just $48.7 billion, according to Real Capital Analytics. In part, The Wall Street Journal cites flat vacancy rates in the US apartment market and falling rents due to new construction and rent control initiatives as being partially responsible for the real estate cool off, as well, adding that “in New York City, values of rent-regulated apartment buildings have fallen by about 25% in a matter of months.”

 

It’s typical to see a spike in early homebuying activity, but this year the jump is unusually large. On January 15, the Mortgage Bankers Association released data showing that their Purchase Index—a measure of how many homebuyers are applying for new mortgages—hit an 11-year high. In addition to public data, like the MBA Purchase Index, internal Redfin data—including the number of Redfin users touring homes with our agents—are also showing big year-over-year gains.

Unless a lot of new housing inventory hits the market soon, the 10-year peak in homebuying demand coupled with a 20-year low in the number of homes for sale will lead the housing market straight into the mother of all inventory crunches. That could result in a sudden and rapid rise in bidding wars and spiking home prices.

“It is busier than I expected this year,” said Redfin Boston listing agent Delince Louis. “My first listing of the new year has already received four offers. Low interest rates and low inventory are fuelling activity, and we are seeing activity now that we normally wouldn’t see until March. 2019 was slow, people were worried about a recession, but this year is back to being competitive. A lot of millennials who put their searches on pause last year are coming back now, and they are coming back early because they want to beat the rush.”

Seattle Redfin agent Shoshana Godwin says 2020 already feels busier than even the craziest times in 2017. “I’m regularly seeing homes with well over a dozen offers that sell for hundreds of thousands above list price, even in the middle of our recent snowy week. In a typical year, I’d say to wait it out and expect more homes for sale in the next few months… but now I’m warning clients prices may only continue to rise and the inventory may not appear.”

If the data continues coming in as strong as it has through the first few weeks of January, 2020 may turn out to be the most robust housing market in a decade. That’s great news for those looking to sell a home, but for homebuyers it will mean increasing competition and rising prices.

Are You Waiting for House Prices to Drop During the Next Recession to Buy a Home? Why You Could Have a Very Long Wait

By Jacob Passy, Realtor.com, Feb 7, 2020

It’s unclear when the next recession will come. But a recent report argues that when it does the U.S. housing market is unlikely to adversely affected in any major way.

Researchers at First American Financial Services, a title insurance company, examined how the country’s housing market has fared historically during recessionary periods. Based on what’s happened in past recessions, the report argues that the next recession is unlikely to prompt a major downturn in housing.

“While the housing crisis is still fresh on the minds of many, and was the catalyst of the Great Recession, the U.S. housing market has weathered all other recessions since 1980,” wrote Odeta Kushi, deputy chief economist at First American and the report’s author. “In fact, the housing market may actually aid the economy in recovering from the next recession — a role it has traditionally played in previous economic recoveries.”

Using its own data along with information from Freddie Mac and the National Association of Realtors, the report maps out how the housing market has traditionally fared in economic downturns. In most other cases, home price appreciation continued at an even pace, and existing-home sales growth only edged downward slightly, Kushi wrote.

So what made the Great Recession different? The housing boom that preceded the last recession was largely driven by an explosion in both home-building activity and mortgage credit. Home buyers were able to get mortgages with no documentation of their income and no down payment, and many loans had introductory 0% interest periods that made them cheap to start but more expensive as time wore on.

These homeowners were over-leveraged. “The housing crisis in the Great Recession was fueled heavily by the fact that job loss was paired with a significant share of homeowners who didn’t have much equity in their homes,” Kushi wrote.

And because developers constructed so many homes, their home values quickly sank when the bubble burst, exacerbating the situation further.

The growth in home prices seen during the current economic expansion has not been fueled by increased access to mortgage credit. Rather, it’s a simple reflection of supply and demand: Many Americans want to become homeowners, but the supply of homes available for sale is very low, pushing prices upward.

While this has made the prospect of buying a home unaffordable for millions of Americans, it has also meant that those who are homeowners have seen their home equity grow substantially in recent years. That decreases the likelihood that they would be underwater on their loan if home prices were to dip in a recession.

“Were we to have a recession, I’d argue housing would provide a cushion because the shortage of supply at the entry-level suggests builders could actually continue to build,” Doug Duncan, Fannie Mae’s chief economist, told MarketWatch in December.

There still are red flags that homeowners should be on the lookout for when it comes to how a potential recession might affect the housing market. For starters, many Americans have taken out cash-out refinance mortgages on their homes as their home values have grown. That’s whittled away the equity these people have in their property, leaving them more vulnerable to owing more than their home was worth in the potential event the home prices drop.

Another issue: Many Americans who fell behind on loan payments and modified their mortgages in the wake of the recession to avoid foreclosure have since redefaulted. Were these people to lose their jobs in a recession, they could easily fall into foreclosure. Research has shown that foreclosures exacerbate economic downturns — and they can have a ripple effect through a local market, causing other homes to drop in value.

And at the local level, certain local housing markets could prove more resilient in the event of recession, depending on the strength of the local economy relative to what’s going on at a national level.

Top 8 housing trends that’ll dominate 2020

LifestyleHome Design, February 6, 2020

As home prices continue to increase, about 12 million Americans now spend over half of their earnings on purchasing a home. This is just one of the recent housing trends that continue to shape the real estate sector as the new decade begins.

Indeed, the latest housing trends have been a mixture of both desirable and undesirable developments. With millennials making up the largest percentage of home buyers, real estate prices have continued to skyrocket.

So what does 2020 have in store for the real estate market?

That’s what we discuss in this article. We hope that by the time you’re done reading, you’ll be able to make informed decisions on any home purchase or sale you may intend to make.

1. Investment in Real Estate Will Continue to Increase

One of the most prominent real estate trends at the moment is the increased investment in the industry, despite the economic decline of 2018. The industry continues to receive hundreds of billions of dollars in capitalization.

Domestic institutions have continued to increase their net holdings in real estate. This enhanced domestic activity is the main reason for more investment flow to the industry. Moreover, the presence of new tech in the market that helps property owners boost their management capabilities will continue to spur growth in the sector.

As numerous markets continue to experience remarkably low vacancy rates, expect investors to continue pouring money into the industry.

2. There Will Be a Slower Rise in Home Prices

The housing market saw a jump in home prices between 2017 and 2018. Real estate prices have still continued to increase but at a lower price. The percentage of home listings have also increased, albeit marginally. These developments will continue in 2020.

Why?

The first reason is the prevailing economic uncertainty in the country. Many home sellers are choosing to hold on to their property until things look rosier. The increasing mortgage rates have also made some investors shy away from the real estate market.

Interest in new homes, however, is still high. Experts anticipate a considerable increase in the construction of new homes.

3. Millennials Continue to Dominate the Home Buyers’ Market

In the past few years, millennials have dominated the residential property buyers’ market. This is one of the trends in real estate that’s set to continue for a while. There are many reasons for this.

Firstly, members of this demographic are finding more stable jobs with impressive incomes. Besides, American millennials prefer middle-class and upper-middle-class homes. In 2020, millennials are expected to account for almost half of the new home buyers and top the mortgage pack.

There are many things sellers can do to benefit from this housing trend.  For instance, they can focus on leveraging the internet, given that most millennials research online before making a purchase decision. Sellers can also offer sustainable homes that have lots of usable space.

4. Buyers Need Affordable Homes

For a long time, house rents have consistently beaten house purchases by a huge margin. As residential home prices continue to increase, the demand for rental housing will increase as well.

So what does this mean for home developers? Well, there’s obviously a need to create affordable homes to attract more buyers.

5. There’s a Shift to Second-Tier Cities

With real estate prices in first-tier cities out of reach for many investors and home buyers, more people are setting up shop in more affordable second-tier cities. It’s one of the housing market trends that have contributed to a significant increase in investments in such cities.

But as more investors and buyers flood more affordable locations, the price of real estate prices in those regions continues to increase. This capital movement will result in greater value for homes in second-tier cities. Ultimately, the continued investment in real estate in these cities will equalize capitalization rates in both first-tier and second-tier markets.

6. New Technology Will Continue to Be Featured in Housing Trends

Technology has had a tremendous impact on a wide variety of industries. The real estate industry is one of them.

In 2020 and beyond, the housing market will continue to adopt new technology, including apps, smart home technologies, and online selling platforms. Expect to see an upsurge in the number of high-tech companies that service the real estate sector. Most of these tech companies will focus on simplifying transaction processes.

AI will play a significant role in the sector, especially when it comes to building design, organization, and management. Machine learning will continue to help in property design, urban planning, and other areas.

7. Higher Interest Rates on Mortgages

After several years of stagnation, mortgage interest rates have recently started to increase. This trend is expected to continue in 2020. Rising interest rates point to the continued willingness of Americans to borrow and spend.

So what should home sellers expect as interest rates continue to increase? Generally, buyers will usually give lesser offers for homes. Besides, some buyers may decide to postpone their purchases to avoid the additional burden of paying higher rates.

For those looking to buy homes in 2020, higher interest rates should not be a hindrance. Eligible owners can consider VA loans. A major VA Home Loan benefit is that it typically has a lower interest rate compared to other types of loans.

8. Increased Focus on Amenities to Attract Buyers

Residential property developers and landlords are increasingly capitalizing on amenities to entice buyers and tenants. Besides parking access and the staple gym, builders are offering other unique amenities such as movie theaters, communal gardens, and so on. There’s an influx of smart homes as well, thanks to savvy investors.

Housing Trends Will Continue to Change

While we can’t predict the future of the real estate market with absolute certainty, we do know that buyer preferences are always evolving. Housing trends will always come and go. One thing that’s for sure, however, is that the need for residential property is here to stay.

Hopefully, the trends presented here will serve as a guide as you invest in or sell a property this year.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on February 10, 2020 at 12:49 am
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Real Estate Market Update – December 31, 2019

 

SF East Bay Real Estate Market Update

December 31, 2019

 

Here are some highlights for the 39 East Bay Cities that I track:

Affordability, increasing inventory, reduced sales, considerations of moving out of the Bay Area, possibility of recession, are all topics of interest in a market in transition. Properties are staying on the market longer, we’re seeing fewer offers than before, more price reductions and some incentives now being offered, in effect, all favoring buyers. Yet indecision has many buyers on the fence with a wait and see attitude despite having more choices. The gap between buyer and seller expectations has increased. A softening of the market has many sellers still holding out for top dollar, while buyers seeing a bit of leverage for the first time in years are now looking to possibly take advantage.

The two numbers that stand out at the end of December is the huge drop in inventory that took place and the percentage of homes that are now sitting. This is the time of year when things begin to slow down. However, it happened earlier this year starting in November. Buyers are hesitant on doing much when we start to reach the holiday season and they tend to shelve their search until the beginning of the new year. Sellers are aware that with less activity comes fewer buyers. If they haven’t already listed their property by now, considerations on delaying until the spring comes into play. We see fewer listings come onto the market in December, and inventory comes down. It’s also a time for possible bargains. However, there’s been less to look at. Many sellers who “have to” sell will stay the course and soften their expectations.

  • Here’s where we stand as of the end of December. Following a huge decrease of inventory in November, we again experienced another big drop in December. Inventory is down 59% in the last 2 months, now sitting at an 18 day supply of homes for sale. This is far less than what we saw last year at this time of 27 days. Pendings decreased again, primarily due to the lack of new inventory coming onto the market but it’s similar to where we were last year. The pending/active ratio increased again to 1.39. This is well above where we were last year at the end December of .94. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (less inventory with more pendings) favors sellers. A number below 1 favors buyers. The last two months have been into positive territory with a ratio of over 1 for the first time since June 2018. It signals that we may be setting up for a stronger seller’s market in the spring.

 

  • 71% of the homes listed are now “sitting” for 30 days or longer, while 46% have stayed on the market for 60 days or longer. This is fairly normal for this time of year and similar to what we saw last year (with then 74% remaining active over 30 days and 47% remaining active over 60 days). However, these percentages can be somewhat misleading. Many of the homes that have not been selling remain on the market while fewer newer homes are coming onto market because of Holiday concerns. That’s why the percentage of sitting homes goes way up.

 

  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

 

  • The month’s supply for the combined 39 city area is 18 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. Supply is less when compared to last year at this time, of 27 days.

 

  • Our inventory for the East Bay (the 39 cities tracked) is now at 1,163 homes actively for sale. This is fewer than what we saw last year at this time, of 1,765. This is the lowest number that we’ve seen since December 0f 2017. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 1,616, about what we saw last year at this time of 1,629.

 

  • Our Pending/Active Ratio is 139. Last year at this time it was .94

 

  • Sales over the last 3 months, on average, are 2.0% over the asking price for this area, slightly lower than what we saw last year at this time, of 2.2%.

 

Recent News

Editorial: The Bay Area housing market has finally priced everyone out

By San Francisco Chronicle Editorial Board, January 6, 2020

Has the Bay Area housing market finally priced itself out of reach for, well, everyone?

According to a new survey of more than 100 economists and real estate experts, the answer is yes.

The panelists, who assessed the nation’s housing markets as part of a price expectations survey for the real estate website Zillow, said they expected the nation’s hottest real estate markets in 2020 to be in the South. Austin, Texas, took the top honor — a whopping 83% of experts believe it will outperform the national average of 2.8% housing price growth in 2020.

As for the nation’s worst real estate market in 2020?

The winner of that unfortunate designation is the Bay Area. San Francisco was at the top of the list for expected underperformers — 64% of experts believe it will underperform in 2020. It was closely trailed by San Jose: 61% of experts believe that city’s housing market will underperform.

A large proportion of those experts believed that the Bay Area will not just underperform, but actually see declining home values: 57% expect home values to fall in San Francisco, and about half expect the same for San Jose.

After the last several years of torrential real estate growth, underperforming or even falling home values in the Bay Area wouldn’t necessarily be a bad thing.

High home prices have placed homeownership out of reach for all but the wealthiest in the Bay Area. They also influence the cost of rent, which has grown far faster than the average Bay Area resident’s wages.

They affect construction and development costs, too. The Bay Area experienced 6.7% growth in construction costs in 2018: According to Turner & Townsend’s 2019 survey of international construction markets, San Francisco was the world’s most expensive place to build.

Local housing prices flattened out last year, and construction costs slowed, too. The question is, will the Bay Area experience slower growth for the right reasons?

Unfortunately, the answer is no.

In a well-functioning housing market, housing prices would be falling because increases in demand would result in increases in new construction.

In the Bay Area, a major reason for the slowdown is that people are leaving — and taking their need for housing with them.

According to the state Department of Finance, California lost about 197,600 people to net domestic migration during the year that ended July 1. It’s no accident that Texas, one of the states to which California is losing the most residents, has historically had ample housing development at a much lower cost.

Losing these residents means losing their ideas, energy and contributions to the economy. High housing prices have also meant that fewer people can move here, where they’d have access to the Bay Area’s specialized jobs and markets — a situation that has exacerbated income inequality and will eventually eat away at our relative economic advantages.

The Bay Area housing market may also be suffering from the Trump administration’s ill-considered cap on state and local tax deductions, which have disproportionately affected home price appreciation in states with higher property taxes and mortgage interest deductions.

In both instances, flattening or even declining home prices in the Bay Area are the result of flawed public policy and unnecessary restrictions on growth. Without solutions, a pause in home appreciation might give the Bay Area a breather — but we’ll still be stuck with the problems that brought us to this place.

Bay Area will be nation’s coolest housing market in 2020, survey says

By Kathleen Pender, SF Chronice, Jan. 2, 2020

Austin, Texas, is expected to be the nation’s hottest housing market this year and the Bay Area the coolest, according to economists and real estate experts surveyed for real estate website Zillow.

On average, the panelists said they expect U.S. home prices to grow by 2.8% in 2020.

Of the 25 large markets included in the survey, the Texas capital earned the top score: 83% expect it to outperform the national average vs. 7% who think it will underperform, for a net score of 76. The hottest markets after Austin were Charlotte, Atlanta and Nashville, with scores of 59, 51 and 49, respectively, Zillow said in the report.

The San Francisco Bay Area earned the lowest score of negative 40; only 24% said it will outperform versus 64% who think it will underperform. The next coolest markets were San Jose (minus 38), Los Angeles (minus 35), Cincinnati (minus 33) and Sacramento (minus 31).

Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, agreed that the Bay Area will lag the nation this year.

After three years of huge appreciation, prices in the Bay Area were down or flat in 2019, depending on location, he said. Rosen expects a further correction this year, especially in Silicon Valley. San Francisco and its inner suburbs will be flat or up slightly, and outer suburbs will be flat to slightly down. Overall, he expects the median Bay Area home price will be flat to up or down 2%.

He pointed out that mortgage rates have risen about a quarter- to half-percentage point from their lows in August-September.

Also, the tax law changes that took effect in 2018 have increased the after-tax cost of owning a home. The law capped the previously unlimited itemized deduction for all state and local income, property and sales taxes at $10,000 combined. “Your property tax, even though constrained by Proposition 13, for many people (is) not fully deductible,” Rosen said. “A lot of people felt good because they were protected (from large property tax increases) by Prop. 13. Even with Prop. 13 still in place, many people have tax bills twice as big” as $10,000.

The tax law also limited the mortgage interest deduction to interest on $750,000 in debt, down from $1 million previously.

He added that the trend of people moving outside California to cheaper states “is going to get bigger in the next five years,” because of higher taxes, higher home prices and growing congestion.

California lost an estimated 197,600 people to net domestic migration during the year ended July 1, according to the state Department of Finance. That is the number of people who left California for other states minus the number who moved here from other states. If you include people moving into the state from other countries, California lost 39,500 residents due to net migration. (Births still caused the population to grow since they exceeded deaths.)

Other data show that California is losing the most residents to Texas, Arizona, Nevada and Oregon.

Mike Englund, chief economist with Action Economics, said that “we will have a pretty solid boom” this year in housing nationwide, led by the South. The southeastern quadrant of the U.S., including Texas, accounted for 53.6% of housing starts last year (numbers for December are estimated). Only 8.8% were in the Northeast, 24.8% in the West and 12.8% in the Midwest.

Research firm Pulsenomics conducted the survey for Zillow. More than 100 experts responded, but only 64 answered the question about individual markets.

A separate report, released last month by Fitch Ratings, said that capping the state and local tax or SALT deduction at $10,000 “may have exacerbated slowing home price growth in certain areas,” including California. Fitch rates corporate and government debt, including mortgage-backed and municipal bonds. It’s owned by Hearst, which owns The Chronicle.

Since early 2018, when the so-called SALT cap took effect, “states with higher property taxes have seen acute home price appreciation slowdown and even price declines in several metropolitan areas” including San Francisco, Fitch said.

It compared home-price appreciation in the 10 states whose residents took the highest property tax and mortgage interest deductions on their 2017 tax returns to the 10 states with the lowest tax and interest deductions. In the high-cost, high-tax states (which included California), the average rate of year-over-year price appreciation fell from 6.4% in January 2018 to 2.7% in September 2019. In the low-tax, low-cost states, the appreciation rate rose very slightly, from 3.9% to 4%, over the same period.

There could be other factors to explain steep drop-off in home-price appreciation in high-tax states after the SALT cap took effect, but “you can see there is a pattern there, a trend you cannot ignore,” said Bulin Guo, an associate director with Fitch.

Bold Predictions for 2020: Shrinking Homes and a More Stable Market

By Skylar Olsen, Zillow, on Dec. 9, 2019

With the housing market stabilizing from the drama of the early years of home price recovery and the subsequent slowdown during 2019’s home shopping season, we have a rare moment of calm to reflect on what housing might look like in the year to come.

If current trends hold, then slower means healthier and smaller means more affordable. Yes, we expect a slower market than we’ve become accustomed to the last few years. But don’t mistake this for a buyer-friendly environment – consumers will continue to absorb available inventory and the market will remain competitive in much of the country.

But while the national story is a confident one, housing in some manufacturing-heavy markets may see adversity. The struggle could be even more stark, since similarly affordable housing markets with a more balanced job profile may be 2020’s rising stars.

Here are our bold predictions for the trends and styles that will dominate the housing market in the first year of the next decade.

The United States will NOT enter a recession in 2020

As recently as this summer, half of a panel of economic experts surveyed by Zillow said they expected a recession to come in 2020 – with another third saying they expected the economy to shrink in 2021. Ongoing trade volatility, the potential for some kind of geopolitical crisis to flare up and/or a stock market retreat from record highs were all cited as the most likely potential triggers for the next downturn…

…but it became clear as the year progressed just how resilient the U.S. economy has been to these and other economic headwinds:

  • After slowing down late in the summer, consumer spendingperked back up again in October and remains on a steady path.
  • Healthy consumer spending is a sign of healthy consumer confidence– which, despite some modest declines lately, still remains at relatively high levels and points to continued growth in the near term.
  • Employers continue to add jobsat a decent clip, and the unemployment rate is near record lows – which is helping to push wage growth up.
  • After sluggish (at best) growth throughout much of the recovery following the Great Recession, wage growthhas been at or above 3% per year in every month since October 2018.

It’s important to be clear-eyed: The threat to the economy from trade volatility is real, and the manufacturing sector of the economy in particular has been hit hard lately after steadily building orders throughout much of 2018. And the stock market itself, while still testing new highs, is very sensitive to ongoing trade discussions – a reflection of overall investor faith and business leaders’ confidence in their ability to make effective, long-term, strategic decisions. And the potential for a minor conflict in any corner of the globe to become bigger at any time cannot and should not be ignored.

But taken all together, current conditions point to a recipe for continued economic growth, not a recession. Growth itself may be slower than the strong pace we’ve seen at times throughout the recovery, but growth will still occur for at least the next year.

Newly Built Single-Family Homes Will Continue to Shrink

After six years of uninterrupted growth through the early years of the recovery, the square footage of newly built, single-family homes began to shrink in 2016. We expect this downsizing trend to continue in 2020, driven by a confluence of economic and demographic trends.

First, the fine print: Yes, today’s new single-family home is roughly a third larger than it was 30 years ago, up to a median of 2,386 square feet in 2018 from 1,810 in 1988. But it’s also true that between 2015 and 2018 (despite a very slight increase between ’16 and ’17) the typical square footage of those homes fell from 2,467 to 2,386 – the largest such drop since at least 1988, not including the housing crash in the mid-aughts.

There are several 50,000-foot reasons why we expect this gentle downsizing to continue:

  • Many of today’s younger, millennial home buyers have expressed a preference for denser, more urban homes that are more walkable to shared amenities.
  • Younger buyers are struggling to afford large homes built in prior decades
  • Eco-consciousness is also growing broadly.
  • Today’s older homeowners are expressing a desire for smaller, less maintenance-heavy and more accessible (read: fewer stairs) homes as they age and move into newer homes. In 2019, 56% of new construction home buyers were 40 or older, according to the 2019 Zillow Group Consumer Housing Trends Report.
  • Home builders are constrained by a shortage of buildable land in desirable areas. Prices on key building materials including lumber and steel are increasingly volatile. And competition for skilled construction labor is fierce, pushing wages up.

Each of these trends points to a continuation of this downsizing of new homes – smaller homes are inherently more dense, walkable and affordable; smaller homes are efficient and eco-friendly; smaller homes require less maintenance and are more accessible; smaller homes enable builders to do more with less.

There will always be demand for large, suburban homes on big lots – but on net, we expect attitudes to shift away from that and toward a lifestyle with a smaller footprint.

Home Value And Rent Growth Will Be Slower, More Stable and More Sustainable

Since hitting a recent high of 8.3% in December, annual growth in the median U.S. home value has been slower than the month prior in every month so far in 2019 – currently standing at 4.7% in October (the latest month for which data is available as of this writing). At the same time, annual rent growth – while largely stable – has crept up modestly in each month since June.

In 2020, we expect both rent and home value growth to slow somewhat further, stabilizing at a sustainable pace in line with wage growth and inflation and to a level indicative of greater balance between buyers and sellers, tenants and landlords.

The median U.S. home value is expected to end 2020 up 2.8 percent from the end of 2019, according to the Q4 2019 Zillow Home Price Expectations Survey, a quarterly survey of more than 100 economists and experts sponsored by Zillow and conducted by Pulsenomics. That’s down from the average prediction of 3.6% annual growth expected from the same panel by the end of 2019 compared to the end of 2018. Since 1996, the average annual pace of growth in the Zillow Home Value Index is 3.8%, so a slowdown from current levels would still represent a return to long-term norms.

On the rental side, annual rent appreciation has been on the rise since June and currently sits at about 2.3%. We expect this recent uptick in rental growth to continue through the start of 2020 before petering out sometime around the start of Spring. By the end of next year, we expect annual rent growth to fall below two percent, or about a half a percentage point lower than where they currently stand.

By keeping monthly mortgage payments within reach even as home prices rise, continued low mortgage interest rates will help ensure that rent growth doesn’t again reach the highs experienced just a few years ago. Low rates will encourage more renters to pursue homeownership, further boosting overall homeownership rates that have been on the rise since 2016.

Mortgage Rates Will Stay Low, Keeping Housing Demand High

Mortgage rates fell markedly in 2019, and are expected to remain near their current, relatively low levels for the bulk of 2020. Softening GDP growth and investment, continued global weakness due in part to the U.S.-China trade conflict, and below-target inflation will continue to hold rates in check. Barring marked improvements in these indicators, the Fed will have no reason to return to rate hikes.

If low mortgage rates persist, this will keep home purchase demand strong and continue to fuel decent price growth in the nation’s most broadly affordable markets. But low rates won’t be enough to reignite high growth rates in the nation’s highest-priced markets, notably on the West Coast and in the Northeast. In these markets, buyers seem to have hit an affordability ceiling where even low rates can’t bring many homes into the typical first-time buyer’s budget range, especially because low rates don’t help overcome the upfront hurdle of high down payment requirements. In those high-priced markets, buyers will continue to fan out in search of more affordable areas.

Color Will Make a Comeback

Goodbye, Hygge (look it up). Hello, color! Fun will return to home design in the form of bold prints, lively wallpaper and brightly hued walls. After a decade of Scandinavian modern design that dominated retail and social media feeds as Americans embraced neutrals, minimalism and clutter-free living, expect a shift toward playful, creative design. Look for color to be injected in unexpected ways in kitchen cabinetry and appliances, in lighting fixtures and on interior doors and moldings.

Home Sales will climb slightly and slowly

After bottoming out in January 2010 during the depths of the housing crash, overall annual U.S. existing home sales didn’t consistently top 5 million until late 2014. By late 2016, a growing number of first-time home buyers drove the annualized rate of national home sales to bounce around 5.5 million for over a year.

But by spring 2018, things started to turn down again: The seasonalized annual sales rate dropped back to 5 million by December 2018, and the impact of rising mortgage rates and the increasing difficulty in saving for an adequate down payment were the talk of the town. As sales pulled back, available inventory started to swell and what had been aggressive home value appreciation began to slow.

But 2019 brought another swing. Home value growth continued to soften, but mortgage rates came back down, what inventory that had accumulated was quickly scooped up and home sales rebounded.

Looking ahead at 2020, we think home sales will continue to climb, but slowly. Why?

  • Although a small fraction of overall sales, new homes sales grew significantly in 2019. That has helped buoybuilder confidence and lead to some of the most robust permit and starts numbers in a long time.
    • If builders in 2020 deliver on their promises to build smaller and at more affordable price points, new construction will continue to be attractive to buyers unable to find a match in the competitive and limited existing home market.
  • Yes, inventory is tight – but when we say that, we’re really talking about the number of homes available to buy relative to demand from buyers. Sales can remain strong while inventory remains tight – and a sudden jump in the number of sales will result in a corresponding drop in inventory.
  • What really matters is the flow of homes onto the market – the turnover or velocity of home sales, not months’ supply or overall level of available inventory, that constrains home sales numbers.
  • And we have reason to believe that turnover among a given segment of homeowners will be made more possible now in a way that it wasn’t before. iBuyer business models, like Zillow Offers, are ultimately about lowering sellers’ transaction costs. Economics 101 says that lowering transaction costs and making transactions themselves easier will mean those transactions will happen more often.

Redfin’s 2020 Housing Market Predictions: More buyers + fewer homes = more bidding wars

By Daryl Fairweather, December 4, 2019

We predict the housing market will be more competitive in 2020 as the cooldown that began in the second half of 2018 comes to an end. Charleston and Charlotte will lead the nation in home-price gains, thanks to homebuyers moving in from expensive cities. Hispanic Americans will experience the biggest gains in home equity wealth. Climate change will become a much bigger factor for homebuyers and sellers. Read on for Redfin’s six housing market predictions for 2020.

 

Prediction #1: Bidding wars will rebound thanks to low mortgage rates and a lack of homes for sale

Low mortgage rates will continue to strengthen homebuying demand, but due to a lack of new homes for sale and homeowners staying put longer, there will be fewer homes on the market in 2020 than in the past five years. More demand and less supply mean bidding wars will rebound in the first quarter. We expect about one in four offers to face bidding wars in 2020 compared to only one in 10 in 2019. This increase in competition will push year-over-year price growth up to 6% in the first half of the year, considerably stronger than the 2% growth seen in the first half of 2019. Supply and demand will become more balanced later in the year as more listings of new and existing homes hit the market, allowing price growth to moderate to 3%.

 

Prediction #2: 30-year fixed mortgage rates will stabilize at 3.8%

Throughout 2020, 30-year fixed mortgage rates will remain low, hovering around 3.8%. Faced with slowing economic growth, the Federal Reserve will keep interest rates low. Although the housing market is strong, weakness in other sectors, like manufacturing, is pulling down on the economy. Because investors are already bracing for the possibility of a recession, we don’t expect mortgage rates to fall much lower than 3.5% in 2020 even if the economy weakens. And even if the economy strengthens, we expect mortgage rates to stay below 4.1%.

 

Prediction #3: For the first time, Hispanic Americans will gain more wealth from home equity than white Americans

In the next decade, Hispanic Americans will, for the first time, gain more home equity than white Americans. That’s because the majority of new homeowners are Hispanic, and home values in Hispanic neighborhoods are increasing faster than in white neighborhoods. There are more Hispanic homeowners in Texas than in any other state and Texas cities are likely to experience strong gains in home values over the next decade as people move here from more expensive places like San Francisco and Los Angeles.

 

Hispanic families will likely benefit from home-equity gains for generations to come. Hispanic Americans could tap their home equity to finance their children’s education or to start businesses. Over time, this will improve economic equality for Hispanic Americans.

 

Prediction #4: Climate change will become a bigger financial factor for homebuyers and sellers

In 2020, homebuyers and sellers will take the consequences of climate change into account when deciding to buy. The financial costs of climate change are already becoming more tangible as fire and flood insurance premiums rise. “More people are becoming hyper-sensitive to flood insurance and its costs,” said Houston Redfin agent Irma Jalifi. “They’re thinking about how the weather will change over the next decade and whether there will be more historic floods like we’ve experienced recently. I had a buyer back out of a deal because he found out the property required flood insurance.”

 

Over the next decade, higher insurance premiums in high-risk areas will make housing even less affordable to more people. And in areas with the highest risk, insurers may stop providing insurance altogether, which means it will be nearly impossible to secure a mortgage in those areas.

 

Prediction #5: Charleston and Charlotte will lead the nation in home price growth

Affordable Southeast cities like Charleston and Charlotte are attracting an increasing number of migrants from expensive cities, which will drive up home price growth in these areas. Charleston saw a 104% annual increase in the number of Redfin users looking to move in, relative to the number of users looking to move, out in the third quarter of 2019, and Charlotte saw a 44% increase. Migrants are attracted to the growing economies of Charleston and Charlotte—Microsoft is spending $23 million to expand its Charlotte campus, and in Charleston, the new Volvo plant is adding thousands of jobs.

 

“A lot of migrants from up north or out west move to Charleston because it is such a lovely place—out of towners fall in love with our Cypress gardens and world-class beaches,” said Redfin agent and team manager Jacie Paulson. “The fact that we have an international airport means that companies are more willing to allow their remote employees to live here because it is easy to travel back and forth to headquarters. We also have a strong local economy with jobs at Boeing, Volvo, and in the military.”

 

Prediction #6: More city streets will become car-free

In 2020, we will see more cities favor green modes of transit and actively discourage driving. Some cities already have plans in the works—San Francisco’s Market Street will transform into a car-free corridor in 2020, and New York City drivers will have to pay to drive into the heart of the city beginning in 2021. In cities that become less car-friendly, those that frequently spend time in the city-center will place more value on a commute that doesn’t require a car and move to either the walkable city center or close to public transit. Meanwhile, some people will choose to avoid the city-center altogether and put a higher value on homes in the suburbs where they can work, play and live.

 

Wildfires cause turmoil in California’s property insurance market

A law passed in 2019 gives the Department of Insurance emergency powers to keep policies in effect in fire-prone areas.

By Ken Sweet and Sarah Skidmore Sell, The Associated Press, December 24, 2019

 

Kent Michitsch seemed to be running out of traditional options to insure the home he’s lived in for more than 30 years northeast of San Diego as California’s massive property insurance market reels from three consecutive years of destructive wildfires.

Michitsch, 57, has received three non-renewal notices in three years and says he fears a fourth when his homeowners’ policy comes up for renewal the middle of next year if it wasn’t for California lawmakers’ recent intervention in the market.

“It’s constant worry and frustration. You know you’re covered now, but I might have to look for a new policy next year yet again.” Michitsch says he’s never made a claim on his insurance and never had fire damage.

Thousands of homeowners like Michitsch have lost their insurance policies in the last few years as insurers pull out of areas that are at risk of fire damage or stop insuring homes altogether. They’ve been forced to scramble to find coverage from regular insurance providers or to turn as a last resort to a government-sanctioned plan that at the moment only provides fire coverage.

State Farm, the largest insurer in the state, Allstate and other insurers declined to renew roughly 350,000 policies in areas at high risk for wildfires since 2015 the California Department of Insurance said back in August, and the department has gotten “record numbers” of requests this year from insurers to increase the rates they charge property owners. The data also show 33,000 policies were not renewed by insurers in zip codes affected by the major wildfires.

While the insurance industry says the California property insurance market is resilient, state lawmakers and officials have had to scramble to keep the market from grinding to a halt from the unexpected additional risk.

The California Legislature passed a law earlier this year giving the Department of Insurance emergency powers to keep policies in effect for those in fire-prone areas. This month California Insurance Commissioner Ricardo Lara put a one-year moratorium on non-renewals, in hopes that lawmakers, insurance companies and other stakeholders can reach a more substantial solution for the roughly 1 million homeowners in zip codes adjacent to previous wildfires.

“This wildfire insurance crisis has been years in the making, but it is an emergency we must deal with now if we are going to keep the California dream of homeownership from becoming the California nightmare, as an increasing number of homeowners struggle to find coverage,” Lara said in a statement.

The fires of 2017 and 2018 caused a combined $25.3 billion in damages according to the California Department of Insurance. That’s exponentially higher than the previous wildfires in 2015 and 2008, which caused $1.1 billion and $719 million in damages, respectively.

The insurance industry has yet to release an estimate of damages from this year’s wildfire season, but the costs are expected to be high. The most significant wildfire this year was the Kincade Fire, which started October 23 and burned 78,000 acres in Sonoma County. It destroyed 374 buildings and damaged another 60, according to the California Department of Forestry & Fire Protection.

“The wildfires in California will likely make it more difficult for California homeowners to buy insurance,” said Stu Ryland, senior vice president of the Pacific Region at Sedgwick, an insurance claims management company. “Premiums are likely to go up, particularly in areas that are prone to wildfires and in some cases, it may be difficult for consumers to find an insurer willing to write their insurance.”

While some insurers are pulling out and others are reconsidering how they price property insurance, it is still available in one form or another to every homeowner, according to the Insurance Information Institute.

However, those not insurable by regular insurance providers are having to turn to what’s known as the California FAIR Plan, which is a government-sanctioned association of insurers who pool together to cover the highest risk properties. FAIR Plan insurance currently only covers $1.5 million in damages, although Lara has ordered that starting in April 2020 it will cover $3 million in damages. Currently the FAIR Plan only covers fire, not other forms of risk, but California regulators have announced that FAIR Plan insurers can start doing comprehensive coverage.

Earlier this month, the California FAIR Plan Association sued to block those changes, arguing Lara’s order is illegal.

Karl Susman, owner of Susman Insurance Agency in Los Angeles, says the average annual premium on a homeowner policy plus FAIR to cover fire now costs around $2,500 a year, three times higher than it was three years ago.

“These wildfires are not sustainable for these companies. They aren’t going to go bankrupt but they are just going to stop writing policies,” he said.

Susman said he worries that without a longer-term solution the California insurance market will repeat the experience after the 1994 California Northridge earthquake, which caused many insurance carriers to stop offering earthquake insurance. He’s already seen insurance companies limiting their risk to certain zip codes as well.

“I haven’t seen anything like this in the 28 years I’ve been doing this,” he said.

Fortunately, those who still do have insurance have been able to start rebuilding their lives after the fires.

Maggie and Dan London of Santa Rosa lost their home in the massive and fatal Tubbs Fire of 2017. They worked quickly after the fire, filing a claim and reaching out to their contractor that same day. But it took them two years to rebuild and move back in.

Like many who tried to rebuild after the fire, they ran into obstacles — higher costs for labor and materials and ongoing talks with their insurer. All the same, Dan London feels his insurance company has done a fair job. And while they bought their home in 1979, he has not seen a sharp jump in insurance costs over time. The cost to insure their new home is slightly more, but Dan felt it reflects the increased value of the property.

“I was expecting something triple, but it’s not at all,” he said.

 

California REALTORS® applaud House vote to temporarily repeal SALT deduction limit

LOS ANGELES (Dec. 19) – The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) today issued the following statement in response to the House passage of H.R. 5377, a bill that temporarily eliminates the cap on state and local tax (SALT) deductions for 2020 and 2021. The Restoring Tax Fairness for States and Localities Act would also increase the cap to $20,000 for married couples for 2019.

“We are pleased that the House has passed a bill to temporarily eliminate the cap on the amount of state and local tax that taxpayers can deduct on their federal tax returns. The combined hit of a reduction in the mortgage interest deduction and current $10,000 SALT cap in the tax law has disproportionately hurt taxpayers and real estate in California,” said C.A.R. President Jeanne Radsick, a second-generation REALTOR® from Bakersfield, Calif.

“Ensuring the tax code incentivizes housing and real estate will continue to be a top priority for REALTORS®, and C.A.R. thanks the many California Congressional members who support easing the double taxation penalty that harms California homeowners.”

Leading the way… ® in California real estate for more than 110 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 200,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

What landlords and tenants need to know about California’s new rent-control law

By Kathleen Pender, SF Chronicle, January 4, 2010

Associations representing tenants and landlords are getting flooded with questions about the statewide rent- and eviction-control law that took effect in California Jan. 1.

The most common one is: “Does this apply to me?”

The answer generally depends on the type of property, its age, whether the owner is a person or business entity and how long a tenant has occupied the unit.

AB1482, the Tenant Protection Act of 2019, limits annual rent increases to 5% plus an inflation rate, or 10% — whichever is less. It also prevents landlords from evicting tenants, even after their fixed-term lease runs out, except for a limited number of “just causes.” An individual property could be exempt from rent control, eviction control, both or neither.

The new law generally does not apply to units that are already subject to a local rent control ordinance. However, a unit could be exempt from a local ordinance but subject to the new state law, said Sasha Harnden, a housing policy advocate with the Western Center on Law and Poverty.

Here are brief answers to common questions. For more details, consult a landlord or tenant association or attorney or read the law online.

Q: What properties are exempt from rent control under AB1482?

A: Any type of rental property that was completed (based on its certificate of occupancy date) within the past 15 years is exempt. Once it turns 15 years old, it becomes subject to rent control, even if it’s in the middle of a lease, unless it qualifies for a different exemption.

The rent cap does not apply to single-family homes and condo units, regardless of age, as long as it meets two tests. It must be “separately alienable,” meaning it can be sold separately from any other dwelling unit. And the owner generally must be a person or revocable trust set up by one. The owner cannot be a real estate investment trust, corporation or limited liability corporation that has at least one corporation as a member.

To get this exemption, the owner must provide a specific notice to the tenant.

A duplex, triplex or larger apartment building is not separately alienable. The law, however, specifically exempts duplexes if the owner lives in one unit during the entire time of the tenancy.

The law does not define a duplex, so it’s unclear whether a single-family home with a detached unit, like a backyard cottage, would qualify as a duplex under this exemption, said Stephanie Shirkey, senior policy and compliance counsel with the California Apartment Association, which represents landlords.

There are also exemptions for “affordable housing” units, where rents are restricted by deed or government agency, and college dorms. There is disagreement as to whether renters with Section 8 vouchers are protected under the state law.

Q: What properties are exempt from eviction control?

A: The properties above that are exempt from rent control are also exempt from the new eviction controls. Two property types are exempt from eviction control, but not rent control: Properties in which a tenant shares a bathroom or kitchen with the owner, and owner-occupied properties (other than duplexes) if the owner rents no more than two units or bedrooms. The latter exemption would cover a home with an accessory dwelling unit or triplex if the owner occupies one unit, Shirkey said.

Q: What notices does a landlord have to provide?

A: Individuals who own a single-family home or condo only get the exemption from rent and eviction control if they give tenants a written notice of their exemption using a specific statement in the law. If the tenancy starts or renews on or after July 1, the notice must be provided in the rental agreement. For existing tenancies, landlords should provide a stand-alone notice as soon as possible. For tenancies that start between now and June 30, landlords can provide a stand-alone notice or put it in the lease, Shirkey said. When the tenancy renews, the notice must be in the lease.

Failing to provide this notice “could be a gotcha” for single-family rentals, Shirkey said.

If a unit is subject to both rent and eviction control under AB1482, the landlord must provide a notice informing the tenant of those protections.

If the unit is subject to neither — because it’s less than 15 years old or an owner-occupied duplex, for example — no notice is required.

Q: What is the rent cap in my area?

A: The cap is 5% plus an inflation rate that varies by region. It takes effect Jan. 1 for all units subject to the rent cap. However, if a landlord increased the rent by more than the allowable amount between March 15, 2019, and Jan. 1, the rent on Jan. 1 must be rolled back to the rent as of March 15, 2019, plus the allowable increase. The landlord does not have to refund any rent paid between March 15, 2019 and Jan. 1 that exceeded the allowable increase.

Q: What is the inflation rate?

A: It’s the annual percentage change in the consumer price index between April 1 of the current year and the previous year.

In four metro areas — San Francisco, Los Angeles, San Diego and Riverside — it’s the annual change reported by the Bureau of Labor Statistics for that area. For the San Francisco area (San Francisco, San Mateo, Marin, Alameda and Contra Costa counties), the inflation rate for last April is 4.01%, so the total allowable rent increase is 9.01%.

For all other areas, it’s the change in the California consumer price index reported by the Department of Industrial Relations. It’s currently 3.34%, for a total cap of 8.34%.

Q: Can an owner raise the rent more than 5% plus inflation to cover capital improvements?

A: No, some local ordinances allow this; the state ‘s does not.

Q: How does eviction control work?

A: Landlords have always been able to evict tenants for not paying the rent, violating the lease, conducting criminal activity on the property or other causes for which the tenants are at fault. That doesn’t change under the new law.

Under previous state law, landlords could also evict tenants for no cause, with the required advance notice, and could choose not to renew a fixed-term lease (unless the unit is subject to local eviction-control laws).

Under the new state law, landlords can only evict tenants who have occupied the unit for a certain length of time for specified “just causes.” These include causes for which the tenant is at fault, and a limited number of causes for which they are not at fault.

These no-fault causes include the owner’s intent to occupy the unit or move in a spouse, domestic partner, children, grandchildren, parents, or grandparents; demolish or to substantially remodel the property; or take the property off the rental market. They can also evict if a government orders it.

Before evicting a tenant, however, the landlord must give the tenant, in writing, the reason for the eviction and whether it’s an at-fault or no-fault cause. For no-fault evictions, the landlord must pay the tenant one month’s rent to cover relocation expenses.

Q: How long does the tenant have to occupy the unit to be protected under the law?

A: Tenants are protected under the rent-control provision as of Jan. 1 no matter how long they’ve occupied it.

Tenants are protected under the eviction provision after they have occupied the unit for at least 12 months. However, if a tenant brings in another adult over 18 (i.e. a roommate) before the original tenant has occupied the unit for at least 24 months, then the tenants are not protected under AB1482 until one of them has been there at least 24 months. “If I have already lived there two years, I can move in a roommate” and still be protected, Harnden said.

Q: Who enforces the new law?

A: The law did not set up an enforcement mechanism, so it’s unclear. Harnden said it could be enforced through legal aid groups that do eviction defense. Parties with a gripe may need to hire a lawyer.

Q: Is there any limit on what a landlord can charge when a tenant moves out?

A: No, the law did not establish vacancy control, so owners of non-exempt units can raise the rent to any amount after a tenant leaves.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on January 11, 2020 at 4:06 pm
Glen Bell | Posted in Uncategorized |

Glen’s SF East Bay Area Real Estate Market Update, November 30, 2019

 

November 30, 2019 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

 

Here are some highlights for the 39 East Bay Cities that I track:

Affordability, increasing inventory, reduced sales, considerations of moving out of the Bay Area, possibility of recession, are all topics of interest in a market in transition. Properties are staying on the market longer, we’re seeing fewer offers than before, more price reductions and some incentives now being offered, in effect, all favoring buyers. Yet indecision has many buyers on the fence with a wait and see attitude despite having more choices. The gap between buyer and seller expectations has increased. A softening of the market has many sellers still holding out for top dollar, while buyers seeing a bit of leverage for the first time in years are now looking to possibly take advantage.

The two numbers that stand out at the end of November was the huge drop in inventory that took place and the percentage of homes that are now sitting. This is the time of year when things begin to slow down. However, it’s a bit early this year. We normally don’t see dramatic changes like this until December. Buyers are hesitant on doing much when we start to reach the holiday season and they tend to shelve their search until the beginning of the new year. Sellers are aware that with less activity comes fewer buyers. If they haven’t already listed their property by now, considerations on delaying until the spring comes into play. We see fewer listings come onto the market now, and inventory begins to come down. However, what was so noticeable was that this process started earlier than normal. We usually see the large drop in December. It’s also a time for possible bargains. However, there’s less to look at. Many sellers who “have to” sell will stay the course and soften their expectations.

Here’s where we stand as of the end of November. Inventory has decreased since last month by a whopping 32.4%, now sitting at a 30 day supply of homes for sale. This is far less than what we saw last year at this time of 42 days. Pendings decreased slightly, but is slightly more than last year by 14.6%. The pending/active ratio increased to 1.2. This is well above where we were last year at the end November of .71. The pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Typically, a number well above 1, (less inventory with more pendings) favors sellers. A number below 1 favors buyers. This may be attributed more to the market ending early this year, rather than when it normally does in December.

67% of the homes listed are now “sitting” for 30 days or longer, while 39% have stayed on the market for 60 days or longer. This is clearly higher when compared to last year’s number at the end of November (with then 59% remaining active over 30 days and 30% remaining active over 60 days). This is fairly normal for this time of year only a month earlier than normal. These are the kind of numbers that we usually don’t see until December. However, these percentages can be somewhat misleading. Many of the homes that have not been selling remain on the market while fewer newer homes are coming onto market because of Holiday concerns. That’s why the percentage of sitting homes goes way up.

The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

  • The month’s supply for the combined 39 city area is 30 days. Historically, a 2 to 3 months’ supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. Supply is less when compared to last year at this time, of 42 days.

  • Our inventory for the East Bay (the 39 cities tracked) is now at 1,905 homes actively for sale. This is fewer than what we saw last year at this time, of 2,816. We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 2,287, slightly more than what we saw last year at this time of 1,995, or about 14.6% higher.

  • Our Pending/Active Ratio is 1.2. Last year at this time it was .71
  • Sales over the last 3 months, on average, are 2.1% over the asking price for this area, lower than what we saw last year at this time, of 2.8%.

Recent News

Housing Market In 2020: Boom Or Bust?

By Panos Mourdoukoutas, Forbes, December 9, 2019

2020 will be a challenging year for the housing market.

On the one side, there’s a strong US economy that has driven the unemployment rate to record low levels, boosting disposable income, which makes a bullish case.

Then, there are low mortgage rates and housing shortages, which add to the bullish sentiment.

“We think the housing market will remain strong for the most part in 2020, as low-interest rates will keep demand high for new mortgages,” says Josh Stech, CEO, and Co-Founder of Sundae, a site that helps sellers get a fair price for their house. “We also think there will continue to be shortages of new housing in many markets, which will contribute to overall price growth.”

On the other side, there’s the problem of affordability, which will put the brakes on the housing market. The Case Shiller Home Price Index in the US reached an all-time high of 218.27 Index Points in September of 2019, making it difficult for first-time home-buyers to afford a home.

“While sellers may be able to ask more for their homes, they’re likely to get fewer offers in total due to more buyers being priced out of the market,” says Stech. “This could lead to longer listing times and increased stress on sellers who go the traditional route of marketing their homes on the MLS.”

That’s how bull housing markets usually end.

And there’s “pent-down” demand, which has been “stealing” sales from the future since the era of “free money” began. A period of very low interest rates, that is.

To understand how “pent down demand” (a concept I coined) affects sales for high ticket items, a good place to begin is with the more familiar concept of “pent up demand,” the lack of current demand for high-ticket items households buy — like appliances, autos, and homes.

Pent up demand usually arises ahead of periods of consumer euphoria. It’s caused by such factors as lower price expectations, depressed consumer confidence, or a credit crunch.

And it disappears together with these conditions when that future day comes, and consumers rush to buy the items they put off in the past.

In contrast, pent down demand arises after a period of consumer euphoria. It’s caused by the low cost of financing — which blurs the distinction between present and future. Why wait to buy a new car or a new home next year when you can have it this year, with a “zero percent” financing plan?

Simply put, pent down demand “steals” sales for high discretionary items from the future. It eventually depresses spending on these items when the future arrives.

That’s what happened in the middle of the last decade when the housing market went from a boom in 2005 to a bust in 2007.

Does it mean that the US housing market is where it was back in 2005?  Dan North, chief economist at Euler Hermes North America, doesn’t think so. He sees several differences between then and now.

“Houses, in general, are probably overvalued but not to a great degree, and certainly not as much as before the housing bubble peaked in 2005,” North says. “The housing bubble which had been inflating for over a decade before it collapsed had been driven by significant risks such as speculation, house-flipping, and highly questionable mortgages such as no-documentation loans, and adjustable-rate loans which turned disastrous for many borrowers.”

That’s why he assigns low probability of a housing crash in 2020. “At the current time we see little of these excessive risks, and combined with only modest overvaluation, the probability of damaging housing crash is limited.”

Queen, New York-based independent real estate agent Basili Makris agrees. “I expect real estate prices to stabilize in 2020,” he says. Though, some local markets may have a little bit more room to rise.

Still, there’s “mean-inversion,” which can raise the probability of a market correction after years of a big run.

As California homeowners lose insurance due to wildfire risk, the state is stepping in

Kathleen Pender, SF Chronicle, December 6, 2019

The California Insurance Department on Thursday implemented a new state law that prohibits insurance companies from not renewing policies for homeowners living in ZIP codes in or adjacent to wildfires for one year from the date the area was declared a disaster.

Insurance Commissioner Ricardo Lara also called on all regulated insurers to voluntarily halt nonrenewals based on wildfire risk for all business and residential customers statewide for one year, until Dec. 4, 2020.

The moves come at a time when homeowners in areas at high risk of wildfires are finding it harder to get and keep insurance. Lara made the announcement at the home of Sean Coffey of Montclair, whose home in the Oakland hills has been dropped three times, by three different insurers, since 2015.

Older state laws prevent insurers from not renewing customers who suffered a total loss caused by a declared disaster for a certain period of time. For losses suffered before 2019, they must offer to renew customers at least once. For losses in 2019 and later, they must offer to renew at least twice or for 24 months, whichever is greater.

The new law, which Lara authored when he was a state senator, took effect Jan. 1 for declared wildfire disasters starting on or after that date, but there were none until October. SB824 prevents insurers from dropping any residential policy in a ZIP code within or adjacent to a wildfire perimeter for one year from the date a disaster is declared. It applies only to nonrenewals on the basis of wildfire risk.

Cal Fire determines each fire’s perimeter, and the insurance commissioner identifies which ZIP codes are covered.

On Thursday, Lara issued a list of ZIP codes for seven of the 16 fires included in emergency declarations issued by Gov. Gavin Newsom this fall. The list includes the Kincade Fire in Sonoma County, Eagle Fire in Lake County and major fires in Southern California. It will identify ZIP codes in and around the other wildfires soon.

The laws preventing nonrenewals, apply to insurance companies regulated by the state and to surplus carriers, such as Lloyds of London, which are not state-regulated.

In August, the department released data showing that nonrenewals are growing in response to wildfire risk. They rose by more than 10% last year in seven counties from San Diego to Sierra.

Homeowners turned down by mainstream insurers are turning in growing numbers to surplus carriers and to the Fair Plan, California’s insurer of last resort that offers limited coverage.

Coffey said “it was a scramble” getting insurance when he and his wife bought their Oakland hills home in 2015. “I talked to six or seven companies, and finally found one the day before we closed on the house,” he said.

A year later, they got a nonrenewal notice and had to find another insurer. The next year, that company declined to renew. A third company insured them for two years, then dropped them. This year, they got a Fair Plan policy, which offered limited coverage for $1,480, and a separate policy from another company for liability and other coverage the Fair Plan lacks, for $580. They just got a notice that their Fair Plan policy is going up by about $670 next year.

Coffey and his wife, Elizabeth, both work for nonprofits and have two young children. Insurance is a big expense and it’s hard to budget for when the cost is unpredictable. “Every year I get nervous that we are going to get a letter” of nonrenewal, he said. “I just didn’t know it would be such a problem for homeowners.”

Last month, Lara ordered the Fair Plan to double the coverage limit on its bare-bones homeowner’s policy to $3 million by April 1, and to begin offering a comprehensive policy alongside it. The Fair Plan is an association backed by state-regulated insurance companies in proportion to their market shares. On Thursday, the Fair Plan said in a letter to Lara that it fully supports increasing the coverage limit to $3 million but does not want to offer a comprehensive policy. Doing so would divert its “finite resources” and would be more expensive than what consumers can buy now.

Industry spokesman Rex Frazier, president of the Personal Insurance Federation, issued a statement in response to Thursday’s announcement: “As climate change accelerates, we are facing more and growing wildfires in California, and we must adapt to that reality and factor climate change into coverage and rates to ensure availability of insurance for all homeowners. Year-over-year losses that the industry has seen are not sustainable for companies or good for homeowners. We look forward to working with the insurance commissioner to anticipate and prepare for these impacts on the insurance market to ensure that homeowners have access to coverage.”

Homeowners can find the list of ZIP codes at http://bit.ly/cafirezipcodes. Those who believe they have been dropped improperly by their insurers can file a complaint online at www.insurance.ca.gov or call 800-927-4357.

SF is one of the most expensive places in the world to build housing. Here’s why

Roland Li, SF Chronicle, December 8, 2019

Adrian Caratowsa was lucky.

After six years of trying and failing to score an affordable apartment in San Francisco, he won the lottery for a city-subsidized apartment in the Transbay district.

Caratowsa, who once lived in a South of Market warehouse with 27 roommates, now pays around $1,000 a month for a one-bedroom at 255 Fremont St. Nearly 70 people applied for each apartment in the building.

“I can’t imagine living in the city if I didn’t have it,” said Caratowsa.

San Francisco is struggling with a herculean task: creating as much housing as possible for people like Caratowsa to make up for decades of underproduction. But the enormous cost of building in the city has meant that developers can’t create nearly enough affordable or market-rate homes. More than 30,000 homes that have been approved haven’t yet started construction, as developers try to find financing and enough workers to build.

The Chronicle found numerous factors that contribute to San Francisco’s now astronomical housing development costs. Interviews with experts and those in the building industry and a review of the data point to the culprits: a worker shortage, long waits for permits, restrictive zoning and high fees, among other things. The result is a city consistently failing to produce enough housing to meet its needs.

Caratowsa lives in Natalie Gubb Commons, a project that cost a total of $58 million to design, obtain approvals for and build. Nonprofit developer Mercy Housing relied on federal, state and city financing to build the project at a cost of nearly $500,000 per unit. The per unit price would have been far higher if the city hadn’t donated the land. The cost to build one new apartment or condo unit in San Francisco today — whether market-rate or affordable — tops $700,000, nearly triple what it cost about 10 years ago.

That means that this year, San Francisco surpassed New York for the highest construction costs in the world, according to consulting firm Turner & Townsend.

By contrast, the cost to build the average U.S. single-family house was $237,760 in 2017, according to the National Association of Homebuilders.

Construction costs are one of the primary reasons that so little housing is getting built in San Francisco. From January to September this year, construction began on just 1,281 market-rate homes, down 62% from that period last year, according to real estate data firm CoStar.

Here’s a breakdown of the factors taking San Francisco housing costs to record highs.

Key elements: It’s not surprising that actually building a structure is one of the biggest costs. “Hard costs” — paying for construction workers and materials like lumber, concrete and steel — account for about half of the total price tag, said Mark Hogan, an architect at OpenScope Studio.

Land costs vary, but on average account for around 20% of the budget. The remaining 30% are “soft costs” that include city fees and hiring consultants, attorneys, architects and other professionals.

Developer Patrick Kennedy of Panoramic Interests said market-rate developers seek around 5% annual returns, so an apartment that costs $750,000 to build would need to generate $37,500 a year after operating expenses and taxes. Rents would have to exceed $5,000 a month to make it feasible to build.

Construction costs: Labor costs have jumped 5% a year because of a shortage of workers. The 2008 recession devastated the construction industry, forcing many workers to switch careers. The Bay Area’s commercial building boom has made the problem more severe.

In recent years, projects like Salesforce Tower and Apple Park competed with housing developments for the same pool of workers, from carpenters to electricians to plumbers.

Kennedy, who has a 200-unit project under construction at 333 12th St. in San Francisco, said that a skilled worker can cost as much as $1,000 for an eight-hour day. Panoramic, he said, may spend $300,000 just on parking for its workers over an 18-month period.

Construction workers also must contend with high housing costs, which create a vicious cycle. Workers needed to build new housing must earn enough money to afford to live in the area.

Workers who move to the Bay Area from outside California require more time to be trained. They don’t know the local building codes or earthquake safety requirements, said Joseph Olla, a vice president at San Francisco general contractor Nibbi Brothers.

That level of inexperience has added to the overall cost of labor, said Kennedy. It takes up to 25% more workers today to be as productive as a decade ago, he said.

According to the McKinsey Institute, the construction industry’s labor productivity grew only 1% per year over the last 20 years, compared with 2.8% for the total world economy.

“We’re building wood framing pretty much the same way we did in 1833,” Kennedy said.

The average worker hasn’t seen huge benefits, despite the need for labor, said Scott Littlehale, senior research analyst for the Northern California Carpenters Regional Council, a construction union group. Average annual wages for construction jobs have increased 4% a year since 2012, below the 4.7% rise in the overall Bay Area economy, he said.

Olla of Nibbi Brothers said he sees higher profits for subcontractors specializing in scarcer, high-skilled jobs, such as plumbers and electricians.

Land purchase: San Francisco has among the highest land costs in the country. One extreme example: In 2017, a Chinese developer bought majority ownership of a waterfront condo site valued at a record $916,000 per unit — just for land.

Skyrocketing land costs are partially tied to how few areas in the city are zoned for apartments. Buildings with three or more apartments are allowed on only about a quarter of San Francisco’s land.

“If there’s a limited area where you are allowed to build multifamily, the prices for those areas are going to be much higher than they would be otherwise,” said David Garcia, policy director at UC Berkeley’s Terner Center for Housing Innovation. Allowing apartments in more areas could bring down the cost of housing, he said.

Fees and permits: Residents in new housing use transit, parks, schools, police and other vital services, so cities charge fees to offset the costs.

“We are trying to solve so many problems —all important — through housing” that it’s costing a lot, said Doug Shoemaker, president of Mercy Housing, the nonprofit developer that built Natalie Gubb Commons.

San Francisco fees add up to around $50,000 per unit for market-rate projects in the most active development areas, according to the Planning Department. Market-rate projects must also provide around 20% of units for low-income tenants — the highest proportion in the country — or pay fees to help fund affordable units elsewhere. Those fees add another $50,000 to $75,000 per unit.

Another factor driving up costs is San Francisco’s approval process. Developers say it is one of the most difficult in the world. Opponents of projects are empowered to easily delay them by requesting additional reviews or filing lawsuits.

Kennedy of Panoramic said these rules boost the cost of housing. “The lack of housing is a largely self-inflicted problem,” he said.

To navigate the approvals process, a slew of expensive professionals are usually required, including land use attorneys, architects, shadow consultants, open space designers and lobbyists.

Affordable projects can cost more per unit than some market-rate projects. They have additional open space and disabled-accessibility requirements, and there’s pressure for top-notch design, said Garcia of Terner Center.

“We have really high expectations of design quality that range from incredibly important to probably unnecessary,” Shoemaker said.

How to slash costs: San Francisco and California could make it cheaper to build housing by streamlining approvals, experts say. The city could adopt more “area plans,” which can speed up the process by establishing ground rules, and local officials and state legislatures could limit the ability of opponents to delay projects.

“Cities don’t control the price of materials and labor,” Garcia said, but they do have the authority to speed up approvals.

The average environmental review process, now lasting about two years, could be cut down to a few months through area plans.

Another way to save money: reduce parking requirements. Each space costs $50,000 to $100,000, Kennedy said.

Developers are also exploring modular construction, where modules are assembled elsewhere and shipped in. Kennedy said the practice can lead to a 20% savings, and cut 50% off of the construction time.

But that strategy has run into union opposition because some work on the modules is done in another city or overseas.

So for now, costs will probably keep climbing.

A San Francisco high-rise can now cost $1 million per apartment to build, about 20% higher than what is feasible, said Oz Erickson, chairman of developer Emerald Fund. With rents and home prices hitting a plateau and costs continuing to rise, he said, development is approaching “impossible.”

Lots of baby boomers will sell their Bay Area homes — here’s when that might affect the market

Zillow study sees more competition between baby boomers, millennials

By Louis Hansen, East Bay Times, November 26, 2019

A flood of houses for sale could be headed toward desperate Bay Area homebuyers.

But don’t hold your breath — baby boomers won’t be leaving their roosts in earnest for at least another decade, according to a new Zillow survey.

The real estate site expects a 25 percent turnover in Bay Area home ownership by the faraway year of 2037, as aging boomers downsize, move or die. In the meantime, Zillow expects the region’s housing choices to remain limited as older and newer residents continue to compete for homes.

“The inventory squeeze is going to be at its most acute in the next five to 10 years,” said Zillow economist Jeff Tucker. Nationally, Zillow expects a 27 percent turnover of homes in the next two decades.

Scant choices for homebuyers, historically low new residential construction and Silicon Valley’s demand for more workers have pushed Bay Area home prices to the highest in the nation. The median home sale price in the nine-county region was $810,000 in September, down from a peak of $928,000 last May. Favorable interest rates have made mortgages more affordable and fueled demand.

Despite a recent uptick in state building permits bringing new condos, apartments and single-family homes to the region, residential construction in the Bay Area remains mired at historically low levels.

Local agents and homebuyers say the market still favors sellers.

Many boomers haven’t been particularly anxious to leave California, said Nancie Allen, president of Bay East Association of Realtors. “I feel like a lot more boomers are aging in place,” said Allen, a Fremont-based agent.

Her boomer clients generally have two main incentives for staying put: a new home-equity loan on their property or a paid-off home with low property taxes. The possibility of a big tax bill — by losing Prop 13 protections and a capital gains levy on a sale — also discourage older homeowners from moving. “Boomers look at all that and say, “Why move?’,” Allen said.

Some of the reluctance to move may account for the region’s lack of choices for home buyers.

In the East Bay, inventory of homes for sale fell 20 percent in October from the previous year, according to the Bay East Association of Realtors. Median sale prices edged up 2 percent. Owners along the entire I-880 corridor in the East Bay put fewer homes up for sale, with the exception of Berkeley.

Agents saw significant drops in homes available in central Contra Costa County, including Clayton, Martinez, Pleasant Hill and Walnut Creek. The inventory squeeze pushed prices up through the area, according to the association.

In Santa Clara County, the inventory of single-family homes fell 13 percent in October from the previous year, from 1,645 to 1,428 houses on the market, according to MLS Listings. San Mateo County listings dropped 1 percent from the previous year, from 653 to 646.

The Zillow study highlighted the national shortfall in new home construction. Between 2000 and 2009, developers built an average of 900,000 units annually. Between 2010 and 2019, new construction has accounted for just half that amount, 450,000 units annually, Tucker said.

Regions such as the Bay Area, Seattle and Los Angeles that attract young residents and encourage older homeowners to stay, Tucker said, “will continue to see the most acute housing crunch.”

The property tax breaks given by Prop 13 have set up a strong incentive for older homeowners to stay in place, Tucker said.

But younger residents can expect to see greater inventory in Walnut Creek (an expected turnover of 40 percent), North Beach (38 percent), and Mountain View and Palo Alto (32 percent each), according to Zillow. The numbers reflect the higher percentage of older residents in these communities.

Tucker expects that in retirement regions — particularly Arizona and Florida — two-thirds of the homes will turn over. The so-called Silver Tsunami is expected to hit Florida cities Tampa, Miami and Orlando hardest.

Other, older Midwest and Great Lakes cities with shrinking industrial economies in Ohio, Pennsylvania and upstate New York also are expected to have high turnover rates.

Can You Afford to Buy a Rental Property?

By: Matt Frankel, CFP, Contributor, Updated on: Dec 10, 2019

Can you really afford to buy your first rental property? Here’s how you can be sure.

Investing in real estate can be an excellent way to build wealth over time and create an additional income source, but it is also one of the more capital-heavy types of investments you can make. While you can get started in stock or mutual fund investing with just a few hundred dollars, that simply isn’t the case when it comes to buying rental properties.

With that in mind, before you start shopping for properties to invest in, it’s important to know that you can afford to become a rental property investor.

Having said that, the question of Can I afford to buy a rental property? isn’t a simple one. There are several considerations to think about before you can determine if you can afford to take the plunge into rental real estate investing:

  • Are you financially ready to invest at all?
  • Do you have enough money to buy a rental property?
  • Will your property cover its ownership costs?
  • Can you qualify for a rental property mortgage?

Let’s take a closer look at these four questions one at a time:

Are you financially ready to invest at all?

Before you even consider buying a rental property, it’s important to do a quick financial health checkup. In a nutshell, there are two basic financial things you should do before you become a rental property owner:

  • Pay off high-interest debt:The average credit card’s interest rate is more than 17%. It’s possible to earn returns in this ballpark on rental real estate, but it isn’t exactly common, especially for new investors. The point is that it’s silly to invest money in the hopes of earning a 10%–15% annualized return (the most common range), while simultaneously paying a higher rate to borrow money. If you have high-interest credit card debt, you should aim to pay it off or at the very least get a 0% APR balance transfer before you buy a rental property.
  • Establish an emergency fund:What good is an investment if you’ll have to sell it if you face any unexpected expenses? Before you start investing in real estate or anything else, it’s a good idea to build up a bit of an emergency fund to help you deal with unexpected expenses or financial hardships. Most financial planners suggest that you should aim to keep six months’ worth of expenses in an easily accessible place. This is certainly a good goal to aim for, but you don’t necessarily need to get there before you start to invest.

Do you have enough money to buy a rental property?

Once you’ve established that you’re ready to invest, the next step in rental property affordability is determining whether you have enough money to actually purchase a property. Obviously, this depends on the cost of the property itself. All other things being equal, it’s going to require more capital to buy a $300,000 property than a $100,000 home.

One common rookie mistake is assuming that the down payment is all you need, but that’s simply not true. Here’s a rundown of the various initial expenses you need to prepare for:

Down payment

The down payment is the most obvious upfront cost associated with the purchase of a rental property, but many new investors aren’t quite sure how much to expect.

Generally speaking, you should expect your lender to require a minimum of 20% down, as it is nearly impossible to find private mortgage insurance (PMI) for an investment property mortgage. If you are an extremely well-qualified buyer and are purchasing a single-family rental property, it’s possible to get a conventional mortgage with a 15% down payment, but that’s about the only exception I’m aware of. Most lenders want at least 25% down, especially on multi-unit residential properties, so that’s a good figure to prepare for.

Alternatively, you can choose to buy a multi-unit property and live in one of the units, which can qualify you for low-down-payment mortgages designed for owner-occupants. This is known as “house hacking” and we’ll discuss it later in this article.

Closing costs

 

Unless the seller has agreed to pay for closing costs, you’ll need to budget for this as well. Closing costs can vary considerably and can be higher on investment properties than primary homes. For example, property taxes are often higher for investor-owned homes than for owner-occupants, and you’ll be expected to prepay a certain amount of your property taxes at closing. Origination fees also tend to be higher on investment property mortgages.

 

As I mentioned, closing costs can vary dramatically, and typically run anywhere from 2% to 5% of the property’s sale price, although higher closing costs aren’t unheard of.

Repairs

If you buy a rental property that is 100% rent-ready and in overall great shape, you may not have to worry about this, but if you buy a property in need of any rehab, be sure to include this in your budget.

Your inspection report can be a good indicator of the need to budget for repairs, even if the property is in good working order. For example, I recently bought a property where everything was operational, but the inspection report revealed the water heater was on its last legs, so I set aside money to replace it shortly after closing.

Reserves

If you obtain a mortgage for your rental property, your lender will often require a minimum balance in reserves — typically between six and 12 months’ worth of mortgage payments.

This is a good start, but you may want to err on the side of caution and wait until you have more cash in reserve than you think you’ll need. Maybe your property will sit vacant for a few months after you buy it. Maybe something major will break, like the HVAC system. Before you buy a rental property, it’s best to be sure that even if setbacks happen, you can absorb them without having to dip into your personal savings.

Will your property cover its ownership costs?

If you’ve established that you can afford the upfront costs to purchase a particular rental property, the next step is making sure the property won’t be a money-drain after you buy it. In short, you need to make sure that you’ll get positive cash flow.

 

In other words, if a property rents for $1,000 per month but you’re paying $1,200 per month in various expenses, it’s going to drain your bank account over time. On the other hand, a property that brings in $1,200 and costs $1,000 will cause your bank balance to increase as time goes on, which is a far more desirable outcome. So, you need to learn some basic cash flow analysis.

Rental income — How much should you expect?

The first component in cash flow analysis is the property’s rental income. If the property is already rented, this is easy. If it isn’t, your real estate agent can be a good source for an estimate, and you can also order a rent appraisal that can let you know what to expect (if you obtain a mortgage, your lender might order a rent appraisal that you can use).

Many investors — myself included — have rules of thumb when it comes to rental income. For example, I won’t buy a rental property unless the purchase price is at most 100 times the expected monthly rent. So, if I expect a home will rent for $1,000 with minimal work, I’m willing to pay as much as $100,000. This is a pretty common rule and can help you separate the better property deals to pursue.

Operating expenses

There are lots of potential costs of owning a rental property, but for cash-flow purposes, we’re just going to focus on the recurring expenses. These can include, but aren’t necessarily limited to:

  • Mortgage payments
  • Property taxes
  • Hazard insurance
  • Property managementfees
  • Any utilities you pay
  • Lawn maintenance
  • Pest control

Don’t forget about vacancies and maintenance

It’s not enough to simply subtract your operating expenses from your income. That’s a common mistake and you’d essentially be planning for an ideal scenario forever.

At some point, your property will be vacant — maybe it just needs a couple weeks’ worth of repair work between tenants, or maybe your real estate market will slow down and the property will sit vacant for a few months at some point. Similarly, at some point, you’ll need to spend some money on maintenance.

There’s no way to predict these situations with 100% accuracy or to know when they will occur, so it’s important to set aside a portion of the rent you collect to cover them when they happen. My personal rule is to set aside about 15% of the rent I collect for vacancies and maintenance — but I’ll adjust this a bit higher if the property is older and slightly lower if the property is brand new.

Cash flow example

Here’s a real-world example of the cash flow from a property I bought last year. The property is a triplex (three units), and rents for a total of $2,500 per month.

As far as operating expenses go, here’s what I pay:

  • $1,600 (approximately) for my mortgage payment, including taxes and insurance
  • $250 (10% of the rent) for property management
  • $100 for lawn maintenance and pest control

This brings my total operating expenses to $1,950. Setting aside 15% of the rent for vacancies and maintenance takes up another $375 per month, which makes my total estimated ownership expense $2,325 per month.

So, my cash flow from the property is estimated to be $2,500 in rent minus $2,325 in expenses, or $175 per month. Of course, if the property doesn’t end up needing any maintenance and remains occupied 12 months every year, my actual cash flow will be significantly higher. However, it’s far better to prepare for a realistic scenario and be pleasantly surprised if things go well.

 

Many investors have specific cash flow requirements. Maybe they need a certain minimum amount of cash flow each month, or they want a specific percentage yield on their invested capital.

 

Personally, I simply require that my investment properties produce positive cash flow after assuming a reasonable amount for vacancies and maintenance, but it’s important to tailor any rules of thumb to your own investment goals and income requirements.

Can you qualify for a rental property mortgage?

If you’re planning on paying cash for your rental property, you can skip this section. If not, you’ll need to qualify for an investment property mortgage, which can be just as important to your affordability question as the other items on the list. After all, if you have enough money for a down payment and have identified a rental property that produces great cash flow, it doesn’t really matter unless you can obtain financing to buy it.

With that in mind, there are two main types of mortgages you can get to buy a rental property. I’ve used both, so here’s what you need to know about getting approved for each type.

Conventional financing

The term conventional mortgage is a broad one that generally refers to a loan that comes from a bank and isn’t explicitly guaranteed by a government agency. Generally, this means that the loan meets the lending standards of Fannie Mae or Freddie Mac, but it doesn’t have to. For example, a jumbo loan refers to a bank-originated mortgage that exceeds certain lending limits set by Fannie or Freddie and is very common in the investment property world.

For the purposes of this discussion, what you need to know about a conventional investment property mortgage is that you’ll need to personally qualify for the loan. These generally cannot be made to any other type of entity, such as an LLC.

This means that your personal credit, income, employment history, and assets will need to be sufficient to justify the loan. You can consider some of the property’s expected rental income for qualification purposes, but for the most part, your personal qualifications are what the lender will be looking at. Where investors often run into trouble is if the investment property’s mortgage payment would make your debt-to-income (DTI) ratio too high for the lender’s standards.

Asset-based lending

As the name implies, an asset-based loan is mainly dependent on the underlying asset — in this case, the rental property you’re attempting to buy.

To be clear, you’ll still typically need to meet the lender’s credit standards. However, the loan approval isn’t dependent on your personal income or employment qualifications. The last time I obtained an asset-based investment property loan, my lender didn’t even ask to see my tax returns or any other income documentation.

On the contrary, the main qualification is whether the rental property you want to buy will deliver enough cash flow to justify the mortgage. Asset-based lenders use a metric known as the debt service coverage ratio, or DSCR, when evaluating loan applications. This is the estimated rental income expressed as a multiple of the monthly mortgage payment including taxes and insurance. For example, if an asset-based lender requires a DSCR of 1.3, this means that if your mortgage payment will be $1,000, the property needs to bring in a rental income of $1,300.

In addition to ignoring your personal DTI ratio, another big advantage of asset-based investment property loans is that they don’t need to be made to you as an individual. In fact, many asset-based lenders prefer to loan to an LLC.

To be clear, asset-based loans tend to be more costly than conventional loans. In my experience, conventional investment property loans tend to have interest rates of 0.50%-0.75% higher than the average primary residence rate, but the premium is typically 2% or more on an asset-based loan. Still, these can be great ways to finance investment properties in many cases as long as the property still generates positive cash flow despite the higher cost of the loan.

House hacking can be an alternative if you can’t afford a rental property

If you can’t qualify for an investment property mortgage, or don’t have an adequate down payment, you might want to consider a house hacking investment. This can be a great way for first-timers with flexible living situations to dip their toes into the rental property investing world.

Here’s the basic idea: A house hack involves buying a two- to four-unit residential property, living in one of the units, and renting out the others.

There are some big advantages to this investment strategy, mainly involving the fact that the property can be classified as your primary residence. You can obtain a mortgage with a lower down payment and favorable interest rate, for example. FHA mortgages on primary residences (even with multiple living units) can be obtained with just 3.5% down. You can also get the lower owner-occupied property tax rates that exist in many areas. And when you eventually sell the property, you may be able to exclude any capital gains from income tax.

In fact, my first real estate investment was a house hack. Shortly after we got married, my wife and I bought a duplex and lived in one side while renting out the other. The rental income covered most of the mortgage payment, so we were able to live extremely cheaply while building equity in a more valuable property than we would have purchased on our own.

To be clear, there are pros and cons to house hacking, so be sure to read our guide to house hacking to determine if it might be a good way for you to start your rental property investing journey.

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net


Posted on December 15, 2019 at 7:38 pm
Glen Bell | Posted in Uncategorized |