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’ 2^nd 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
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• 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

 

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’ 2^nd 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

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’ 2^nd 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

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’ 2^nd 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

 

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

 

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

 

October 31, 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.

This is the time of year when things begin to slow down. 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. 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 October. Inventory has decreased since last month by 8.8%, now sitting at a 42 day supply of homes for sale. This is slightly less than what we saw last year at this time of 48 days. Pendings decreased slightly, but is slightly more than last year by 4%. The pending/active ratio increased slightly to .84, still below our neutral mark. This is slightly more than last year at the end October at .68. This is the 16th month in a row that the ratio has fallen below 1.00. 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, (more inventory with fewer pendings) favors sellers. A number below 1 favors buyers. In short, we have moved from a strong seller’s market since the beginning of last summer towards a more normal and balanced market, and in many cases, now favoring buyers.

 

• 51% of the homes listed are now “sitting” for 30 days or longer, while 28% have stayed on the market for 60 days or longer. This is slightly lower when compared to last year’s number (with then 48% remaining active over 30 days and 22% remaining active over 60 days). However, this is fairly normal for this time of year and 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.

 

• 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 42 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 2,825 homes actively for sale. This is fewer than what we saw last year at this time, of 3,369. 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 2,385, slightly more than what we saw last year at this time of 2,289, or about 4% higher.

• Our Pending/Active Ratio is .84. Last year at this time it was .68
• Sales over the last 3 months, on average, are 2.7% over the asking price for this area, lower than what we saw last year at this time, of 3.3%.

Recent News

Bay Area homes are getting more affordable, closing gap with rest of state

Kathleen Pender, San Francisco Chronicle, Nov. 8, 2019 

This may sound hard to believe if you’re house hunting, but Bay Area homes got significantly more affordable in the third quarter, thanks to a big drop in mortgage rates, rising incomes and lower home prices, according to a report issued Thursday by the California Association of Realtors.

The region is still the least affordable in California, but it’s closing the gap with the rest of the state.

In the Bay Area, 29% of households theoretically could buy a median-priced, single-family home in the third quarter, up from 24% in the second quarter and 21% in the third quarter of last year, according to the association’s “affordability index.”

Statewide, 31% of households could afford a median-price home, up from 30% in the previous quarter and 27% a year ago.

The report calculates the annual household income needed to make the monthly payment (including mortgage, taxes and insurance) on a median-priced, single-family home with a 20% down payment and a 30-year fixed-rate mortgage at prevailing rates. It then estimates what percent of households in a county, region or state earn that much. The result is the affordability index.

By this measure, every Bay Area county got more affordable in the third quarter, but the improvement was generally greatest in the less expensive counties. In Solano, the index rose from 38% to 47% year over year. In Alameda, it went from 18% to 26%, and in Contra Costa it rose from 32% to 39%.

In San Francisco, the most expensive county, the affordability index rose from 15% to 18% year over year. In the city, you’d need to earn $309,600 a year to buy a median-priced home, but that’s down from a peak of $344,440 in the second quarter of last year.

Although 18% affordability still sounds low, it’s been worse in San Francisco. For most of 2005, during the previous housing boom, it was 9%. The highest it got during the housing bust was 29% in the first quarter of 2012.

The association’s index probably understates affordability, especially in San Francisco, because it excludes condominiums, which are generally cheaper than single-family homes. Oscar Wei, the association’s senior economist, said it excludes condos because statewide they only account for about 15% of sales, but in San Francisco they are about half.

The biggest contributor to rising affordability was a big drop in mortgage rates, Wei said. Mortgage rates have dropped nearly a percentage point, to 3.85% in the third quarter from 4.77% a year ago.

The other big drivers were rising incomes and falling home prices. The median Bay Area income for the year as a whole rose to $105,803 in 2019, up 8% from a year ago.

The median Bay Area single-family home price was $910,000 in the most recent quarter, down 7.1% from the previous quarter and down 4.2% from a year ago.

All of these things came together to help first-time buyer Carlos Villarreal buy a single-family home in Oakland.

“I’ve been looking since May,” he said. “All through the summer, the homes I liked were not affordable, they were outside of my price range. In the fall, prices did come down a tiny bit in the neighborhood I was looking at.”

He also got a raise at his job consulting with local governments three months ago, which helped, as did a drop in interest rates. When he started looking in May, “I was quoted 4.25%. A couple weeks ago I locked in 3.5%.” Villarreal also got help with the down payment from his parents. “Without that, I wouldn’t have been able to get it,” he said.

Elisabeth Watson, an agent with Abio in the East Bay, said, “There’s absolutely no question, it’s getting better for first-time buyers” as prices take a breather. “We are seeing buyers getting properties closer to asking price.”

Although median home prices have been mostly on the upswing statewide, in the Bay Area the median price on a year-over-year basis has fallen for eight consecutive months and nine of the past 10, the association reported in its monthly report for September.

The median price for a Bay Area single-family home that closed in September was $930,000, down 2.2% from August and 5.4% lower than September 2018. Bay Area homes are taking longer to sell; in September the median number of days on market was 23, up from 21 days in August and 19 a year ago.

“In 2017 and 2018, we saw some pretty solid increases in home prices. In 2019, the fact that it dropped, I’m not completely surprised, it’s just little bit of a giveback,” Wei said.

Prices “are taking a timeout,” said Elliot Eisenberg, an economist who does consulting for MLS Listings, the multiple listing service for several counties, including San Mateo and Santa Clara. “There isn’t that much money around anymore.” Chinese buyers have retreated from the market since the government made it much harder to get money out of the country.

The big jump in prices that many thought would follow this year’s flood of initial public offerings hasn’t materialized, although they may have prevented prices from falling further, especially in San Francisco, where most of the newly public companies are headquartered. In San Francisco, the median home price was up 2.2% in September year over year. Employees and early investors in Uber, which raised $8.1 billion in its May 9 IPO, were only allowed to sell their shares after a six-month lockup period ended Wednesday.

“In the East Bay, we are starting to see things sitting on the market longer, but we are not seeing a big drop in prices,” said Compass agent Jessica Nance. “Buyers can breathe and determine their next steps. The market has slowed down but properties that are priced well and show well are seeing multiple offers.” She added that “lower rates are driving more buyers into the market than I saw six months ago.”

Bay Area home prices continue to slip

Sales flat in Alameda, Contra Costa, Santa Clara and San Mateo counties

By Louis Hansen, Bay Area News Group, November 8, 2019

Bay Area home prices continued to decline in September as the regional market slows from the rapid pace set over the past seven years.

The median sales price in September for an existing home in the Bay Area dropped 4.7 percent, to $810,000, despite low interest rates, a strong stock market and booming regional economy, according to real estate data firms CoreLogic and DQNews.

Bay Area home prices still are among the highest in the nation.

“It’s still a good, strong seller’s market,” said Jeff LaMont, a Coldwell Banker agent in San Mateo. “It’s still a challenge for buyers.”

The Bay Area residential market has seen year-over-year sale prices drop in several months this year. That follows a record run of rising home prices that began in April 2012 and ended in March.

Adding to the housing pressure is the region’s robust economy, which added 5,100 more jobs in August, according to the state’s Employment Development Department.

Existing home sales increased 3.5 percent, led by busy markets in outlying counties: Sonoma (up 29 percent), Napa (up 14 percent), and Solano (up 18 percent). Sales remained relatively flat in Alameda, Contra Costa, Santa Clara and San Mateo counties.

Year-over-year median prices grew 3.9 percent to $632,500 in Contra Costa County, increased 4.2 percent in San Francisco to $1.48 million, and inched up less than one percent to $869,500 in Alameda County. Prices dropped 3.7 percent to $1.16 million in Santa Clara County and fell 2.7 percent to $1.45 million in San Mateo County, according to DQNews.

Agents say buyers are willing to wait for the right deal, avoiding bidding wars and hesitating to push far past their budgets. Homes in move-in condition, near transit or with a short commute still top the list of desirable features.

Matt Rubenstein, a Compass agent in Walnut Creek, said starter homes between $700,000 and $900,000 have been attractive, especially if they’re in good shape and within a strong school district. “If they show really well, there’s always going to be interest,” he said.

Rubenstein has noticed some nervousness among buyers — the market has stayed strong for nearly eight years, and some are concerned about an inevitable drop. He said he tells buyers to plan on staying in the house for at least seven years and trust the strong, regional economy.

Ramesh Rao, a Coldwell Banker agent in Cupertino, said pricing at or below comparable homes in a neighborhood is key to attracting buyers. The market isn’t as hot as it was last year, he said, but plenty of younger tech professionals still want to buy.

Larger trends in the housing market don’t apply to Silicon Valley. “Listen to what’s happening locally,” Rao said, “not nationally.”

As bidding wars have largely receded, house hunters can afford to shop around a bit longer.

Bay Area natives Tiphanie and Paul Cimoli have bought and sold houses for 30 years. The couple lives in a single family home in South San Jose and wanted to buy an investment property to rent out to their oldest son and a roommate.

The Cimolis blitzed the market, touring 75 homes in three months. They bought a San Jose townhome for about $780,000 after it had been marked down twice and the seller was motivated to get rid of the unit. Still, the couple found the diligent search a bit more demanding than other, earlier purchases.

“We actually thought that there were a lot of choices out there,” Tiphanie said. “We found that the really good ones went fast.”

 

Big Changes at NAR—Are Pocket Listings Dead?

Welcome to RealClues – The Weekly Newsletter for Real Estate Professionals

 Bernice L. Ross, Real Estate Coach, 11/18/2019

Last Monday NAR passed a new rule that pretty much puts an end to pocket listings and severely limits “Coming Soon” marketing as well. The new rule goes into effect on January 1, 2020, and Multiple Listing Services must complete the transition to the new policy no later than May 1, 2020.

Listing agents will now be required to have their listings posted on the MLS within 24 hours of the time you start publicly marketing the property. This means putting it online, putting a sign on the property, sending out postcards, door knocking, etc.

While you may not like the policy the truth of the matter is  maximum exposure results in maximum price, so this is probably in the seller’s best interest.

Your sellers still have the option of “discreetly marketing” their listings which means they do not appear on the MLS, there is no sign, or other public marketing. Celebrities like Bill Gates and other sellers who fear kidnapping, theft, or merely want to maintain their privacy will not be impacted by this rule, provided again, there is no public marketing.

What’s unclear is whether you can use “Coming Soon” in a slightly different way. For example, could you list a house today, submit to the MLS, but not make it available for showings until the sellers finish preparing the house for sale over the next two weeks? This might create a whole new category of “drive-by-only” listings.

Before you decide to get creative with any type of work around, please verify with your Board of Realtors/MLS what is and is not permitted. Like any major change, this will be a mess and will ultimately get worked out.

 

National Bidding War Rate Hit a 10-Year Low in October

By Tim Ellis, Redfin, November 13, 2019

Nationally, just 10 percent of offers written by Redfin agents on behalf of their homebuying customers faced a bidding war in October, down from 39 percent a year earlier and now at a 10-year low. However, low mortgage rates and a lack of homes for sale point to a likely return of bidding wars next year.

Of the top five markets where bidding wars were most common in October, four were in California—San Francisco (34.8%), San Jose (20.5%), San Diego (15.6%) and Los Angeles (13.7%). On the East Coast, in Philadelphia, 13.8 percent of offers faced bidding wars.

 

The rate of bidding wars in San Francisco and San Jose hit new highs for the year in October, a month when competition typically cools. That said, both markets’ bidding war rates were still well below last year’s levels of 58.1 percent and 64.9 percent, respectively.

If 2019’s big tech stock IPOs like Uber, Lyft, and Slack had been as hot as many expected earlier in the year, it’s likely the market in the Bay Area would be a lot more competitive right now.

 

“There was a lot of hype earlier this year in the Bay Area around some big IPOs,” said Palo Alto Redfin agent Kalena Mashing. “But we haven’t seen that hype translate into a hot market, regardless of how well the IPOs did. Really, it’s not the IPO money making the market hot, it’s the perception that the IPO money COULD make the market hot that has really driven the local housing market this year.”

 

This unseasonal uptick in competition in the Bay Area may be a sign of things to come elsewhere, according to Redfin chief economist Daryl Fairweather. “Right now, there are fewer homes for sale than we usually see this time of year, and sales are picking up thanks in part to low mortgage interest rates. All of the pieces are in place for bidding wars to become more common and for the housing market to shift back toward the seller’s favor next year,” said Fairweather. “Now may be the last chance in the foreseeable future for buyers to win a home without facing a bidding war.”

Are the wealthy fleeing California taxes? 

BY DAN WALTERS  Cal Matters, OCTOBER 27, 2019

Here is an indisputable fact about California taxation: More than two-thirds of state general fund revenues come from personal income taxes and about half of those taxes are paid by the 1% of taxpayers atop the income scale.

In other words, K-12 schools, state colleges and universities, health and welfare support for the poor, prisons and many other services for 40 million Californians are utterly dependent on the ability and willingness of a few thousand very high-income residents to cough up tens of billions of tax dollars each year.

There’s a perpetual political debate about that dependency. If nothing else, it creates what is called “volatility” — the tendency of state revenues to soar during periods of economic prosperity but plummet during downturns.

There is, however, another aspect of being so dependent on wealthy taxpayers. As their tax bites increase, some react by voting with their feet and moving from high-tax California to a state with low or no income taxes, such as neighboring Nevada.

There have been anecdotal accounts suggesting such flight.

The state waged a nearly three-decade-long battle to collect taxes from high-tech inventor Gilbert Hyatt after he decamped from Southern California to Las Vegas.

Two years ago, the Wall Street Journal published an article about the $31.1 million sale of a Lake Tahoe estate once owned by casino tycoon Steve Wynn to Michael and Nora Lacey, a very wealthy couple who lived in a 30,000-square-foot Tudor mansion in Los Altos Hills.

They changed their official residencies to their new estate on the Nevada side of Lake Tahoe. “The Wynn estate is our permanent home and our main home and the Morgan estate is a beautiful place when we want to get away,” Mrs. Lacey told the Journal.

By joining other wealthy residents of Incline Village, the Laceys would be able to shield at least some income from California taxes.

The Oakland Raiders football team will soon become the Las Vegas Raiders and when the team’s quarterback, Derek Carr, who grew up in Fresno, negotiated a new contract a couple of years back, it was “back-loaded,” meaning most of the money will be paid after the team relocates. The Tax Foundation calculated that Carr would save $3.2 million a year in state taxes by plying his trade in Nevada.

A highly detailed study by two Stanford University economists, Joshua Rauh and Ryan Shyu, provides new fuel for debate over California’s dependency on the rich. They conclude that the out-migration and “behavioral responses” of high-income taxpayers increased markedly after voters approved Proposition 30, a 2012 measure that sharply increased their income taxes, and the effect was a reduction in net revenues to the state.

The 2012 increase, sponsored by former Gov. Jerry Brown, was to last only a few years, but a 2016 ballot measure, Proposition 55,  extended it to 2030, thus increasing the incentive to move out or otherwise limit tax exposures. Moreover, a federal tax overhaul signed by President Donald Trump tightly limits the deductibility of state and local taxes, still another incentive.

In fact, as he introduced his last budget in 2019, Brown worried aloud about a potential flight of wealthy Californians. “People with higher incomes pay a lot more money, and some of them may be tempted to leave,” Brown said.

The study by Rauh and Shyu implies that some have already succumbed to temptation. And with public education advocates proposing still another income tax hike on the wealthy for the 2020 ballot, they could have still another incentive to depart.

 

 

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

 

 

 

September 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.

 

• Here’s where we stand as of the end of September. Typically, we see a dramatic drop in inventory during December followed by a modest steady increase in Spring and Summer. Inventory has increased by 83% since the beginning of the year, now sitting at a 48 day supply of homes for sale, This is where we were last year at the end of September. Pendings decreased slightly despite new inventory coming onto the market, but slightly above last year by 4%. The pending/active ratio decreased slightly to .76, still below our neutral mark. This is similar to last year at the end of September at .71. This is the 15th month in a row that the ratio has fallen below 1.00. 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, (more inventory with fewer pendings) favors sellers. A number below 1 favors buyers. In short, we have moved from a strong seller’s market since the beginning of last summer towards a more normal and balanced market, and in many cases, now favoring buyers.

 

• The percentage of homes “sitting” has decreased slightly to 44% of the homes listed now remaining active for 30 days or longer, while 25% have stayed on the market for 60 days or longer. This is slightly higher when compared to last year’s number (with then 42% remaining active over 30 days and 20% remaining active over 60 days).

 

• 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 48 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. We are about the same compared to last year at this time, of 48 days.

• Our inventory for the East Bay (the 39 cities tracked) is now at 3,226 homes actively for sale. This is close to what we saw last year at this time, of 3,321. 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 2,463, slightly more than what we saw last year at this time of 2,367, or 3.9% lower.

• Our Pending/Active Ratio is .76. Last year at this time it was .71
• Sales over the last 3 months, on average, are 2.7% over the asking price for this area, lower than what we saw last year at this time, of 3.9%.

 

Recent News

 

California gets its first statewide rent control, eviction protections

By Alexei Koseff, San Francisco Chronicle, October 8, 2019

As living costs soar across California amid a severe housing crunch, millions of residents will be protected for the first time from large rent increases and losing their homes if they have been reliable tenants.

Gov. Gavin Newsom signed AB1482 on Tuesday at a West Oakland senior center, imposing the first-ever statewide cap on rent increases and requiring landlords to provide a “just cause” when evicting tenants.

Supporters estimate the law will extend protections to an additional 8 million renters in California. Cities including San Francisco and Oakland already have rent-control ordinances that cover about 2 million people.

Newsom said it is a necessary first step to address the cost of living in California, an issue driving so many others in the state, including the high rates of poverty and homelessness. But he added that there is much more work to be done.

“We need to build more damn housing,” the governor said.

California is the third state this year to adopt significant rent regulations, giving renewed national momentum to the push for rent control. Newsom predicted that more states would follow.

The new law, which was carried by Assemblyman David Chiu, D-San Francisco, will limit annual rent hikes to 5% plus the regional cost-of-living increase, or a maximum of 10% per year. Based on current inflation rates, Bay Area landlords could not raise rents by more than an estimated 7.7%.

Chiu said the cap would protect tenants from predatory rent increases while allowing landlords to make a fair rate of return.

“Just because somebody rents doesn’t make them any less worthy of having a stable home,” Chiu said.

Tenants will also receive eviction protections after living in an apartment for a year, meaning they cannot be ousted without a reason such as failing to pay rent, breaching a rental agreement, creating a nuisance or engaging in criminal activity. Advocates say this is necessary to prevent landlords from evicting longtime residents to raise the price of a unit.

If they are evicted through no fault of their own, such as when a property is taken off the market, tenants will be entitled to relocation assistance equivalent to one month’s rent.

The protections take effect in January and will expire in 2030, but can be renewed. They exclude apartment buildings built in the previous 15 years, duplexes where the owner lives in one of the units, and single-family homes except those owned by corporations.

Newsom signed six other renter protection bills Tuesday, including SB329 by state Sen. Holly Mitchell, D-Los Angeles, which prohibits landlords from rejecting prospective tenants simply because they use Section 8 housing vouchers. About 300,000 low-income Californians rely on the federal subsidies to pay their rent.

He also signed a bill to put regional tax measures on ballots in the Bay Area that would generate money for affordable housing. AB1487, carried by Chiu, would raise $1 billion to $1.5 billion annually for project subsidies, tax credits, tenant assistance and updates to city zoning plans.

California’s rent-cap law follows victories for tenant advocates in Oregon, which in February restricted annual rent increases to 7% plus inflation and required a just cause for evictions, and in New York, which strengthened its rent regulations in June and allowed communities statewide to adopt their own rent-control ordinances for the first time.

It’s a remarkable shift to the political landscape. California sharply restricted local governments’ ability to cap rents in the 1990s, and voters overwhelmingly defeated a ballot initiative in November that would have allowed cities to expand rent control, after a $74 million campaign by owners and developers of rental properties.

Amy Schur, campaign director for Alliance of Californians for Community Empowerment Action, one of the sponsors of the rent-cap bill, said legislators were finally forced to confront how severe the housing crisis has gotten. About half of renter households in California spend more than a third of their income on housing, which experts consider unaffordable.

Her group, which organizes tenants, canvassed in lawmakers’ neighborhoods and occupied the governor’s office to urge support for renter-protection measures. She said politicians were waking up to the power of 17 million California renters.

“It’s up to the people in our state to stand up to corporate interests and defend consumers,” Schur said.

Newsom, who asked the Legislature to send him a package of tenant protections during his State of the State address in February, played a crucial role in getting lawmakers to pass the final measure.

This summer, he called for a stricter rent cap than what was under consideration. That brought the state’s largest landlord group, the California Apartment Association, to the negotiating table, where Newsom helped broker a deal that cleared a path for the bill.

The association had fought the measure for months, arguing that it would discourage construction at a time when building rates have stalled at less than half of what state experts estimate is needed to meet housing demand. Ultimately, the group determined the rent cap would pass and negotiated key amendments, including one that restarts the one-year clock on eviction protections each time a new roommate moves into a unit.

The law could also serve as a political buffer for apartment owners and developers preparing to fight another rent control initiative next year sponsored by Michael Weinstein, president of the AIDS Healthcare Foundation, who funded the unsuccessful 2018 ballot measure. It would renew the debate over whether rent control is a good idea.

Kenneth Rosen, chair of the Fisher Center for Real Estate and Urban Economics at UC Berkeley’s Haas School of Business and a real estate consultant, said California was making a mistake by adopting a cap on rent increases.

Research on local rent-control ordinances has found they reduce the supply of rental housing, Rosen said, by encouraging landlords to convert apartment units to condominiums or other uses and diminishing the incentive for developers to build new housing.

The rent cap will become a floor for many landlords, he added, who will raise prices by the maximum amount allowed each year — which is far higher than annual rent increases recently.

“From a housing policy point of view, nothing could be worse,” Rosen said. “It’s going to make housing less affordable.”

Schur, the tenant organizer, said California’s rent cap is plenty high enough to allow developers and landlords a reasonable profit. Her group plans to continue its push for stricter renter protections at the state and local levels next year to address what she said is the true cause of soaring living costs: increasing corporate ownership of the housing stock.

“Instead of people who want to provide housing in our communities, we have Wall Street investors who want to extract money from housing in our communities,” Schur said. “It’s coming to a head.”

Bay Area housing, traffic have Facebook looking elsewhere for expansion

Mark Zuckerberg cites region’s infrastructure woes as a hindrance

By LEVI SUMAGAYSAY, Bay Area News Group, October 4, 2019

Facebook CEO Mark Zuckerberg said during a publicly broadcast Q&A with employees that his company is looking elsewhere for growth because of the Bay Area’s housing and traffic issues.

“The infrastructure here is really tapped,” Zuckerberg said Thursday. “Housing prices are way up. Traffic is bad.” He added that while Facebook is trying to do what it can to help with what he called the region’s policy challenges, “at this point we’re primarily growing outside of the Bay Area.”

The social networking giant has a huge footprint in the Bay Area, where it was founded. In addition to the company’s massive headquarters in Menlo Park, it also has offices in Fremont, Mountain View and San Francisco, and plans to open offices in Burlingame next year. Last month, it opened a new campus in Sunnyvale, leasing 1 million square feet that can accommodate thousands of employees.

Facebook’s largest locations outside the Bay Area are in Seattle, Austin and New York City, a spokesman said Friday. Other major cities where the company has offices include Los Angeles, Boston, Chicago, Denver and Washington, D.C.

Facebook has tried to address the Bay Area housing crunch by proposing mixed-use space in Menlo Park and subsidizing apartments for teachers, funding housing for low-income residents and more. The foundation by Zuckerberg and his wife, Priscilla Chan, earlier this year partnered with Facebook, Genentech and others to pledge $500 million to build or preserve more than 8,000 homes in the Bay Area over the next 5 to 10 years.

Zuckerberg addressed the Bay Area’s infrastructure woes as part of his answer to an employee’s question about why Facebook isn’t friendlier to remote work. The CEO said he prefers big hubs where Facebook engineering teams could be around one another, and that he doesn’t want to have a lot of small offices around the world, except for where sales teams need to be in the markets they’re serving.

Zuckerberg’s comments come as other tech companies, including Apple and Google, expand their presence in the Bay Area.

Facebook isn’t the only tech company that’s looking to grow elsewhere, though. Commercial real estate brokerage Cushman & Wakefield said this week that 58 of the 89 biggest — with headquarters of 100,000 square feet and above — tech and life science companies based in the Bay Area have leased 30.4 million square feet of office space in other U.S. cities since January 2010. Outside the Bay Area, the five markets with the most square footage leased by those types of companies are Austin, Seattle, New York, Southern California and Chicago.

Income inequality rises in California as wages fail to keep pace with housing costs

By Erica Hellerstein, CALMATTERS, October 7, 2019

 

California is the golden state — at least for those at the top of the income scale. For everyone else, the nickname may apply more to the sun than to money.

That’s one takeaway of an analysis of U.S.Census Bureau data by the California Budget and Policy Center (CBPC), which found a widening gap between the state’s haves and have-nots.

The CBPC analysis found major gains for California’s richest residents, modest gains for people with median incomes, and losses for the lowest income earners, when adjusted for inflation.

Median household income in California, the CBPC reported, increased by 6.4%, to $75,277 in 2018 from $70,744 in 2006, adjusting for inflation. But for the top 5% of households, income grew by 18.6% to $506,421 in 2018 from $426,851 in 2006, while households in the bottom 20% saw their average income fall by 5.3% to $15,562 in 2018 from $16,441 in 2006. The analysis was based on the census agency’s latest American Community Survey report.

An increasing gap between rich and poor is not unique to California, as recent data from the U.S. Census Bureau show. From 2017 to 2018, the data indicates, income inequality also widened in eight other states including Alabama, Nebraska, New Hampshire, Virginia and New Mexico, although in most other states it remained constant.

Income inequality is typically measured through the Gini Index, which assigns a score of 0 to indicate perfect wealth distribution within a population and a score of 1 to represent total inequality. In 2018, the overall Gini Index for the U.S. was .485, which was “significantly higher” than its 2017 estimate of .482, the Census Bureau reported.

The trends in California are especially concerning, said Sara Kimberlin, a senior policy analyst at CBPC, given the increases in the cost of living across the state. From 2006 to 2017, the organization found, inflation-adjusted median rent increased by 16% statewide, while median hourly wages for workers fell by half a percent.

“So that’s where the real challenge is that California has to face,” Kimberlin said. “We have two trends moving at the same time: Incomes remaining relatively flat for people in the middle and at the bottom of the income range, while the cost of living is going up.”

The CBPC report on the increasing income gap in the state, released Sept. 26, did not include figures for individual counties.

Alongside rising inequality, the data also showed high levels of poverty among Californians. An earlier analysis of census data from CBPC in September — based on the so-called supplemental poverty measure, which takes into account the cost of housing and other expenses — found that roughly 7.1 million people each year could not afford basic expenses between 2016 and 2018.

“We see that just one expense, one emergency of $500 or $1000, throws them over the edge,” said Joseph. “We’re talking about a huge percentage that’s living on the edge and can barely make ends meet.”

Will Mortgage Rates Stay Low Through 2019? Here’s What Experts Predict

By Aly J. Yale, Forbes, October 4, 2019

Mortgage rates logged their lowest monthly average in over three years last month, and it seems it wasn’t just a blip on the radar. According to three industry forecasts, the trend toward low mortgage rates, slowing home price growth and increased housing construction will continue well into 2020.

Just yesterday, Freddie Mac reported an average 3.65% rate on 30-year, fixed-rate loans—a whopping 1.06% downslide since just one year ago. Looking at forecasts from the company, as well as from economists at Fannie Mae and the Mortgage Bankers Association, it appears low mortgage rates will persist.

Economists at Freddie Mac predict the fourth quarter of 2019 will average a 3.7% interest rate on 30-year, fixed-rate loans, with 2019 claiming a 4% average overall. Fannie Mae expects the year to average out at 3.9%, while the Mortgage Bankers Association predicts 3.8%.

Looking further ahead, the three organizations expect even more favorable conditions for 2020, predicting average rates as low as 3.4% (Fannie Mae).

As Freddie Mac’s economists explain, “Concerns over the resolution of trade disputes have injected volatility into global bond markets. Investors have flocked to the safety and stability of U.S. Treasuries, pushing down interest rates. As trade talks ebb and flow, rates follow. Despite the volatility in rates, we expect long-term rates to remain flat on average . . . Low treasury yields will keep mortgage rates subdued in the coming quarters.”

The low rates have caused a surge in refinancing as of late. MBA data shows refinance activity is up 133% over last year, and even recent homebuying Millennials are getting on board. Refinances accounted for a full quarter of all Millennial loans last month, according to mortgage technology provider Ellie Mae.

Freddie Mac predicts the surge in refinancing will continue.

“Rates fell for most of this year and lower rates have translated into a stronger housing market,” its forecast states. “Both home sales and housing construction are firming. We expect a significant increase in mortgage refinance originations in the coming quarters.”

Freddie, Fannie and the MBA all predict improvements in terms of construction and home price growth. Freddie Mac expects housing starts to average 1.25 million for 2019, then jump to 1.28 million by next year.

The latest Census Bureau data backs this up, showing single-family housing starts up 12.3% for the month and 6.6% over the year. Overall completions were also up.

All three organizations expect home price growth to slow, reaching just a 2.2% appreciation rate by 2021, according to MBA. Last month’s House Price Index from the Federal Housing Finance Agency shows home prices were up 5% in July—down from the 6.7% uptick since just one year ago.

The 10 trends that will shape real estate in 2020

The Urban Land Institute’s annual look at the year ahead finds some direction within a fog of uncertainty

By Patrick Sisson, Curbed,  Sep 19, 2019

A market as large and dynamic as United States real estate rarely moves quickly. But the most striking narrative running throughout the annual Emerging Trends report from the Urban Land Institute is the sense of static and stasis.

Economic and political uncertainty have made things feel unmoored, but the overall insight conveyed by the authors—Urban Land Institute and PricewaterhouseCoopers researchers personally interviewed 750 industry members, and surveyed 1,450 more to create this report—is that we’re in for a soft landing, not a sudden crash. There may be less sudden moves, but that doesn’t mean some of the trends emerging this year won’t become breakout investments in the near future.

Who’s afraid of a recession?

While recession fears have certainly spooked those expecting the current record-setting economic cycle to eventually correct itself, industry sources consulted for the report believe the housing sector is still in great shape. Confidence is “palpable,” due in large part to the fundamentals. Analysts don’t see the same oversupply or over-leverage issues that caused a panic and set off the Great Recession.

The market has flashed warning signs—the last year has witnessed a decline in residential permits, a softening of housing starts, and languid car sales—but instead of a precipitous drop, the real estate world may enter a sustained slow down. With unemployment already relatively low and growth expected to just inch up over the next few years—just under 2 percent annually, according to the Congressional Budget Office—we may see homeownership levels plateau. The new normal, in other words, might be a slightly small, less active version of what we see today.

Capital with no place to go

Underscoring the broad feelings of uncertainty—and in some cases, surprise that the economy is still performing well—there’s a worldwide search for safe investments that in many cases is coming up short. One investor told Emerging Trends researchers that there’s “a continued shortage of deals with desirable yields; there are more investors chasing deals than there are good deals available.”

There’s a paradox of plenty taking place in the capital market, with too much money looking for a place to invest, yet most institutional investors have taken a conservative approach. The abundance of capital is a blessing and a curse; there’s liquidity on the market, but there’s also a temptation to yield to the pressure and “invest anywhere, somewhere,” which could lead to bad bets and more uncertainty.

Top ten markets present little surprise

Emerging Trends didn’t redraw the map with its predictions for the top 10 markets for 2020, favoring large and mid-sized metros in the “smile states” (west and east coast, plus the Sun Belt). By and large, the cities on the list have benefitted from a combination of tech-driven growth and booming populations: Austin, Raleigh/Durham, Nashville, Charlotte, Boston, Dallas/Fort Worth, Orlando, Atlanta, Los Angeles, and Seattle round out the top 10. The next 10 on the list include a few smaller metros, such as Charleston, South Carolina; Portland, Oregon; and Indianapolis, as well as suburban areas such as Orange County in California and Northern Virginia, which expects to see a big bump from Amazon’s new headquarters.

The great housing unraveling

Inequality has become a feature, not a bug, of our current housing market. The report found that “price recovery has so far outstripped household incomes that affordability has reached the breaking point even in markets that previously boasted of the low cost of housing.” Rents and home prices have skyrocketed, becoming untenable in markets nationwide; there’s no county in the country where a worker clocking in 40 hours at minimum wage can afford a two-bedroom apartment, per the National Low-Income Housing Coalition.

And conditions appear to be getting worse, as the type of regulatory action and investments needed to overcome a severe shortage of affordable and workforce house aren’t materializing. “We are building 90 percent of our housing for 10 percent of our households” said one interviewee. The affordability issue has so warped local economies that even big tech giants, such as Google and Microsoft, have pledged millions of dollars to help fund affordable options. Candidates on the campaign trail have taken note, making housing a bigger issue than it’s been in decades.

The trend toward community-oriented development is here to stay

WeWork IPO aside, the future of coworking, of shared commercial space, is bright. Coliving, led by companies like Common, is poised for a huge increase in capacity across the country. And the number of urban green markets, which grew from roughly 2,000 to 8,700 in the last 25 years, shows the continuing appeal of foodie-centric public spaces, as well as food halls. This year’s Emerging Trends found that collaborative consumption—integrated platforms of products, services, and experiences—is increasingly popular with younger generations favoring sustainability and social interaction. As traditional retail continues to struggle, this type of business, or placemaking effort, can be a big draw for a larger project.

Hipsturbia

As more millennials become parents of school-age kids, and urban areas continue what seems like an inexorable rise in real estate prices, there’s a slow but steady push toward the suburbs. But, in what the report dubs “the rise of Hipsturbia,” the hot locations outside of big cities are evolving: In addition to being more diverse, they’re also becoming more walkable, with developments that favor density, retail, recreation, and transit access. Examples of this phenomenon include Hoboken, Maplewood, and Summit in New Jersey, Yonkers and New Rochelle in New York, Evanston in Illinois, and Santa Clara in California. Many, especially on the East Coast, are linked by old commuter rail stops, and have seen a renaissance with new apartments, eateries, and office space. But all of them have developers taking the live/work/play formula that revived downtowns to the ’burbs, with much success.

The “silver tsunami” of senior housing

A number of demographic trends are cresting at the same time, namely life expectancy has risen overall as the baby boomer generation begins to enter prime retirement years. The number of Americans over 80 will double, from 6 million to 12 million, in the next two decades, according to statistics from Harvard’s Joint Center for Housing Studies, and by 2035, one out of three U.S. households will be headed by someone over 65. The last boomers won’t turn 80 until 2044. This will mean a huge flood of seniors looking for a variety of housing options, including active lifestyle living and even upscale urban apartments (especially as many boomers downsize). There are huge implications for housing, both in terms of renovations for those who want to age in place, and new options for seniors looking for a new post-retirement lifestyle.

The potential, and pull, of principled investment

Millennials, and younger generations, are increasingly factoring social good into their investment decisions, which the report labels ESG (environmental, social, and governance). What does this mean for real estate? Well, projects that can lay claim to being more community-oriented, or have a bottom line beyond just profit, have the potential to become more popular investment vehicles over time, and attract more of this community-focused capital.

This includes more sustainable multifamily construction or instruments such as green bonds, which are intended to encourage sustainability, especially projects aimed at energy efficiency, clean transportation, sustainable water management, and the cultivation of environmentally friendly technologies. One Wall Street firm surveyed even says this type of investment has a performance premium of 10 to 40 percent. Doing good can do well for a developer’s bottom line.

The slow and steady march of technology

Technology in the real estate sector—both smart home devices for residential settings and proptech, which are startups bringing new ideas to the larger real estate business—have been on the verge of a breakout for years. And while the relatively slow adoption of tech in real estate continues, it is starting to make a real impact. In addition to the proliferation of iBuyers and new means to analyze and act on property data, and new tools to digitize the homeselling process, one of the biggest areas of renewed attention is the multifamily sector, where companies are developing new products to simplify management and operations, as well as new amenity-laden services for residents, such as package delivery and digital concierges. But smart home adoption, especially digital assistants and security cams, are increasingly common, and will be even more so with the rise of 5G.

Infrastructure: As Washington fumbles, states and cities pick up the ball

As the recurring jokes about “infrastructure week” suggest, the current administration’s early plans to focus on rebuilding the country’s roads, bridges, trains, and ports have not come to pass. This lack of action on the federal level to improve our degrading infrastructure has led to cities and states picking up the baton: Places like Denver and Seattle have levied taxes to help build and expand their transit systems. Considering the potential of transit-oriented development, these kind of local investments can help create important real estate development opportunities. Without sustained federal investment in this arena, there will be a tale of two cities dynamic at play; areas that invest in their own infrastructure will send a signal that they’re a good place to invest.

Recession fear spooking apartment buyers

by Sabina Mollot, Real Estate Weekly, September 18, 2019

Fears of a recession, which analysts have been predicting is on the horizon, are causing some otherwise interested home buyers to put their plans on hold.

Most house hunters believe a recession will hit this year, or within the next few years, Realtor.com found in a recent survey.

And 56 percent of survey respondents said if a recession did it, they’d halt their home search until the economy improved.

That said, the upcoming recession isn’t expected to be as devastating as the Great Recession seen a decade ago.

“Economic activity is cyclical, so yes, undoubtedly we will face another recession at some point in the future, but we do not expect it to be anything like 2008,” said George Ratiu, senior economist at Realtor.com. “The next recession will likely be driven by factors outside of housing, such as a prolonged trade war, cutbacks in corporate spending or contagion from a European recession. Unlike 2008, mortgage underwriting has been more disciplined and regulated, which should provide a more secure foundation for housing during the economic ups and downs.”

More than 36 percent of the 755 active buyers surveyed by Toluna Research expect the next recession to begin sometime in 2020 (up six percent from March).

Meanwhile, according to the Realtor.com survey, 32 percent of active buyers indicated they are a lot more optimistic toward homeownership following 2008, whereas only 7 percent of non-buyers felt this way.

Additionally, 17 percent of current shoppers expect a recession to hit sometime in 2019, 14 percent expect sometime in 2021, and 7 percent expect sometime in 2022. Eight percent expect sometime in 2024 or later and 17 percent reported they didn’t know.

In response to the survey, residential brokers had mixed views on how recession fears could impact the market.

Gary Malin, president of Citi Habitats, said ultimately it depends on buyers’ individual situations.

“Not all recessions are created equal,” he said. “In the event a recession occurs, obviously it means the economy is on shaky ground. When it happens, people start looking at their personal circumstances. They look at their stocks, they look at their jobs, they look at their wages and make decisions based on those factors.

“Some people will take a conservative approach. They wait to see how their jobs react, how the market reacts. Other people might be sitting on the sidelines and believe there’s an opportunity in the marketplace. Not every sector gets hurt by a recession. You’ve got to understand what someone’s job is. People who purchased during the last downturn have done very well with their investment.”

Malin added that even without a recession, the market has already been dealing with its own downturn.

“It’s not like people are going to wake up all of a sudden,” he said. “The sales market has felt a lot of this pain to begin with. Great homes still sell. Generic properties are having difficulty and the high-end places are seeing price reductions.

“I can tell you what I hear from the marketplace; it has been having its struggles. The stock market has been going up at a rapid pace. There’s bound to be a correction.”

Other brokers said recession worries will ultimately work in the favor of those who refuse to get spooked by all the doomsday reports.

“The New York market started softening in 2016 so we are three years into the real estate market correction,” said Michael J. Franco of Compass.

“Historically in New York prices don’t drop drastically so I believe it is a good time to buy especially if more wait by the sidelines because of recession jitters.  Historically recessions don’t last forever so if you can afford your monthly payment after buying you should fare well post-recession.”

Franco said he expects a recession will happen in 2020.

“Fifty percent of economists think we are due for a recession next year. Therefore, I think it is a safe bet to assume it could happen or the year after.  Seems to me the more everyone reads and hears about it the more likely it is to happen. Self-fulfilling prophecy!”

Agent Steven A. Gottlieb of Warburg Realty said a recession could very well happen if the trade war with countries like China continues and those other countries hit back with tariffs and other costs that leave Americans feeling drained and willing to spend less.

“As the 2020 elections approach, the current administration will do what it can to stave off recession, as that will prove a real hurdle for reelection,” Gottlieb said.

The agent added he believes those interested in buying would be wise to do so before the election, if their intention is to keep the property long-term.

“Now is a great time to buy if the buyer will own the property for a while. Prices (at least in our local market) have been softening for years, but I think that buyers have settled into the political and economic uncertainty that we’ve been experiencing lately, and thus are coming out of the woodwork.

“I don’t think it’s a good time to ‘flip’ since we are not in a surging market, like in 2013 and 2014, but it’s a good time to get in. Sellers are becoming more realistic and there are deals to be had.”

Meanwhile, at least one broker, Gill Chowdhury of Warburg, doesn’t believe there’s a recession ahead any time soon.

“Although the media has been reporting on an upcoming recession, that is simply not the reality,” he said. “The current trade war with China has caused some turbulence in the stock market. What’s important to note is that anyone using the total number of points to describe how the market is doing is simply not sophisticated and/or is fear-mongering. In addition to this we see American wage growth going strong with inflation slowing down.

“Unemployment remains at historic lows. Personally, I don’t expect us to see a recession until well after 2020 which is exactly what I tell buyers who bring it up.”

 

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