Covid has had an interesting effect on rental markets, with housing becoming cheaper in the country’s most expensive cities (San Francisco, New York City, Boston, San Jose, and Oakland to name the top 5), while getting pricier in more historically affordable areas. What’s going on? Amidst the pandemic we’re in, demand for rentals has dropped in the aforementioned larger cities, the desire for housing in cheaper suburban areas has gone up. According to the rental platform Zumper, people are opting to move out of their large city dwellings and opting for cheaper housing while they work remotely, effectively closing the gap between price distribution of rentals across the U.S.
Is that like the biggest oxymoron or what? But we are in strange times, so let's just roll with it. Between a global pandemic, a collapsing economy, political and racial unrest, a mind-numbing mask-wearing debate, the second wave of coronavirus, the re-shutting down of businesses, not to mention this is all happening during an election year where Kanye West is apparently running for president (seriously, what. is. happening!), June/July has been one crazy year.
Yet, despite the chaos, the real estate market is making a dramatic recovery. Mortgage applications are at an all-time high, interest rates are dropping to record lows for the third week in a row, and I have been really really busy (probably not a good data point but you get the idea).
Before the legalization of recreational marijuana, industrial warehouse properties in Oakland were largely being used by artists to curate and host events or create large scale projects. But once 2016 hit and weed became legal, cannabis businesses began filling these industrial properties instead. Rents have shot up and many artists have sadly been priced out altogether.
When Oakland announced permits for marijuana dispensaries in 2018, 116 businesses applied for only eight available spots. Between May 2017 and August last year, 124 businesses approached the city to open indoor growing operations. Rents for industrial properties rose 70% in 2017 alone. And while Alameda County made around $12 million in cannabis sales tax last year, none of that went towards arts or culture programs.
This isn't just specific to Oakland though. This is happening in states like Washington, Nevada, Illinois, Michigan, and even in Canada, which legalized cannabis as a whole country. While many artists supported the legalization of marijuana, they did not foresee the consequences of workspace rent hikes, which have unfortunately put a lot of them out of a place to work and live.
BART has now approved a development project at the West Oakland Station that will include 762 housing units (!!!) with more than 30% of units being marked specifically for affordable housing. The development will also include more than 50,000 square feet of retail space and 300,000 square feet of office space, along with additional crosswalks and wide sidewalks for pedestrian access, perfect for getting those Fitbit steps in. The hope is that this project will be transformative for West Oakland, providing much needed housing that is more easily accessible to neighborhood amenities and resources.
Apparently June was the ideal time for buying a luxury home in San Francisco. Last month, more than 30 luxury single-family homes ($3 million and up) were sold, the highest in 2 years, causing average home values in the city to reach a record high of $1.8 million. WOW, right? Even in the middle of a pandemic, buyers with $$$ remain the least affected by financial hardship due to coronavirus.
Meanwhile, median condo prices saw about a 4% dip in values. Condos, in high supply due to recent new construction, are typically bought by younger and less affluent buyers than single-family homes, and as such, may have been hit harder by the increase in unemployment.
COVID-19 has caused a lot of folks to rethink their living arrangements. The logic seems to be, if nearly everyone is working from home now, why not move out of the city and into a home in the 'burbs where you can get more bang for your buck? For some, that means buying a second home while continuing to rent in big cities like New York and San Francisco. The appeal? Cheaper prices, more space, closer to nature, and being able to raise a family comfortably, while still getting the occasional city fix. It's the best of both worlds!
After 115 years of having its headquarters in downtown SF, PG&E announced that it will be selling off their SF buildings and making the move to Oakland in order to save on real estate costs. (Hm, sounds familiar...) Their new office at 300 Lakeside Drive (right on Lake Merritt and a few blocks from 19th Street Bart) will be completed in 2023.
After a brutal couple months (which equates to 250937 days in corona years), stats show that the housing market could actually be leading the economy's recovery. Mortgage applications rose to an 11-year high. Interest rates are at all-time lows. Average home prices across the country hit a record high of $365k. Buyers are like, what pandemic?
Americans' home-spending habits aren't changing as drastically as they have during past recessions, showing that people are confident that this too shall pass and the economy will get back on track. 8.5 out of 10 experts agree: the economy will begin to recover in the second half of 2020. Which is pretty much like, right now.
Why is everyone betting on the strength of the housing market?
While this data might be comforting to some, others are concerned about rising home prices and the widening gap in affordable housing. Home prices have gone up faster than most people's incomes, and the pandemic is only accelerating that trend. It remains to be seen what will happen long term (mostly because the crystal ball everyone pretends to have doesn't exist), but for now, it looks like our economy is slowly but surely on its way to recovery.
With big companies like Facebook, Twitter, and Shopify setting the trend for employees to work from home forever-ish, potential home buyers are wondering why they're living in a pricey city to be close to work when work is actually just their dining table most days anyway.
This may explain why the Oakland market is recovering much faster than in San Francisco or San Jose. Move-in ready homes in Oakland are selling in 5-10 days with multiple offers. There are fewer homes on the market, but almost as many people searching as there were pre-pandemic.
The more suburban cities like Berkeley or Walnut Creek will likely see an increase in buyers too as remote work becomes the norm. I mean hey, if your money could get you a bigger house with an actual yard and your only trade-off is having a longer commute where you cry in the car two days out of the week instead of five, then I say why not?
New home listings and sales have dramatically dropped since the pandemic hit, but traffic to real estate sites has actually gone up. Why is that, you ask?
Well! According to data from Zillow, there are now more buyers actively looking for homes compared to a year ago. More people looking to buy property? In the middle of a global health crisis??
Yep! There's still a ton of interest among buyers (probably more so now as they're stuck inside their less-than-ideal homes). San Francisco, among other major cities, saw a huge drop in listing views right after the pandemic hit, but has since bounced back to much higher levels than this time last year.
So what? This is significant because demand for housing is still there—it's just a matter of waiting for the supply to return to the market. With more buyers starting their search again and listings slowly trickling into the market, there's signs of pent-up demand and a backlog of listings bubbling beneath the surface just waiting to pop.
All things real estate.