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.
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!
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.
With our currently vulnerable economy, many are worried that the housing market could be in trouble just like during the last great recession. And that's a totally reasonable concern, right? Wellll, not really because here’s some relieving news you guys—this is NOT like the crash in 2008. And here's why:
Once upon a time, millennials were willing to sacrifice a few stimulus checks (and then some) on each month's rent to live in a closet-sized apartment just to be part of the hustle and bustle of a city. But when all the alluring things about living in a city (like bumping into people on crowded streets, standing in ridiculously long lines for brunch, and cramming your way into packed sports arenas and concert venues) can potentially change, the possible danger of these everyday social interactions could accelerate a trend away from densely populated urban cities and into the suburbs.
After the lockdown, new home sales came to a screeching halt (as did everything else). But in the last two weeks, homebuilders have seen sales start to climb back up, particularly with dual-income first-time buyers wanting to leave their tiny apartments and buy larger move-in ready homes that they find more safety and stability in. More emphasis is now being placed on outdoor areas, functional layouts, and overall MORE SPACE.
The secret is out: Doordash tastes the same from wherever you are.
So how does all of this uncertainty impact the housing market?
Short Term: Despite sellers still needing to sell, inventory will decrease sharply. Listings are still trickling onto the market, but nowhere near the number it would've been had our lives not been turned upside down. While many buyers are in "wait and see what happens" mode, serious ones and those who have been "waiting for the market to go down" remain undeterred and can expect less competition with a slight corona discount.
Long Term: We're going to see a deep recession, but most likely the shortest one in history, with the economy predicted to start recovering towards the end of summer. Prior pandemics showed that while the number of home sales dropped dramatically during an outbreak, home prices only decreased slightly. The pace at which prices were rising will most likely slow down, but nothing like 2008 prices as that was caused by oversupply and we still very much have a housing shortage. When all of this is said and done, the backlog of inventory combined with pent-up demand from buyers will stabilize the market again.
Buuut, disclaimer: things are changing so quickly everyday that this may all be different even by next week. The news is difficult to keep up with these days!
Is everyone else finding it impossible to read the internet or take part in a conversation without the coronavirus coming up? Well, this post will be no exception.
As someone who thoroughly enjoys the occasional night of self-quarantine (thank you DoorDash and Netflix), the coronavirus is the excuse I've been waiting for my whole life to stay at home wrapped in a blanket for hours on end without feeling guilty. But it turns out that buyers have other plans.
While everyone everywhere seems to be in panic mode—avoiding large crowds, eating out less, working from home more, washing their hands often (ok maybe it's not all bad?), and stocking up on toilet paper like it's the end of days, Bay Area buyers seem unphased and are still going to open houses in droves, determined as ever to make their next move. Maybe it's the ridiculously low interest rates, lack of inventory, rush of activity after holding off last year, ambitious 2020 goals, or all of the above, but buyers have a renewed sense of energy and are back in the market in full force.
Which means the bidding wars are making a comeback, as evidenced by these extreme examples:
This mid-century modern house in Montclair got 21 offers.
An Adams Point penthouse with a 500 sq ft roof terrace got 26 offers.
And one charming house in Fruitvale even got 42 offers. That's FORTY. TWO. OFFERS!
It truly is (March) madness out there, at least for now. With the spring market approaching, virus fears spreading, interest rates falling, important elections coming, stock market rollercoaster-ing, stay tuned to see how everything plays out. TO BE CONTINUED...
In hopes of protecting the economy from this whole coronavirus fiasco, the Fed just slashed interest rates this week and they are now at a record low of 3.29%!
To put it into real-life terms, a $600k loan at today's 3.3% rate vs. last year's 4.5% rate saves you close to $412 a month for the next 30 years. That's like 537 additional rolls of toilet paper each month until you're retired! (Do the math here if you want to calculate your own financial situation and how much uninterrupted bathroom time you can afford.)
But here's the catch: we can’t predict how long this will last. If this whole virus outbreak craze levels off soon, rates would likely bounce back up. On the other hand, if the outbreak continues to spread, it could drive rates down even further. It’s all unpredictable at this point, so you may want to lock in a solid rate now for buying or refi, juuuuust in case they creep up again. Lmk if you need a lender!
All things real estate.