by: Martin Santiago
A BUYER’S market refers to a situation in which supply exceeds demand. Driven by pandemic fears, shutdowns and job losses, U.S. home prices are expected to dip between 2 and 3 percent this year, with sales falling by as much as 60 percent, according to a new forecast by Zillow. Historically low inventory and rock-bottom mortgage rates would normally set the stage for a highly competitive home buying season.
While recessions normally have only a minor effect on the housing market, the coronavirus is making life and markets anything but normal. Buyers are more cautious to proceed. Either they have been laid off or furloughed or they fear they might be. Even with the mortgage forbearance under the CARES Act, buyers are still hesitant to purchase a property in other parts of the country.
But the roaring Bay Area home market, heedless of economic ups and downs for nearly a decade, will likely see few price retreats and discounts. The housing market projections look relatively mild compared with the precipitous fall during the mortgage foreclosure crisis in 2008, which drove median home values down 30 percent across the country. We’ll see prices drop by as much as 10 percent, particularly at the level of homes priced at $4 million and up. The under $2 million market should still remain strong as inventory is so low and demand is still high.
Bidding vs Priced at Value. Many new listings are priced at value due to limited showings by appointment only. The less exposure a property gets, the fewer number of offers it receives. Though there are still a lot of homes listed with a low teaser price and a set offer due date, a common technique makes the sellers switch to “accepting offers as they come” if they will not get the price they expect. This is common especially in homes owned by investors. Home prices are changing as inventory increases and the number of buyers diminishes. If this lockdown will be extended beyond May, we can expect home prices to go down.
Home showings. Appointments and residential real estate viewings can only occur virtually or, if a virtual viewing is not feasible, by appointment with no more than two visitors at a time residing within the same household or living unit and one individual showing the unit. Open houses and brokers’ tours are off the table. Last Monday (May 4), owner-occupied homes can now be shown by appointment. Bay Area health officials loosened real estate restrictions allowing agents to now show occupied homes as long as the residents are not present. But open houses are still banned and state and local real estate groups are encouraging agents to do virtual tours when possible.
Difference in offers. It is normal for sellers to accept offers with contingencies. Since the housing market is not as strong like in March of this year, sellers are willing to take the risk of accepting contingent offers. Limited showings are allowing buyers to have an inspection contingency. Appraisals are always based off the recently sold properties but with the lockdown extension, Bay Area home prices might start to slide down. Loans are protected with the new COVID-19 Addendum Form from the California Association of Realtors letting buyers cancel escrow in case they lose their jobs.
When can real estate bounce back? I expect that home sales will bounce back in the second half of the year as the economy begins to improve. Continuous vaccine research sheds light at the end of the tunnel and since most Bay Area home buyers are millennials working in tech and biotech, our market is more stable as compared to the rest of California.
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Martin Santiago is a broker associate at Compass Burlingame, a full-service residential brokerage firm. He is also a licensed mortgage loan originator & an International Associate at the American Institute of Architects. The information presented in this article is for general information only and is not, nor intended to be a formal legal advice nor the formation of a broker-client relationship. Call or email Martin at (415)850-7704; [email protected]; www.teammsquare.com.