By Martin Santiago
This is the last quarter of 2020. Despite some challenges, the real estate market has boomed nationwide during the pandemic as people have found themselves spending more time at home and reevaluating their living spaces. Record-low mortgage rates and shortage of inventory has kept the housing market strong with respect to buyer demand. With unusually high buyer interest this late in the homebuying season, buyers are moving much faster than this time last year to beat out competition and lock in low mortgage rates.
Demand will remain strong. When California started shutting down in March, home sales nearly screeched to a halt. But that was a temporary reaction as buyers and sellers got their houses in order for the new normal. Over the summer, the floodgates opened on that pent-up demand and June, July and August saw record-breaking home sales when compared to last year. We are witnessing a true V-shaped sales recovery as homebuyers continue their strong return to the housing market.
Expensive cities will likely keep losing ground. With more and more people working remotely, many buyers have newfound flexibility in where they can live. That means some of the most expensive locales in the country, like New York and San Francisco, are seeing relatively fewer sales and softening prices than their suburbs and other markets.
The effect of the environment. Some areas currently have a different kind of real estate microclimate, as if the pandemic weren’t enough to shake things up. On the West Coast, where wildfires have further upended lives, the housing market is essentially shut down in some locations. Prices stay high. Despite a generally bleak national economic picture, the real estate market has remained a relative bright spot during the pandemic.
When it comes to purchasing, the strong real estate sector favors sellers. With fewer homes on the market than usual, there’s more competition over each listing, and that’s driving prices up. It’s important to stick to your budget, but buyers may be able to pay more for a home than they would have a few years ago. Home prices are already at an all-time high, but their monthly mortgage payments are lower because of the low mortgage rates.
With many sellers remaining on the sideline and a decline in housing starts, inventory will remain constricted. Under normal market conditions, prices would be expected to skyrocket as inventory evaporates, but buyer demand is expected to see-saw throughout the year as secondary waves of coronavirus infections pop up throughout the U.S. During these periods, sales are forecast to take a hit as sellers de-list properties and buyer demand abates.
Looking forward even more. One huge unknown beyond the fall is how the pending end of COVID-related mortgage forbearance will affect the housing market. Millions of homeowners took a pause in mortgage repayment thanks to the CARES Act, but that provision is set to end on Dec. 31. It’s unclear what will happen with foreclosures but expect to see a spike in these starting early next year. And a possible new administration next year may upend many of the policies and initiatives currently in place.
Election Implications? Historically, a strong economy favors an incumbent president. Will voters judge the president against a pre-COVID baseline? We expect the economy is likely to be better than the COVID ‘worst case’ but not fully recovered before the vote. With or without COVID, Californians are investing in areas where they can have a big yard and an office space for working from home. San Francisco will continue to decline as many are realizing the value of space. The wildfires also affected the desirability of Northern California.
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Martin Santiago is a broker associate at Compass Beverly Hills, a full-service residential brokerage firm. 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 (213)788-8300 & firstname.lastname@example.org.