In the graph above, the conditions were glutty through July, but now I think we can call it a full-blown panic in SF County. They only had 1,000 homes for sale in May, and their fourth-quarter history already looks very strange. You can bet that buyers are slamming on the brakes!
Any glut-like conditions are easy to identify – as soon as active listings start stacking up, then either prices are too high or we’re running out of buyers.
Thankfully, our NSDCC graphs look the opposite of this one so we’re in good shape, for now.
Ultra-low rates, record home equity, and societal needs/concerns make the perfect frenzy cocktail:
The pandemic is driving a major boom in the housing market that’s breaking all kinds of records and exposing a very uneven economic recovery between the haves and the have-nots.
The most dramatic increases are happening at the top end of the market — sales of homes costing $1 million and up have more than doubled since last year.
Millions of people are working from home while juggling their kids’ remote schooling. And many who can afford to are buying bigger houses.
Home sales in September were up more than 20% from a year ago, according to the National Association of Realtors. And median home prices hit a record $311,800. That’s about $40,000 more than just a year ago.
“It is great news for homeowners as they are seeing equity rise and rise,” says Lawrence Yun, the chief economist for the Realtors group. But he says prices are rising too fast. Generally, he says, economists like to see home prices climb in line with people’s wages. But in recent years, home prices have been rising much more quickly.
“It will eventually lead to a choking point where first-time buyers simply can not show up to the market,” Yun says. Already the percentage of first-time buyers is decreasing — they represent about 31% of the market. In a healthy market, they represent 35% to 40% of buyers, Yun says.
He worries that if the trend continues, the country will see a further “divergence in society where you have the haves, with homeownership gaining their equity, and those people who would like to become homeowners continually being frustrated, unable to reach that goal of owning a home.”
More excitement to stir up next year’s selling season!
Most landlords can survive a while, but faced with no rental income for months, won’t a few long-time landlords say, “Screw it, I’m cashing out and I don’t care about paying the taxes!” Evicting the non-payers doesn’t mean they will have the same rent coming in again immediately either.
Landlords, apartment owners and housing industry groups have unleashed a barrage of legal challenges against the Trump administration’s order protecting renters from eviction, leaving millions of families once again facing the risk of homelessness in the middle of a deadly pandemic.
Over the past month, an array of lawyers and lobbyists have inundated federal, state and local courts. They have sought to stop renters from invoking the federal ban, and in some cases, they’ve tried to quash the policy altogether, arguing that the government did not have the authority to issue it in the first place.
One federal lawsuit brought by a Virginia landlord, for example, argues that the Trump administration wrongly halted evictions based on a “flimsy premise” that doing so might prevent displaced Americans from contracting the coronavirus. The case is supported by an anti-regulatory conservative group with documented past financial ties to a foundation backed by Charles Koch, a Republican megadonor. The lawsuit has also picked up key legal help from a major lobbying organization representing apartment owners.
“There’s a reason eviction is a remedy in the law,” said Caleb Kruckenberg, a lawyer at the Koch-funded New Civil Liberties Alliance, who stressed that landlords are experiencing significant financial disruption, too.
The flurry of lawsuits has created a wave of legal uncertainty, exposing millions of Americans once again to the sort of hardships the Trump administration initially sought to prevent. Federal officials tried to clarify some of the ambiguity in policy guidance issued late Friday night. But the update instead appeared to give landlords a clearer green light to start eviction proceedings against some cash-strapped renters, even though a moratorium remains in place until the end of the year.
The Trump administration’s latest move perplexed Diane Yentel, president of the National Low Income Housing Coalition, who said she remains fearful about a wave of evictions on the horizon.
“To understand, ask yourself the question: Why would a landlord want to start eviction proceedings in October for an eviction that can’t happen until January? The answer: to pressure, scare and intimidate renters into leaving sooner,” she said.
White House spokeswoman Karoline Leavitt said in a statement that the administration “has actively engaged with stakeholders across the country to ensure both renters and landlords have the necessary resources to make timely rent and debt payments.”
The legal plight facing millions of cash-strapped renters highlights the nature of the nation’s unequal recovery, as Americans who struggled most at the outset of the pandemic continue to face severe hardship — even as the economy begins to improve.
About 1 in 3 adults say it is somewhat or very likely that they could face the threat of eviction or foreclosure over the next two months, according to survey data released last week by the U.S. Census Bureau, underscoring how sustained unemployment and dwindling federal aid may be creating the conditions for a housing crisis.
Thanks to the COVID-19 pandemic, more deep-seated, tectonic-sized questions beyond markets and interest rates are being asked this time around that no one really has the answers to yet—like will people feel safer living in the south and southwest where they can spend all year social distancing outside? What if companies let workers work remotely for the rest of their lives? Why go back to retail shopping when I’m already ordering everything online? What’s the point of living “downtown” if half of the restaurants, bars, and museums never open back up?
How these questions get answered will fundamentally re-order how Americans live in the “new” pandemic normal, and as a result will play a huge X-factor in which cities and states will experience growth, demand, and price appreciation over the next 3-5 years, and which ones will stagnate and lose out. More broadly for large metropolises like Washington, D.C., New York City, and Philadelphia, the answers risk slowing or even reversing a wave of gentrification and wildly profitable downtown revitalization that’s been accelerating since before the Great Recession.
Against this backdrop, real estate’s new normal is also creating huge swathes of opportunity. Dozens of cities and counties that were once considered too small, too southern, too hot, too flat, or lacking in amenities, culture, or sophistication are now finding themselves being swooned to the top of the real estate desirability lists as Americans seek warmer, healthier, less dense, better educated, and more mobile places to live that offer closer access to the outdoors, better hospitals, and more open space with no clear end to the pandemic in sight.
To get a better view on what’s really happening to real estate in America right now I decided that it was time to do a deep dive into the actual data from the experts—including CoStar, Zillow, and Realtor—on how COVID-19’s great migration is actually shaking out and where the money and bodies are moving.
Here’s what I found out.
No matter who I spoke with, a few words kept resurfacing as we lurch into the post-pandemic future: warmer, safer, smaller, stabler, lower taxes, less regulation, and fewer lockdowns.
Regardless of where people come from or where they’re going, these things aren’t new on the list of what most Americans generally expect from the places they live, especially as they get older. (Northeasterners have been moving south and west for generations). The more interesting pandemic sub-text is the acceleration factor—and how the places where Americans are moving in the midst of COVID-19 may finally be expressing a more fundamental preference for how they reallywantto live instead of where they haveto stay because of their job location or where their kids go to school. It also says a lot about where many American’s heads are right now, and more importantly, the specific criteria with which they’re considering making one of the most important next decisions of their lives in an era of unprecedented uncertainty.
Red-hot home prices have more consumers saying now is a bad time to buy
Anyone out hunting for a house knows that bidding wars are no longer the exception, but the rule. Demand for housing has been unusually strong, due to the coronavirus pandemic, and supply is historically lean. That is a recipe for high prices, which are now beginning to take their toll on potential homebuyers’ confidence.
The share of buyers who say they think it’s a good time to buy fell in September, from 59% to 54%, according to a new survey from Fannie Mae.
Home values were up nearly 6% annually, according to CoreLogic, a data analytics firm. More consumers now expect those price gains to grow.
The percentage of respondents to the Fannie Mae survey who says prices will go up in the next year increased from 33% to 41%, while the share who said prices would go down decreased from 26% to just 17%.
More people do think now is a good time to sell a home, which is an improvement from the first months of the pandemic, when potential sellers didn’t want shoppers in their homes and worried about the state of the overall economy.
If seller sentiment improves substantially, that could help bolster supply and take away at least some of the heat in prices.
“Going forward, we believe the wild card to be whether enough sellers enter the market to continue to meet the strong homebuying demand,” said Doug Duncan, Fannie Mae’s chief economist. “The home purchase market requires the proper mix of home price growth and continued economic recovery to achieve sustainable levels of housing activity.”
A bad time to buy? When you can get a mortgage rate under 3%?
Any possible declines in home prices will be offset by higher mortgage rates, so there won’t be much, if any, savings in your payment if prices did come down – but fewer people in the survey think that’s going to happen. You would pay less property taxes, however.
Saying it’s ‘a tough time to buy’ would be more accurate. Finding the right house, at the right price, is extremely difficult – but many signs point to the supply increasing next year. Stay engaged, regardless of what the talking heads tell you about the general market. You only need one!
Market conditions are subject to change! Hat tip to just some guy for sending in this article:
In five years as a San Francisco real estate agent, Emily Beaven has never experienced such a dry spell. She has several condos on the market right now that she’s representing and she has no offers and zero showings scheduled for them.
She decided it was time to get creative.
“We’re not even getting calls on things. It’s a bit of a ghost town. Then I started to see the incentive trend happening, ” Beaven said. “When you’re not in a super-strong seller’s market, when properties need that extra boost, that’s when [incentives] happen. We’re entering a period of desperation.”
Incentives are designed to entice the buyer or the buyer’s agent to get a property sold as soon as possible. Pre-pandemic, a higher commission for the buyer’s agent was a common incentive, as were restaurant gift cards, but when Beaven saw roundtrip tickets to Paris advertised recently as an agent incentive, she said they’d entered a new era.
As an incentive to purchase one of the SoMa studios she has on the market, Beaven is throwing in a session with a home organizer to help the prospective buyer maximize the small space.
Active listings for San Francisco condos are up 114% year over year, according to Compass, and while condo listings typically exceed single-family home listings, there are now two condo listings for every single-family home listing. With supply at an all-time high, the average price per square foot has decreased 4% since 2019 and the amount of buyers overbidding asking prices is considerably diminished from levels seen in the past six years.
While that doesn’t mean we’re in a buyer’s market yet, that could change within a few months. Typically a buyer’s market exists at eight or more months of inventory. San Francisco is at six months right now.
Natalie Rome and Derek Chin had a condo listing in Hayes Valley that hadn’t received much interest in two weeks. That’s when the two started to talk about new ways to incentivize buyers and remembered that the garage space could only fit a subcompact car. Rome and Chin approached the current owners, who had purchased a Fiat 500 when they moved in, about including it in the sale for the right offer. They said yes.
“I think we’re going to see more creative incentives in the short term,” Chin said. “A lot of condos are vying for attention. Money talks for sure. A consultation for an interior designer, gift cards to home furnishings stores. I heard once an agent paid for flower delivery for every week of a year.”
For agent Rick Teed, that meant something you can’t get just anywhere. On a recent listing for condos in Russian Hill, he said one lucky buyer’s agent would win $500 in Bitcoin when they came to view the property. “I just feel like people always do the same things, 3% commission and an airline pass. I don’t see that working right now,” Teed said. “You have to look ahead at what’s happening in technology. You want to give them something they don’t have that piques their curiosity.”
Have you been searching for homes all summer, and still haven’t bought one?
Do you feel like the inventory has been mostly garbage that you wouldn’t buy at any price? Then once or twice a month you see a nice buy that turns into a bidding war and you don’t win it? It happens, and unfortunately it might keep happening so be resilient.
This is the time of year when buyers want to give up.
It’s easy to get discouraged because you aren’t seeing as many new listings come to market these days – it’s hard to pay attention when days or weeks can pass without seeing a decent house.
Here are reasons why you should hang in there:
Competition is waning. Some of the people we’ve been competing against have bought houses, but most importantly, more buyers have given up on 2020, and will wait for 2021.
Inventory is dry, but you only need one.
You can still get a mortgage rate that starts with a 2.
It will be worse next year.
Looking at houses has never been more annoying. Agents have gone nuts with their demands for masks, gloves, booties, bank statements, preapproval letters and your first-born just to see a house. Many aren’t even nice about it – they have plenty of showing requests, so their attitude is if you don’t like it, kiss off.
If it bothers you that much, just wait a couple of weeks – they get more accommodating the longer the house is on the market. But know that these demands have become a tactic to screen out buyers so they don’t have to work as much. I heard a listing agent complain recently about having to process paperwork for 52 showings – you know many just stop answering their phone.
While it is a hassle, you must see the best homes in person in case it’s a winner and you want to grab it.
What can you do to make the search more bearable?
Here are a few tips:
Revise your auto-searches. They are ‘upgrading’ the MLS this weekend, and our realtor auto-searches will need to be re-inputted. It will be a good time to re-visit yours to make sure they weren’t affected, and while you are there, bump your price up. It’s the best way to see better quality!
Use the 3D tours to save time. You’ve heard me say that Matterport 3D tours are terrible for sellers because agents rely on them to do the selling. But the 3D tours are fantastic for buyers – be patient with them and remember that you will find something wrong with every house.
Use Google Street Views to cruise the neighborhoods. How many times to you roll up to a new listing and the immediate neighbors make you want to keep driving? Avoid those time-wasters by viewing the neighborhood online.
Accept the fact that every house will need $25,000 to $50,000 in improvements/upgrades. You will have to compromise somewhere – don’t give up on a house just because you find a defect. Money will fix everything except location – rejoice when you find something to fix!
Be prepared to make strong offers. Know the comps, have a solid preapproval letter, and shorten contingency timelines – which I hate to do but it’s one of the addictions now.
The market isn’t going to go down. Today’s inventory is almost entirely full of the homes that have been passed over for weeks or months. Longer market times and price reductions only mean that those are dogs, not that the market is suffering. You want to buy a premium property anyway, and those will always be in fashion.
Keep the goal simple: Buy the right house, at the right price.
Be picky, rely on your tools, keep a laser focus and remember that it only takes one.
The 2021 selling season should be the craziest market in the history of the world.
My theory: The covid-19 pandemic has jumbled the usual timing of the elective movers, and we are experiencing a not-natural compression of reasons to move.
We will have our Big Three (death, divorce, and job transfer) causing their usual sales. Making the difference will be the elective buyers and sellers who expedite their plans.
There are always a group of buyers and sellers who contemplate moving for 1-5 years before they get around to it. But the current environment (covid+ultra-low rates+unemployment+prices+politics) has captured their attention, and it will pull forward buyers AND sellers from 2022-2023.
Plus we will have some buyers AND sellers who ordinarily wouldn’t have even thought about moving until 2022-2023 who are realizing sooner that they should move in 2021.
Not all of them, but some of them.
It won’t take many.
We have been very fortunate to have a steady consistent flow of listings and sales over the last few years. The number of listings between January and August varied by less than 1% between 2017 and 2019.
The pandemic changed that though, and look at results. Listings dropped off significantly YoY (-11%) yet sales are only down 4%. Oh happy day, we’re surviving the covid – for now!
Number of Detached-Home Listings
Number of Detached-Home Sales
But we know that more than half of boomers delayed their plans of selling in 2020.
All we need is for the compression of moving motivations to cause 500-800 more listings in the 2021 selling season and it will be a whole new ball game – unlike anyone has seen recently!
Historically, buyers are known to freeze up quickly when they see more homes hitting the market. But all we need there is 300-400 more buyers to jump at the chance of securing their forever home at ultra-low rates, and ending their unsettling insanity of 2020.
With all the bidding wars, there are probably 300-400 unsatisfied buyers in the marketplace today.
Next year’s selling season could be the Frenzy of All-Time!
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