Real Estate will continue to move forward despite initial panic
By: MONA KOUSSA – Broker, Mona Koussa Real Estate Group
March 23, 2020
Throughout California, small and large businesses alike are having to adapt to the wave of uncertainty brought on by the Coronavirus. As an industry built on forging long-term relationships, Bay Area real estate in particular is just now starting to feel the effects of the virus as Governor Newsom issued the shelter-in-place order on March 19th. As uncertainty continues in the financial markets, the economic impacts of COVID-19 are becoming more pronounced. Experts are now anticipating equivalent deterioration of the housing market. In their February 2020 Sales Report, the California Association of Realtors disclosed that roughly 78 percent of California realtors expect a negative impact on home sales, up from 53 percent in the previous week. As a local East Bay Broker, I am among those questioning the immediate future of Bay Area real estate.
The Likelihood of a Recession
In a standard recession, economic activity falls for six to eighteen months and then recovers slowly. Historically however, recessions exacerbated by pandemics have shown a slightly different pattern. In Hong Kong, the 2003 SARS pandemic for example led to a temporary fall in monthly real estate transactions from 33 percent to 72 percent against the baseline for the duration of the epidemic, while real estate prices held steady. Prior to this February, leading economic indicators were producing mixed signals regarding the risk of a boilerplate recession this year. Probabilities of a recession ranged from 30% in December 2019, 15% in January 2020, and 44% as of March 1, according to PredictIt, 2020. With the rapid evolution of the novel Coronavirus, it remains to be seen precisely in which ways the real estate market will be impacted. With over twenty years of experience in this business, I have not seen anything like this. I do, however, have some inklings as to where we’re all headed, and what buyers and sellers should be prepared to do moving forward.
Let’s take a look back at the market. Preceding the mandated stay-at-home order, the Bay’s residential market was highly competitive. Buyers’ offers, to even be considered, went well above asking. With fervent demand and scarce inventory, sellers had the luxury of picking and choosing amongst the top few in a slew of desperate buyers putting their best foot forward. With COVID-19 moving up the recession timeline, I hesitate to believe that this trend will continue. We were two years passed due for a dip in the appreciation of home prices. As things stand now, there are only two options for Bay Area real estate moving forward; either more homes will hit the market or inventory will continue to shrink. What does this mean for buyers and sellers?
For sellers, I recommend selling now. Even without the Coronavirus, we were beyond the top of the market, and average home prices were already beginning to dip. Buyers, spooked by the virus, have either completely put buying a home on hold, or have backed out of active transactions. In the last week alone, I received phone calls from multiple sellers who had previously rejected my clients’ offers asking if we were still interested. If this is indicative of what other sellers’ agents are experiencing, it begs the question as to whether sellers will ultimately be left scrounging for anyone still willing to put money down during these uncertain times. In addition, with possible unemployment sweeping across the country, owners of homes that are in need of repairs or updating will be hard pressed to find the funds to cover contractors’ fees in order to compete with more turn-key properties. For homeowners hoping to get top dollar for their outdated homes, take advantage while you work from home and chip away at the small DIY projects you can do to improve your homes’ value.My official recommendation to sellers – get your affairs in order and sell now before you miss the boat. Empty-nesters and baby boomers looking to downsize and decrease their mortgage payments in preparation for retirement, here’s your chance to still sell high and buy low(er).
For buyers, the slow degrade in home prices will come as welcome relief from the cut-throat nature of the Bay Area real estate market. With fears that the aftermath of the virus will continue well into 2020, sellers may feel the urge to sell before prices dip too low. However, buyers and sellers alike should be aware that an onslaught of available homes will eventually drive down prices either way as competition rises. On the other hand, many potential sellers could delay putting their homes on the market, which may lead to fewer new listings. With minimal inventory, the average home price could remain on the high end as sellers wait out the virus. Even with active listings however, if homebuyers postpone their plans to enter the market due to a dimmer financial outlook, a sharp sales decline will result in an increase in unsold inventory in the short term. In this case, home prices won’t dip drastically, but the rate of transactions will undoubtedly take a hit, as it did with SARS in 2003.
It goes without saying that if their financial health is at risk, buyers should wait to buy and ride out the virus for as long as they can. Alternatively, if a buyer is in good financial standing and the Coronavirus has not impacted their finances, this is a good chance to take advantage of the low interest rates and drop in competition. Be prepared however for longer closing times. On the bright side, the Federal Housing Finance Agency (FHFA) directed Fannie Mae and Freddie Mac on Tuesday to provide alternative flexibilities to satisfy appraisal requirements and employment verification requirements through May 17, 2020 in an effort to provide market liquidity during the Coronavirus emergency. “The flexibility that the FHFA’s move will provide to buyers and lenders so they can continue the homebuying process is important to keeping California’s real estate market moving during this national emergency,” C.A.R stated.
It remains to be seen how exactly the COVID-19 crisis will impact the Bay Area’s real estate market. Either way, we were heading for a recession. In the meantime, we as realtors will continue to do our best for our clients. With the California Department of Real Estate having banned the advertising of open houses and Broker’s tours on the Multiple Listing Service (MLS), we are adapting our business model to ensure that our clients’ needs are still being met. Whether that be in the form of private and virtual home tours for buyers, or advertising available properties on our social media pages for sellers, our main concern is providing our clients with the best experience in the safest way possible. It’s times like these where having an industry professional is crucial to thriving in these uncharted waters.