By Martin Santiago, Broker-Associate
PRICES for existing homes rose 4.7% compared with April 2019, up from 4.6% in the previous month, according to the S&P CoreLogic Case-Shiller National Home Price Index. But home sales have rebounded quickly and dramatically, with signed contracts on existing homes in May making the strongest monthly jump since Realtors began tracking the metric in 2001.
The supply of homes for sale continues to drop, even as new listings now come on the market. Demand is incredibly strong, suggesting that prices will only get hotter in the coming months. Homes in the $1.7 to $2.5 million range, within reach of two-income tech professional couples, remain popular.
One reason prices haven’t dropped more is that there are fewer fundamental problems in the housing market than there were during the financial crisis, which was fueled by shoddy mortgage underwriting. And most of the job losses this year have been in service industries, where employees are more likely to be renters than buyers in the expensive Bay Area.
In the Bay Area, open houses for brokers and the public are not allowed. One-on-one showings are allowed only if a virtual showing is not feasible, and only by-appointment with strict social distancing and health rules enforced. Before early May, agents could not even show a home unless the occupants had moved out. Now they generally can, but the occupants must be gone at the time of the showing. Even if their homes can be shown, many owners are reluctant to have strangers coming through.
Exodus? Agents in the Bay Area suburbs say they’ve had a surge of interest from potential buyers coming from San Francisco, as the coronavirus has made working from home at least part-time a more viable option long term. Many are looking for larger homes with space for one or two offices, a yard and – since they’re spending more time at home – a pool.
Every year a certain amount of people move out from San Francisco to Lafayette, Moraga and Orinda. It’s the natural flow: they get to their early 30’s, have a child or have aspirations of having a child. This year, we are getting this year’s people and next year’s.
San Francisco is one of the most beautiful cities but between COVI-19 and restaurants and bars closing down, that romantic feature is gone. Now, they’re working from home in a two-bedroom apartment and it’s like, “Get me out of here.”
After the Great Recession, it took more than ten years for purchase demand to rebound to pre- recession levels, but in this crisis it took less than ten weeks. The round in purchase demand partly reflects deferred sales as well as continued interest from prospective buyers looking to take advantage of the low mortgage rate environment.
Mortgage rates hit another record-breaking low this week, dropping to a mere 3.13% on the average 30-year, fixed rate loan. That’s the lowest rate recorded since 1971, according to Freddie Mac and the fourth time a new low has been set this year. While rates did jump up briefly, they have since fallen back to historic lows. The consensus among real estate and mortgage finance economists is that mortgage rates may fluctuating but are likely to remain near historic lows through 2021.
The Federal Reserve’s recent announcement to continue buying mortgage-backed securities, as well as keeping its funds rate at zero, are both contributing to this optimism. The 30-year fixed averaged 3.33% APR in the first four weeks of June, a smidgen lower than the 3.37% average APR in May and 3.36% in April. June’s rate average was the lowest.
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Martin Santiago is a broker associate at Compass Burlingame, 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 (415)850-7704; [email protected]; www.teammsquare.com.