More sellers coming to market

September 2020

This month, I wanted to more closely examine some crucial economic indicators, Real Gross Domestic Product (GDP) and the unemployment rate. Although COVID-19 is still surging through California and the country, sellers are returning to the market, bringing some much-needed supply to meet buyer demand. As we make our way through the summer months, we continue to provide you with the most up-to-date market information so that you feel supported and informed.

In this month’s newsletter, we cover the following:

Key News and Trends in August: U.S. GDP fell 9.5% in 2020’s second quarter. The national unemployment rate is 11% as of August 6, 2020, and 30-year fixed mortgage rates hit historic lows in July. COVID-19 continues to spread in the United States, although new cases seem to be marginally decreasing in California and nationally.
August Housing Market Updates: San Francisco’s housing market sees the largest number of homes for sale since the 2008 recession as sellers re-enter the market.

Key News and Trends Impacting Your Local Market

The National Bureau of Economic Research officially deemed February 2020 the most recent U.S. economic peak ending the decade-long expansionary economic cycle, which means we are in a recession until we begin another growth cycle.

During the second quarter of 2020, the GDP—the broadest measure of goods and services produced—dropped 9.5% quarter-over-quarter. GDP and the housing market usually trend together over time. The connection between the two is quite simple: overall personal income should rise as GDP increases, thereby accumulating enough wealth to purchase a home.

Perhaps the more pertinent news regarding GDP is that the federal government offset the drop in production and spending through COVID-19 relief and stimulus measures. Specifically, the recipients of the $600 per week federal unemployment supplement, which ended July 31, largely infused that money back into the economy.

On the other hand, the pandemic has left many with more money than usual as their personal spending has dropped considerably. Those interested and able to buy a home are in the lowest interest rate environment in history. Freddie Mac reports that the interest rate on a 30-year fixed mortgage is at 2.88%. This is the first time the rate has dropped below 3%.

As we have discussed in previous newsletters, the affordability of a home increases (or decreases) significantly with each percentage of interest. A loan for a median-priced home from January 2020 at a rate of 3.72% costs $700 per month more than a loan at 2.88%, amounting to $250,000 over the life of the loan. As a result, we have seen a boom in refinancing, which we expect to continue for homeowners who do not wish to move. For buyers (or refinancers), this could be the lowest interest rate they will experience in their lifetime and an excellent time to execute the purchase of a home.

Housing Market Update for San Francisco

SFGate reports that the inventory of homes for sale increased to the highest levels since the 2008 recession. We believe that the supply will make the market more efficient in that buyers will have more options to find what they actually want, leading to more sales. San Francisco needed more supply, so we view the influx as a net positive for the market.

We can look to Months of Supply Inventory (MSI)—the measure of how many months it would take for all current homes for sale on the market to sell at the current rate of sales—as a proxy for demand. MSI has an average of three months in California. An MSI lower than three means that buyers are dominating the market and there are relatively few sellers; a higher MSI means there are more sellers than buyers. In July, the MSI for single-family homes fell below the three-month mark and now favors sellers slightly. The MSI of condos was not as tight; however, it is trending lower even with increasing inventory.

As we would expect, the number of homes under contract continued to trend upward in July, which contributed to the falling MSI and highlights the amount of demand even further.

As both inventory and sales increase, the percentage of homes with price changes has increased as well. This is a natural phenomenon with higher supply levels.

Moving forward, we anticipate more sellers coming to market. The initial seller reticence caused by COVID-19 seems to have subsided, increasing supply. As more supply becomes available, there could be more price correction in the market, but with interest rates so low, we feel it will be tempered.

We hope you found this info in this month’s newsletter helpful. Should you have any questions about the market, or wonder what home-improvement projects will give you the biggest bang for the buck, I am always just a cell phone call away: (415) 595-7661.

Cheers,