Pent-up demand turns into participation

Pent-up demand turns into participation
June 2020
Welcome to our June newsletter. This month, we’ll cover new survey data from the California Association of Realtors (CAR) that shows buyers and sellers are operating under differing expectations about the real estate market. Following that, we will review the local market proving to be unique!
This month’s topics include:
  • Key News and Trends Impacting Your Local Market: Sellers are more hesitant to enter or remain in the market, while buyer demand gets a lift and mortgage applications rise.
  • May Housing Market Update: Single-family homes return to selling above list price and the percentage of single-family homes with price cuts remain low. Condos see price cuts and overall decreases in price. 
Key News and Trends Impacting Your Local Market
San Francisco median home prices did not decline enough for sellers to cut the listing price. In May, single-family home prices dipped slightly compared to April, but they continued to look resilient. Prices, however, were still higher compared to February before the pandemic began.
Condo prices, on the other hand, saw a decline of almost 9% from April to May. While prices actually increased by 1% on a per square foot basis compared to both April and February, we will see in the next section that the condo market is struggling in other key market indicators.

Compared yearly, prices were down for both single-family homes and condos. Single-family home prices were only down by 3% in May year-over-year. The more volatile condo market reported double digit declines compared to last year and have been trending down since February.

The year-over-year price decline was the first in San Francisco since the pandemic began. Weighing in on the subject in his June 3rd market update, Jordan Levine, Deputy Chief Economist at CAR, said: “We [now] expect some price impacts eventually as a result of some of the negative economic impact. . . . The price impacts will be in the modest category of the low single digits for 2020.”
Evidence supports the idea that price declines will only be in the low single digits for the 2020 calendar year. The market continues to see a larger sell-side impact, meaning that housing supply has declined more than buyer demand.
While sellers continue to grapple with the state of the market, California is again facing a major housing shortage, which prevents prices from dropping. The CAR survey also provided the most recent mortgage application data for both California and the United States. In May, California mortgage applications for home purchases (as opposed to refinances) rose significantly from April and are only down 1.7% from this time last year. Mortgage applications correlate with buyer intent to purchase a property and indicate the number of homes under contract and home sold.

May Housing Market Update for San Francisco
In the month of May, the weekly San Francisco housing data for single-family homes supported the survey data from CAR. First, housing inventory is again declining and is near its March low as sellers continue to hesitate and withdraw listings from the market.

The June CAR survey data shows that 17% of sellers state-wide cut their prices. In San Francisco, 12% of single-family home prices were cut, which is a very low level. In our May newsletter, we reported that many sellers were reluctant to lower their list prices, asserting that the failure to sell was due to the pandemic, rather than an overpriced home. Assuredly, a portion of these homes are overpriced, but, conversely, the pandemic could be encouraging fewer price cuts than normal.

Condo price cuts increased to 24% in May, up from 13% in April. While this is not atypical (the percent of price cuts in December and January were 34% and 36%, respectively), it shows another divergence from the single-family home market and signals that prices may retreat further.

In addition to the rise in price cuts, condos sold at their largest discount in over two years. One reason the markets differ may be because condos cater to a younger and more mobile population with smaller households. For a population whose choice of residence is governed primarily by their employer, the recent shake up might make San Francisco’s high living standards less appealing, or no longer necessary, thereby prompting a small exodus.

The months supply of inventory for condos also fell from April highs but settled well above the three-month level of supply. At 4.5 months, supply levels are now higher than normal, indicating that supply is outpacing demand.
As we discussed in previous newsletters, the fundamentals of the housing market were strong before the global economy stalled, and they have continued to show stability during the months of quarantine.
Looking ahead to July, we anticipate housing market activity to increase as pent-up demand turns into participation from both sides. We will closely monitor the divergence in single-family home and condo prices to make sure that our clients are pricing and negotiating to get the most value out of their transactions.
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.

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