Trying times, they too shall pass

March 2020

Crazy COVID-19 times abound right now as we send out our March newsletter. We’ll review the latest news and trends impacting the San Francisco housing market and give you an overall market update. Clearly, COVID-19 dominates global news, made the stock market plummet, and forced the Federal Reserve (Fed) to cut its benchmark interest rates. Uncertain times ahead, indeed.

News Stories Impacting The San Francisco Market

The coronavirus continues to affect local and national markets. The spread of COVID-19 has government entities around the world, as well as global markets, facing uncertainty. The situation is impacting the real estate market in two key ways.

Quarantines, travel bans, and supply chain disruption will cause a 2020 recession. Food service, travel, and entertainment are expected to be hit the hardest. To minimize potential impact, the U.S. government is implementing a $2 trillion stimulus package, including funding for distressed sectors of the U.S. economy, backing for small businesses, and providing direct payments for American citizens.The Bay Area has shelter-in-place regulations in effect. If you have any questions about how this could impact your buying or selling process or real estate transaction, please contact us. We’re happy to answer any questions you have.

Travel bans are impacting international buyers. Although travel bans are increasing across many nations, the Chinese travel ban could have the largest effect on the US real estate market. MarketWatch reports that Chinese buyers are typically the largest group of foreign purchasers of U.S. residential real estate, and nearly 40% of those purchases happen in California.

We’ll continue to monitor the impact of COVID-19 and will keep you up to date on how it’s impacting San Francisco. It’s important to note that real estate has survived many a recession and has stood the test of time. We are confident that it will remain a durable investment, even in this trying economic environment.

Interest rates move to zero, and the Fed begins quantitative easing. While we’re experiencing unprecedented events socially and economically, federal interest rate cuts and quantitative easing has created an opportunity for buyers eager to enter the market.

In response to the Dow falling, investors pulled their money out of the stock market and moved it into safer U.S. Treasury bonds, causing interest rates to drop. On March 3, the Fed cut interest rates by 50 bps. On March 15, the Fed stepped in again, cutting the federal funds rate to zero. In the coming months, the Fed will purchase $1.5 trillion in U.S. Treasury securities as well as several hundred billion in mortgage-backed securities. This process of quantitative easing, which increases the money supply, was last used in the 2008 financial crisis in an effort to encourage lending and investment.

We expect continued volatility in stocks and bond yields to dip lower and lower as quantitative easing progresses.

Looking ahead, we believe lower interest rates will continue to benefit buyers, and supply levels will shrink even further as buyers continue to have access to more favorable financing. However, interest rates aren’t falling as much as one might expect, given the increased risk in mortgage repayment as perceived by the banking industry.

Conclusion

These are truly trying times, but they too shall pass. We hope you found 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 when things get back to normal, I am always just a cell phone call away: (415) 595-7661.

Cheers,