What did May teach us about the real estate market?
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|Welcome to our May newsletter. This month, we’ll continue o update you with important information about your local real estate market during these unprecedented times. We know homeowners have questions about home values and the equity they have built up these past few years. Potential buyers want to understand changing market conditions and how to negotiate the best offer for themselves. With that in mind, an overview of the numbers indicate the Peninsula/South Bay’s housing market is looking quite strong. This month’s topics include:
Key News and Trends Impacting Your Local Market
Peninsula/South Bay home prices remained relatively stable in April. Furthermore, home and condo prices fell only slightly statewide. California median home prices declined 1% according to the California Association of Realtors.
Typically, it is best to look at yearly comparisons for housing data because it removes seasonal variations. However, during the pandemic it is important to look at changes on a month-to-month basis. By this measure, Santa Cruz’s single family home and condo prices both saw healthy gains. San Mateo and Santa Clara saw dips in single family home prices, but condo prices rose.
As we reported in our March and April newsletters, the fundamentals of the housing economy remain strong. In April, despite the fact that forecasters downgraded the U.S. economic outlook due to the effects of the pandemic, mortgage-finance giant Fannie Mae said that it expects the 2020 national median existing-home prices to rise from $272,000 to $275,000. Demand and supply have not moved in lock step and demand still outpaces supply. The National Association of Realtors (NAR) reported that even though buyer demand softened and nationwide sales fell 8.5% from the prior month, the supply of homes on the market decreased even faster. Even before the pandemic, the housing market was undersupplied for years. Lawrence Yun, NAR’s chief economist, emphasized the persistent supply issue when he said in April, “You would have to see continuing job losses for a prolonged period leading to foreclosures, and even then we may not have oversupply.”
The Wall Street Journal reported that some sellers “are hanging tough because they believe their homes aren’t moving because buyers haven’t viewed them in person or are reluctant to make offers right now, not because the asking price is too high.” In other words, sellers may be waiting for stay-at-home orders to ease before deciding whether to lower prices. Additionally, The Wall Street Journal reported that both real estate agents and homebuilders confirmed that active buyers are more serious than ever before and mortgage applications are being approved and funded at a much higher rate than normal. The low interest rate environment and a need for a home during a pandemic has created a sense of urgency for homebuyers.
While home values remain intact, many homeowners are using this time to refinance their homes. In the first week of March, the Mortgage Bankers Association reported that refinance applications rose by 79% for the week and were 479% higher than a year ago. This is the highest level of refinancing since April 2009. On May 13th, the Mortgage Bankers Association reported that refinances are still up 201% compared to the previous year. The falling mortgage rates in March generated a refinance boom, and since March, rates have fallen even further.
May Housing Market Update for the Peninsula/South Bay
While the pandemic’s impact on the housing market progressed rapidly in March, the April housing market data illustrates a stable market, albeit at a new normal. The graph below illustrates the available housing inventory by week rather than by month (as is typical) to illustrate how the market has changed over a shorter timeline. We can see that inventory levels declined in March, but have since climbed for seven straight weeks as more homeowners become comfortable with listing their home. Meanwhile, a significant number of sellers have remained in the market, and this so-called floor might indicate that active listings have fallen as far as they will go.
Another sign that the housing market may already be turning around is the number of listings under contract. During the week of March 25th, listings under contract hit a low. Since then, listings under contract have more than doubled and are approaching the levels we saw in early March. This indicates that people are forging ahead, aided by technology.