By John M. Lee
We are into week 10 of our shelter-in-place (SIP) order and feeling like the world is starting to change again. In the early weeks, there was hardly any traffic on the road. I could drive to Clement or Irving streets and park pretty much anywhere. During the Memorial Day weekend, people were out shopping, picnicking, biking and exercising in the park; all this despite the fact that the coronavirus is still lurking in the background.
On March 17, when the SIP was instituted, sellers who did not need to sell rushed to withdraw their properties from the market for two main reasons. One, they did not want strangers wandering through their properties, because nobody knows who has the virus and who is contagious. And, second, there was so much uncertainty in the marketplace. Will the market crash? Can the buyers actually close on the deal? Will banks still lend money? About 50% of the sellers took their properties off the market instantly to wait out this virus.
Now that we are at the end of May, we have some data we can analyze and try to forecast where the market is going moving forward.
Currently in the Richmond District, there are 22 single-family homes listed for sale on the multiple listing service with 16 homes under contract and five closed sales for the month of May. In the Sunset, 21 homes are available, with 26 in escrow, and 14 closed in the same period.
From April to July of 2019, we closed an average of 18 sales per month in the Richmond and 37 in the Sunset. So, sales activity is down roughly 72% in the Richmond and 62% in the Sunset.
The news that bodes well for the market is that there are more escrows in process than closings. And so the closings for June will by higher than May. If we assume that all the homes under contract will close in June, then sales will only be down 11% in the Richmond and 30% in the Sunset. Based on early data, we are on the way to recovery.
The next questions on everyone’s mind are: what about pricing? Have real estate prices dropped due to COVID-19?
The median sales price in the Richmond from May to July of 2019 was $2.22 million, and the Sunset was at $1,577,500. The median for May of this year is $2,005,000 for the Richmond and $1,387,500 for the Sunset – a 10% and 12% decrease, respectively.
I must caution you that we are working with an extremely limited amount of data and that we need to be mindful that these numbers can change very quickly in the upcoming weeks.
Where is the market headed from here?
The answer is: nobody knows. We are all dealing with this type of crisis for the first time in our lifetime. We have gone through earthquakes, the dot-com bust, the 9/11 attack and our financial market meltdown. But this is the first – and hopefully the only – time we will need to deal with an invisible enemy that can strike randomly anywhere and at any time. The market will be determined on whether this virus can be controlled, tamed, or if we will have another wave of infections.
You see, real estate is a complicated business. It is not as simple as the economic theory we learned in college where, in an ideal world, everything is boiled down to supply and demand curves.
Currently, the available listings are down. But, so is the number of buyers. The market is still fairly balanced, so I was surprised by the number of multiple offers on properties and the offering prices. The entry-level homes are still selling very well, but the high end homes over $3 million have seen more of a slowdown and a drop in prices.
The main reason being that the interest rates have dropped, making homes more affordable, and first-time home buyers who have been in the market are benefiting from it. They are able to get into homes now when they were outbid before. In the high-end market, buyers are holding back more because that market has always been more fickle, and those buyers tend to be more invested in the equity market, which has seen a sharp drop and is now searching for direction.
There are many questions surrounding what will happen to the market when SIP is lifted. Will the sellers who withdrew their listings put them all back on at the same time? Will the sellers who cannot pay the mortgage during this time and asked the banks for forbearance decide to put the properties on the market? What are the buyers thinking? Will they be buying soon or will they wait to see what happens to the market?
The answers to these questions will determine how our market will go for the rest of the year. I have faith that everything will work out.
I hope you are all adjusting during this time. Wear your masks, practice social distancing and stay safe out there!
John M. Lee is a broker at Compass specializing in the Richmond and Sunset districts. For real estate questions, call him at (415) 465-0505 or email firstname.lastname@example.org.