Real Estate Questions Answered
By John M.Lee
As I talk to people about real estate during this COVID-19 time, there are many questions that are on their minds. There are some truths, some misconceptions, and many misunderstandings because none of us have ever gone through something like this before. Here are a few of the common questions of the month.
“With the pandemic, so many people are hurting financially. We have record unemployment, but I keep reading headlines that proclaim: ‘U.S. Home Sales Rose 20.7% in June.’ How can that be with so many people losing their jobs and with businesses closing?”
Headlines can be deceiving. I remember in my high school journalism class, one of our homework assignments was to come up with headlines for articles. The goal was to sensationalize the content so more people would read the article. In our case here, the number of sales decreased so much in April and May because of shelter-in-place that the increase in June is indexed on a lower sales number from May. A better comparison would be to compare the sales activity in June of 2020 to June of 2019, and you will find that number would be a lower percentage in 2020.
“I am also reading that the median sales price of single-family homes in San Francisco has gone up to an all-time high in June. Is the market going crazy again? Why?”
That is indeed an accurate statement, but we need a little understanding of statistics when interpreting the market. The median sales price of single-family homes in San Francisco did go up from $1.63 million in May to $1.8 million in June, an increase of 10.4%! What we saw in the marketplace was that many high-end homes sold in June. The median sales price is defined as the midway point of all the homes that have sold over a period of time. So, if 101 homes sold during that period of time, the median price is the one in the middle where 50 homes sold above that price and 50 sold below that price.
Since more expensive homes were sold in June, it skewed the median price higher. Median prices are better when analyzed over a longer time period to give you a trend rather than being viewed on their own. In this case, we have to wait for more data in the upcoming months to interpret what is happening rather than taking this one data point and making a big deal out of it.
“I live on the west side of town and have noticed a number of homes selling at or around the same prices as before this pandemic hit. Does that sound about right?”
If you had asked me this question back in March or April, I would have told you that prices would drop. However, several factors have held our prices up. Many people are making housing decisions during this time. Many renters who either lost their jobs or find out that they can work remotely are moving out of the City. Some condo owners are making the decision to move out of their high-density condos and buy a single-family home to give themselves more space. We on the west side are the affordable alternative for them (hate to think of $1+ million as affordable), so they are buying out here. Also, the interest rates have gone down these last few months, giving buyers more purchasing power. These all help to keep our prices up.
“There is a mortgage moratorium at this time. Are a lot of people taking advantage of this? Should I stop paying my mortgage?”
The lenders cannot foreclose on properties during this pandemic, and there is a mortgage forbearance during this time. It is not a mortgage forgiveness that you never have to pay back. The last number I saw was that 4.2 million or about 8.5% of mortgage loans in the United States were under forbearance. If you stop paying the mortgage now, the amount you owe will still need to be paid back. It will be either through a balloon payment after this pandemic is over, or the balance might be added to the back end of the loan, thus extending the length of the loan. There has been no legislation on how this gets paid so it is up to the lenders at this point in time.
I suggest that if you can afford to pay the mortgage, it is better to pay it. If the payments are not made now and are added to the balance and the loan is stretched out, it might take you another year to pay off the loan, which is not bad.
However, if the lender decides to enforce a balloon payment, borrowers will have to come up with a few months of mortgage payments all at the same time, which is difficult for most people and impossible for some to do. The other troubling news I have been hearing is that some lenders are putting a derogatory mark on the borrower’s credit reports if they are in forbearance. So if at all possible, I recommend that you keep up with your mortgage payments.
As always, I enjoy hearing from all of you and especially during this difficult time. We are all in this together and will come out at the other side together. Stay safe!
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 email@example.com.
Categories: Real Estate