Effect of COVID on Real Estate Market
As we pass the one-year anniversary of the shelter-in-place order issued to slow the spread of the coronavirus pandemic, we can look back on how much we have learned about the virus. We now know more about the impact it has had on our real estate market. I laid out two possible scenarios one year ago when this pandemic blindsided us.
The positive one was that we had a good first two months in 2020 and the coronavirus just gave us a pause in the market. The interest rate remains at historic lows with the federal reserve intervention, and it might even go lower after this is over. The people who were buying still want to live here, and they will still be in the market after the impact of the virus is diminished.
The other position is that this upward market cycle has lasted 10 years, and the rate of appreciation has slowed. The pandemic is a nail in the coffin and will accelerate our down cycle. Buyers have lost a significant amount of down payment money in the stock market. Many people are either getting laid off or are working reduced hours. The unemployment rate will skyrocket leading to a slower market and real estate prices will drop.
While the assumptions were correct – the mortgage interest rates dropped, the stock market did decline initially, unemployment went way up, and the Feds did pump a lot of money into the economy – the end results have been rather surprising.
While we cannot see how this will all finally unfold, we can see where the trend is heading and have learned much about our real estate market throughout this challenge.
Our real estate market did slowdown in March to May last year. Everyone had to figure out how to work in a different market where there are no open houses, and in-person viewing of homes only when necessary. A new set of rules had to be developed for the real estate business, which took a little time. The Realtors had to work with the state to be deemed an essential business. which finally occurred in May 2020.
Since then, the real estate market has been red hot. Single-family homes were selling quickly once again and prices went up. Even though there was a migration from the City to the suburbs, which boosted property prices there accordingly, most of the migration was from tenants rather than homeowners. The pattern we witnessed in San Francisco was people moving from high-density living conditions to lower-density housing to minimize contact with other people.
Thus, multiple roommate situations dissolved and rents went down. Larger units were out of favor and smaller units were rented out more quickly. Overall, the rents went down due to the ability to work remotely which resulted in a net movement to outside the City. One study showed that most people stayed within California, and the lower cost areas benefited.
The Feds did their part by infusing the economy with stimulus money, loans, and grants to keep businesses running as much as they could. The service and hospitality industries were decimated, but the high-tech, biotech, and mobile industries flourished during the pandemic. This also exaggerated the differences between socioeconomic classes. The people who were doing well did better and the ones who were not did worse during the pandemic.
With the Feds pumping out money and people who were able to work remotely continued to work, but with no place to spend their money, the savings rate went up and our money supply is at the highest level it has ever been. Our homeless problem got worse, even though the City spent millions and millions of dollars trying to fix it. Many of our service workers, like waiters and waitresses, hotel employees, and entertainers, were out of work and had to claim unemployment, which is another sad story in itself.
Currently, with the population getting vaccinated and people feeling more comfortable and confident about the future and interest rates remaining low, the real estate market is red hot again. This feels like a normal spring market on fire with modified rules in viewing and showing property. This just goes to show that despite all our problems, San Francisco is still an attractive place for people to live!
We believe that 2021 will be a good year for real estate with all economic signs aligned in positive directions.
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.
Categories: Real Estate