April 1, 2020
A Message from Our Crew to Yours
We hope this message finds you healthy and well. In unprecedented times like these, it’s important to band together and support one another. Our crew is committed to continuing to serve all your real estate needs while incorporating safety protocols to protect all of our loved ones.
As we all navigate this together, please don’t hesitate to reach out to us with any questions or concerns. We’re here to help and support you.
– HELM Real Estate
THREE NEWS STORIES IMPACTING YOUR LOCAL MARKET
We’ll continue monitoring the impact of COVID and will keep you up to date on how it’s impacting our local market. It’s important to remember that real estate is a much more durable investment than most, even in trying and uncertain times.
The stock market falters. The longest-running bull market in history ended in February 2020 due to uncertainty around COVID-19. Both the Dow Jones Industrial Average (Dow) and the S&P 500 indices peaked in February, on the 12th and 19th respectively. As of March 13, the Dow lost 22% of its value from its peak one month earlier. The S&P 500 followed a similar path and is down 20% from its peak. On March 12, the Dow had its worst trading day since the 1987 crash, triggering the second trading halt in one week.
In the midst of this news, it’s important to recognize that the S&P 500 increased over 330% in the last 11 years. All of that wealth has not been lost over the last month.
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 have created an opportunity for buyers eager to enter the market.
&nb width="100%" src="https://res.cloudinary.com/luxuryp/image/upload/v1661874273/pxgrolbsyvlnzj1lixuk.png" />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.
Lower rates will encourage current homeowners to refinance and potential buyers to enter the market to take advantage of the cheap financing opportunities. In this climate, investments in real estate will potentially increase, driving prices higher as investors allocate capital away from stocks.
Looking ahead, we expect an increase in volatility in stocks and bond yields to dip lower and lower as quantitative easing progresses. An investment in real estate may actually be the best allocation at this time.
UPDATE FOR THE SAN FRANCISCO HOUSING MARKET
Median home prices have been trending upward since the summer of 2019 due to low-interest rates and a period of economic expansion. The stock market hit all-time highs in the third week of February before pulling back considerably.
In February, median home prices increased for both single-family homes and condos. Single-family homes are up over 7%, a turnaround from a year ago when prices were down by double digits and interest rates increased. In general, appreciating prices signal a healthy demand for housing and encourage sellers to price their homes slightly above comparables.
A rise in median prices reduced the number of homes that sold with a price cut. In January, one-quarter of homes sold with a price cut. By February, only 12% did. In short, lower interest rates and rising prices are enabling sellers to make fewer concessions on listing prices.
In February, supply levels tightened further. This trend is caused by more buyers entering the market since the beginning of 2019 to take advantage of low-interest rates. In tight markets like San Francisco, the amount of available housing for potential buyers remains an issue. Inventory is down and fell even further in February.
The sale-to-list price ratio reflects the difference between the original list price of a home and the final sale price. For example, a ratio of 100% means that a home sold for the price it was listed. Single-family homes typically have higher sale-to-list price ratios than condos.
In February, both single-family homes and condos sold well above the list. This reversed the January trend for condos that were selling at a slight discount to the list. Buyers should be prepared to make an offer well above the list price.
Days on market (DOM) measures how many days it takes from the first day of listing for a seller to accept an offer. A year ago, single-family homes were taking 80% longer to sell than the previous year—an astronomical slowdown. Now DOM has returned to more typical levels for this time of year. The market moves slower during the winter months before speeding up during the spring and summer.
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.
Current rates are so low that 9.4 million borrowers could save an average of $272 per month if they were to refinance to a lower rate (Black Knight). Approximately three million homeowners who took out mortgages in the past three years now could save 0.75% or more on their mortgage rates. That’s a collective $2.6 billion per month—the highest potential savings in twenty years.
As always, we remain committed to helping our clients achieve their current or future real estate goals. Our team of experienced professionals would love to discuss all the information we’ve shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home or condo.
If you are interested in selling, buying or just curious about the
San Francisco and Bay Area real estate market, please give me a call.
We are here to help you and anyone you care about.
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