How COVID-19 Has Impacted Real Estate in San Francisco So Far

Castro Street during the quarantine. Photo by Christopher Michel via Flickr under Creative Commons license.

It will take time before we see how COVID-19 and our shelter in place orders will have impacted home sales and prices in the market. Instead, I wanted to give you a realtor’s-eye view on what’s happening here and now, anecdotally.

First, understand that things are changing every day — sometimes more than once a day. The entire industry is reeling to react to this situation. It’s also worth noting that we are first and foremost focused on the health and safety of our clients, and many of the changes that are happening directly reflect that.

Showing Homes

When the Bay Area mayors announced an order to shelter in place (SIP), initially the California Association of Realtors (CAR) stated that showing open houses was at the discretion of independent agents, but swiftly changed their position when Governor Newsom announced the statewide order on March 19, stating:

“The real estate industry is not exempt from this prohibition except as needed to maintain “continuity of operation … of … construction, including housing construction.” Therefore, REALTORS® should cease doing all

in-person marketing or sales activities, including showings, listing appointments, open houses and property inspections. Clients and other consumers are also subject to these orders and should not be visiting properties or conducting other business in person.”

Consequently, all open houses were precluded going forward. For the time being, properties can only be shown virtually. (There is a stipulation for cases if a virtual showing is not feasible, but if you’re reading this blog post, you are capable of viewing a virtual showing.)

More than just showing homes, real estate is a very high-touch business, requiring in-person contact with appraisers, inspectors, notaries, title companies, stagers, photographers, and many others. Negotiating these relationships suddenly became more challenging. This obviously had a huge impact on the market, which pulled back sharply, as these charts illustrate.

San Francisco Weekly Units Expired

Specific to San Francisco, you can see how drastically things changed in one week, with 270 listings expiring. The following charts are for the 6 inner Bay Area counties:

Bay Area Listings Accepting Offers

Bay Area New Listings Coming on Market

Bay Area Listings Withdrawn from Market

Normally, of course, this is when our spring selling season should be really chugging ahead, but COVID-19 caused the industry to basically hit the big pause button while we figured out how to build new processes.

Now, the federal government has established that real estate does qualify as an “essential business,” but that certainly does not mean that it’s back to business as usual. State and local rules take precedent, and common sense should always rule.

Still, new properties do come onto the market, and existing ones do sell. Just a lot fewer of them, and it could take longer.

Financing

Prior to SIP, the biggest problem with financing was that lenders were too busy. The Fed had dropped rates to unprecedented lows, basically to zero, and so buyers and refinancers alike were having a feeding frenzy. With the pall of uncertainty, things changed swiftly. The secondary mortgage market, which is the engine that drives most lending, froze, which last happened during the 2008 credit crisis. This in turn cause interest rates to jump up a point in one week. Wells Fargo, the largest home lender in San Francisco, ceased lending because they couldn’t do appraisals on properties. Things have relaxed somewhat; for example, most lenders are allowing for drive-by appraisals that do not require appraisers to actually enter the property. That said, lenders are getting more conservative. It will be harder to get financing without a full 20% down, and bridge loans will also become difficult.

If your income has been impacted due to the pandemic, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, has some stipulations that can help. First, individuals who make less than $75,000 a year, or couples who make jointly less than $150,000 a year, will receive a one-time stipend of $1,200 per person, plus $500 per qualifying child. Unemployment has been expanded to include independent contractors, as opposed solely to W-2 employees. Any many banks and lenders are offering deferral programs for mortgages, car payments, and certain other loans. Check with your institution for more information.

What’s Next?

I mentioned 2008, but in many ways this feels more like a 9/11 moment, albeit one that’s playing out in slow motion. COVID-19 is an external factor that is causing people to pull back, but the underlying conditions in the market remain in good condition — for now. I do think we will be in a buyer’s market, since competition for listings will be low, and market conditions are uncertain. So, if you have the money on hand for a full 20% down payment (i.e., don’t need to pull from the market), there could be opportunity.

Certainly here in the Bay Area we are very well equipped to stay working and be productive thanks to technology. So, this too shall pass, but how long it will take is the great unknown. As of now we are under SIP until May 3, but if I’m being honest, I think it’ll be longer than that. Things will be different. We’re taking it one day at a time. But what I do know is that we always do recover, and often stronger than before. It pays to stay optimistic.