Real Estate: 2nd Q 2020 Market Review
SLV Homes
By “M.C.” Dwyer
Market Review: 2nd Quarter 2020
During the second quarter of 2020, average home prices rose across most of our region.
San Lorenzo Valley 2nd quarter average single family home prices rose about 6% compared to the 1st quarter, and when compared to this time in 2019, stayed nearly flat while the number of sales rose 22%. On average, SLV homes sold for 100% of list price.
Scotts Valley 2nd quarter average single family home prices rose because the decline in the 1st quarter was largely due to an anomaly in the price mix of properties sold. About 16 fewer homes sold compared to the same time last year, a 35% decline. On average, homes sold for about $7500 over asking price, a premium of 1/2%.
Santa Cruz County 2nd quarter average single family home prices rose about 7%, versus the 1st quarter; but prices were about 4% below this time last year. The number of homes sold was about 17% lower than the number sold during this period last year. Sales prices averaged about 1.6% below asking price.
May California Statewide
Results according to the California Association of REALTORS: Median single-family home prices fell 3% during the month to $588,070, and 3.7% year over year.
On the West Coast, the rate of home sales spiked 50% in May, as stay at home orders loosened. Year over year, the rate of home sales fell just 2.5%. In addition to pent-up demand, buyers who feel their jobs are secure want to take advantage of historic low interest rates hovering at or even below 3% for the 30-year fixed rate mortgage. The Federal Reserve (Fed) has been very proactive in handling this crisis. But recently, the Fed warned that the inability of the US to control the spread of COVID-19 will most likely dash hopes of a rapid, V-shaped economic recovery.
What effect will this coronavirus-induced recession have on home prices? Much depends on our ability to control the spread and keep the economy open. The effects on our economy so far are terrible: about 14% in the Bay Area need food support. Nationwide, unemployment fell to about 11% in June. California’s unemployment rate fell to 14.9% in June. The latest Housing Wire report on forbearance (mortgage payments being renegotiated between borrower and lender) fell to about 8% by the end of June. Notably, the first short sale since the housing debacle of 2008 was listed for sale: that’s when a seller owes more than the home is worth.
While you might assume recessions always lead to lower home prices after the 2008 Great Recession, when the housing bubble burst and prices dropped about 19%, this one may not. CoreLogic released a study showing homes actually appreciated between 3.5% and 6% during three of the past five recessions (1980, 1981, and 2001). We are undergoing a paradigm shift where more buyers are choosing a rural lifestyle, as more people can work remotely permanently. Also, this recession is unique: it’s caused by a health crisis, not a speculative bubble. Lenders over the past decade focused on financially sound borrowers with larger down payments. This cycle, most people chose the 30-year fixed rate mortgage (so their loan payments won’t go up over time).
The biggest issue is lack of inventory – too few homes are for sale compared to the number of buyers. This tends to drive prices higher. Recently, I represented buyers who were just one of 12 offers. The property sold to buyers who offered 10% over asking price and removed many of the contingencies with their offer. Why is inventory so low? Some people are concerned about the risks of having their homes shown to buyers. But the California Association of REALTORS provides updated coronavirus safety protocols to follow. Many homeowners have refinanced and are staying put. Santa Cruz County’s senior homeowners have fewer choices to move and keep their property tax basis, so some don’t want to sell. There will be a proposition on the fall ballot allowing seniors, disabled, and victims of natural disasters to move their property tax basis across California, which could open up more housing choices.
“M.C.” Dwyer, MBA, REALTOR® CA DRE License 01468388
Century 21 Showcase REALTORs®
E-mail: mcd@mcdwyer.com
Property Search: www.mcdwyer.com
