There is a significant amount of fear and genuine concern around the coronavirus/COVID19 lately, as it continues to spread around the world and now, here, in the East Bay. People are increasingly affected by the illness and worry for their loved ones. Our hearts go out first and foremost to families that have experienced a loss. We also feel for our communities suffering from the emotional or economic impacts of the virus. If you are feeling fearful, we find the following facts useful: (source: Coronavirus: How to Keep Things in Perspective, by Ignacio López-Goñi for World Economic Forum)
- We know what it is
- We know how to detect the virus
- The situation is improving in China
- 80% of cases are mild
- People heal
- Symptoms appear mild in children
- The virus can be wiped clean
- Science is on it, globally
- There are already vaccine prototypes
- Antiviral trials are underway
Health and emotional concerns notwithstanding, Berkeley Hills Realty is here to be your real estate resource and we provide the following economic points for your consideration:
1. Real estate is a long game, the virus will have a short tail.
If you are wondering if you should continue your home search, remember, real estate is a long game. Whether you ascribe to the optimism of a seasonal virus or carry the concern of a worldwide pandemic, this hardship will end. Although not soon enough for the 5% most severely afflicted, a vaccine will come. The median duration of homeownership in the United States is 13.3 years. The world and local economies will be back on track before your next move. Don’t put off life entirely for a short term fluctuation.
2. Forecasts have been downgraded, but economy may still expand.
From the California Association of Realtors, “Last week, the International Monetary Fund (IMF) cut its forecast for global economic growth by 0.1%, but is still calling for an expansion in 2020, albeit at a slower pace. Similar orders of magnitude have been forecast for the domestic economy, with groups like Wells Fargo and others expecting GDP to grow by 10-20 basis points slower than their pre-Coronavirus forecast. Growth is expected to be slower, but the economy is still expected to grow.”
3. Stay calm and carry on. Shelter in place still needs a shelter.
Whatever the circumstance, people need housing and will continue to need housing. Homeownership is the safest way to establish a permanent shelter. We see this necessity manifest in the throngs of people still attending weekend open houses.
4. Amid stock market woes, real estate provides a safe harbor for funds.
The Dow Jones stock index dropped 12% in value last week illustrating the fact that there is plenty of dread surrounding the potential impact from the virus. However, even though the overall stock market had its worst weekly declines since the 2008 financial crisis during the week of February 24-28, it rebounded on March 2 to 1,294 points or 5.1%— with its largest one-day point gain ever. Then it fell at the beginning of the next week, rallying some again by March 10th as world leaders developed a global plan.
The stock market is volatile. We have seen this before, and know where savvy investors moved their funds. They moved towards real estate. Losses in the stock market may sideline some buyers who have lost liquidity. Others may look toward moving money out of the stock market entirely and place it into real estate holdings until the world economic dust settles.
5. Interest rates are dropping!
The Federal Reserve issued an emergency 50 basis point cut to their target interest rates, and guidance suggests that the Fed may be open to future reductions in order to counteract the negative impacts to financial markets. This week, mortgage rates fell to an all-time low level of just 3.13%. That is down from 3.80% at the start of the year and represents significant cost savings over the life of a 30-year loan.
Lower interest rates don’t just lower monthly payments. Lower interest rates can increase the amount of house and square footage you can purchase to meet your family’s needs. As the California Association of Realtors stated, “Short-run risks to the economy exist but are arguably offset by long-run benefits of lower rates at the individual level.”
6. Local economies will be hurt, but real estate is likely resilient.
From event producers to gig workers, our local East Bay economy will experience an economic blow from shuttered doors and CDC recommendations to avoid crowds. Unfortunately, our lowest-paid workers from Uber drivers to wait staff may feel the brunt. This puts homeownership further out of reach for some members of our community, but may not do much to decrease real estate values. The sad truth is that we have already seen our market price out pace most hourly employees. Other sectors will be more resilient. Tech jobs, for instance, will be more flexible and allow workers to work remotely from home. There may be a small short term blip as people adjust to the new normal of caution in crowds and increased handwashing. However, this won’t be an affordability equalizer as those who have been able to buy homes are likely to have more resources to weather this storm.
7. Foreign investment may be curtailed.
Per the California Association of Realtors, “Reduced economic growth in China, specifically, could stifle demand for California real estate this year. However, foreign buyers represented just 3.9% of California’s home sales last year, so the impacts statewide will be muted compared to 6 years ago, when foreign buyers represented 8.0% of the market. In addition, because domestic buyers typically finance their homes in much larger proportions to their foreign counterparts, low rates could stimulate more domestic demand that would help to offset the impact to foreign buyer demand.”
8. It is an election year and local and federal politicians are motivated to protect the economy.
This is an election year. Local economies will be impacted and our governments will do their best to show immediate and meaningful action to protect our citizenry and economy. Currently, a payroll tax cut is in the works of up to 2%.
9. New home construction could slow further.
As building materials are affected by the interrupted supply chain from Asia, new construction may slow. This combined with the low interest rates could put upward pressure on home prices.
10. Even if real estate stays steady, economic recovery will take longer than SARS in 2000.
Based on all the other points listed, we don’t expect the bottom to fall out of the real estate market. Remember we were the ones who said the IPO boom wouldn’t bring crazy prizes, which it didn’t. Likewise, we don’t see a huge impact on home prices now. We see little reason to wait to sell your home. In addition, if there is a short-term blip, for sellers it will feel like a long wait. Because vaccines can take more than a year to be tested and approved, we recommend not waiting unless you can afford to wait longer than three years. The Bay Area is resilient. Our open houses are still showing lots of activity and our marketing campaigns are still resulting in multiple offers.
Concerned buyers may be willing to put their search off until the health risk is better understood and/or abated. Open houses may be impacted and we may have more clients asking for private showings to avoid crowds. Since most searches start online, buyers are just a click away to get to a private showing. We may see a decrease in multiple offers, but we do not have the expectation that buyers will stop their search entirely.
It is important to follow the precautions from your local jurisdiction, but real estate is not a crowd dependent event and Berkeley Hills Realty will take extra precautions to protect our community. Beyond regularly disinfecting our office and providing hand sanitizer at our open houses, we offer personal service at a safe distance. We offer the technology to allow you to sign documents on your own hand-held device, and we are happy to accommodate private tours to any homes available in the area. Please accept our friendly smiles in lieu of a hand shake as our new cautious greeting.