This post on the coronavirus impact on real estate sales here in Silicon Valley is updated every few days, so please keep checking back often. The situation is changing daily, both overall and in terms of real estate restrictions and market activity.
Coronavirus numbers in SCC continue to rise dramatically
As of right now, March 30, there are 848 diagnosed cases in Santa Clara County per the county health department’s website. (Side note, the county has a new website but now it is not reporting the number of hospitalizations or numbers of people in the ICU. Hopefully that info will be shared again soon.) We need to see the number of new cases per day decline before we’ll see things approaching more of a normal. Hence the daily count posted. Right now, they are tripling per week with no slowdown in sight.
You may want to pay attention to the number of cases when the Shelter in Place order was imposed, as we may need it to be less than that for the order to be lifted.
Short answer about what is happening now: the real estate market is close to a full stop at the moment. A few homes are closing escrow, but fewer homes can sell or get through inspections / appraisals now. As of today, March 31st, a few restrictions have been lifted, but there are many challenges to buying or selling a home right now. Full answer is below.
There are 3 stages now for us to consider when asking about the implications on real estate sales: the current Shelter in Place period, the period just after the Shelter in Place order has been lifted, and the long term after effects / changed reality. There are also multiple layers of restrictions that have been in play even apart from the Shelter in Place, such as a restriction on the number of people who could be in one area at the same time. When the Shelter in Place begins to lift, most likely some other restrictions will remain. It won’t be a black and white scenario, like the end of the school year. Expect nuances.
1 – During the Shelter in Place: Can real estate listings, showings, sales, and closings take place now?
As of March 17, Santa Clara County, and 5 other SF Bay Area counties plus Santa Cruz County, mandated that we all “shelter in place” or stay home or practice until at least April 8. (The governor called for a lock down of the entire state a few days later – with no end date.) This has now extended to all 9 of the SF Bay Area Counties, plus Santa Cruz and Monterey Counties, and currently goes through May 1st. Given that last weekend we learned that the peak number of cases is due in late April, I would expect this date to be extended to at least June 1st.
There are very few exceptions to the Shelter in Place order for essential services, such as grocery stores, hospital workers, banks, title companies, letter carriers, etc. (PLEASE READ): Order of the Health Officer of the County of Santa Clara.
On Friday, March 27, we received word that the U.S. Department of Homeland Security and Cybersecurity and Infrastructure Security Agency (CISA) have deemed residential and commercial real estate as an essential service (under “OTHER COMMUNITY – OR GOVERNMENT – BASED OPERATIONS AND ESSENTIAL FUNCTIONS.” Bullet point #15). https://www.cisa.gov/
And today, March 31, six Bay Area Counties came out with new guidelines on the concept of what is an essential business. They have loosened up the rules A LITTLE. Here is the new order:
x. Service providers that enable residential transactions (including rentals, leases, and home sales), including, but not limited to, real estate agents, escrow agents, notaries, and title companies, provided that appointments and other residential viewings must only occur virtually or, if a virtual viewing is not feasible, by appointment with no more than two visitors at a time residing within the same household or living unit and one individual showing the unit (except that in person visits are not allowed when the occupant is still residing in the residence);
As I’ve been sharing over these last three weeks, this is a moving target.
- Real estate agents may show vacant homes only (not occupied homes)
- Real estate agents may show up to 2 people who currently live in the same household, no more
Escrow challenges include these:
- inspections are not permitted currently (that could change)
- appraisers are not listed as essential, however, some banks consider them to be essential and some banks are having drive by appraisals – this could be a rough spot if a buyer’s lender is not permitting appraisals to take place
Open houses are not permitted. Photographers do not appear to be listed as essential. The order has removed the permission for home construction, so fixing a house up to sell is not allowed for now. The county really wants people to wait to buy and sell homes, but has allowed for a bit of leeway – but this is far from a big “green light”.
Here’s a word from Chris Trapani, founder and CEO of Sereno Group, the company with which I work, from Tues March 31.
The company’s main concern is the health and well being of all. I agree with that stance 1,000%. When the Shelter in Place was ordered, there were 155 diagnosed cases in the county, and now there are nearly 900. It is safer now for us to be out and about? No. If the peak is in late April, as is predicted by the experts, we probably won’t see the number of diagnosed cases back to 155 until June 1st (my take on it – 5 or 6 weeks before and after the peak).
Right now, the immediate coronavirus impact on real estate sales, what is happening:
- Some buyers are wanting to cancel their real estate contracts. There are many reasons: perhaps they cannot have inspections or an appraisal, perhaps they have seen the stock market fall (that is not a contingency), perhaps they are afraid of the virus. This is a bit of a mess. Attorneys may be busy.
- Real estate agent services are now considered essential by the Santa Clara County order. At the same time, there are many restrictions by the county on the type of home to be shown (vacant property only), the number of people we can show them to (only 2, must be in same household). No open houses, no photo shoots, no inspections, no appraisal appointments. Makes it hard, if not impossible, to sell homes except to all cash offer buyers in which the home already had acceptable inspections. Buyers’ agents may not visit the property, which is required to do their Agent Visual Inspection Disclosure. Homes can get in escrow, but getting them closed will not be possible unless the order is altered somewhat.
- At the same time, we Realtors ARE still working! We are in business, here to do what is possible. Much of our work is done at computers, and that hasn’t changed. We have had to shift to a totally mobile operation. But rest assured we are not all taking a stay-cation.
- Title companies have locked their doors. People may come in by appointment for necessary signings, but their lender or Realtor won’t be allowed. Only those who are signing will be present (we Realtors and lenders will be available by phone).
- The companies that put up and remove the for-sale signs are also “non essential”. Yard signs will not go up or down during this period.
- Banks are still operating. They are encouraging mobile banking rather than in-person meetings for needs. For new sales, buyers may prefer to wire funds to title, but being extra careful when doing so as wire fraud is an enormous problem.
- Appraisers – gray area – some banks continue to order appraisals, other says it’s not allowed. This is a developing story. Appraisers have the added challenge of using true comparable properties since the market has pretty much come to a dead stop, and sales are slowing. (If the lock down continues for long, I anticipate that the state may permit inspections but without agents or consumers present.) UPDATE from my lender at Wells Fargo: “For purchase and no cash out refinance, Wells Fargo will use Drive-By Appraisal report. We will prioritize the purchase appraisal order. “
- Home repairs by plumbers, roofers, electricians and so on are essential and those services should be available.
- Inspections for escrows / listings seem like they will not be considered as essential. That’s still getting figured out. (If the lock down continues for long, I anticipate that the state may permit inspections but without agents or consumers present.)
- Our local MLS is suspending the accrual of “days on market” since homes cannot be seen now.
- There is now an addenda from the California association of Realtors to address closing and other delays due to Covid-19. Some companies may create their own similar addenda for the coronavirus escrow complications and delays as they won’t like the language in the CAR form.
- Some sales are still coming together. It is still possible to write contracts on homes, get them accepted, and close escrow, but some of the normal pieces of the process will be missing during this time. Escrows may take longer, especially if people involved get sick, such as lenders or underwriters. It is not possible to do agent and client appointments at this time, so workarounds must be employed, such as mailing or overnighting a new owner the set of keys at close of escrow.
What should home buyers or sellers do with this concern about the Covid-19 virus now?
Right this moment, the brakes are on. It feels a bit like post 9/11. We were told that’s the case until 12:01 am on April 8th, but now the governor has made it statewide and there’s no “end date” given for the order to be lifted and the county states the current end date is May 1st.. Our case numbers continue to rise, so I[‘m expecting us to be in lockdown for 2 months or more. They’ll want to see that the trend is improving before lifting the order. How much, who knows? Right now, it’s getting worse every day, rising exponentially. Hopefully our sheltering in place will reverse the trend. That’s when we’ll see the light at the end of the tunnel.
BUYERS: If you want to buy, now is a good time to pull your paperwork together for a pre-approval, or better yet, to get it pre-underwritten, which does take time. Submit your taxes sooner rather than later so your lender has one less issue.
SELLERS: If you want to sell, now’s a good time to do the paperwork with your Realtor to sell (and he or she can assist you with disclosure paperwork, too). You can work on the decluttering, and to generally organize. You can line things up so that the pre-sale inspections and photography can happen as soon as you get a green light. A lot of what needs to be done with your Realtor can take place over the phone or via a video conference call.
So this period at home does not have to be a wasted time.
2 – After the Shelter in Place is lifted, what is likely to happen
Once we are through this period of the Shelter in Place order, which I think may be June 1st or so, there will be some challenges that linger for awhile.
It’s possible (I believe this will be the case) that we may cycle through periods of home quarantine and more freedom between now and when a vaccine is available.
Social distancing will probably be a new normal until new antiviral treatments are ready and vaccines are in use (12-18 months from now or later for the vaccines?). Another big help will be having the antibody test, so folks will know if they’ve already had it (and hopefully cannot get it again).
Overall coronavirus impact on real estate sales:
- Home sales will likely slow as we go through the peak of the pandemic, and there’s a good chance that prices may fall. However, if Silicon Valley sellers hold off on selling but the demand by home buyers is continuing, prices could rise locally.
- Some buyers, sellers, Realtors, and others relevant to buying and selling homes will be continuing to have restrictions due to age or chronic health conditions, so I believe that we will not have everyone jumping back into the market at once.
- With many getting sick, loans and appraisals may be far slower. Escrows may be delayed and generally take longer.
- Home buyers or sellers may do more contract and disclosure reviews with their agents by Skype or other similar services just to keep exposure risks down. Phone calls may take the place of in-person meetings.
- Agents will be less physically present, not attending meetings where they could avoid going, such as the signoff. In some states, agents do not attend inspections. Could that happen here?
- Some will try to wait it out and put off selling or buying for a couple of years, until there’s a vaccine and it’s in wide use.
- Others will proceed with buying and selling, mostly cautiously, until the virus threat is tamed.
- Some buyers may be scared to look, especially at busy open houses or if the sellers or anyone in the household has been sick.
- Home buyers may want to avoid open houses all together and request more private showings from their buyer’s agent. Buyer’s agents may do more video walk throughs for their clients who are sick or trying to not get sick.
- Some home buyers will press ahead, and will benefit from incredibly low interest rates.
- Buyers and their Realtors will be driving separately (for the sake of social distancing).
- Home buyers will be watching the stock market and may be shut out with these historic falling values if their down payments are not in cash.
- I wonder if buyers will look to buy larger homes since they know they could have to self isolate again in the future? Having more space is helpful.
- Costs: interest rates may go down if buyers pull back. Remember, you buy a loan product, you don’t just get a loan. Loans are like any other product in terms of the price charged relating to supply and demand. If the demand sinks, the price (interest rate, fees, etc.) will likely sink, too.
- Open houses may become more scarce, private showings a more popular alternative to keep the extraneous traffic in homes for sale down. Sellers and their agents will need to discuss this very thoroughly.
- Agents, or many of them, may be worried about having open houses. Do they have to do them? Will sellers insist? Will sellers refuse to have them? It will be a discussion.
- There will be more homes sold vacant or vacant and staged and that hand sanitizers will be as common as booties going forward.
- Some sellers may treat their houses like multifamily homes, in which bidders get into contract before they see the interior of the home. (Those are offers subject to inspection.) Sellers or agents may provide video walk throughs, floor plans, or other ways of seeing the home without being there in person.
- Cash offers may be even more preferred as offers with loans go a little slower and create more uncertainty.
- The iBuyer option, which may be more appealing to sellers who want to get out quickly, appears to be shut down for now as one provider after the other shutters their programs for the time being.
- If sellers live in their homes while selling them, if the market is strong, they may vacate for the period of active marketing plus however much time is deemed for the virus to no longer be active on surfaces. For example, if its learned that the virus lives on surfaces 72 hours, the sellers may permit showings for 7 days and then have 3 days with zero visitors, returning home on day 11. Related: The National Institutes for Health states that in testing, the virus “was detectable in aerosols for up to three hours, up to four hours on copper, up to 24 hours on cardboard and up to two to three days on plastic and stainless steel.” There have been rumors of the virus living up to 9 days on metal surfaces, but I have not found that cited in any solid sources. (Another site, the Journal of Hospital Infection, gives a longer period of time.)
There are many articles circulating about what to expect, what to do to prevent transmission, and even some projections on timelines. The California Association of Realtors has just put out an article with excellent information: Coronavirus Impacts on California’s Housing Market.
3 – Long term ramifications of the coronavirus impact on real estate sales
Some events in our shared experience are so profound that they leave a lasting impact on those who lived through them. My grandparents were frugal as a result of living through the great depression. Many of us prepare for earthquakes better since experiencing the Loma Prieta and Northridge quakes. We no longer go through airports the same after 9/11. The emphasis after all was safety.
I believe that this is such a time and that the impact will be felt going forward. Safety precautions will be more prominent, just as they are more important now for earthquake preparedness and airline safety post 9/11.
Once there are antiviral treatments for this pandemic, people will relax a little, knowing that the worst complications can be averted. Once there’s a vaccine, most fears will ebb.
Until there’s a vaccine, I believe that the current pandemic is going to create permanent change in the way we conduct real estate sales here in Silicon Valley. A lot more will be done online, electronically. Meetings that used to be face to face will probably shift to video calls or regular phone calls.
We will be OK, we will get through this. Homes will sell again, if after a bit of a delay or a little different of a process. My own feeling is optimistic. We got through crisis periods with the Loma Prieta Earthquake (I did my final walkthrough on my first house 2 hours before it hit – we closed about 10-14 days later, but did close!), 9/11, etc. Things that we cannot anticipate happen. We work with what we have. Right now, we are fortunate to have so much of what we do be online. It would have been a different story had this happened in the 1980s!
I want to thank all of you who are complying with the shelter in place order, and a double thanks to all of you who are doing so cheerfully.
I want to thank all of the first responders, those who work in medical care in any capacity, and all who are working through this time to bring us our mail, deliveries, and enabling the most essential items like getting food and medicines during a time when they’d probably rather be sheltering at home and away from the public themselves.
I’d like to thank leaders everywhere, in government, business, and medicine, for being forward looking to get ahead of the curve so we can collectively have a better outlook.
Please stay well, one and all!