The market is hot
Pent up demand during the tightest quarantine period has thrust the number of sales upward. Multiple offers are common.
As of today (July 5), there are 1007 single family homes available in Santa Clara County. Over the last 30 days, there are 1,022 that went sales pending. Those are pretty good odds for home sellers!
The odds are better still for houses and duet homes priced at or under $1,200,000, which can often be a first time home buyer purchase price. For that pricing tier, there are just 289 active listings and 413 that went pending in the same 30 day period. In the most affordable pricing tiers, homes are selling faster than they are coming on the market.
Why are the entry level houses such a hot commodity? We don’t have data on motivation right now, but my best guess is that many of them want to get out of small apartments and into houses with yards since we are likely to be sheltering in place for a long time to come.
Quick overview of what is and isn’t allowed with real estate listings and sales
The landscape for home sales is complicated and restricted, but easier than it was earlier in this pandemic. The market is strange in many ways, but it is possible to buy and sell now, with restrictions.
- Real estate agents in Santa Clara County may show homes, but this should be only after everything possible has been done virtually and as a “last resort” per the county.
- Real estate agents may show up to 2 people at a time. (Previous requirement that they be from the same home is dropped.)
- NEW FORMS: Paperwork must be signed by buyers before they can view a home. One is the brand new PEAD-V advisory regarding the risks of being in a home at this time and a promise by the buyer that he/she is healthy and asymptomatic. Adults visiting the properties must sign it. If children will be going in, their names must be listed on the form. The paperwork is emailed to the listing agent before the home can be seen. (A few listing agents will not even schedule the appointment until they receive the form.)
- Additionally, there is a “best practices” document that buyers must receive.
- The current Best Practices document states that the home is supposed to be disinfected between showings by the buyer’s agent (this is new as of June 20th). The responsibility for this has bounced around and there is tremendous confusion on this issue. Buyers should not assume that the homes are disinfected between showings.
- The Best Practices doc says that the listing agent should be on site to make sure that the rules are being followed – but the listing agent does not go inside. That is not happening. Buyers and their agents are coming and going constantly, and it’s impractical for the agent to be at a listing all day. The buyer’s agent is asked to make sure that buyers observe the health order and guidelines.
- The listing agent is to provide hand sanitizer, disinfecting wipes, and masks in case the buyers or their agent do not have them. (Tricky requirement as they can be difficult to obtain, but most listing agents are providing them in my experience.)
- Paperwork must be posted outside of the front door with the rules for the showing and the best practices to prevent the spread of the virus. (State law.) In some condos / townhomes, I’m seeing them inside, though.
More changes (from normal):
- Open houses are not permitted. Some agents are doing “walk up appointments”, getting the PEAD V signed electronically, then showing the property. This appears to be a violation of the health order. We’ll see if it continues.
- Agents should not be using paper fliers or business cards (worry about spreading the virus on paper).
- Broker tours will not happen in person, but a licensee may do a live video tour during a specific time so that consumers and other agents can view the property virtually.
- It appears that shoe coverings are not required by law or the health order, however, listing agents may request that they be worn.
- Buyers and their agents are to drive separately and must stay 6′ apart from each other when touring homes.
- Many agents and providers are doing double duty with kids at home and trying to work at the same time as home schooling for the first time. Some have brought elderly relatives home to live with them. Expect delays in paperwork, reports, etc. getting turned around.
Escrow challenges include these:
- Most vendors seem willing to work (inspectors, stagers, etc.) and are allowed as essential.
- Appraisals appear to be mostly drive-by at this time.
- Delays may also happen from any number of directions if people involved get sick themselves.
- Initially, some buyers wanted to cancel their contracts. This was not a big number, perhaps 15% of all sales here. 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. That appears to have stopped now.
Other things to know:
- Title companies are operating, but doors are locked, most employees are working from home, and one must have an appointment to go inside the title company office.
- Our local MLS suspended the accrual of “days on market” from mid March to mid May, so take the “days on market” from those three months with a big grain of salt.
- 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.
- There’s also a listing agreement addenda regarding the risks of having visitors into the home.
What should home buyers or sellers do with this concern about the Covid-19 virus now?
Right this moment, the clouds are lifting and it is possible to buy or sell a property. If we get a “second wave” of the virus, we could have a new round of quarantine, and it could be stricter than the first one if the wave is also bigger. I would not assume that we are done working around the pandemic until there’s a vaccine, successful treatment, and / or herd immunity.
BUYERS: If you want to buy, if you haven’t done it already, 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. Interest rates are incredibly low. If you want to buy in 2020, I would not wait.
SELLERS: If you want to sell, now’s a good time to do the hire an agent and get going on everything. There’s a summertime window of opportunity and we do not know how long it will last. It is not too hard to sell now, especially in the lower price points, as long as the home is priced appropriately, marketed well, clean, easy enough to see, etc.
New cases of Coronavirus in SCC are rising steeply again
As of right now, July 5, there are 5273 diagnosed cases in Santa Clara County per the county health department’s website. We are averaging about 165 new cases per day (average of the last 7 day’s worth of data) – it had been 29 per day about a month ago, and new cases have been rising steadily, as have hospitalization rates. When we went into the lockdown, it was at about 55 – 60 in hospital beds. In recent days it’s been hovering at about 85. So it is worse than mid-March, when we began to Shelter in Place.
Why does this matter for Silicon Valley real estate sales? These numbers are important to watch as they may be a clue to future, more restrictive Shelter in Place orders being triggered, among other things. It is hard to imagine a “second wave” worse than what we are already seeing, but if that does happen, there’s no telling what the subsequent county health department orders will look like. The image below is from the county’s health department website, link provided above.
After the Shelter in Place is lifted, what is likely to happen
It’s not all or nothing, but instead there are phases of lockdown. We are currently in Phase 2 and seem to be stalled out there.
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 slowed during the peak of this first wave of the coronavirus, but as the virus is less pronounced and restrictions are lifting, real estate activity is increasing.
- Open houses are unlikely to resume until the virus is under control.
- 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 do virtually everything online, including contract and disclosure reviews with their agents by Skype. Currently, that’s the law, but it may endure as a preference once we move to stage 3 and presumably may meet face to face.
- Some will try to wait it out and put off selling or buying for one or 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.
- Turnkey homes will be highly prized, even more than usual, since home buyers won’t want a lot of contractors coming into their homes after close of escrow if they are living in it.
- Some buyers may be scared to look, especially if there have been a lot of people through the home.
- Some home buyers will press ahead, and will benefit from incredibly low interest rates.
- 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.
- Many are wondering this: if workers can work at home full time, can they live anywhere? If they can live anywhere, will they leave Silicon Valley and seek a less expensive place in which to live? And if that happens, will prices go down? This is really a question for corporate managers and CEOs. My own sense is that Silicon Valley is where the brightest minds are, and for many, that’s where they want to be no matter what.
- Another question has to do with foreclosures due to job losses or due to tenants not paying rent and the landlords getting squeezed with mortgages, taxes, etc. due on rental properties.
- Some sellers may wait until the virus is in the rear view mirror before wanting to put their occupied home on the market.
- 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.
- Some sellers are asking to see a pre-approval letter before permitting a showing.
- Some sellers / listing agents are requiring the Proof of Funds from cash buyers before permitting them to see the property. (My own buyers turned down 2 houses where that was the case recently, and went on to purchase something else. They felt that it was overly intrusive at the stage of seeing the home in person.)
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. I think frugality may reemerge as a popular trend, too. Not a bad idea, given how many of us got blindsided.
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. But either way, those who really want to buy and sell will find a way to do so.
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!