As with so many other sectors of the economy, the Midpeninsula's real estate market has been upended by the state's stay-at-home order in response to the coronavirus crisis. Even if the federal government recently added residential real estate service to the list of "essential services," the Bay Area's stay-at-home order greatly affects how that service is provided. It's also the responsibility of all real estate professionals to act with extreme care to protect the community in which we're deeply rooted.
Real estate professionals have been ordered by the California Association of Realtors to cease all face-to-face marketing or sales activities. The entire real estate value chain is affected, as well. Preparations for homes going on the market, particularly the staging of homes, have stopped. Appraisals have been delayed, if not canceled. With a stock market meltdown, financial institutions are caught up with a sudden change in the economic outlook, and some nontraditional lenders, such as private equity and venture capital loan providers, have ceased lending. There are now some hurdles even at the end of the escrow/closing process, as most Bay Area counties have stopped in-person recording in favor of e-filing, which not all escrow companies are yet equipped to do.
Looking back year-to-date, we have limited data to show us the direction of the market, and it's possible that the limited data points may not be relevant anyway. In Palo Alto, there were 133 new listings from the beginning of 2020 to March 21, on par with 134 for the same period last year. Seventy-four homes went into contract, a 13% decline from last year. Among those 74, 41 have officially exchanged hands, and the remaining are still in escrow. The median price of all sold homes from the beginning of the year to March 21 was $3.1 million, a 10% increase from the same period of last year. However, 41 is only about 10% of the usual annual closed transactions. Price information from such a small sample pool does not give any reliable indicators.
From firsthand experience, I can say that the entry-level market (below $3 million) in Palo Alto had been quite active as buyers jumped in early to lock in the low mortgage interest rate. There were a limited number of new listings in Old Palo Alto and Crescent Park, and few testing the off-market at the high end. This high-end pipeline that was skewed toward late spring now faces serious challenges.
Based on normal seasonality, the period of March to June accounts for about 35 to 40% of the entire year's transaction volume. Our local real estate market is likely going to lose its high season this year. No one knows how the market will unfold in the wake of the global health crisis.
Our tech economy seems to be holding on well for now, as most people in that industry can work remotely. Silicon Valley companies are providing critical infrastructure to enable people to work, and children to learn, at home. However, the local tech economy isn't immune if the nation's economy falls apart. Compared to what I wrote in my article, "The sky is not falling yet," for the Weekly's 2019 Fall Real Estate magazine, the big picture is entirely different now. We're beyond the point where data from past downturns can help predict the future of the real estate market. When the actual economic damage over time is revealed, the stock market may head further south. Home prices will follow the downtrend, even though local home prices are more resilient and supply is at a historic low.
The coronavirus pandemic offers a serious sanity check to all sellers and buyers. When the real estate market resumes, sellers who adjust their expectations swiftly may be better off in assuming there may be a further downside to home prices. For potential sellers, the critical question to ask is whether waiting to sell can be an option if the recovery takes a couple of years.
Potential buyers will need to re-assess their purchasing power. They should also be prepared for even lower inventory, as Palo Alto sellers tend to have the patience and ability to wait, whether it's because of a smaller property tax burden (for residents who have been in their homes a long time) or low-to-zero debt financing. The stickiness is even more so for homes in the high price segment. Now also is a perfect time to remind buyers to plan for the long run. The current shelter-in-place order may have just made many of us realize how quickly we can grow out of our "shelter." In that sense, market timing is always less important compared with finding the right home.
The coronavirus reminds all of us how closely we are connected globally, regardless of cultures, religions or physical locations. Will the current outbreak stop globalization? Can Silicon Valley continue to be the world innovation center if the attraction to global talents dwindles? Our local housing market will be a byproduct of answers to all those questions.
Xin Jiang is a real estate agent with Compass in Palo Alto. She can be emailed at [email protected].