After an Unpredictable Start to 2020, East Bay Real Estate Is Showing Some Signs of Life, Even With an Uncertain Nine Months Still Ahead
Yearly real estate predictions usually come with a caveat: most markets tend to follow a formulaic course—except when they don't.
Sure, sudden ebbs and flows occur, but real estate is often a long game. When the market trends up or down, you’ll have enough time to make necessary adjustments, which is why most real estate prognostications are safe and benign. Then, a year like this happens.
Whatever prophesying you did when the calendar turned from 2019 to 2020 can pretty much be tossed aside. From worldwide viruses to stock market corrections to emergency interest rate cuts, it’s been quite the year—and we've yet to reach the end of the first quarter.
If all this wasn't enough, it's also an election year.
So, what does any of this have to do with the East Bay real estate market? Quite a bit, actually.
Let's recalibrate our predictions for 2020 and take a look at what the rest of the year might have in store for East Bay real estate.
Coronavirus' Impact on the East Bay
There's little question that what began as a regional medical scare in China has transformed into something far more significant. Coronavirus, or COVID-19, remains in its earliest stages in the U.S., but its social and economic impact continues to expand.
For instance, when the tech, music, and film festival SXSW canceled this year's event, it cost Austin, Texas upwards of $350 million in lost revenue to the local economy. The cancellation also puts next year's event in jeopardy, potentially placing an end to this popular, 34-year-old festival.
Here in the East Bay, we've yet to experience a singular financial blow as devastating as the one in Austin, but the list of economic casualties is growing.
Numerous schools, including UC Berkeley and the Oakland Unified School District, have canceled or suspended classes.
Social gatherings are feeling the sting of COVID-19. Dublin's annual St. Patrick's Day Celebration, initially scheduled for March 14th and 15th, was canceled.
Then there is the very real concern of quarantined cruise ships with COVID-19 patients aboard docking in Oakland.
In the wake of these sobering developments, there is a bright spot amidst the uncertainty—the potentially positive impact on the housing market.
For the East Bay, in particular, the virus has unwittingly breathed new life into a market that has stagnated by the end of 2019. Driving this more optimistic outlook is the Federal Reserve's recent decision to cut already historically low interest rates even further.
The reason for this emergency action is to stay ahead of any negative impact the virus might have on the U.S. economy. For East Bay real estate, it’ll help buoy the property market, blunting potential inactivity.
Lower rates may bring tepid and fence-sitting buyers into the market. It will also help sellers move inventory sooner, as well as those who missed out on last season. Even homeowners who are not interested in buying or selling are taking advantage of the low rates.
From consolidating debt to taking out cash for renovations to merely aiming to lower one's monthly payments, the rate cut has jump-started an otherwise slow start to the year.
One subsection of the market that might have to take a wait-and-see approach is luxury housing. COVID-19 stands to place an undue burden on high-end homes thanks in large part to travel restrictions placed on heavily-impacted countries, specifically China.
As wealthy Chinese nationals travel less, it could dry up a usually reliable stream of investment.
It remains too early to determine just how impactful COVID-19 will be as we move through the year. However, one thing is certain—it will create an opportunity for some to get ahead of their next cycle of housing decisions.
Slower Economic Conditions, Propped-Up Housing
Although rate cuts have an upside, they also come with a bit of caution. Similar to cuts made amid the 2008 financial crisis, the Federal Reserve states that the most recent reduction aims to protect a stable, yet anxious economy.
A recent, and somewhat dramatic, correction in the stock market and a bottoming out of oil prices has added to this financial anxiety. But again, this could provide a silver lining for the East Bay housing market.
While nobody wants to see devalued 401Ks or job losses, the corrections could ultimately lead to a vibrant housing market. In terms of pricing, first-time homebuyers could hit the market with greater buying power. Those seeking a lifestyle change—new families, empty-nesters, priced-out city-dwellers heading to the suburbs—will have more buying options as well.
Sellers could also benefit as the bidding frenzy of the past few years—which slowed to a crawl in the latter part of 2019—are revisited. Some already are.
Throughout the Bay Area, stories are popping up of clients bidding $100,000 to $200,000 over asking and failing to win the house, while $1 million offers, for less than million-dollar homes, are tossed aside for not being competitive.
Whether this will continue remains to be seen. Most of this anecdotal evidence occurred before the stock market lost value, or the COVID-19 scare ramped up.
However, even though the housing market is showing some life, there is one thing that could put a damper on it all—and it has nothing to do with a virus.
Inventory Remains the Major Concern
Right now, the current real estate climate is creating a rare moment in time—a market where both buyers and sellers can equally reap the rewards.
The problem that could pull the reins on any market run is the same as it's ever been for San Francisco, Oakland, and the East Bay—inventory. There just aren't enough houses to satisfy demand.
At the beginning of the year, it looked like some relief might be in sight. Mortgage rates were set to rise—if ever so marginally—and with fewer bites, market prices were primed for a modest reset.
As predictions sometimes go, though, the world had other ideas.
The bottom isn't suddenly going to fall out of the current market asking prices—homes will remain expensive. The Bay Area still maintains a strong job market, even if it's in a state of flux, and demand continues to outpace supply.
Inventory is not all doom and gloom, though. Limited foreign investor travel, which we noted earlier, could help boost inventory at higher price points. Until regular travel routines are reestablished, and the alarm over COVID-19 passes, it could translate into less competition and more opportunities for local investment dollars or genuine homebuyers.
Election Year Housing Returns
Finally, it's worth asking, with 2020 being an election year—a presidential cycle—is this one more pitfall the East Bay home market should brace itself for?
In short, not really.
There's evidence to suggest that high-dollar home shopping—houses priced $1 million-plus— grows sluggish around election time, from late-October into early-December.
Much of this caution stems from high-income earners taking a wait-and-see approach. Will tax and housing policies they've been familiar with over the previous four years remain the same, or will they be gearing up towards something completely different?
This wait-and-see attitude also extends to foreign investors for similar reasons.
Homebuyers that fall under that $1 million threshold are concerned less with tax implications and more with their immediate living situation, such as continued employment, family circumstances, mortgage rate stability, and, of course, if the inventory is there to potentially make a move.
In either case, actual home prices are mostly unchanged during election season and adhere closely to what the market can bear at the time.
With only three months in, it has been quite the start to the new decade. How should homebuyers and sellers prepare for what remains of 2020?
There will be a window of opportunity in the coming months. In fact, it's open now. Take stock of your financial and housing situation to measure if the time is right to make a move—be it to buy or to sell.
Remember that no matter your circumstances, evaluate your current housing situation very carefully. Don't make a transaction on a whim, especially with so much uncertainty in the air. You don't want to unnecessarily give up a home you love or nab one simply to win a bidding war.
Of course, the climate creating these current economic and housing conditions could vanish just as quickly as they appear. Even though inventory remains strained, we're confident that in a market like this, deals are available.
Seek out the ones that make sense for your situation.
Are you ready to discover if the market is right for you to make your next major move? Contact Prema Real Estate
today and let us be your guide to the East Bay luxury homes in Danville, Dublin, or Fremont, California.