Measured weekly, homes under contract are in steep decline; current data still illustrate a pre-virus market as home prices trend upward and buyers pay a premium to secure a Greater Bay Area home.
April Housing Market Update for Greater Bay Area
Shelter is always a basic need. Life events—such as relocations, divorces, and deaths—still require people to buy or sell real estate. Real estate has been declared an essential service because everyone needs shelter, particularly in the time of social distancing. To that end, we remain committed to keeping you informed about local market conditions.
The pandemic’s impact on the housing market is progressing so rapidly that we can see its effects on a weekly basis. The graph below shows homes under contract, not by month (as is typical) but by week. We can see that homes under contract declined quickly after California’s Governor Newson issued a statewide stay-at-home order. A decrease in homes under contract is the leading indicator for a decrease in home sales.
Measuring the rest of our data monthly, is important to keep in mind that there is a lag of at least 30 days between when a contract is accepted and when the sale of a home finally closes. The means that March data, such as median sales prices, reflects the market before the shelter-in-place rules went into effect.
The Greater Bay Area’s median single-family home prices rose in March. Although the pandemic and stay-at-home orders dampened buyer demand, the number of active listings also decreased, which kept the price fairly stable. This puts more pressure on buyers to get offers accepted before conditions worsen and even more listings disappear.
Compared to March 2019, prices were actually higher across all Greater Bay Area counties in March 2020. For potential sellers wanting to list, appreciating prices typically signal a healthy demand for the available housing and encourage sellers to price their homes slightly above comparables.
The sale-to-list ratio reflects the change in the original list price of a home and the final sale price. For example, a ratio of 100% means that a home sold for the price it was most recently listed. Single-family homes typically have higher sale-to-list ratios than condos. In March, buyers paid an even greater premium for single-family homes, which sold well above list while condos sold close to list.
Months supply of inventory measures how many months it would take for all current listings on the market (including listings under contract) to sell at the current rate of sales. In California’s high-demand market, a balanced supply level is three months, which means there are three months of housing inventory on the market at the current rate of sales. A market with less than three months supply of inventory favors sellers.
In March, supply shrank as sellers pulled their listings. In already tight markets like Greater Bay Area, this rapid decline in supply was bad news for buyers.
Compared yearly, supply levels shrank in all Greater Bay Area counties. Marin’s supply levels were almost half of what they were this time last year.
With less inventory on the market and less buyer demand, home sales fell for both single-family homes and condos. CAR’s Appleton-Young commented on this trend in her April market update:
Lastly, we look at days on market (DOM), which measures how many days it takes a seller to accept an offer from the first day they list their home. DOM fell steadily for the last 12 months before beginning to tick up in March.
The DOM is still lower now than it was this time last year, but moving forward, we expect homes to take longer to sell because many of the steps in the home-buying process are now being done virtually. While we pride ourselves on being on the forefront of virtual transactions, the process is new for many buyers and sellers. It will take time to get comfortable with the new way of doing business.
The California Association of Realtors’ guidance on reporting DOM has led us to believe that the metric will be highly unreliable in the near term, and we will no longer include this metric until a uniform process is decided. MLSs can independently choose to freeze DOM, which renders the metric unusable. With that, we know DOM will show a noticeable increase through the coming months as the sales process goes virtual. Usually DOM shows if a home was priced properly, but for the time being, we believe an increase in DOM for those that continue to list will not accurately reflect an improper price point.
Looking ahead to May, we anticipate that sellers will continue pulling listings off of the market, and buyer demand will dampen. For now, provided the two trends play out in tandem, there won’t be a significant impact on median home prices.
As we discussed in our March newsletter, the fundamentals of the housing market were strong before the global economy stalled. We believe that will help us all navigate this difficult time with as little consequence to the housing market as possible.
As always, we remain committed to helping our clients achieve their current or future real estate goals. Our team of experienced professionals would be happy to discuss the information we’ve shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home or condo.
Interested in a monthly market update via email? Let us know at [email protected]!