How a Pandemic Crushes a Real Estate Market.

SIP = RIP?

2020 started out as a pretty normal year for the local real estate market.  Homes were listing at about the normal historic rate for early in the year, and they were selling relatively quickly.  Just like other years in the past decade, they were generally fetching their list prices, if not slightly above — just like a typical year in Peninsula real estate.

But on March 17, 2020 the shelter in place order took effect in San Mateo County (and surrounding Bay Area counties), and the impact on the local real estate market was immediate and dramatic.  Despite the subsequent re-classification of residential real estate as an “essential” service, albeit under extremely tight restrictions, the damage was already done and the market essentially retreated into its collective shell, as you will see from the data below.

Sales Figures Plummet.

The chart below shows the total residential real estate sales volume in San Mateo County for the first four months of 2020, which includes single-family homes and condos.  April, usually one of the strongest sales months in the calendar year, registered a precipitous drop of 34% in sales volume from just the previous month.  To put this into perspective, just last year the month of April was actually $221M higher than the month of March, or an increase of 30%, so this immediate swing in fortunes is truly breathtaking.

The visual impact of the market nosedive is even more dramatic when the 2019 residential sales data is shown side-by-side.  The total sales in April plummeted by 49% when compared to April of 2019.  That's a drop of nearly half a billion dollars…

What's very important to note about closed sales figures is that they tend to lag the actual contract acceptance by about 30 days on average.  So the sales figures that you see in April are very likely contracts that were ratified in March, and so on.  This fact will play an important role in the discussion at the end of this post.

Sales Prices Flatten.

When we look at the average sales price of all homes and condos throughout San Mateo County, 2020 actually started out with a ton of potential.  The average sales price actually leaped up in February, but then started a downward trend through April.  Contrast that with 2019, which showed a more traditional upward growth as we advanced into the prime spring selling season.  If there's any silver lining in all of this, it's that the average sales price of homes in 2020 has not dropped as fast as the other metrics that we are discussing in this post.

New Listings Pull Back.

A good indicator of where business is going is the number of new listings that hit the market.   After all, today's listings are tomorrow's sales.  The shelter in place order, and the onerous restrictions that accompanied it, not only prevented many homes from being listed but also resulted in many existing listings being pulled from the market.  The chart below shows the how the shelter in place crippled the rate of new listings.

What's interesting to note in this chart is that the impact of the SIP on new listings was immediately evident in March, when the SIP took place.  Instead of the progressive increase in monthly listings that you see in the 2019 figures, that rate of new listings immediately started to drop in March and continued to fall 31% over just two months.

What Lies Ahead?

Unfortunately, the data above points to a rough stretch ahead for our local real estate market.  I expect that when I run these numbers again in a month, the sales figures for May will be even lower than April.  Why?  As I mentioned above, sales figures tend to lag contract dates by a month, so the April final sales figures reflect sales activity in March — a month that was only shut down for half the time.   The May figures will largely reflect April sales, which was an entire month spent under lock-down and that lock-down has just been extended to May 31.

Also, new listings are the fuel of future sales. Without a reversal in the listing trend that's shown above, the sales figures are going to naturally follow suit.

The other challenge that lies ahead is simply the overall economy.   Record numbers of California workers have been either furloughed or completely laid off as a result of the pandemic.  This will only serve to reduce the pool of eligible buyers who can still participate in this market.  For those buyers who are still gainfully employed, many have lost significant equity in the dizzying swings that we've seen in the stock market, and they're heading to the sidelines to ride out the storm.

The one potential bright spot is that on May 4, the County will slightly loosen the constraints that are in place for residential real estate by allowing the showing of owner occupied homes, which was prohibited since March 17.  While this will certainly open the door for more homes to be sold, it's roughly analogous to fighting a forest fire with a slightly larger garden hose.

I'll run this report again at then end of May to see if these trends continue.   Questions or comments?  Feel free to leave them below!