There is still much to speculate about the results of the election as well as the rollout of a Covid-19 vaccine and how all that will play out over the weeks and months ahead. But the story with the real estate market for the last several months remains the same.
We’re continuing to see extremely low inventory driven by a lack of incentive for homeowners to sell due to various factors including the Coronavirus pandemic, favorable refinancing terms and property tax implications. On the other had, we have extremely high buyer demand driven by various factors including a need for more space, newly gotten locational freedom due to remote work trends, low interest rates and high consumer savings. Because of these conditions, homes are selling fast – in around 7 days, locally – and they are getting multiple offers that are bidding values up over asking price. In San Diego County, there are nearly 48% fewer listings available now compared to this time last year, but approximately 33% more total homes have sold since that same time period. As a result, we continue to see surging home prices that are growing month after month – to the tune of nearly 20% statewide year-over-year since October of 2019, according to CAR.
In the last 2 weeks, two major pieces of news have developed that will impact the trajectory of the real estate market in California and nationwide in the coming year.
#1: It appears that we are drawing nearer to a widely available and effective vaccine for Covid-19 which will positively impact the economy and likely drive an increase in home listing inventory,
Following the announcement that pharmaceutical company Pfizer has developed a Covid-19 vaccine that appears in trials to be 90% effective in preventing transmission, the stock market spiked and mortgage interest rates jumped to 2.84 percent from 2.78 according to a Freddie Mac survey released last week. For our local housing market, the vaccine will likely have the impact of increased housing inventory as home owners who put the sale of their home on hold, uncomfortable accommodating open houses and home showings, meeting to sign documents and going through the process of moving, are able to feel safe listing and cashing in on their equity.
While this economic improvement will likely impact mortgage rates in the long term, Lawrence Yun, chief economist of the National Association of Realtors, said he thinks that, given the vaccine news, “we’ve seen the bottom for mortgage rates. But we won’t see any notable increases, either.” The existence of the vaccine means that the economy will grow in 2021 as consumer spending rebounds and investors will be less likely to invest in safe assets such as mortgage bonds, Yun said.
#2: Proposition 19 passed in California which will likely spur an increase in home sale activity.
Prop. 19 will allow anyone over 55, severely disabled homeowners, and wildfire victims to keep their residential property tax basis when moving to a new home, regardless of whether the home is less expensive or more expensive that their original property. In many cases, homeowners originally paid between $25,000 and $150,000 for their homes in the 1960s, ‘70s, and ’80s. Their property taxes (based on the original cost and a 2% inflation adjustment) are very low. These homeowners often do not move from their original home into a home that works better for their current needs because their property tax bill would skyrocket. As a result of Prop. 19 passing, these people can now sell their homes and move while retaining their lower tax basis.
Prop.19 also eliminates a loophole wherein inherited property was not reassessed to current market value when the property was transferred. Heirs, often from out of the area, would inherit their parent’s property and would retain their extremely low tax basis. The new property owner would then rent out that property as an income source while paying very low property taxes. That opportunity is now gone. Inherited property is now reassessed to market value, increasing property taxes with few exceptions. These factors will likely have the result of increasing home listing inventory just when we need it most.
Fortunately, buyer demand can be expected to stay strong as home buyers remain armed with low interest rates, bolstered savings and an increased interest in real estate as a result of a mindset shift following stay-home orders and an increase in working and schooling from home. We are also seeing a renewed interest in commercial and residential real estate acquisitions from foreign buyers as a result of the election and other current events. This sustained strong buyer demand will likely continue to absorb any increase in inventory which will keep home equity growth surging.
As always, we will be here to continue to provide you with updates about the housing market and answer any and all of your questions. Feel free to reach out to us anytime.