Understanding the Impact of the COVID 19 Pandemic on the Current Real Estate Market in Silicon Valley
Myths versus Facts
The San Jose metro area's housing market is one of the most resilient in the nation, even amid the effects of a coronavirus-induced downturn. Over the past few weeks, market activity which is measured by the number of listings going into contract continued to pick up rapidly, bouncing back from the steep plunge following the first shelter in place orders.
1/ The real estate market has already hit bottom and is gaining strength
Over the last 3 weeks, we have started seeing a meaningful increase in pending / in-contract and new listings activity. More sales are closing every day. All of this is happening against a backdrop of the lowest mortgage interest rates ever which has led to an increase in buyer demand.
2/ Buyer demand is strong
Buyers are able to borrow at record-low interest rates, and have a sense that now is a good time to buy. At just 3.15% for a 30-year fixed rate mortgage, it has never been more affordable to borrow money to invest in home-ownership ever. This is undoubtedly behind the uptick in demand seen in mortgage applications as well. Given the high cost of housing in California as well as the challenges many would-be homeowners face with affordability, low rates provide a tremendous boost to the purchasing power of the average household.
Also, on June 17th, as a response to the economic impact of COVID-19 pandemic, the Federal Reserve announced that it would keep its benchmark interest rate near zero through 2022, a move that could set the course for record low mortgage rates for the next three years. Although the Fed’s key rate doesn’t directly affect mortgage rates, it often influences them. It is also very likely that the Fed will be aggressively purchasing mortgage-backed securities behind the scenes which could help push mortgage rates even lower at or near 3% for an extended period of time.
3/ Summer is the new spring
Summers are normally slower because a lot of inventory sells in the spring, and because many people are on vacation. Not this year. The Spring market wasn’t eliminated, it was just deferred as inventory making its way to the market. In fact, based on the strength of buyer demand, some analysts believe the coming months may be busier than in 2019, as sales activity that would have occurred during Spring gets pushed into the summer.
Although it is still the early days in the rebound, based on the above indicators, I have many reasons to believed that the Silicon Valley real estate market will overcome the consequences of the COVID 19 pandemic as it already happened multiple times in the past (e.g. The Great Recession).
If you are ever in need to learn more about any of the above-mentioned topics, I would be happy to chat and share the latest developments which occur on a daily basis.