Even during this pandemic, the single-family housing market in Santa Clara County has experienced a strong uptick. The condo and townhouse market, however, has been lagging behind.
“We are seeing less buyer activity in the condo and townhouse market,” said Sandy Jamison, broker owner of Tuscana Properties and president of the Santa Clara County Association of Realtors. “Showing appointments are down and days on market are climbing. Many sellers are having to reduce their prices to attract buyers to their units over the competition.”
According to MLSListings, September ended with only 987 single-family homes on the market. This is equivalent to just one month of the inventory needed to meet the current demand. Conversely, we had 1.7 months of condos and townhouses available. Since May, the number of available condos and townhouses has been roughly twice that of single-family homes.
So why is that? Is there a financial factor to this swing? Are buyer trends shifting? Will this affect how we build housing in the future?
According to Jordan Levine, deputy chief economist for the California Association of Realtors, the economic effects of the shutdown have been more concentrated in lower- and middle-income households.
“This is where most of the condo demand comes from given the affordability constraints most families face in California,” he said.
This supports the notion of a “K” shaped recovery, meaning that different sectors of the economy are recovering at different rates. Much of our service economy and small business owners are feeling the brunt effect of the economy being shut down, while our highest wage earners have not been nearly affected in the same way.
Many of these high earners have been able to work remotely with very limited interruption in their earnings. In addition, due to a drop in interest rates, the cost of money is at an all-time low, allowing people to have substantially more buying power to upgrade from a smaller townhouse or condo to a single-family home.
Another theory is that buying trends are changing based on shelter-in-place orders and schools moving to remote learning. The importance of home, specifically a single-family home with a yard and extra space, has never been higher.
Mike Sibilia, broker owner of Keller Williams Silicon Valley, has seen this first hand.
“Recently I have had two sets of clients who live in townhouses who are all working from home, have children and lacked an outdoor patio or yard,” he said. “This certainly created a need. They are buying single-family homes that have large yards, an office/work area and selling their townhouses.”
Many wonder how these COVID-19 induced buying trends will end up affecting the market beyond the cure of the pandemic. Is it possible that concerns about a future virus may continue to push populations from the dense downtown core to the suburbs?
I ask this because most of the housing construction currently being proposed is high-rise apartments and condos near city centers. And in full disclosure, the Santa Clara County Association of Realtors has always supported increased housing density around mass transit corridors.
Now that so many workers are planning to work from home, is it really critical to be located near mass transit or job centers? These are all things to consider as we think about the future. We must also acknowledge that consumer behavior during a pandemic is not necessarily the best way to evaluate long-term trends.
And while condo and townhome inventory is roughly double that of single-family homes, it’s important to keep in perspective that we still don’t have nearly enough housing inventory to keep pace with demand in the county.
A healthy market usually has 3-6 months of available inventory, but the ratio difference between single-family homes and condos is statistically relevant. It will probably take two to three years before we see how these trends evolve and our economy rebounds, but in the meantime, you can probably get a pretty good deal on a condo or townhouse.
San José Spotlight columnist Neil Collins is CEO of the Santa Clara County Association of Realtors, a trade association representing more than 6,000 real estate professionals in Santa Clara County and surrounding areas. His column appears every fourth Thursday of the month. Contact Neil at [email protected] or follow @neilvcollins on Twitter.