The coronavirus pandemic has literally gone viral and the California real estate market also got impacted by it. Today, we decided to take a look at the impact of the coronavirus pandemic on the California housing market. We’ll also look at the likely medium and long-term effects of the outbreak. Before the coronavirus outbreak, the declining interest rates bolstered February home sales and price in the California housing market. The no. of home sales in February went up 6.6 percent from the 395,700 level in January, marking the first time in three months that sales jumped above the 400,000 benchmarks. February also marked the eighth consecutive month of year-over-year sales increases, according to the CALIFORNIA ASSOCIATION OF REALTORS®.
According to a United States Department of Commerce report, the median price nationwide for a home sold in February was $345,900, up 6.3 percent from January. As the coronavirus pandemic hit the country, the sales activity in the California housing market took a sharp decline. Many buyers backed out of purchase due to coronavirus concerns. Due to the Covid-19 outbreak, the new California home sales also began to drop from March onward.
Here’s the review of the California real estate market from March onward. The immediate impact of the coronavirus pandemic on the California housing market was that realtors canceled their open houses and half of all agents reported a drop in buyer interest. A flash poll conducted by C.A.R. between March 14-16 found that 54% of realtors had buyers who backed out from buying a home because of the coronavirus, and about 45% had sellers who backed out from selling a property. The pandemic further impacted buying or selling of a house as California issued a statewide ‘stay at home’ order on March 19 to slow the spread of the coronavirus.
All non-essential businesses were essentially shut down. The real estate industry and many businesses that support it have been deemed non-essential. Real estate transactions like home buying, title research, residential leasing, and renting were allowed to continue. So were things like building maintenance and cleaning. Home construction was typically allowed to continue, as well. This meant that people could continue to live in their apartment and call the property manager to get the plumbing fixed.
Home sales and purchases already begun could be completed. However, it became much more difficult to arrange open houses or take photos of a property for sale. Some realtors adapted by setting up virtual showings of properties, whether it was via cell phone video, high-resolution photos, or drone. However, photographers can’t travel to properties, while stagers and appraisers can’t travel to homes that owners want to sell.
This froze the housing market for the most part due to shelter-in-place orders. Financial services were considered essential; this included banks and mortgage lenders. Unfortunately, the shutdown of up to 80 percent of the country means many are afraid to take out a home loan even if they still have a job. That is why mortgage applications fell by 30 percent in the last quarter of March 2020 while unemployment applications hit a record three million.
U.S. Initial Unemployment Insurance Claims are that over 40 million people have already lost their jobs.
As new coronavirus cases were detected in California and the ‘shelter-in-place’ mandate was extended, a sharp sales decline resulted in an increase in unsold inventory – leading to a balanced real estate market. The COVID-19 pandemic kept both buyers and sellers on the sidelines in the California housing market. Many potential sellers delayed putting their homes on the market, which led to fewer new listings. Some of the buyers excited and decided to not enter the market due to their weak financial condition. California home sales experienced the worst month-to-month sales decline in more than four decades.
Home sales dropped sharply in April from both the previous month and year as the housing market began to feel the full impact of the state’s stay-at-home order, according to C.A.R.
This was because of a decline in open houses and home showings which are impossible to be held in such conditions. Existing, single-family home sales totaled 277,440 in April on a seasonally adjusted annualized rate, down 25.6 percent from March and down 30.1 percent from April 2019. Additionally, sales in escrow were also delayed by the closure or limited availability of all the essential services related to a home sale.
The statewide median price remained above the $600,000 benchmark for the second consecutive month in April, price growth showed clear signs of softening when compared to the past six months. The April statewide median price of $606,410 for existing single-family homes in the state dipped 1.0 percent from March, and the 0.6 percent gain was essentially flat from April 2019, when the median price was $603,030. The year-over-year price gain was substantially smaller than the six-month average gain of 7.8 percent recorded between October 2019 and March 2020.
The latest “CALIFORNIA HOUSING MARKET REPORT” is given below.
California Housing Market: Latest Trends & Statistics 2020
California home sales fell to the lowest level since the Great Recession as the housing market suffered the full impact of the coronavirus pandemic in May, according to June 16 release by C.A.R. As housing demand in California fell sharply in May, the home prices also took a dip. The median home price fell below last year’s price for the first time since February 2012 and breaking the state’s 98-month year-over-year price gain streak.
All major regions dipped in sales by more than 35 percent from last year.
The Bay Area and Central Coast dropping the most at -51.1 percent each.
Southern California home sales dropped by -45.6 percent, and the Central Valley by -36.6 percent.
Existing single-family home sales were down by 13.9 percent from April and down by 41.4 percent from May 2019.
May’s statewide median home price was $588,070, down 3.0 percent from April and down 3.7 percent from May 2019.
Year-to-date statewide home sales were down 12.9 percent in May.
Median prices continued to dip in May from last year in the Central Coast and the Bay Area but inched up slightly in the Central Valley region.
The median home price was virtually unchanged in Southern California.
Unsold inventory Index jumped to 4.3 months in May from 3.4 months in April and was up from 3.2 months in May 2019.
Total active listings continued to decline on an annual basis for the 11th consecutive month.
The 34 percent year-over-year decrease in listings was the biggest drop since March 2013.
The median number of days it took to sell a California single-family home dipped to 17 days in May from 18 days in May 2019.
C.A.R.’s statewide sales-price-to-list-price ratio was 99.7 percent in May 2020, up slightly from 99.3 in May 2019.
Here is the snapshot of the latest California housing market report – Monthly Sales and Price Statistics – May 2020 – From C.A.R.
Courtesy of CALIFORNIA ASSOCIATION OF REALTORS®
Median Sold Price of Existing Single-Family Homes in May 2020
Screenshot courtesy of CAR.org
The question now is what happens moving forward. These numbers can be positive or negative depending on which side of the fence you are — Buyer or Seller? It is a win-win scenario for both sellers and buyers.
As the economy starts opening all over the country the home sales in the California housing market would rebound in the coming months. For June’s housing report, we expect to see a rebound in closed sales with more homebuyers entering the bidding war. However, the sales are expected to remain below pre-COVID-19 levels while buyers and sellers feel more confident returning to the market in the re-opening phase. Whether you’re looking to buy or sell, timing your local market is an important part of real estate investment.
For sellers in the California housing market, it is a good time to sell. A monthly Google poll conducted by C.A.R. in early June found 40 percent of consumers said it is a good time to sell, up from 29 percent a month ago, but down from 51 percent a year ago.
For buyers in the California housing market, it is a good time to buy. The inventory is relatively increasing with a supply equalling to 4.3 months. The index indicates the number of months it would take to sell the supply of homes on the market at the current rate of sales. The 30-year, fixed-mortgage interest rate averaged 3.23 percent in May, down from 4.07 percent in May 2019, according to Freddie Mac.
The five-year, adjustable mortgage interest rate was an average of 3.16 percent, compared to 3.65 percent in May 2019. All of these factors have led to the market to optimism in homebuyers — 32 percent of the consumers who responded to a monthly Google poll conducted by C.A.R. believed that now is a good time to buy a home, sharply higher than last year when 26 percent said it was a good time to buy a home.
California Housing Market Forecast 2020 – 2021
What are the California real estate market predictions for 2020? California housing market 2020 was shaping up to continue the trend of the last few years as one of the hottest markets in the U.S. We get to find that on Zillow, the median home value in California is $578,267. Let us look at the price trends recorded by Zillow over the past few years. From the beginning of the year 2012 to the end of 2019, the median home price in California appreciated by a massive 85.5%, from $305,000 to $566,000. California home prices have risen by 4.4% over the last 12 months alone.
The Zillow Buyer-Seller Index (BSI) considers California has transitioned into a warm seller’s real estate market. This is computed monthly. According to their index, there exists a limited supply of homes in California, and buyers are forced to compete often resulting in higher prices and/or quicker sales that tend to benefit sellers. In other words, based on the last month’s key housing market indicators, the demand is exceeding the supply, giving sellers an advantage over buyers in price negotiations. There are fewer homes for sale than there are active buyers in the marketplace.
The latest California real estate market forecast is that the home prices may remain flat or decrease by a mere 1.1% – in the next twelve months. This could be due to the short term impact of the ongoing pandemic which has impeded the real estate sales activity in the entire country as well as in the state fo California. 48% of Zillow survey respondents said it’s a good time to buy. The expected drop in price might be good news for new homebuyers in LA, San Diego, San Jose, and San Francisco who are hoping to take advantage of historic low mortgage rates. 48% of Zillow survey respondents said it’s a good time to buy a home.
Snapshot Courtesy of Zillow.com
The question is whether it is going to remain a seller’s real estate market amid the ongoing Coronavirus pandemic, which no one knows when it is going to end.
C.A.R. predicts a J-shaped economic recovery extending over the next 12 months. Jordan Levine, Deputy Chief Economist with the California Association of Realtors® feels the housing market bottom is appearing. Now with the economy reopening, we’ll begin the phase of disillusionment as young home buyers realize they may be unemployed for a while. The unemployment insurance claims have reached roughly 40 million.
Screenshot courtesy of CAR.org
OUR TAKE ON CALIFORNIA REAL ESTATE MARKET 2020 – 2021
The most important thing to remember is that it is a health crisis – not an economic one. This pattern differs from a standard economic recession, which is a situation in which economic activity falls for 6-18 months and then recovers more slowly. According to Aaron Kirman, host of CNBC’s Listing Impossible, “while the lasting effect of the coronavirus pandemic is still unknown when the pandemic eventually comes to an end, it’s going to be a buyers’ market.” The current housing inventory level is trending towards a balanced real estate market.
Due to a wave of job losses nationwide, this will create many distressed home sellers in the California real estate market, as well. Yet this is a buying opportunity for investors who have financing. The slowdown in what is normally a busy season will cause some realtors to go out of business. Mortgage brokers and lenders will experience a boom in business since record low-interest rates cause a spike in mortgage refinances. We’ll also see a flurry of activity in the California real estate market as people pick up where they left off. For example, those who wanted to move before school starts in the fall aren’t going to wait another year to see what the housing market is going to do.
They’ll rush to showings and try to close on a property, as long as their personal financial situation is stable. We can expect the summer of 2020 to see record activity in the California housing market due to the shift of spring activity to the summer along with the standard spike in real estate transactions before the school year starts. On top of this are the young graduates and couples that want to buy their own homes. Plus there will be long-term renters who recognize the opportunity that 3 percent 15-year mortgage rates represent, searching for homes once they can be pre-approved for a mortgage and visit properties.
California home prices will probably stabilize because many sellers have taken their homes off the market until the housing market seems to be active again. The Fed has lowered interest rates to nearly nothing. This has been done to stimulate the economy. Once the unprecedented lockdown is over, people will start returning to work in mass, though some will have to find new jobs. There will be a slower economy for a while, but a number of ongoing trends aren’t going to reverse themselves. Millennials will want to move out of their parents’ homes and into their own.
We can’t say there will be a coronavirus baby boom, but many families having been stuck inside with their kids will decide they want a larger home, yard, or both. We can talk about the many people who’ve moved out of California for other states. Yet the state continues to attract immigrants from around the world. And young native-born Americans flock here for the high paying jobs, as well. That isn’t going to change due to the Wuhan virus. Tech giants expanding to Seattle or Portland haven’t relocated their development hubs out of Silicon Valley.
A dip in home prices in overpriced housing markets like San Francisco and Los Angeles will soon result in a wave of purchasing activity, given pent-up demand. After all, there are many renters who want to own, and many want to stay in the area. Furthermore, the demand for rentals in the California housing market remains strong. This is why we don’t expect to see a decline in monthly rents, though housing prices may fall significantly before shooting back up. A secondary effect of the Wuhan coronavirus outbreak is that it has crimped supply chains around the world and slowed down construction.
This will drive up the value of both new and existing properties in the California housing market since the supply of new and redeveloped properties has been stifled. And there is certainly the possibility the California housing market will see bidding wars on the few available and desirable properties by people who have more margin thanks to a 3.25 mortgage rate. We can expect a few shifts in the California housing market long-term. Realtors will probably continue to utilize 3D virtual tours, using 360 cameras to capture images of every room in the house. This helps them sell the home 24x7x365, whether or not everyone is stuck at home.
While appraisers, stages, and construction crews can’t work remotely, we can expect far more back-office work in the real estate industry to be done remotely because that’s become commonplace. We can also expect online contract reviews and digital signatures to become the norm because it allows real estate transactions to move forward through some of the participants are at home. Demand for housing was very strong before the coronavirus hit the U.S. This pandemic is not expected to last nearly as long as the United States subprime mortgage crisis, which was a nationwide financial crisis, occurring between 2007 and 2010.
As this crisis begins to end in a few months from now, the pent-up demand from the spring buying season should help to fully recover the real estate sales. The California housing market will bounce back, too. It is going to see a drop in activity and prices until this real estate freeze thaws. However, we can expect the California housing market to rebound by the fall. This creates a unique buying opportunity for those able to do so. The sharp sales drop in May was the steepest we’ve seen but there are encouraging signs that show the market is recovering and should continue to improve over the next few months.
Some of the realtors see no decline in their businesses even now. According to them, the real estate sector is really active even in this pandemic. The way of operating business has changed. People are working from home. They are using applications like FaceTime to show buyers homes instead of traditional open houses. Lenders are experiencing a surge in demand as opportunistic buyers move to take advantage of low mortgage rates.
Brett Jennings, the founder of Real Estate Experts, writes, “our market is still thriving” in Santa Clara County, seeing only a few cancellations despite shelter-in-place conditions and the fact that “we have one of the highest counts of active COVID-19 cases in California.” According to Dr. Svenja Gudell, the chief economist of Zillow Group, when they examined pandemic histories ranging from the 1918 flu epidemic to the 2003 SARS outbreak, they noted that economies “snapped back quickly once the epidemic was over.”
The coronavirus will have a positive impact on the California real estate market if interest rates remain low and the return to normalcy is only a few months away from now. And residential real estate is likely to fare far better than the commercial real estate sector. Sometimes, you have to take advantage of these market disruptions to see that many investors will pump the brakes on investing out of fear and other illogical emotional reasons, while others see the opportunity of having access to more real estate inventory, possibly better pricing, and still historically low-interest rates.
References:
https://www.car.org/aboutus/mediacenter/newsreleases
https://www.zillow.com/ca/home-values
https://lao.ca.gov/LAOEconTax/Article/Detail/265
https://sf.curbed.com/2020/3/23/21188781/sf-housing-market-coronavirus-covid-19
https://www.washingtonpost.com/business/2020/02/27/mortgage-rates-head-back-down-coronavirus-fears
https://www.cnbc.com/2020/03/18/weekly-mortgage-applications-drop-over-8percent-as-interest-rates-jump.html
https://www.usnews.com/news/business/articles/2020-03-25/business-fallout-companies-in-china-see-delays-in-reopening
https://www.dallasnews.com/business/real-estate/2020/03/25/homeowners-who-cant-pay-their-mortgages-are-getting-help
https://www.wfsb.com/news/businesses-considered-essential-under-stay-safe-stay-home-policy/article_53f8e0d0-6d17-11ea-a04d-57ecbb72c518.html
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