Where Are We Now?
One thing is clear: COVID-19 is certainly impacting the California housing market. In February 2020, the median price of a home in San Diego and the Bay Area was $518,000. The market was strong, and supply and demand levels were comparable with that of previous years. That was true for foreclosures, as well. According to a report by the North San Diego County Association of Realtors (NSDCAR), foreclosures in 2019 were 1 in 436 homes. In early 2020, foreclosures were at a 14-year low.
Additionally, new construction lagged behind demand, and that helped to maintain house prices. More people were moving into our region, and job prospects were strong, especially in the hi-tech sector. San Diego, therefore, entered the current COVID-19 pandemic in a strong position.
Any major crisis that affects the economy automatically affects real estate. According to Leslie Appleton, California’s Association of Realtors economist, “sellers will hold off listing new homes” until social and economic conditions improve. Meanwhile, California home sales fell 11.5% in March. That said, inventory drops are nationwide: California isn’t the only state experiencing a decline in home sales.
Sellers and Buyers In the California Housing Market
Sellers and buyers tend to fall into two main categories:
- Those for whom buying or selling is critical. They may need to cash-out of a mortgage or are in the midst of a job change.
- Those who’d like to buy or sell based on lifestyle preferences. They may need to downsize, upsize, liquidate an inheritance, or move closer to family members.
In San Diego, 957 properties were delisted last month. According to Mansion Global, new listings in California and five other major states dropped 34% in the first week of April, compared to last year. Sales figures in April, 2020, will show a drop because fewer houses sold in March. That equates to a slowing of both supply and demand, primarily in the second category. However, if sellers in the first category work only with willing and financially ready buyers, then that part of the market should remain fairly stable after the initial shock from the current crisis wears off.
Can We Really Determine the True Impact of COVID-19?
If the initial “pull back” response is met with better than anticipated prospects, there could be an increase in both listings and buyers. So, at this stage, it may be too soon to say what COVID-19’s three-month impact on the housing market will be. Logic says that general sales will continue to fall. However, values in the sub-million dollar range could remain fairly stable.
What About Financial Support for Homeowners?
The Federal Government is using the recently signed CARES ACT to support individuals and small businesses. If PPP (Paycheck Protection Program) loans offered under the CARES ACT are used by small businesses to pay rents, utilities, and wages, the amount of the loan will be forgiven. This should have the overall effect of enabling more people to stay in their homes and keep their jobs. In addition, HUD has issued “no foreclosure” instructions and has approved reduced mortgage payments for those in need. Many banks are also offering relief to homeowners.
According to Forbes,15 major lenders have suspended foreclosure actions, many for 30 days or more. This support should reduce anxiety on the part of homeowners and add some stability to the market. In addition, many of the businesses in our region’s hi-tech industry have instituted telecommuting policies. So, “stay-at-home” orders may have less impact on earning and borrowing capacity for some populations.
What Does the Past Tell Us About COVID-19?
Basically, don’t panic. According to a Zillow research report:
- The 1918 flu epidemic saw a quick return to normalcy after the pandemic ended.
- During the SARS epidemic, Hong Kong saw a large drop in real estate transactions, but prices remained steady.
- Real estate trends will depend on how COVID-19 progresses (and resultant state policies). It’s too early to predict whether the current stall in real estate transactions will provoke a prolonged statewide economic downturn.
What the Future Will Hold: How COVID-19 is Impacting the California Housing Market
Although we can’t accurately predict what the future may hold, these facts currently hold for San Diego and much of the state:
- Unit sales will fall and may stay lower through Q2 into Q3.
- Luxury home prices are likely to fall.
- Other homes will see a drop in actual unit sales. Prices are likely to slide initially and then recover.
- Federal support through the CARES ACT should mean fewer foreclosures. So, the market won’t be flooded with properties at bargain-basement prices. California is one of three states allowing homeowners to request a 90-day moratorium on mortgage payments.
- Big banks, as well as smaller financial institutions in California, are stepping up to the plate to protect homeowners.
- Mortgage rates are low and will stay low, making it easier to afford a home loan.
- Lenders may introduce incentives to attract buyers because they see borrowers as a long-term investment. If this happens, it should motivate more buyers to purchase.
- The way realtors market properties will change. To minimize infections, in-person viewings have been banned, but virtual open houses are rising in popularity.
- Appraisers and home inspectors will continue to work.
- Realtors will co-operate fully with the government and continue to act as transaction project managers.
- We will pull together and care for each other until the crisis is over.
For more answers about COVID-19 and its effect on the California housing market, contact me. I will be happy to discuss your current home buying and selling needs with you.