Even though the housing market has been hot, trends have emerged that confirm that it is rapidly cooling due to to the Coronavirus.
The Coronavirus has quickly evolved from bumping elbows and not holding hands at church to social distancing and a mandatory “stay at home” order from Governor Gavin Newsom for the entire state of California. Shopping malls have closed, schools have moved to distance learning, restaurants now only allow take-out or delivery. Life as everybody knows it has been turned on its head.
Prior to the outbreak, the Southern California housing market was pumping on all cylinders. It was the hottest Spring Market since 2013. Multiple offers were the norm, home values were on the rise, and there simply were not enough homes on the market to satisfy the voracious appetite of buyers. The low mortgage rate environment with rates remaining in the 3’s was propelling housing upward.
Just as COVID-19 changed “business as usual” for everyone across the nation, trends have rapidly surfaced that highlight a cooling housing marketplace.
Demand did an about face and dropped by 20% in the past two-weeks. In the past five years, demand, the number of pending sales over the prior 30-days, averaged a 6% increase at this time of the year. The unconventional drop is due to pending sales falling out of escrow and fewer new pending sales. Expect demand to continue to drop until the number of new Coronavirus cases starts to diminish and the “stay at home” order has an end date.
The Expected Market Time increased by 29% in the past two-weeks. The Expected Market Time (the time between pounding in the FOR-SALE sign and opening escrow) increased from 52 to 67 days in just two-weeks. At 67-days, the market is technically a Seller’s Market, yet it is rapidly cooling. It is officially spring, and the market normally gets hotter as more buyers start their home search. Expect the market to continue to cool the longer Californians are required to remain confined in their homes.
There are 367 homes that were placed on “Hold Do Not Show.” There are a number of sellers who are opting to wait for the crisis to end before placing their home back onto the open market. Some know that activity will diminish and are desirous of waiting until the conditions line back up in their favor. Others simply do not want strangers touring their homes while reports continue to detail the spread of the COVID-19 virus.
The good news is, despite the emerging trends in the housing market, housing is not going to plummet into the abyss and bring a wave of foreclosures and short sales similar to the Great Recession. That is an unfounded rumor not based on all the facts. Yes, housing is downshifting and will slow in the coming weeks. Yes, these trends will continue to evolve and deepen. The extent and weight of the slowdown all depends upon the duration of the Coronavirus outbreak and how long everybody must remain in their homes.
It is important to understand that the housing market has a very long way to go before it even tilts slightly in favor of buyers. Currently Southern California is still tilting in favor of sellers. Housing must first evolve from a Seller’s Market, less than a 90-day Expected Market Time, to a Balanced Market, between 90 and 120-days. It is currently at 67 days. It is only a slight Buyer’s Market between 120 and 150-days. Home values start to drop in a “deep” Buyer’s Market, that is an Expected Market Time greater than 150-days.
The strength of the market depends upon supply and demand. Demand will drop, but so will the supply of homes. The active listing inventory will drop as many homeowners will wait to place their homes on the market until after the number of new cases of the Coronavirus begins to diminish.
The government and lenders will initiate programs for borrowers who are unable to make their monthly mortgage payments. The foundation of housing is strong. Housing is not a house of cards about to collapse like it was prior to the Great Recession. Buyers have been purchasing with cash and large down payments. They have had to qualify for loans and prove that they could afford the monthly payment. There are no subprime or pick a payment plan loans. Homeowners have not been using their homes as ATM’s and pulling out massive amounts of equity like they did prior to the last recession. This is not a housing induced slowdown. This is an unexpected downturn and the government and banks are going to make sure that homeowners remain in their homes.
While this update is focused on date from the Inland Empire market, it is pretty indicative of Southern California as a whole. if you have specific questions about your area, whether in California or anywhere in the US, please let me know and I will get that information for you. Our job is to give you the facts so you may make the best, informed decisions for you and your family.
Until next time, please stay healthy, happy...and home!