There has been a “supply problem” for quite a while, and now there is a “demand problem” at the same time.

Supply and Demand: A low supply is confronted with low demand.

There are a lot of people that assume the worst. Because of COVID-19 and the “stay at home” order across the United States, the economy has come to a complete halt and it has been thrown into an instant recession (better described as a “pandession”). As a result, the minds of so many immediately gravitate to the last recession, the Great Recession. That is when housing took a giant hit, and values dropped over 50%. Everyone was either impacted by the freefall of values or knew someone that was hurt by the unprecedented real estate slump. Since this is another recession, values will certainly drop, correct? Not so fast, it all boils down to supply and demand.

Here’s a quick history lesson as to what happened leading up to the Great Recession. In March of 2007, the subprime lending industry collapsed. Demand instantly dropped to levels that were much like today. Yet, there were over four times the number of homes on the market compared to today, reaching nearly 18,000 homes. With very low demand and a huge supply of homes, the housing market ground to a halt and home values plunged. The presence of so many risky subprime loans, pick-a-payment loans, and zero down payment loans in the system, the collapse in the credit and housing market was followed by a tsunami of distressed properties. The overly abundant supply and unstable credit foundation of the housing stock led to the tumble in values.

That’s just not where housing is today. Yes, there is now a “demand problem,” where buyers' activity has substantially slowed to Great Recession levels. It’s unbelievable how demand shifted so quickly from humming on all cylinders one month ago to a snail’s pace today. Yet, the “demand problem” is starkly contrasted with the “supply problem,” there simply are not enough homes listed for sale. The showdown between both supply and demand are two countering forces that are moving housing to a Balanced Market, a market that does not favor buyers or sellers and values do not change much at all. Low demand pushes the market in the buyer’s favor; however, the low supply pushes it in the seller’s favor. As a result, a balance occurs.

Demand, the last 30-days of pending sales activity, dropped by 25% in the past two-weeks. It is currently at levels not seen since the start of 2020, a snapshot of the lowest demand of the year, the holidays. There are still buyers in the marketplace, especially below $500,000, just not nearly the pace that anybody is used to in the middle of the Spring Market. Demand was roughly 60% higher last year. Just a month ago, demand was at levels last seen in 2017. In comparing today’s demand to 2017, it was 68% higher than today. COVID-19 has impacted demand significantly and has resulted in a “demand problem.”

Today’s housing market is impacted by a “supply problem” as well. Buyers can attest to not enough available homes to purchase. In fact, there are 20% fewer homes today compared to last year. With demand slumping, the inventory should be spiking right now, yet that is not the case. Instead, fewer homeowners are placing their homes on the market like they typically do during the spring, notoriously the busiest time of the year for housing.  This year, there was a stunning 25% fewer homes on the market. Currently there are also many homes on HOLD DO NOT SHOW. With not as many homes entering the fray coupled with sellers opting to place their homes on “hold,” the inventory is only slowly rising and remains at anemic levels. 

Weak demand has been pitted against a very low supply of homes to purchase. This is precisely why the market is moving towards a Balanced Market and not a Buyer’s Market. The good news for buyers is that they no longer need to rush to purchase. Multiple offers and buyers tripping over each other is no longer the norm. But, that does not mean that buyers are going to get “a deal.” This is NOT the Great Recession. That was a deep buyer’s market fueled by an oversupply of homes and a housing stock built on risky loans.

The showdown has begun. The “supply problem” has been matched with a “demand problem.” The combination of these two forces will result in housing slowing to a Balanced Market.

COVID-19 Update: Real estate is now an essential service.

On March 28^th, the U.S. Department of Homeland Security issued an “Advisory Memorandum” that identified essential, critical infrastructure workers during the COVID-19 response, which included the real estate industry. The order does not mean that open houses and showing, as usual, are back. Thus, the California Association of REALTORS® has issued “Guidelines for Real Estate Best Practices During COVID-19.” Homes in escrow can now conduct professional inspections and on-site appraisals can take place. Virtual tours and professional pictures are strongly recommended and encouraged. Showing properties by appointment only is advised. The bottom line: while real estate is now an essential service, everyone needs to be mindful of social distancing and taking all of the necessary precautions in keeping everybody safe and stopping the spread of the virus.

With that said, we are taking precautions with our clients and families. Appointments are conducted via FaceTime and other video calls; we are offering 3D tours and virtual walk-throughs of our listings; showings must be pre-screened with buyer's preapproval and previous online viewing before and onsite showing is scheduled; and last but not least, all properties are sanitized before and after showings.

If you have any questions or would like to see specific information about your home and market, give us a call!