Rising Demand: Demand rose 41% in the last two weeks even though “stay at home” orders have not yet been lifted.
After nine weeks of staying at home, everybody is figuring out ways to make life feel a bit more normal again. DoorDash is on the go delivering food from local favorite restaurants. Church service is now streaming live with the ability to hit pause if the two-year old is acting up. With Zoom meetings all week long, working from home in t-shirts and shorts is not a bad way to get a lot accomplished. The kids are busy cyber learning in their online classrooms. Everybody is adapting to a new way of life. Buyers are adapting as well and are looking for homes again, the market is waking up.
After reaching a very low demand level at the end of April, the past couple of weeks a change was afoot. Reports from the real estate trenches of increased showings and buyers writing offers again were repeated all over Southern California. Buyers are figuring out that they can still purchase a home in the middle of California’s “stay at home” order.
The real estate industry has adapted to selling homes in this new COVID-19 environment. Buyers view properties wearing protective face masks and disposable, rubber gloves while respecting proper social distancing protocol. Everything else is done electronically, from a list of properties to a comparable market analysis to real estate contracts that grant buyers permission to view and purchase properties. As a result, it is not surprising that demand (the number of pending sales over the prior 30-days) increased by 41% in the past two weeks.
It appears as if the shock of COVID-19 and its impact on demand bottomed two weeks ago and is now on the rise. Expect demand to continue to rise going forward, especially with the added incentive of record low mortgage rates. In fact, they reached all-time lows, dropping to an average of 3.25% across the country. With lower rates, homes become much more affordable.
For example, in looking at a $500,000 mortgage, the monthly payment at 3.25% is $2,176 per month. That is a $508 per month savings, or $6,096 per year, compared to where rates were in November 2018, just a year-and-a-half ago. The savings are staggering, which helps explain why demand is starting to rise. It is hard to ignore the impact on affordability as rates hit these unprecedented levels.
For buyers in Southern California, the current environment may prove to be the best time to jump on purchasing a home given that rates are at all-time lows and the overall market is not yet hot where homes are on the market in days and not weeks. That may change as California’s economy is slowly opened back up. Even so, it will not be business as usual. The new adaptation to selling homes in this COVID-19 environment will continue.
Even with the large increase in demand over the past couple of weeks, demand is still muted. Its current level was last seen in January, a reflection of the cyclical holiday lull. Demand is also off by 25% compared to last year. So, COVID-19 is absolutely suppressing demand. Within the last couple of weeks, the inventory dropped - COVID-19 is also suppressing the active listing inventory. 45% fewer homes were placed on the market within the last four weeks compared to the 5-year average.
With demand increasing at an extremely fast pace, and the supply of homes falling, the Expected Market Time (the amount of time from hammering in the FOR SALE sign to opening escrow down the road) dropped. It is the first drop in the Expected Market Time since the start of the “stay at home” order back in March. From here, expect demand to continue to outpace any increase in the supply. As a result, the Expected Market Time will continue to drop in the coming weeks.
The market may not be firing on all cylinders like it was in February and the start of March when homes were flying off the market and obtaining multiple offers, but it is starting to turn a corner with both demand on the rise and the Expected Market Time falling for the first time in a couple of months.