Real Estate Round-Up: No time to waste
Last updated 5/28/2020 at 7:19am
Often when we work with clients, we are asked what we believe will happen in the market as it pertains to the price of homes. Buyers are trying to find the bottom of the market, and sellers are trying to find the peak of the market. We remind clients that one job description that we don’t have is “prophet” and we don’t possess a crystal ball.
Often there are strong indicators that allow us to project a “trend” in the market, but a comparative market analysis is a picture of the marketplace as it appears on that day and may or may not be reflective of next week or next month.
As a matter of fact, often when we initially list a property for sale, sellers have some sprucing up to do to get their home ready for sale. If that occurs quickly, the comparative market analysis prepared for the day the property was listed, generally still applies. But in the cases that sellers require months to ready their property for sale, we include in the listing contract that a CMA will be provided that reflects the current market status at the time the property will become “Active” on the market, so the list price can be adjusted up or down based on the most recent sales activity.
When an unanticipated event occurs, like the coronavirus pandemic, every CMA provided before the event is not going to reflect the change in the marketplace that currently exists.
For weeks, I have encouraged sellers to list their homes. Buyers were abundant, and listings were few. In a matter of weeks, things have changed. Even though the 30-year fixed rate mortgage averaged just 3.23%, which is up slightly from 3.15% the previous week, interest rates have never been more attractive. In addition to fueling a conventional refinancing boom, it is also driving at least some of the increased activity in new mortgage applications for purchases as well.
The thing is most of those buyers are sitting in the wings, waiting for more inventory to be available to shop from. As I mentioned last week, the numbers of views our algorithms are showing for our listings is considerably up.
Nearly three-quarters of the respondents surveyed by Realty Biz News said buyers are continuing to search for homes online, compared to under 24% who said they’re putting the search on hold until things are back to normal. On the flip side, only about 34% are willing to tour homes during this time, with the majority saying they will wait out the pandemic.
Sellers, however, are not as hesitant. According to the survey, “Despite concerns over market instability and how long the pandemic will last, 45% of those who planned to sell their home during this time are still moving forward as planned.”
This response is despite sellers feeling burdened with adjusting to the COVID-19 pandemic. However, nearly a third of them are unsure of how to move forward, and the lack of buyer traffic does not help.
The unwarranted burden on Realtors is the perception by homeowners that we are always “selling,” even to them. The truth is professional Realtors, who have worked in the industry for years, recognize the value of truth and do their best to share what’s relevant with their clients to help them take the action that is best for the client.
Just like any profession, a few not so purely motivated apples can spoil it for the entire bushel. So where do we go from here, considering today’s news?
Here are the current facts. After decelerating during the second half of April, the number of closed sales has fallen again for the second consecutive week. The daily average number of closed sales dipped by 9.1% last week from the week prior. Every major region in the state was down and every price segment also fell from the week before. The monthly figures for April showed the largest monthly decline in California home sales going back at least as far as our data in the late 1970s.
However, the weekly data suggests that sales are likely to drop further in May. Closed sales are likely still reflecting the steeper declines in pending sales from early- and mid-April as escrows take time to complete.
Furthermore, the number of properties entering escrow has fallen statewide for the first time in five weeks. The loss of momentum in the recent rebound suggests that the past month has likely been more catch-up effect from an initial overcorrection than the beginnings of a v-shaped recovery.
Listing prices have remained remarkably stable during the crisis thus far. As of last week, roughly 29% of active listings had reduced prices – almost identical to pre-crisis levels. In addition, the median list price per square foot has also been essentially constant. However, we may be entering a phase where closed sale prices are beginning to lead listing prices down as the percentage of closed sales that were discounted increased from 46% the previous week to 51% last week.
Many sellers still view the effects of the “stay-at-home” as temporary and have shown little interest in reducing prices, but more discounts on closed sales suggest that sellers make concessions during the escrow process to keep transactions on track.
The Mortgage Bankers Association reported recently that more than 8% of all mortgages are currently in forbearance. Depending on the estimates for the number of loans that equates to as many as 6.4 million loans with payments that are not getting paid.
Although the Federal Housing Finance Agency has provided guidance for repayment plans that should prevent many of these loans from going into default or foreclosure, these figures highlight just how serious the consequences of 20.5 million job losses, 15% unemployment and 37 million unemployment claims can be. And the ripple effects of these labor market consequences are likely to kick in with a lag, be longer lasting and heal much more slowly.
California’s economy continues to open up and many indicators paint a less dire picture than in mid-April. Yet, it is important to remember that the effects on the economy and housing market are still being tallied. Just the effects associated with the job, spending and economic losses that have been reported thus far are the worst on record, with more declines expected in May, June and potentially into July.
The ripple effects of these initial impacts will take time to play out. Lost jobs and income take time to manifest in the broader economy but eventually result in less economic activity with additional multiplier effects. Thus, even as the economy begins to open up and critical data begins to move in the right direction, the environment for sales and prices remains soft for the foreseeable future.
As I said in the opening paragraph, I do not have a crystal ball and I’m not a prophet. However, given this most recent update, I believe that there is still opportunity for third and fourth quarters to become a strong selling season, but there is no time to waste.
Both sellers and buyers will hopefully get on the same page. If they do, then sales will occur, not like a rocket ship, but consistent with a steady climb up a mountain, strenuous but moving forward. We’re here to help you find the best course of action given your circumstances. Thanks for reading.
Kim Murphy can be reached at [email protected] or 760-415-9292 or at 130 N. Main Ave. in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.