Talking Points: California Housing Market

Updated on March 18, 2020

How to Talk About COVID-19 and the California Housing Market

Key Talking Points

 

Expanded Talking Points

California REALTORS® working to protect the consumer

  • Introductions

    • Your Name -- Your Association -- Your Role 

    • Number of members

    • Markets members serve

  • No one is more concerned about real estate owners, homebuyers and sellers than the [NUMBER OF] members of the [LOCAL] Association of REALTORS®

    • Countless hours and dollars spent protecting:

      • Marketplace for consumers to buy, own and transfer real property

      • Private property rights for all Californians 

    • We do more than buy and sell homes. We are active members of the communities in which we live.

      • Philanthropy

      • Political affiliations

      • House of Worship Service 

  • Agent, homebuyer and seller safety are primary

    • Adapting to ‘new norm’

    • Abiding by government orders

 

Coronavirus and the California real estate market

  • According to a C.A.R. survey, nearly 80 percent of California REALTORS® expect a negative impact on their business. 

    • Results show that the biggest concern is reduced open house traffic and changes to our members’ overall standard operating procedures, but we all know that the biggest positive is that social distancing at this time protects lives.

    • The ‘new norm’ will certainly create challenges. Respondents felt that the overall number of sales will fall as expected time on market will increase while buyers wait for normalcy. In addition, there will be even less inventory in the short term as sellers delay listing their properties for sale. 

 

Coronavirus and California home prices 

  • Predicting the impact on home prices right now is difficult in this rapidly changing environment. 

    • The best forecasting model suggests a modest increase in the median home price for 2020.

    • However, with extremely low mortgage rates, we expect homebuying to remain attractive — particularly for first-time homebuyers and for lower-priced homes generally, where debt financing is in much larger proportions than investment properties, second homes and luxury properties.

    • On the other end of the spectrum, luxury, second home and investment property buyers, who rely on financial market wealth as a source of funds, will delay purchasing and wait for their investments to get back to pre-coronavirus levels.

 

Are recessionary fears valid

  • We expect negative economic growth during the second quarter of 2020 (and possibly Q1 2020). 

    • The UCLA Anderson Forecast recently said we are already in a recession and Wells Fargo Securities suggests almost a 75 percent chance of recession in the next six months.

    • Overall, strong consumer confidence and spending, coupled with lower borrowing costs, could help drive real estate and the economy forward as we move toward the summer.

    • What’s unknown is the length and severity of coronavirus infections and the ability for the healthcare infrastructure to keep pace with the infected population.

 

How long will the ‘new norm’ last?

  • At the end of the day, the current economic slowdown is driven by external forces rather than fundamental imbalances in our economy. 

    • Unfortunately, that fact will not insulate the economy from the negative effects of coronavirus, but it could mitigate the downside risks to the economy once the virus gets under control.

    • We expect the federal government to inject a much-needed stimulus into the economy, especially since consumer spending will drop as a result of government orders of a shutdown like in the Bay Area and the likelihood that expands to other parts, or California as a whole. 

    • The ‘new norm’ could last into Q4 if the number of infections grows exponentially and spending, accounting for roughly 70 percent of our economic growth over the past two years, contracts more substantially.

 

The impact of the Fed’s lowering of the key interest rate on mortgage rates

  • Conditions are set for mortgage rates to stay low for the balance of 2020.

    • The Federal Reserve’s emergency rate cuts will put households, the housing market, businesses and the financial sector on better footing.

    • Unfortunately, the Federal Reserve does not control longer-term interest rates like the 30-year fixed rate mortgages. 

    • Plus, already cautious mortgage originators are inundated with applications right now, and many are taking advantage of the current environment to profit from the rapidly changing mortgage-backed security and treasury environments. 

    • These factors have all combined to prevent the full benefit of higher treasury prices from filtering down to mortgage rates.

 
 
 
 
 
 

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