Update on Coronavirus Market Impacts:
August 5, 2020
California’s housing market had several positive signs last week based on broader economic data, market data reported on the MLS last week, a survey of California REALTORS® taken over the weekend and data on the pandemic itself. And yet, even as the housing market remains a relative bright spot, several key economic indicators show that the effects of the recession continue to weigh heavily on the pace of the recovery.
According to a survey of California REALTORS®, the market was generally better for them last week across a variety of measures. The percentage of REALTORS® that answered the weekly survey who said they had a buyer withdraw an offer last week fell from 11% the week before to 10% over the weekend. Fewer sellers (13%) removed their homes from the market. More REALTORS® had a listing appointment last week (36%), listed a property (28%), entered escrow (29%), and closed a transaction (32%).
Market Data: Additionally, market data also improved last week and suggests the uptick in sales that California enjoyed in June will likely persist into July and August. Closed sales increased 3.1% last week to an average of 913/day. This is perhaps unsurprising given that buyer demand, particularly here in California, remains very robust. Mortgage applications nationwide remained more than 20% above 2019 levels and requests for showings in California are more than 90% higher than they were at this time last year.
Public Health: California is even starting to see some hopeful signs on the public health front of late as the number of hospitalizations due to COVID-19 has plateaued in recent weeks.
Economy: And yet, even as California’s housing market and economy see signs of life, the challenges we face remain very much ongoing. Recently released data on the second quarter shows that the economy contracted by 32.9% -- the largest quarterly decline in recorded history. In contrast, the U.S. economy shrank by less than 18% during the Great Recession of 2009.
Labor Market: The labor market has also begun to suffer from reduced activity as many businesses are forced to close again. Jobless claims both nationally and here in California rose again last week, indicating that the number of workers losing their jobs has begun to rise again. In fact, the increase to 289,600 new jobless claims last week means that job losses have increased in six out of the past 10 weeks in California.
Pending Sales: Even within the housing data, there were signs of ongoing difficulty last week. Pending sales have not risen during the past three weeks due, in large part, to weaker activity in Southern California. This, in turn, is likely due to inventory, which tightened back up significantly after May’s retrenchment in closed sales subsided.
Inventory: And inventory will remain an obstacle for California’s recovery—especially amidst such robust demand. New listings were down 6.8% last week to an average of 916/day and were essentially flat for the preceding 3 weeks. And, with the number of COVID-related deaths in California still rising and the real estate market facing ongoing restrictions that make it challenging to list and sell homes, inventory is likely to remain depressed for the near term.
Thus, even as California continues to make progress, it is critical that we temper our optimism with realism. Many Californians want to buy: their home is more important now than ever before given that people are spending so much time there; they have more flexibility with their housing decision because they can now work from home; rates are low and have provided a significant boost to affordability. Yet for sellers there remain cautions—even as the data suggest that inventory is near record lows, homes are selling very quickly, and there is minimal evidence of discounting on the typical home. This mismatch is likely to result in a recovery that is much slower than we would have hoped for and one where not as many buyers will be able to get their foot on the property ladder as there should be.