Welcome to San Diego Blog | March 25, 2020
San Diego County Housing Report | COVID-19 Cracks
Cracks Appearing: Trends have developed which demonstrates that the hot housing market is cooling due to the Coronavirus.
The Coronavirus has quickly evolved from bumping elbows and not holding hands at church to social distancing and a mandatory “stay at home” order from Governor Gavin Newsom for the entire state of California. Shopping malls have closed, schools have moved to electronic learning, restaurants now only allow take-out or delivery. Life as everybody knows it has been turned on its head.
Prior to the outbreak, San Diego County housing was pumping on all cylinders. It was the hottest Spring Market since 2013. Multiple offers were the norm, home values were on the rise and there simply were not enough homes on the market to satisfy the voracious appetite of buyers. The low mortgage rate environment with rates remaining in the 3’s was propelling housing upward.
Just as COVID-19 changed “business as usual” for everyone across the nation, trends have rapidly surfaced that highlight a cooling housing marketplace.
CRACK – Demand did an about-face and dropped by 4% in the past two weeks. In the past five years, demand, the number of pending sales over the prior 30-days, average a 5% increase at this time of the year. The unconventional drop is due to pending sales falling out of escrow and fewer new pending sales. Demand is still 2% higher than last year, 54 additional pending sales, but the gap is closing. Two weeks ago, demand was 14% higher, 404 additional pending sales. Expect demand to continue to drop until the number of new Coronavirus cases starts to diminish and the “stay at home” order has an end date.
CRACK – The Expected Market Time increased by 7% in the past two weeks, an unmistakable sign that housing is cooling. The Expected Market Time (the time between pounding in the FOR-SALE sign and opening escrow) increased from 43 to 46 days in just two-weeks. At 46-days, the market is technically a “hot” Seller’s Market, yet it is rapidly cooling. In the past five years, the Expected Market Time has dropped by an average of 5% in mid-March. It is officially Spring, and the market normally heats up as more buyers start their home search. Expect the market to continue to cool off the longer buyers are required to remain confined in their homes.
CRACK – The active listing inventory increased substantially for the first time this year. From January to the start of March, San Diego County’s inventory actually dropped by 92 homes. Yet, in the last two weeks, the active inventory grew by 156, a 3% rise, mainly due to escrows falling out of escrow and being placed back on the market (there were 169 in the last week alone). The active inventory will be something to watch closely in the coming weeks. In response to the COVID-19 virus, many homeowners will opt to wait for the crisis to end before placing their home on the market. Property showings in California have dropped dramatically since March 10th and are down -66.3% since this year’s peak and -67% since the same time last year. Property showings in the USA have dropped since the peak on March 11th and are down -45.7% and -46.9% since the same time last year. Between showings decreasing, sellers are waiting until conditions line back up in their favor while others simply do not want strangers touring their homes while reports continue to detail the spread of the virus.
It is important to understand that the housing market has a very long way to go before it even tilts slightly in favor of buyers.
Currently, San Diego County is still tilting heavily in favor of sellers. Housing must first evolve from a Seller’s Market, less than a 90-day Expected Market Time, to a Balanced Market, between 90 and 120-days. It is currently at 46 days. It is only a slight Buyer’s Market between 120 and 150-days. Home values really start to drop in a “deep” Buyer’s Market, which is an Expected Market Time greater than 150-days. In 2018, with rising interest rates, housing took 9-months to go from a HOT Seller’s Market to a slight Buyer’s Market. It quickly reversed the course at the start of 2019 as rates dropped.
The strength of the market depends on supply and demand. Demand will drop, but so will the supply of homes. The active listing inventory will drop as many homeowners will wait to place their homes on the market until after the number of new cases of the Coronavirus begins to diminish.
The government and lenders will initiate and continue to put together programs for borrowers who are unable to make their monthly mortgage payments.
Today, Governor Gavin Newsome said that 4 of the nation’s largest banks have agreed to temporarily suspend mortgage payments for Californians affected by the Coronavirus. Wells Fargo, US Bank, Citi, and JP Morgan Chase have all agreed to waive mortgage payments for people affected by the coronavirus. An additional 299 state charter banks and credit unions made similar statements, said Newsome.
The foundation of housing is strong. Housing is not a house of cards about to collapse like it was prior to the Great Recession. Buyers have been purchasing with cash and large down payments. They have had to qualify for loans and prove that they could afford the monthly payment. There are no subprime or pick a payment plan loans. Homeowners have not been using their homes as ATMs and pulling out massive amounts of equity, like they did prior to the last recession. This is not a housing induced slowdown. This is an unexpected downturn and the government and banks will make sure that homeowners remain in their homes.
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Robert Gmur | Robert@WelcomeToSanDiego.com | 949-310-5195 | www.RobertGmur.com