What’s Really Happening in the Local Real Estate Market?
The situation with COVID-19 continues to evolve. With the dramatic downturn in the stock market, real estate sales are bound to follow suit. Certain near-term changes are already being felt in the local real estate markets.
Immediate Issues with Buyers and Sellers
Are Escrows cancelling? Is there continued enforceability of real estate contracts under the circumstances? In an effort to curb the near-term uncertainty, California Association of Realtors has come out with an Addendum as a way to move forward with existing contracts and to address potential issues in contracts that have not yet been formed.
Local Caravans are Cancelled. Open House & Showing Protocol
Pasadena & other local Boards have ceased caravans. Open houses and showings are at Seller and Broker discretion. In lieu of open houses, technology with virtual showings and video chat are highly useful. Many real estate offices, like ours, have moved personnel and operations online and off-site.
Wealth Effects Will Impact Real Estate Especially at Top End of the Market
Downturns in the stock market and the overnight reduction in wealth will definitely affect real estate. This could have larger consequences for the top end of the market, where financial market wealth is often used as a source of funds for luxury homes, second homes, and investment properties. If sellers borrowed money on margin, using stock portfolios as collateral for their loans, the falling markets could generate margin calls and create a need to raise cash in a hurry. Hesitant buyers may lead to longer market time.
Forecast for Future Listings and Time on Market
Everyone is asking about the future of the real estate market. As of early March, nationally 11% of agents reported lower buyer traffic and 7% saw less seller traffic. Considering current uncertainties, these figures will increase. The sales cycle will continue, just at a much slower pace. Less competition could be an opportunity. Sellers need to be realistic. Buyers need to think longer term.
Turbulent Financial Markets Could Make Real Estate Relatively More Attractive
Although lost wealth is expected to have negative impacts on properties, there is fear that financial markets could fall further and there could be a recession. Could this improve the prospects for real estate as people seek safe havens for their assets? The luxury segment had been gaining steam with back to back increases. That trend will likely change. Buyers, who have recently had trouble finding a home may think that the tables have turned, there will be less competition and they can get a better deal. This assumes they have cash or can still qualify for the mortgage, of course.
Mortgage Rates are Incredibly Low
Buyers can borrow more and pay less. Sellers can refinance and decide to “shelter in place.” However financial market losses have impacted household wealth. Loss of consumer confidence and decrease in buyers’ and sellers’ overall finances may affect decisions on both sides.
Situation in China Beginning to Stabilize—Impact of Foreign Demand
Our local markets are heavily impacted by foreign buyers and sellers. International demand has fallen to cycle-lows in California, but the stabilization of the virus internationally should help prevent a larger decline in foreign buyers. On the other hand, foreign owners may need to sell. Remember what happened when the Japanese exited real estate in California? Could something similar happen again?
