Can Buyers expect a “COVID” discount in Real Estate?
By Mike Harper & Peter Hazdovac
As you may recall from our January column, we reported that our local housing market was chugging along and continued to remain stable. Although sales volume was trending down, home values were up slightly in San Pedro and much of the South Bay. The outlook for 2020, based on projections from the California Association of Realtors® (C.A.R.), was for more of the same with a slight uptick in volume and an increase in housing prices upward of 3%.
Then came that memorable day, March 12th to be exact, when life as we knew it was suddenly upended by the COVID-19 pandemic. Chaos ensued over the coming weeks, with many sectors of our economy paralyzed with panic and uncertainty. This was certainly the case for the real estate industry and our local housing market. It would stand to reason that, with all the craziness the United States was faced with, that not even the durability of real estate would go untested over the near term. Lenders became extremely cautious, with many jumbo nonconforming loan originators (loans above $765,600) freezing funding altogether.
How would a downturn not be inevitable with our economy coming to a screeching halt, massive job loses, and real estate not even considered an essential service initially?
As April approached the real industry caught a break and made some significant adjustments. For starters, the State of California, including the City and County of Los Angeles, deemed real estate services essential. This was a no brainer and should have been the case from the get-go. Additionally, C.A.R. leadership worked swiftly to create “Best Practices Guidelines” during the pandemic that would be adopted by the industry to ensure the safety of sellers, buyers, agents and third-party services. These key adjustments, coupled with an industry that worked diligently to adapt to the new normal, have been paramount to keeping our local housing market moving in the right direction during the safer at home order. The other significant factor was the favorable lending environment that has continued throughout most of the year. Jumbo nonconforming lenders slowly began lending money again, albeit with stricter qualification guidelines, and rates for conforming loans (up to $765,600) have remained under 3.5% for much of the year.
To be clear, the negative economic indicators are apparent, and many industries continue to struggle. Massive unemployment, a decline in consumer ability to purchase goods and services, and a decline in tourism and travel as well as other sectors, continue to be major concerns for our economy going forward. However, our local real estate market has remained fairly resilient since the pandemic hit in March. In San Pedro, there were 73 single-family residence (SFR) sales from March thru May 2020 (based on local MLS statistics). This was up approx. 1% from the same period during the previous year. The average sales price during the same period was approx. $753,000, which was up nearly 3%. Days on Market (DOM) for home sales was 39 days, which was up approx 10%. In Rancho Palos Verdes there were 76 SFR sales from March thru May 2020. This was down approx. 24% from the year prior. The average sales price of $1,614M was down approx. 1.5% during the same period and 51 DOM was virtually unchanged from the prior year. In the South Bay as a whole there were 747 SFR sales, which was down approx. 31% from March through May during the previous year. However, the average sales price of $1,246M was up approx. 3% and average DOM was 29, which was 10 days less than the year prior.
What’s the outlook for our local real estate market for the remainder of 2020? A continued decline in home sales volume is anticipated. However, favorable mortgage rates and a tight inventory environment is expected to keep prices fairly stable. Overall, real estate is expected to remain a safe investment and should be one of the bright spots in our economy.
Mike Harper and Peter Hazdovac are both licensed Realtors® with Keller Williams Realty. For more info., visit www.harperhazdovac.com