Happy Lockdown, with no end in sight!
California Gov. Gavin Newsom’s order marks the first statewide mandatory restrictions in the United States to help combat the outbreak. It went into effect at midnight Thursday, meaning Californians should not leave home except for essential things such as food, prescriptions, health care and commuting to jobs considered crucial.
The restrictions will remain in place until further notice and come a day after Newsom warned that more than half the state is projected to be infected by the virus in two months.
“This is a moment where we need some straight talk,” Newsom told reporters. “As individuals and as a community, we need to do more to meet this moment.”
The order will not be enforced by law enforcement, he added.
“I don’t believe the people of California need to be told through law enforcement that it’s appropriate just to home-isolate, protect themselves,” Newsom said. “We are confident that the people of the state of California will abide by it and do the right thing.”
What will it mean for our local real estate market?
Our title and escrow companies are functioning (which might be case-by-case), and the county recorder’s office is accepting documents. Those electronic filings are coming in handy now – remember our tour of the process at First American Title? Link to Youtube.
The banks are open, but that doesn’t mean that mortgage companies will be funding loans. But we should be able to close sales where the buyers are paying cash.
Sellers will be reluctant to agree to any discounts requested by buyers on deals already in escrow, so some of them will fall out. Few will close for prices that are way under market, and maybe none – sellers would rather wait and get more money later this year (which will be the common perception).
Let’s figure that most of the existing escrows will find a way to close, either now or later.
What about new deals?
Are sellers willing to price their homes so attractively that buyers will make deals based on video alone? How many listings will have a video presentation that makes buyers comfortable enough to make an offer that is close to list price? Not many.
Sales will slow to a trickle over the next month or two.
Then at some magical moment, the coronavirus threat will be declared over, and we’ll get back to it. Kayla was listening to the D-E broadcast yesterday, and Howard Lorber recalled the NYC market after 9/11. He said that Manhattan sales came to a standstill for the rest of the year, but in January 2002, their market took off like a rocket.
There will be a scramble by the pent-up buyers AND sellers who really wanted to make a deal earlier, and who will want an early piece of the action. The naysayers will somewhat-reluctantly fall in line, and we’ll be back in business.
Will sellers need to discount? Here’s a likely scenario:
Buyer: I want a discount.
Seller: No, the scare is over!
Buyer: But there are lower comps now.
Seller: The coronavirus caused those. The ‘rona is over!
Buyer: I’m only buying if you discount the price.
Seller: No problem, step aside while I wait to get my price.
Could we see a surge of inventory once the immediate threat slows? Will the scare cause more people to sell – especially the older homeowners? It’s doubtful – after sitting at home for 1-2 months straight, the older homeowners are going to give up and pack it in. To have to re-ignite the painful ideas of finding a suitable home and packing up all the stuff will be even more uncomfortable. If there is a surge of older Californians not surviving the virus, I guess you could make the case that a few more inherited properties will come to market. But probably not rushed – a flatter curve.
Could this turn out better than expected?
The politicians’ rush to overreact is understandable, and they want to be heroes in the end. The numbers in China are already subsiding – could we get lucky and our strong reactions combined with our suburban lifestyles end up minimizing the impact?
From today’s WaPo:
We also come into contact with fewer people when we commute. According to the 2017 American Community Survey, more than 80 percent of Americans either work from home or commute alone by car. In Beijing and X’ian, on the other hand, only 30 percent of commuters travel by car. Italians similarly use public transit much more frequently than do most Americans. A paper from the Brookings Institution says that the average resident of Milan, the epicenter of Italy’s coronavirus outbreak, takes 350 trips a year on public transit compared to 17 for the average resident of San Diego. It’s a lot easier to get sick from the sneezing person next to you on the bus than it is driving by yourself.
These data suggest why New York seems especially hard hit by the pandemic. New York is one of the most densely populated places anywhere, with nearly 28,000 people per square mile. (Even Wuhan, the Chinese city where the virus originated, has only about 3,200 people per square mile.) And most of those New Yorkers don’t drive to work; New York’s Metropolitan Transit Authority says that more than 80 percent of rush-hour commuters to the central business district in Manhattan take transit. With a few exceptions in Staten Island and the fringes of the outer boroughs, New Yorkers live, work, commute and shop in much closer proximity to other people than almost anywhere else in the United States. It’s no wonder the virus is spreading rapidly there and in the commuter suburbs.
For now, our lives will be suspended, and the real estate market will wait it out. If there are going to be any deals, they will be in the next 30 days – but don’t expect much. For sellers, it’s too easy to look ahead.
Wonder how i’ll get my refi docs notarized when it’s time before the rate lock expires. I think thats a critical industry, no? 🙂
Yes, I’d call it essential.
Re-fi rates are being kept artificially high to keep applications low enough so as to not overload the system. We are in the range where retail rates cannot go any lower no matter the cost of money.
I thought we were only concerned with overloading the hospitals?
I hope you didn’t convert Kayla’s room into a man cave. It sounds like she’s going to be back for a while if not back on the team for good
Thanks Jim for the timely and thoughtful insight! As an anecdotal data point, the unit next to mine closed escrow two days ago ($3k below $530k asking price -10 days in market before pending) and new owners already have a crew in there making fairly major improvements (inclusive of new floors and windows) which were needed as it was in its original 1971 condition (though well maintained by a lovely lady).
Re virus, I also think that our mostly suburban city and median population age will work to our advantage -our disadvantage (beyond the delay in action) may lie in the fact of our population’s general state of health (diabetes, obesity, etc.).
I continue to be an optimist though my family/friends calls such optimism a delusion at times. Stay safe everyone!
Hola again Jim! Could I impose on you to remove my last name from the post above? Much appreciated! eli
Done!
Hi Jim –
Fantastic article. I’m a first time VA buyer that’s been seriously looking for a little over a year. Really helpful to hear your insight.
That said, I’m curious why you didn’t factor in the tremendous loss in stock market (erasing many buyers down payment and/or forcing some retirees to sell for liquidity of assets) nor did you seem to mention that rates have spiked (mine from 3.6 to 4.5) over the last week which could also lead buyers to slow down or stop.
Candidly, I think you’re being a bit too optimistic about home prices.
I think given rising uncertainty about the market and economic stability as well as uncertainties around employment for many folks coupled with the loss of income for so many during this time as well as spiking rates could cause people to panic list their homes at a time when the buyers are pausing or deciding not to buy. Isn’t it possible that could lead to a supply glut, even here?
Anyway thanks again for the article.
Anyway thanks again for the article.
Even though you think it’s all wrong.
Sales will drop off precipitously – mostly because realtors have refused to use video as a selling tool. Now they have to, and it won’t be pretty.
It this felt like a permanent situation, then sellers might cheap sell. But everyone thinks it is temporary – they will wait. I deal with sellers every day – they aren’t going to give it away if they think they might get full boat in six months.
More of a question here. I was in escrow when California went into quarantine. I am the seller. Can I still move stuff from home to home during this time or is this non essential and has to wait now?
We’ve been told that movers are essential workers.
We are due to close Escrow May 1st. We are also expected to leave our home on May 1st. We will be driving to Florida from California. We expected Tripple A to be open to map out our route. We expected to find hotels and restaurants open, . Tripple A is closed, hotels are closed, restaurants are closed, and airlines are giving us no guarantee of flying. Our Real Estate Broker says we have no choice. We have to close or we will be sued. What are our alternatives or rites?
A seller in southern California
If you refuse to close, then yes, you can be sued for specific performance – meaning complete the deal.
It will take months to get that far into the legal system (arbitration/lawsuit). You will lose, and will still have to sell the house – but you may not mind if it buys you some time.