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.