The number of new escrows in the six-county region in the 30 days ended March 19 was 16,619 — down 766 or 4% in four weeks, said ReportsOnHousing. Author Steve Thomas follows homebuying trends found in the home-selling listing services for Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura counties.
Let’s put this sales drop into perspective. Remember, this is prime homebuying season. My trusty spreadsheet tells me in the same period in the previous five years, new escrows averaged an increase of 904 or 5%. So this was quite a reversal in fortunes for local real estate.
“Stunning but not unexpected,” says Thomas.
Numerous factors have hit the market. House hunters and owners alike have lost job security. Lenders that should have been offering cheaper mortgages balked at lower rates due to market fluctuations and a rush of business. Fears of spreading disease scared many sellers and buyers from the very hands-on homebuying process.
And this recent sales drop came before new state government mandates to limit business interactions. That forced the California Association of Realtors on Friday to tell its members to stop all face-to-face home selling.
Thomas says he expects the majority of sales in progress to close but he expects few new deals to be made and that many listings will end. “Not much you can do until we get some certainty,” he says.
Coronavirus stomped out what appeared was a solid start to the selling season: Even the depressed March 19 escrows count was up 6.5% above the year-ago level. But four weeks earlier, escrows were rising at an 18% annual pace.
ReportsOnHousing found Southern California’s supply of existing homes to buy was steady as of March 19: 29,941 homes officially listed in the region, up 282 or 1% in four weeks. That’s on par with 250 listings added on average since 2013.
Here’s how the existing-home trends run in the region’s counties …
Los Angeles County:5,006 in escrow, down 381 or -7% in four weeks; 8,650 listings, up 2 in this period.
Orange County:2,398 in escrow, down 185 or -7% in four weeks; 4,159 listings, down 2.
Riverside County:2,983 in escrow, down 157 or -5% in four weeks; 6,793 listings, up 31.
San Bernardino County:2,313 in escrow, down 109 or -5% in four weeks; 4,406 listings, up 10.
San Diego County: 3,138 in escrow, down 115 or -4% in four weeks; 4,808 listings, up 220.
Ventura County:781 in escrow, up 181 or 30% in four weeks; 1,125 listings, up 21.
Yesterday, President Cuomo mentioned serological testing, which could end this crisis sooner than we think. Donna and I both had a wicked run with a virus in January with symptoms that sound similar to the Covid-19, and even if it was only a cousin, maybe the antibodies will ward off the real thing. If so, I’d like to get back to work!
Just how many people actually have Covid-19? How long will it be before we can safely begin to ease social distancing? And is this a one-off crisis or are we now facing the threat of repeated waves of coronavirus pandemics on an annual basis?
These are all questions to which scientists around the globe are racing to answer through serological testing – detecting tell-tale antibodies in the blood to identify the real number of people in a population who have ever come in contact with the virus. Over the coming months, the results will determine everything from how long society’s shutdown needs to be, to evaluating the effectiveness of the new vaccines on the horizon.
Right now, the NHS tests for Sars-CoV-2 – the virus that causes Covid-19 – through a diagnostic technique called polymerase chain reaction (PCR) which detects the virus’ genetic material in oral or nasal swabs. It’s highly effective, but it only returns a positive result when the virus is still present in the body.
Serological testing will tell us how many people crossed paths with the coronavirus weeks or even months ago – sometimes without knowing – a figure which epidemiologists modelling the spread of Covid-19, and governments need to know to make accurate public health decisions.
“You’ll have heard [the UK’s chief scientific advisor] Patrick Vallance talk about herd immunity as a useful outcome if enough people have had the infection,” says Andrew Freedman, consultant in infectious diseases at Cardiff University. “That’s something you can determine if you do serologic testing on enough representative people across the country. If you find that 60 per cent or more of the population have got antibodies to the virus, so they’ve already had the infection, this would tell you that herd immunity might be successful and it’ll stop spreading. So then the government could stop the social distancing and isolation precautions at the moment.”
As the wait for new drugs for Covid-19 goes on, serological testing is also likely to be used to identify people who have recovered from the virus, who may be asked to donate their blood as a form of emergency treatment for elderly or vulnerable people that are acutely ill. This is a treatment idea for virulent infections which dates back to the Spanish influenza, more than a century ago.
“Serology can be used to identify people with high levels of neutralising antibodies that can kill the virus,” says Theel. “Their plasma would be tested, collected, screened for HIV and hepatitis, and then administered to ill patients. The idea being these antibodies could quickly activate and kill the virus in those sick people.”
The total number of pendings should drop off quickly as agents scramble to close their existing escrows and hunker down. Last week we had 55 new pendings, and this week it was 31 – which doesn’t sound too bad. But we’ll be lucky to see half that many by next Monday.
The number of new listings dropped off too. In what would have been the early stages of the selling season, we only had 59 new listings – when last week we had 83.
Hopefully people will keep watching the market via the search portals and blogs. It’s ok to think that nothing much will be happening – which is probably true. But keep an eye out, just in case!
Other countries have bounced back in six weeks. Could it happen to us?
BEIJING — The grocery stores were brimming with shoppers and produce. Around the corner, a line was forming outside a stall selling pillowy white steamed buns.
The gray, brick-lined alleys of this old imperial capital, deserted several weeks ago, were congested again by newly licensed drivers struggling to park their outsize Audis.
I knew then: Beijing was slowly, unmistakably, returning to normal.
Six weeks earlier, I had watched China shut itself down as the coronavirus epidemic first exploded in Wuhan, and then spilled across the country and beyond. For my work, I traveled around China, down empty boulevards, through empty airports, in empty train cars. I saw China’s whole economic machinery, from the curbside noodle shops to sprawling tech campuses, clank to a halt as the government pulled out every stop to contain the virus’s spread.
To help the nationwide social-mapping effort — and, I suspect, feed the government’s ever-growing appetite for personal data — I begrudgingly gave my mobile number to government workers at every train station, checked in via smartphone app to enter office buildings and recited my passport number just to eat at a rare restaurant that remained open.
By mid-February, the clampdown tightened further.
Checkpoints were erected in a grid layout at every intersection in central Beijing. Residential neighborhoods were sealed after 10 p.m. Like all travelers arriving from out of town after a brief excursion, I was placed in quarantine at home for 14 days.
I emerged in recent days, precisely at a moment when life was returning to Chinese streets while much of the West seemed to be spiraling into panic and chaos. For countless others and me, the tilting scales raised the question: Are China’s strict measures a model for the rest of the world?
The truth is, I don’t know.
What I have seen is that success in containing the epidemic has not been exclusive to authoritarian systems; it has been used in democratic governments in Singapore, Taiwan and South Korea that also appear to be heading for quick recoveries.
As expected, the COVID-19 news continues to worsen. But escrows in process should have a good chance of closing, as long as buyers are satisfied, and the sales count should be fine for a week or two.
Then what?
Mike DelPrete offered the following data:
The following chart shows property transactions in China during the early stages of the outbreak. Transactions dropped significantly — nearly 100 percent — during a number of weeks during the crisis, and are now growing again (but still down over 50 percent from last year).
There are similar results in Italy, with a top portal telling me that they expect transaction volumes to be down 20–40 percent in February and 70–90 percent in March. Another source cites that visits to apartments for sale in early March were down more than 50 percent compared to a year ago.
Will our sales will be down the 20-40 percent this month, and down 70-90 percent next month?
Probably.
With the California Association of Realtors issuing a strong warning to agents to abide by the governor’s request for non-essential workers to stay home, it’s almost a certainty that new pendings will stop now. Agents will be in awe, and wait for others to figure out how to sell homes during the lockdown.
Can agents go to work?
There is are some vague categories in the official document, EssentialCriticalInfrastructureWorkers so there is some interpretation available for those who want to push it.
Two things about the governor’s stay-at-home plan: 1) Walking is permitted, and 2) He said law enforcement won’t be busting people. It makes it sound like it’s your choice, but lives could be on the line.
Will buyers engage?
Let’s stick with the math.
If sales next month go down 70-90 percent, it means we lost at least half of the buyer pool.
It’s natural to expect that the lesser-motivated half of the buyer pool will check out – but they weren’t going to matter anyway because the other half of potential buyers were more motivated.
Buyers who are motivated will keep watching, but there won’t be many new listings to consider……and buyer malaise will set in. You know the feeling – when you get so discouraged that you don’t check every auto-notification, figuring it’s just another dud with lousy photos and no easy path to buy it anyway.
Many will decide that it will take a miracle to buy a house now!
Sellers will check out too, and many of the active listings will cancel, why? Because sellers and agents can’t imagine how to sell a house except by showing it in person to strangers who could give you the virus. Any listings that are occupied will probably shut it down.
If we lose half the buyers and sellers, then we’ll be lucky if sales only drop 70 to 90 percent!
Can agents adapt?
What do we need to do?
Let’s sell by video! I’ll show you later this week.
What will it take to sell your home during the lockdown?
You need to be the best buy in the neighborhood, and in the top 10% of active listings within a mile or two radius.
You need to have a fantastic video presentation, and be willing to accept an offer from a buyer who hasn’t been inside. Once you designate the buyer, then they will walk over for a showing in person. There will be two other visits – the home inspector will spend 3-4 hours, and the appraiser will spend about 30 minutes. But that’s it, and those three intrusions should be manageable, though it would be best if the sellers move out before we begin.
There needs to be give-and-take on all sides. Agents have to deliver a quality video presentation – preferably without elevator music and cheesy marketing. Buyers need vision – they need to master video as their preferred way of seeing homes in the new social-distancing era. And escrow has to go perfectly.
It will be the future of real estate sales.
Should sellers wait it out?
Yes, for almost all sellers – those who don’t need to sell in the next 3-6 months.
It will be smart for the aspirational sellers – those who will only sell at the higher end of the range – to wait until other sellers go first, and let them leave a decent set of post-virus comps upon which to build a case for retail pricing. Everyone expects the ‘pent-up demand’ to set off a frenzy, but after 1,000s of Americans don’t survive the virus, the marketplace could be quite somber – especially if rates are above 4%. But hopefully we will see full recovery within 6-12 months after the virus pandemic is declared over.
Trump will declare victory well in advance of the experts, and it could ignite his followers. Any lull in the market could be over sooner than you think. More on that next!
A viewer’s comment on YouTube led me to this terrific inside view of the 2008 financial crisis, and the resulting impact on the world. It rightly blames the entire fiasco on the Tan Man, who pitched his mortgages to Wall Street based on the yields generated if borrowers made their full-interest payments, when in reality, only a much smaller minimum monthly payment was all that was due.
It’s eerie to watch today as our financial markets are in question again:
I make a quick comment in at the 2:38-minute mark, standing in front of the most-expensive REO listing we received in the era – a 2,900sf house in downtown Carlsbad that sold for $603,000 in December, 2009. It’s still owned by those buyers! The realtor.com estimate today is $973,900.
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?
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.
Federal: Congress is working through several fiscal policy proposals. It is very likely that whatever relief is passed will include tax incentives that will need to be carefully planned for.
The Treasury and IRS announced on March 17 that the tax deadline will be extended 90 days, to July 15, and the IRS will waive interest and penalties for certain taxpayers. The delay is available to people who owe $1 million or less and corporations that owe $10 million or less.
California: The state has granted extensions to individual filers, partnerships and LLCs and quarterly estimated tax payments: Filingand payment is due June 15. The Employment Development Department and California Department of Tax and Fee Administration have also released guidelines.
They won’t foreclose on you, but your credit score will be affected. From the AP:
Certain borrowers nervous about missed house payments got some relief as two major government backers of mortgages have said they’re stopping foreclosure work for the next 60 days.
The Federal Housing Administration and Fannie Mae announced moves to help out borrowers behind on house payments as part of effort to mitigate the financial impact of the coronavirus outbreak.
Loan servers of FHA and Fannie Mae loans have been directed to stop starting new foreclosure actions; suspend foreclosures in progress; and not evicting residents of foreclosed properties with loans backed by these agencies. Borrowers in financial trouble are encouraged to contact their loan servicer to inquire about various relief programs.
“Today’s actions will allow households who have an FHA-insured mortgage to meet the challenges of COVID-19 without fear of losing their homes, and help steady market concerns,” said U.S. Department of Housing and Urban Development Secretary Ben Carson. “The health and safety of the American people is of the utmost importance and the halting of all foreclosure actions and evictions for the next 60 days will provide homeowners with some peace of mind during these trying times.”
