Survey of Market Conditions

The experts were surveyed on what they think about the market – a sample question:

Fleming: “Our research has found that in past recessions, house prices show their “downside stickiness,” meaning they remain flat or their growth slows during economic downturns, but often do not decline much with one exception – the Great Recession. Because of the downside stickiness of home prices, and the supply and demand imbalance that exists in the market today, we anticipate nominal house price appreciation to actually accelerate this summer. House prices are going up!”

Marr: “As mortgage rates decline, prices rise. Demand fell, but so did supply, which muted any impact to home prices. Right now, they are continuing to grow at the same pace as before the pandemic. Growth may slow as the economic impacts grow, but the consensus is that home prices will continue to rise over the year.”

Tucker: “Overall, Zillow is forecasting a slight decline in home prices through October, followed by a slow recovery through 2021.”

McLaughlin: “We think price growth is going to slow, and even possibly turn negative, by the beginning of next year, as lower aggregate demand emerges and legislation that protects homeowners from foreclosure expire. However, we do expect price grow quite strongly by the end of next year, growing between 4-6% on a year-over-year basis.”

Teta: “Some pockets around the country may do well – like suburban areas around big cities if large numbers of people decide to move because of concerns that it’s too risky to stay in densely populated places where the virus has spread so rampantly. That could sew a silver lining into the market. But it may be more likely that the price boom of recent years is in serious jeopardy.”

Link to Forbes article

SD April Sales Down 26% MoM

I guessed that NSDCC sales would be down 60% in 2Q20, but April was the low point (sales were down 42% YoY), and May won’t be better but June could finish strong.  Quotes from the UT article which is linked at bottom:

“Sellers have taken a bigger step back than buyers,” said Jordan Levine, deputy chief economist at the California Association of Realtors.  He said low inventory means many buyers in markets like San Diego are forced to fight it out for a limited number of properties — and continue to push prices up.

Levine said he did not expect a major drop in prices like during the Great Recession because the fundamentals of the market were strong going into this crisis. That is, there weren’t a lot of shaky home loans that couldn’t be paid back and banks that were over-leveraged. Also, he said governments and banks are more determined to keep people in their homes now than during the recession, when a lot of foreclosed homes flooded the market.

“Institutions realize it is better to try and help folks hang on to these homes and make it through the crisis,” he said, “and that will ultimately be a lot cheaper and less damaging to the economy.”

At least some analysts and business owners say this might be a good time to buy or sell. Take Josh Stech, the CEO of the San Francisco-based company Sundae. His business buys distressed homes quickly from homeowners and only focuses on houses that need significant work.

Stech said it may actually be a good time to sell. He predicted there would be a big increase in new listings as stay-at-home orders are lifted so buyers would have more options. Also, he said there would be at least some foreclosures coming out of the economic shock of the past few months, also increasing supply.

“The recommendation I’ve been giving people is not what I’ve been reading,” he said. “My perspective is if you are thinking of selling in the next year or two, this is the time to sell. I would say you will get a better price today than the next year or two.”

On the buying side, he also said low interest rates are likely not to be this great forever, so there is also opportunity from that side on the market. At the same time, he said mortgage credit requirements are only getting tougher. The mortgage rate for a 30-year, fixed-rate loan was 3.31 percent in April, said Freddie Mac, down from 4.47 percent at the same time last year.

Home prices were up annually across Southern California by 4.3 percent. Riverside County had the biggest jump, rising 5.8 percent for a median of $412,500.

It was followed by San Bernardino County, up 5.4 percent for a median of $353,000; San Diego County up 4.3 percent for the median of $594,500; Los Angeles County up 3.8 percent for a median of $630,000; Orange County up 2.7 percent for a median of $755,000; and Ventura County up 2.6 percent for a median of $600,000.

Link to UT Article

Zillow Covid-19 Forecast

The continued economic fallout from the spread of COVID-19 has introduced immense uncertainty into the housing market as consumers step back from large purchases and social distancing puts a chill on necessary market services. As a result, Zillow expects home prices will most likely fall 2%-to-3% through the end of the year from pre-coronavirus levels, and home sales to fall as much as 60%, before both begin to slowly recover to baseline levels by the end of 2021.

The latest forecasts, based on published and proprietary macroeconomic and housing data, also include more pessimistic or optimistic projections based on the duration of the pandemic and the depth of its impact on the broader economy.

The forecasts center around a baseline prediction of a 4.9% decrease in United States GDP in 2020 and a subsequent 5.7% increase in 2021.

Under the baseline scenario, we expect:

  • A 2%-3% drop in prices through the end of 2020, followed by a slow recovery throughout 2021. Prices will return to Q4 2019 levels by Q3 2021.
  • A 50% decline in home sales from their pre-coronavirus levels, as measured at the end of 2019. Home sales will bottom out in Q2 before beginning to improve near the end of Q2 2020.
  • Sales volume will recover to about 97% of Q4 2019 levels by the end of 2021.
  • The pace of recovery is what distinguishes our three scenarios from one another.

Each of our scenarios implies very different paths for home prices and sales volumes. Our optimistic scenario features a small dip in house prices in Q2-Q3 followed by a robust recovery. The baseline medium scenario features a U-shaped trough in Q4 followed by a slower recovery and our pessimistic scenario features continued weakness through all of 2021 (more of a “long U” shape). Under our more-optimistic assumptions, the market could experience a fast, V-shaped “snapback” similar to what happened in the Hong Kong real estate market after the 2003 SARS outbreak. The medium scenario features a “check-mark” shaped recovery and our pessimistic scenario features more of a “wide-U” recovery, with a longer bottom and more gradual pace of improvement.

Jim’s guess on March 31st

When Will the Market Comeback?

Everything seems like “If” these days, but if we had a market comeback, the dates of a modified and compressed selling season would be fairly predictable, looking at it logically.

The actual results will be a matter of compression and intensity.

If there isn’t much of a market rebound, then we might only have a couple of hot weeks in July, and a lot of standing around, relatively.  If things get cooking, then we could have a solid 4-6 weeks before school starts (in red above) when the most sales will be made.

The dates in green is when buyers will be looking hard – and might be when the best deals are made.

Two to four weeks in October will be a lost cause, due to the election.  In December, buyers and sellers will both pack it in early for the holidays, and prepare to GET ‘ER DONE IN ’21!

Next year’s selling season is 11-12 months away – we gotta be ok by then, right?

Then all we have to do is get through 2020!

Market-Comeback Indicators

To get a feel for when the market is starting to come back, let’s watch these data points.

When sellers are feeling more comfortable putting their house on the market, we should see the number of houses for sale begin to increase (or that will be a sign that fewer are selling, and the unsolds are stacking up).

Let’s compare the drastic difference between today and a few years ago – this includes Oceanside:

March Inventory:

2011: 3,350

2015: 1,541

2020: 1,158

The lack of homes for sale was already a problem before the coronavirus hit – with this few on the market now, don’t be surprised if sellers try to push their list prices even higher.


Before we get an increase in new pendings, we will need an increase in showings:


Once showings pick up, then the weekly new pendings should gradually improve.  Here’s the latest look:


The baseline for the mortgage industry is Fannie and Freddie.  Let’s keep an eye on their thoughts – especially if they start pulling back on their loan programs:

Freddie Mac’s Economic and Housing Research Group says that due to the stay-at-home orders in effect in more than half of the states, housing markets will not have their typical spring sales surge. They will probably fall 45 percent on a seasonally adjusted annual basis in the second quarter. House prices, however, will be insulated to some extent by the fiscal stimulus and extended unemployment insurance coverage provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The forbearance and foreclosure mitigation programs put into effect by lenders and reinforced by the CARES Act will limit the fire-sale conditions that emerged during the Great Recession. Freddie Mac expects home prices to decline by 0.5 percentage point over the next four quarters.

Also preventing a price collapse is the persistent lack of available homes for sale.In addition, population growth and pent up household formations will provide a “tailwind” to housing demand. When the recovery begins, the company forecasts that price growth will accelerate back to a long-term increases between 2 and 3 percent a year.

When Treasury yields became volatile several weeks ago the Federal Reserve stepped in to shore them up. They then turned to the secondary market in mortgage-backed securities (MBS), buying billions of those when demand dried up and interest rates surged.

Freddie Mac forecasts that inflation will remain in check as economic growth slows and long-term interest rates, including those for mortgages, will remain low for the next two years. Refinancing will regain the momentum seen earlier this year but will slow next year. Purchase mortgage originations will be the mirror image of refinances so total originations will be around $2.4 trillion in both 2020 and 2021.

The economists say their forecast is relatively optimistic and there are significant downside risks. Some of the important data reported over the last month, such as unemployment insurance claims and job growth, have been surprises, and not in a good way. They conclude, “If the economic contraction is larger and longer than what we currently forecast the housing market will suffer. Home sales may be slower to bounce back if potential buyers do not come to market. House price declines could also be larger than what we expect, particularly if forbearance and foreclosure mitigation programs do not successfully limit contagion effects on house prices. In the downside scenario mortgage origination volumes would be significantly lower than we forecast.”


How about mortgage rates?  A general rule-of-thumb today would be when rates are under 3.5%, we can expect a positive effect on the market, and when they are above 4%, it’s a negative:


Let’s watch these indicators, and add others as time goes on.  The sellers will probably need to go first, and bring more homes to market.  Then once we see showings and pendings start to trend upward, then we can say we are getting somewhere!

Compass California Projections

An interesting conversation yesterday with the guy who made one of the biggest deals in the history of residential brokerages when he sold his company with 1,700+ agents to Compass in 2018.  His team developed the graph above on March 31st, and it looks like they are guessing that the selling season will just be delayed a couple of months.  He will update it next week with more-current projections.

In this discussion, he talks about how today compares with 2009 when he purchased PUI from GMAC when it had 400 agents, and a $900,000 per month overhead. He thinks the market will bounce back quickly, and that it’s time to go on the offensive (IOW: many brokerages aren’t going to make it through this):

He has also been blogging:

Opinions on San Diego’s Median SP

Like the San Diego Case-Shiller Index, the median sales price has been sputtering lately (above).

Homeowners didn’t have to make their mortgage payments before the coronavirus, and now they really don’t have to make them, so analysts who point to foreclosures are ill-informed.  Let’s also note that the Dow was down 29%, but it has recovered nicely, and is only 9% lower than it was a year ago so down payments have been mostly restored. My guess is at the bottom.

Link to U-T article

Housing analysts are split so far if home prices will go up or down because of the coronavirus. It is especially difficult to figure out in highly desired areas like San Diego.

On one hand, inventory is still very low and that should keep prices competitive. But, a lot of people have lost jobs and it seems like fear of the virus would not be very inspiring to a potential buyer.

Q: The median home price in San Diego County was $587,000 in February. Will it be higher or lower by the end of the year (and why)?

Kelly Cunningham, San Diego Institute for Economic Research

HIGHER: Although sales are dropping dramatically, home prices will stay about the same. With few transactions and the housing market with much of the economy on pause, prices will not change much. The FHA directed mortgage servicers to put moratoriums on foreclosures and offer forbearance or reduced payments, which will also limit price reductions. Supply remaining at record lows, demand near all-time highs, low mortgage rates should bring the housing market back to where was prior to the pandemic.

Jamie Moraga, IntelliSolutions

LOWER: This depends on when we might see a light at the end of the tunnel and then how quickly Americans can recover economically. Housing prices could be slightly lower than the median reported in February and that’s if significant recovery can happen in Q3 and Q4. Because of the ongoing uncertainty, homeowners and homebuyers are likely to hang tight to see how COVID-19 shakes out unless they absolutely need to buy or sell property at this time. Because this is such a fluid and unprecedented situation, it’s difficult to really forecast or predict at this point.

Reginald Jones, Jacobs Center for Neighborhood Innovation

LOWER: Housing prices will likely adjust a bit lower by year-end, driven mostly by the middle market. Homes priced in the first- time buyer range will affect the market most. The target group in this category — middle, to upper- middle-income earners, will be most concerned about job security for homeownership investment as the economy settles. This will create a drag on the median home price.

Austin Neudecker, Weave Growth

LOWER: Until the COVID-19 crisis hit, San Diego did not have enough homes for sale, which was driving prices up. Post-pandemic, I expect the widespread unemployment / furloughing to take a toll on personal finances (reducing active buyers). I am hopeful that we see a quick recovery and, provided we are prepared and able to keep any significant recurrence next season, that we could return to the booming market of the past 10+ years in 2021.

Bob Rauch, R.A. Rauch & Associates

LOWER: This is because sales volume will decrease and hence, it will no longer be a seller’s market. The banks will work with homeowners given the impact of COVID-19 so we will not see prices falling off the cliff. Prices will trend lower because sellers are only selling if they are virtually forced to sell. Yes, there are a few who want to leave the Peoples Republic of California but they are in the minority.

Norm Miller, University of San Diego

LOWER: High-end homes, often owned with no mortgages, are getting hit from the stock market declines, which reduces the ability to buy up. Middle to lower-tier homes will be hit by unemployment and increases in foreclosures. Since there will be very little inventory on the market over the next quarter or two, the sales we will observe will include more distress than normal and not representative of the underlying market or patient sellers that will wait until next year.

James Hamilton, UC San Diego

LOWER: The world economy has just been hit by the biggest shock of the last 50 years. It’s hurting everybody, regardless of location, economic sector, or type of business. And things are going to get worse before they get better. We might be recovering by the end of the year. But the rebound won’t come soon enough or be big enough to undo the losses that I’m expecting over the next several months.

David Ely, San Diego State University

LOWER: While the low inventory will stop home prices from falling sharply, demand factors will likely dominate and cause prices to be lower by the end of the year. Major sectors of the economy have shut down. The huge jumps in state and national claims for unemployment benefits are clear indicators of just how much COVID-19 will damage the economy. Given the job losses and economic uncertainty, demand for housing will drop dramatically.

Ray Major, SANDAG

LOWER: 2020 will prove to be a down year for the housing market. Even before the crisis, housing prices were nearing their peak. The COVID-19 disruption has wiped out many people’s investment and retirement portfolios, consumer confidence is down, and many people will return to struggling businesses or find themselves out of work. Viewing properties in an era of social distancing will further complicate and dampen the sales process — all bad signs for real estate.

Chris Van Gorder, Scripps Health

LOWER: Growing unemployment, a decline in personal wealth resulting from the financial markets meltdown, and the uncertainty of the extent of the COVID-19 pandemic are headwinds to sustaining current home prices. While housing prices will likely drift lower, if the pandemic is short-lived and government stimulus initiatives are successful in muting the resulting economic impact of COVID-19, supply factors and low interest rates should lift the housing market in a relatively short period of time.

Lynn Reaser, Point Loma Nazarene University

HIGHER: Home prices are likely to be slightly higher as demand recovers faster than supply. Housing demand is now plummeting as people fear either infection from an on-site visit or the economic impact on their jobs, incomes, and savings. However, new construction is also likely to slow as caution among lenders and developers climbs. Unless the virus rebounds later in the year, jobs, business, and spending should then revive housing demand, while new construction will continue to lag.

Phil Blair, Manpower

LOWER: I think there will be long term ramifications from this pandemic. The hardest hit are small businesses and low wage earners, but the huge drop in the stock market has rattled the higher-income sector, too. We will see a corralling of spending and a cash-is-king attitude. Neither of which bode well for laying out down payments and taking on huge debt from a big expenditure like buying a house. I just spoke with a business owner who has stopped paying herself a salary to conserve cash in the company. Because of no salary she has sworn off Amazon until she feels comfortable starting up her salary again. Truly suffering for the good of the company.

Alan Gin, University of San Diego

LOWER: Economic activity has ground to a halt and a lot of people have been laid off. Even with aid from the government, many small businesses will likely not be able to survive. So unemployment will probably remain high through the end of the year. That will hurt the housing market, as some will lose homes to foreclosure and demand will decrease. Even though interest rates will remain low, a lot of potential buyers will hold back because there will be too much uncertainty.

Gary London, London Moeder Advisors

LOWER: The activity counts and listings in home sales have already plunged. Soon we will see distressed listings, further eroding value. The consequences of the shut down are that economic activity is likely to be slow to re-emerge. Uncertainty about the future will abound, and this will feed declines in value. I do not expect the level of downward movement that we experienced in 2008, but price drops are likely to be significant. The shallow supply pool of new housing may slightly offset the decline.

Jim the Realtor, Compass

LOWER: I’ll guess lower because if there is fear/desperation in the environment, then those homeowners of more-modest means and less equity would be more likely to panic and dump on price (rich people might list their home, but their ego will prevent them from dumping). I’m sticking with 60% fewer NSDCC sales in 2Q20, and -5% in price for the year.

Media Scare Tactics

Prices dropping in the ‘low single digits’ doesn’t sound like a frozen or desperate market. Their first story is about a guy who is looking at homes in Florida priced at $15 million? That’s relevant to the national housing market?

Jim Morris is on the hunt for a South Florida mansion, at a bargain price. He’s got money to spend and few competitors house-shopping during a pandemic. He just needs to find a motivated seller willing to make a deal.

This is what’s left of the U.S. housing market. With stay-at-home orders canceling open houses and social distancing requiring no-touch closings, most buyers and sellers are deciding to just wait.

That leaves opportunistic buyers like Morris, whose food-packaging company has shifted into high gear. With Americans hunkered down at home, stocking up on frozen foods and other essentials, his revenue shot up 300% in March, he said.

“If your house is on the market a buyer is going to assume it’s a sale by necessity,” said George Ratiu, senior economist at “If you don’t have to sell right now, why would you? There will still be transactions, but the number will be so low.”

Already, there’s been a dramatic pullback in listings at a time of year when they’re typically increasing. The number of homes pulled from the market doubled in the week ended April 3, according to Redfin.

As sales slump, home prices will fall later this year and early next in the “low single digits” nationwide, according to Mark Zandi, chief economist at Moody’s Analytics. The declines may be more pronounced in West Coast markets, which were already overvalued relative to incomes, he said.

The housing market, typically 15% to 18% of the economy, has all but shut down. Forget the key spring selling season, the real estate equivalent of Christmas for retailers. Even the summer may be a bust. For the deals that do happen, closings can look like a scene from “All the President’s Men.”

Over the next several months, millions of homeowners will double up with friends and family because of the financial impact of the coronavirus, said Ed Pinto, the director of the Housing Center at the conservative American Enterprise Institute.

While listings will plunge, demand will fall faster, eventually creating a glut of available homes that will give buyers even more of an upper hand, he said. Nationally, Pinto sees home values slipping 1% to 2% in May from a year earlier, and as much as 4% to 6% by the end of June.

“We’re going to get to a point in June or July where we’re going to have 10 months of supply,” Pinto said. “At 10 months of supply, housing prices get impacted pretty substantially.”

The New Jersey market, for example, is about to get crushed.

Home sales in the state, second only to New York in coronavirus cases, may fall as much as 45% this year from 2019, while prices will drop as much as 12%, according to Jeffrey Otteau, president of Otteau Valuation, a real estate consultant in Matawan, New Jersey.

“People will be taking homes off the market and in spite of that, this will be a buyer’s market, with low inventory,” Otteau said. “It’s unusual.”

Distressed Sellers

So far, sellers aren’t racing to lower their prices. The median asking price across the U.S. rose 1% to $309,000 in the week ended March 29, from a year earlier, Redfin data show. The peak of $330,000 was a month ago.

Only 52 listings in Manhattan made price cuts in the period between March 22 and April 6, compared with 663 in the same two-week period last year, according to a study by New York listings data website UrbanDigs.

Still, some sellers are adjusting their expectations. Sadie Mackay, a 29-year-old product manager for Inc. who recently bought a single-family home in Seattle, is getting ready to list her one-bedroom condo close to the company’s headquarters. Its location, also near Google and Facebook Inc. offices, will help. Even so, Mackay said she’s not planning to price her condo aggressively.

“It’s going to become a hot potato if I can’t sell it for a few months,” she added.

To prevent a full-blown foreclosure crisis, the government is allowing borrowers to pause mortgage payments with no penalty. The Federal Reserve, which dropped its benchmark lending rate to near zero, has pledged to buy unlimited amounts of mortgage bonds. That should help to keep mortgage rates low.

Homeowners who take advantage of enhanced unemployment insurance ideally won’t be forced to sell properties at fire-sale prices, according to Lawrence Yun, chief economist at the National Association of Realtors.

The experience of Michelle Medina Bunting, 34, and her husband, Tim, 35, who rent on the Upper West Side of Manhattan, suggests that sellers are in a mood to discount.

The couple last month made a $990,000 offer on a renovated two-home property in Jersey City that was listed for $1.3 million. After some negotiation, they couldn’t reach agreement and moved on.

“Now, that agent has been calling us and saying, ‘Do you want to make another offer?’” Michelle Bunting said.

Morris, who’s still looking for his Florida mansion, considered a nine-bedroom Fort Lauderdale property with a six-car garage and boat dock before coronavirus shut down the economy. The owner insisted he was firm at $15 million. But last month the owner called him to knock off 20%.

“I am expecting more of that — there are going to be distressed situations and distressed situations lead to opportunities,” Morris said. “I don’t want to overpay because we don’t know what the new market will look like when this is all over. What may look like a bargain today may actually be too high.”

The Fed is doing a fantastic job supporting lower mortgage rates, and if the less-motivated sellers and buyers wait it out, then fine – we will have fewer sales. The homes that do sell will be at prices around the recent comps.

Buying a home during the virus will be the new badge of honor, like bank-owned properties were last time. We sold the REOs for full retail – there were very few deals.

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