NSDCC Sales, April 1-15

The closed sales in May will likely be worse than April – which hasn’t been too bad so far (just -26% yoy).  We have 82 pendings currently that have opened escrow this month.

NSDCC April 1-15 Sales & Pricing

Year
# of Sales
Avg $$/sf
Median SP
Avg DOM
2017
129
$533/sf
$1,275,000
42
2018
117
$557/sf
$1,255,000
43
2019
119
$567/sf
$1,410,000
56
2020
88
$565/sf
$1,382,500
39

We were off to a good start in 2020 prior to the coronavirus, so not surprised that the momentum kept these sales closing. But each of these buyers wired their funds into escrow in the midst of the some of the worst news they have ever heard in their life – and they still closed.

Impact of Coronavirus on Real Estate

March 12th was the day that US stock markets suffered the greatest single-day percentage fall since 1987, and the day after Tom Hanks and Rudy Gobert tested positive – the latter shutting down the NBA season. Let’s call it the day that the coronavirus started having a major impact on real estate sales.

NSDCC Stats Between March 12th and April 12th

Listing Status
New Listings
With/Canc/Exp/Hold
Pend/Sold Went Off-Market
2018
479
102
285
2019
527
157
213
2020
281
213
137

The Pend/Sold counts of previous years have all closed escrow.

This year’s count of 137 includes 99 that are still pending, and may not make it to closing.

Although realtors were not considered essential workers for nine days in this period, it looks like we’re going to have 50% to 60% fewer sales.

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.

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


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

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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.”

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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:

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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!

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?

https://www.bloomberg.com/news/articles/2020-04-09/frozen-housing-market-in-u-s-relies-on-bargains-and-desperation

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 Realtor.com. “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 Amazon.com 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.

NSDCC March Sales and Pricing

The closed sales in March held up ok, in spite of the covid-19.

It was announced on March 11th that Tom Hanks and Rudy Gobart tested positive, and the night that the NBA suspended the season.  It was then that the coronavirus escalated to another level of concern, and any buyer who was already in escrow might have cancelled.

But the Dow had been dropping since middle of February, yet there were 77 of the 203 closings that went pending after February 20th (red line).

The first three years below had one extra business day:

NSDCC February Sales & Pricing

Year
# of Sales
Avg $$/sf
Median SP
Median $$/sf
2016
252
$526/sf
$1,143,665
$419/sf
2017
259
$477/sf
$1,080,000
$424/sf
2018
259
$565/sf
$1,397,500
$494/sf
2019
211
$611/sf
$1,299,999
$479/sf
2020
203
$633/sf
$1,450,000
$511/sf

Buyers will be willing to endure if they find the right house, at the right price – and feel like they were treated with respect along the way. So far there have been 22 new pendings since April 1st.

SoCal Actives and Pendings

This is disconcerting – hope that homebuyer demand is getting pent-up while we’re on the couch……

Southern California house hunters were already balking at buying existing homes amid coronavirus fears and business closings before real estate agents were told to halt most selling activities.

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.

Link to Article

NSDCC February Sales & Pricing

February sales have been fairly uniform as pricing marches higher – it’s almost as if pricing doesn’t matter:

NSDCC February Sales & Pricing

Year
# of Sales
Avg $$/sf
Median SP
Median $$/sf
2013
188
$399/sf
$887,500
$334/sf
2014
180
$487/sf
$927,500
$378/sf
2015
171
$519/sf
$1,100,000
$425/sf
2016
139
$560/sf
$1,150,000
$410/sf
2017
173
$508/sf
$1,265,000
$426/sf
2018
165
$572/sf
$1,293,010
$498/sf
2019
176
$536/sf
$1,275,000
$459/sf
2020
179
$640/sf
$1,375,000
$516/sf

Don’t we fondly remember 2013, when pricing was 40% to 50% lower? It’s seems like yesterday!

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