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California housing market report and predictions for Q2, 2020
CALIFORNIA HOUSING MARKET REPORT & PREDICTIONS
FOR Q2, 2020
The first quarter of 2020 saw the housing market across the US face many hurdles due to the impacts of Covid-19. Businesses closed; millions of Americans lost their jobs as the economy submerged into recession. Though not more profound than the Great Recession, the current recession is a unique one.
It has impacted the whole world with the closure of businesses, bringing the world economies to a sudden halt. The housing market is one of the areas that suffered a significant blow from the pandemic. Despite the sector’s declaration as an essential service in the US, it faced challenges due to Covid-19.
In California, the housing market was troubled in the first quarter due to its pandemic impacts. In the second quarter, the housing market was still troubled as the shutdown continued to devastate California’s economy. Despite the government’s efforts to support small businesses, including the housing market, the situation has not been better due to the continued Covid-19 impacts. However, as the economy is expected to reopen slowly, there is some light at the end of the tunnel.
CALIFORNIA MAINTAINS HIGH PRICES
Despite these hard times, home prices in California have retained their high prices. April data for the California housing market has shown that sales and listings dropped significantly, but home prices have maintained their positions the same as the one witnessed last month. The rising rate of home prices in California is steeper than anticipated as the sales are at their lowest since 2008.
In April alone, a total of 277,400 homes
were sold, which is went down from what was seen in March. According to the California Association of Realtors, the Bay Area home sales suffered a significantly steep drop of about 37.4% year over year while in the Central Valley, the sales fell by 26.1%.
The stay home directives have also seen pending home sales drop by 43%. On the other hand, home showings declined steeply in mid-March due to the social distancing orders and the economic hardship, but later they started to increase gradually.
In April, the California home prices maintained high prices but with a slight drop compared to March. The prices dropped very slightly from $606,410, which was 1% from March. Fewer houses were listed and shown, which means few selection options for the home buyers ready to buy.
The Deputy Chief Economist of the California Association of Realtors, Jordan Levine, feels that the bottom of the housing market is appearing. With the economy set to reopen gradually, Levine expects to see a phase of disillusionment as workers, especially young home buyers, realize that they have no source of income due to unemployment for a while. In a video report in mid-May, Levine states that the few months could be severe, and Q2 could see a 30% drop.
At the beginning of May, CAR reports from surveys showed that homeowners are still withdrawing their homes from listing, while approximately 85% of buyers are backing out of potential deals. CAR’s consumer buyers believe it is an excellent time to buy a home, as 29% think it is a suitable time to sell a home.
According to CAR, there is a new challenge of delays in closing deals as buyer loan funding is facing much friction. Recent stats about loan application show California mortgage application for home purchases are showing a strong comeback since mid-May. According to the Mortgage Bankers Association, mortgage applications went up by 6% in the week ending on May 24 compared to the previous week. In another account, CAR predicts a J-shape economic recovery that will extend over the next 12 months and will affect home prices in the next six months.
ZILLOW FORECASTS ON HOME PRICES
In their last release, Zillow reported that home prices are expected to fall slightly for the remaining part of the year. Zillow forecasts a 1.1% price drop, which might be good news for Millennials in San Diego, LA, San Jose, and San Francisco who are looking to take advantage of the historically low mortgage rates.
Another Zillow survey shows that 48% of respondents said that this is an excellent time to buy a home. This proves the spirit of hopeful buyers in California.
Elsewhere, the housing research team at Freddie Mac in a mid-April report stressed that they expect to see a recovery starting in the second half of 2020. The group’s chief economist Sam Khater states in the report, “Although the uncertainty of the crisis means forecasts of economic activity are more unclear than usual, we expect that most of the economic damage from the virus will be contained to the first half of the year. Going forward, we should see a recovery starting in the second half of 2020…”
There are still many uncertainties at this point. According to past events, home prices in California and across the US do not always decline during a recession. Even if they do dip slightly in some areas, there is always a return to normalcy eventually, which is the same case expected for the ongoing recession.
Works cited
https://www.bpfund.com/will-home-pricesdrop-in-2020/ https://managecasa.com/articles/californiahousing-market-report/
