Understanding the new COVID19 real estate Marketplace in Los Angeles.
There have been numerous headlines about the current status of the economy and various questions about what it means for the future of residential real estate. Even with the inflow of information, many buyers and sellers are facing confusion about the state of the market and what’s to come.
Although we can’t predict what is to come, we do know how the market is NOW. As a generality, the market is hot! Although the market activity has shrunk in size while buyers and sellers wait on the sideline, the activity that is happening, is fast and furious. Total active listings for the month of April 2020 in the Greater Los Angeles area was approximately 1/3 of what they were in April 2019. Additionally, closed sales was about 1/2 of what they were in April 2019. The pie overall has decreased but the ratios have remained comparable to 2019.
April 2019 Listings and Sales
April 2020 Listings and Sales
The average days spent on the market for homes sold in the Month of April this year in the Greater Los Angeles area is 35 days. Whereas, homes that sold in April of 2019, spent an average of 54 days on the market.
I would attribute the shortened time on the market to a decreased amount of inventory and the active inventory being composed of the most motivated sellers. Overall, we are still seeing a shortage of inventory as demand for homes is still greater than the supply. This means prices are pushing up or remaining stable at this time, and will continue to do so until we see an increase of inventory.
Sellers
Sellers are facing multiple offers in some situations due to the low supply of inventory. Lending restrictions have also slightly increased and funding is in low supply for the type of jumbo loans that most Angeleno residents obtain for purchasing and therefore, the buyers who are qualified for financing are highly qualified and can generally close quickly which is good news for sellers.
Buyers
As a buyer in the market, you may find that interest rates are low however, financing is currently in short supply and stricter on requirements. Many loan programs that Angelenos use such as stated income or interest only loans have dried up. However, it does not mean financing is not available. Buyers should shop around between multiple lenders as some lenders are charging a premium in the form of points and rates because supply of financing has shrunk. As market conditions change rapidly, interest rates can also jump up and down day to day and week to week. Therefore, stay in close contact with your lender so that when see rates drop in your favor, you can lock in the best rate.
Right now it’s important to know that inventory is incredibly low and pickings will be slim. While there may be panic sellers in the market, overall, don’t expect to be getting major discounts as there are enough demand to keep prices stable.
I can imagine the biggest question is where will we be in the next few months?
Many buyers and sellers are waiting on the sideline for businesses to open and the market to stabilize more before placing their home on the market or before writing offers. Many of my own clients are choosing this path as well. Most agents, as well as myself, expect that this will create pent up demand that will hit the market in a few months from now and we will see a huge influx of activity in sales and new listings. To what size the influx will come in, it is hard to estimate.
Another factor that may affect inventory in the coming months are the properties that are now in forbearance. About 7% of mortgage loans nationwide are in forbearance. In other words, about 7% of mortgage payers are not paying at this moment but will likely be facing a large ballon payment a few months from now. If for whatever reason these payers are unable to make right their amount owed when it comes due in 3 to 6 months, then you can expect these homes will come on the market and increase the amount of inventory. This will be great for buyers as they will have more options and more leverage to negotiate great pricing. However, for sellers, this means they will be fighting more competition and will likely need to take price reductions or credits for repairs etc to close. Again, to what extent this will affect the market is yet to be seen. We’ve been experiencing a shortage of inventory for so long that this increase could have little effect on pricing or it could be large enough to create a drop in home prices. For comparison, loans in default during the great recession hit 21% at it’s peak. I do expect that even if inventory increases drastically, interest rates will remain low to create demand and a feeding frenzy of investors will be abound to absorb the inventory.
Take-away
Right now - at this moment - it is still a fantastic time to sell or buy a home. Prices are remaining steady and transactions ARE closing. You will likely receive a great value as a seller and avoid any concerns about dealing with flaky buyers or potential future uncertainty. Buyers are still obtaining record low interest rates. Ultimately, I always feel strongly if you are purchasing a primary residence, you should not look at it as an investment product, this is your HOME! Trying to wait and time the market is less important than home ownership itself. Ultimately, as many stock market gurus and financiers will say, you lose when you try to time the market. It is the same in real estate. Buy when you feel ready and take advantage of interest rates that may not exist again over the next 30 years.
For specific advice about your goals, reach out to me direct. 424-250-0046 or lauren@californianestates.com