Where is the real estate market headed?
With stay-at-home orders still in place and limited resumption of activity in some industries, everyone is casting around for the best crystal ball. What will the real estate market look like in a month, or six months, or a year? How do sellers and buyers make informed decisions when information seems to be all over the place?
The bottom line is simple: we don’t have a crystal ball and we don’t know exactly how the market will shake out over the coming months. But while the coronavirus pandemic is different from anything we have experienced in our lifetime, history, economics, and human psychology offer some valuable perspectives.
The spring season and exceedingly low interest rates would normally mean a very busy time for real estate activity, but stay-at-home orders and general uncertainty have slowed the pace of new listings. “Significantly more listings are needed and more will come on to the market once the economy steadily reopens,” says Lawrence Yun, chief economist of the National Association of Realtors (NAR).
Though the volume of available inventory is down, the law of supply and demand keeps a steadying hand on property values. The supply of unsold inventory remains very low, at 3.4 months – still what we call a seller’s market.
Not surprisingly, the sales volume has dropped; for example in the Beverly Hills office of Coldwell Banker, April 2020 sales volume was off about 40% from April 2019. But the good news is that prices have remained fairly steady, dropping by about 5% in the luxury market. And activity continues. Our office alone closed $142 million in April, but even more significantly placed $152 million of property in escrow.
Happily, at the end of April, Mayor Garcetti loosened restrictions on showing properties. Sellers and potential buyers will be asked to sign a Coronavirus Property Entry Advisory and Declaration (PEAD) agreement before viewing a property, and, of course, we will continue to follow guidelines for safe distancing and the use of masks and gloves. But resumed showings have given the market a positive boost.
The combination of low supply, low rates, and increasing demand make it an excellent time to sell. Buyers have been spending plenty of time online exploring enhanced materials – photos, video tours, drone shots, etc. – for properties and neighborhoods of interest. Especially in the luxury marketplace, buyers will be more ready than ever to act. Seller’s market or no, this prolonged “homework” period has made buyers more discerning – especially when it comes to pricing.
At the same time, Home itself has become a more valued asset as people spend concentrated time in residence. Investors, too, are looking for opportunities outside of the stock market. With low interest rates on bonds, the real estate market offers an ideal hedge against inflation as well as a likely appreciating asset in the long term.
As agents, sellers, and buyers cooperate to accommodate social-distancing restrictions, the long stretch at home may also be influencing buyers’ priorities. Many people are rediscovering the pleasures of cooking and with new insights may rethink their kitchen requirements. Home offices, play areas inside and out, and robust entertainment spaces and capabilities will be more important than ever. Even raised beds and greenhouses may have new appeal.
Some analysts are suggesting that, with regards to real estate, current conditions may have more in common with the post-September 11 economy than with the major recessions and depressions of the past century. That is, rather than a prolonged U-shaped recovery, we may see a more dramatic V-shape bounce to the economy. Of course, much depends on how the virus is managed and controlled, both socially and medically, over the coming months.
It is my belief – and the top Southern California brokers I’ve surveyed concur – that the luxury market will remain more or less stable, with very a slight decrease in prices over the short term. In the long term, I anticipate substantial price increases once a vaccine or cure is located.
Whatever the market conditions, the Joyce Rey Team is here to help. We don’t have a crystal ball, but we have unparalleled market knowledge and decades of experience. We hope you will stay safe and healthy and let us assist you when you’re ready to talk about luxury real estate.