More than 7,000 coronavirus cases have been reported in California to date. Currently, it is one of the hardest-hit states in the US. State officials estimated that if drastic measures were not put into place, 56% of the population of California would be at risk of contracting COVID-19 in just 8 weeks. In an attempt to curb these numbers, Governor Gavin Newson implemented a “stay at home” order for almost all 40 million residents of California. The order does allow some business operations labeled as essential to carry on. Initially, the business of buying and selling homes in the California real estate market was not included in this list. However, NAR has been working to change this across the country and this week, California real estate sales were deemed as essential.
We have already taken a look at how the coronavirus pandemic has affected the Bay Area housing market specifically. But how will the general California real estate market hold up in the face of this pandemic? Will housing prices go down in California? Will the housing market crash in California in 2020? Experts across the California real estate market are weighing in and giving their adjusted California housing market predictions for 2020.
California Real Estate Market 2020: Pre-Coronavirus Data
Let’s take a quick look at how the California housing market was performing before the coronavirus outbreak. While it’s true that these real estate market trends are likely to be turned upside down thanks to COVID-19, the previous state of the market helps experts determine how well it will fare in times of uncertainty and how quickly it will be able to recover once this crisis has passed.
February 2020: California Home Sales and Prices
It’s unfortunate that right before the coronavirus hit the California real estate market, it was getting off to a strong start for 2020. The California National Association of Realtors (CAR) affirmed this in their February Home Sales and Price Report. Here is the real estate market data CAR collected:
- Existing sales of single-family homes were up 6.6% month-over-month (MoM) and 5.9% year-over-year (YoY).
- The California median home price was reported as $579,770 for February 2020, down 0.8% MoM and up 8.5% YoY.
- The Unsold Inventory Index for the California real estate market in February was 3.6 months, up from 3.4 months from January 2020 but down YoY from 4.6 months.
This data reveals that the California housing market was in a relatively healthy state, with both home sales and prices growing at a good pace. But how have the California real estate market trends shifted in March 2020, with the coronavirus?
California Housing Market 2020: Current State in the Face of COVID-19
Home Buyer and Seller Interest
CAR surveyed its members to gain insight into the effect of the coronavirus on the California real estate market as it stands now. As the necessary housing market data to conduct a full analysis is not available yet, we turn to those on the ground floor- California real estate agents – to help us understand the current state of the market:
Note: This Flash Survey was conducted on March 14th – 16th. These responses do not reflect the state of the California real estate market after the “stay at home” order nor do they reflect the state after California real estate sales were deemed essential. However, they provide some insight into changing buyer and seller interest.
- 54% of CAR members surveyed have seen a decline in buyer interest, with some clients backing out of buying a home due to COVID-19.
- 45% of CAR members surveyed have had some sellers back out of sales due to COVID-19.
- CAR reports that the “vast majority” of respondents have not had sellers pull California homes for sale off the market due to COVID-19.
Reports also revealed that before the “stay at home” order, the Southern California real estate market was already seeing a decrease in buyer interest due to growing coronavirus fears. Data revealed that the number of new escrows in the Southern California real estate market dropped by 4% in the 4-week period ending March 19. Looking at historical data for the same homebuying season in California, new escrows have typically increased by 5% in the last 5 years.
A Slowdown in the California Housing Market 2020
Shortly after Governor Newson announced the “stay at home” order, CAR advised all of its members to halt open houses, not to enter California homes to conduct real estate business and to not meet with clients face-to-face. The effect of this move quickly became apparent. Hot California neighborhoods that were once littered with “For Sale” signs and open houses were now quiet. Even though real estate activity is now “essential”, CAR still advises its members and their clients to take the necessary precautions as outlined before.
Before these regulations, 75% of those surveyed reported that they had not been using virtual tours of any kind. However, since the CAR’s new guidelines, more and more real estate agents are doing what they can to carry out virtual closings to protect their clients, themselves, and to keep activity up in the California real estate market.
California Housing Market Predictions 2020: Experts Weigh In
Let’s take a look at what local experts believe the coronavirus will bring for the California real estate market 2020.
California’s Economy May Take a Hit
The coronavirus is taking a major toll on most businesses across the country. However, those displaying the most immediate effect are the industries surrounding leisure, hospitality, and retail.
Learn more about how COVID-19 is affecting one group in the hospitality industry: Airbnb Hosts Feeling the Effect of the Coronavirus.
In California, these industries employ 21.2% of the population. This is, however, on par with the national stats. In the US, these same industries make up 21.3% of all jobs nationwide. Experts are forecasting that this impact of the coronavirus alone will have a major effect on the national economy and on state economies. However, relatively speaking, California came in number 29 for state economies that are high-risk in this analysis. The forecast, for now, is that if the spread of the coronavirus in the state is controlled, the economy should be able to recover. The $2 trillion coronavirus stimulus package may also offer some help to keep the economy from taking a major hit. With it, the California real estate market can bounce back as well.
On that note, California landlords can also expect some pressure from their communities and the state to offer relief to tenants. With unemployment growing due to the COVID-19 impact, many tenants are already reporting that they will be unable to pay rent by April 1st. Some California residential landlords are already offering rent-deferral plans and it’s likely that we will see many more follow suit as the California Apartment Association has already urged its members to implement eviction and rent freezes among other measures.
Experts Are Not Forecasting a Recession
CAR has actually not made many adjustments to its California housing market predictions for 2020, even in the face of the coronavirus. Rather, they have stated that they will keep a close watch over the market for negative macroeconomic impacts on housing supply and demand in the coming months and quarters. So as of the time of this writing, forecasts do not include a general recession on the state or national level. Experts believe the economy in 2020 will continue to grow, but not as much as originally expected.
A California Housing Market Crash Is Not in the Forecast
Some are not asking if it will happen, but rather when will the housing market crash in California? When will the California housing bubble burst? These questions naturally arose following the stock market crash. However, there are a few trends that point to the fact that, as things stand now, we will not see a crash in the California real estate market:
#1. Low Mortgage Rates Will Help Minimize the Negative Effects of COVID-19
The Federal Reserve is already putting measures in place to help mitigate the negative effects of the coronavirus on the economy and the US housing market 2020. With the 0% interest rate, mortgage rates are likely to continue dropping. In turn, California real estate investors and homebuyers will find it more affordable to buy a property during this time. Although we are seeing an immediate decline in buyer demand in the California real estate market, it’s likely to be offset due to low mortgage rates and the fact that real estate sales are now allowed to continue during the pandemic.
If you do decide that now is a good time to invest in California real estate based on your financial standing, be sure to use tools that will help you find positive cash flow properties. Sign up for Mashvisor using this promo code for 15% off all Mashvisor Plans. Mashvisor also wants to ensure you choose a sound investment location. Check out this list: 10 Best Places to Invest in California in 2020. And it’s best to also consult with a California real estate agent before making any major financial decisions during this crisis.
#2. Data Shows California Home Prices Are “Sustainable”
Experts do believe that the most vulnerable housing markets during the pandemic are those that are “overvalued.” And while you might think that the California real estate market is the first to be grouped into these markets, data shows otherwise.
For one, California home prices were already slowing in appreciation. Although prices were up 4% last year, Fitch Ratings labeled California home prices as “sustainable”. This means that they are not among the most overvalued in the US housing market and that, generally, the California housing market is not at high-risk of a downturn.
#3. Housing Inventory Is Likely to Remain Low
Residential real estate construction has been allowed to continue even with the “stay at home” order. However, local experts foresee other issues arising that could slow down construction. It may become harder to get building materials as a large portion of the supply used by the California Building Industry comes from Asia. If the coronavirus makes it harder to get this supply, materials could become more expensive or even limited. In addition to this, there is a possibility of a labor shortage. Although companies have put COVID-19 measures in place, it’s still possible that workers could become infected. While this would make California’s affordable housing crisis worse, it will ensure prices do not drastically drop all at once, leading to a full-on housing market crash.
The situation with the California real estate market and the impact of the coronavirus is a developing one. As of now, there is no real cause for panic. The housing market in California is on hold. But many real estate agents are confident that as the uncertainty dies down and the general population helps to minimize the spread of the coronavirus by staying home, more virtual real estate transactions will begin to take place as buyers try to take advantage of historic low mortgage rates.
If you’re a real estate investor looking to enter the California market during this time, be sure that you make calculated decisions based on real estate data and analytics.
For more on how COVID-19 is affecting the US housing market, check out Coronavirus Real Estate Trends.