On Monday, July 13, 2020 Governor Newsom reinstated numerous COVID-19 restrictions across the state and singled out Los Angeles County (among others) for even more stringent restriction. On Tuesday, July 14, 2020 Mayor Garcetti indicated Los Angeles County was on the cusp of returning to a full lock-down. As of writing this article, no additional bad news is available, but the day is young. As though the shaky economy and record unemployment weren’t worrisome enough, the day-to-day “who the heck knows what’s going to happen” mentality that has become the modern-day norm has understandably caused homeowners significant concern. Notwithstanding these suboptimal conditions, the market is still quite favorable to the would-be seller; this article will briefly address why.
- Demand Will Remain High, Regardless of Subsequent COVID-19 Restrictions
While it is counter-intuitive, buyer demand is significantly higher than expected. To be clear, the massive influx of potential buyers into the housing market is directly related to loosening COVID-19 restrictions, but the majority of those buyers will remain interested even if restrictions are reinstated; these additional buyers represent people who put off their home search when the virus landed on our shores, but it is unlikely they will stop their search a second time given the fact that most Americans accept the reality that this virus isn’t going away any time soon.
According to the National Association of Realtors (“NAR”), pending home sales increased by 44.3% in May 2020; this is the largest month-to-month jump since the NAR began tracking that information.
- Supply Has Remained Low Throughout the Pandemic
We have written about this multiple times, but it is worth repeating – home inventory has been low over the last 12 months. This is supported by NAR’s finding that June 2020’s housing inventory was 27% lower than June 2019.
- When Housing Demand is Up, and Housing Supply is Down, the Equilibrium Price on Homes Increase
A fundamental tenet of economics revolves around the concept of an equilibrium price. Without getting into too may details, picture “supply” and “demand” as linear expressions on a graph. The point where those expressions intersect is referred to as the “equilibrium point.” As those linear expressions change, so does the equilibrium point. Where supply is higher than demand, the equilibrium point decreases in value, and where demand is higher than supply the equilibrium point increases in value. All of that is a fancy way of saying that housing prices are increasing and will continue to do so for the foreseeable future.
- Mortgage Rates Are Low, and Potential Buyers Are Able to Afford Prices at Higher Equilibrium Points
At the end of the day, the discussion of equilibrium points would be entirely irrelevant if buyers were unable to afford those price points. Luckily, we have not reached this limit; mortgage rates are at historic lows (3.07% 30-year FRMS as of July 2, 2020), and buyers with strong credit are able to capitalize on these conditions and purchase homes at higher price points.
While things can and do change, the housing market has proved to be surprisingly resilient through the turbulence that COVID-19 has caused.
At the Chernov Team we understand that knowledge is power, and knowledge of how the housing market is behaving in this crisis is powerful knowledge indeed. At the Chernov Team we understand that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.