California Governor Gavin Newsom’s executive “Stay-at-Home” order is having an effect on industries throughout the state. Our local real estate market is in the early stages of adjusting as a result of the order.
There are 16 essential infrastructure sectors that are exempt from staying home, and while housing construction and property management are considered essential, Realtors are NOT exempt from this order.
What that means, in short, is the home market has been put on ice.
In order to safely social distance, how can you possibly conduct an in-person showing, meet for a listing presentation, or hold an open house?
Short answer: You can’t do it.
Additionally, with well-deserved concerns over the spread of the virus, what sellers would want people walking through their home and what buyers would want to be commingling with other buyers during an open house?
Just a week later, I am already seeing the effects of this order on the market and their will continue to be a drastic change in the marketplace over the short term, and maybe longer if we do not flatten the curve.
Below, I will discuss some anecdotal evidence and what we are “feeling.” Then, next week we can back it up (or disprove those feelings) with some hard data at the end of the month.
Demand is Decreasing
Demand is certainly decreasing. I have had multiple clients put their property search on hold or canceled it due to:
- Concern for health by contracting the Coronavirus (before the stay-at-home order).
- Uncertainty around coming layoffs or business losses for self-employed buyers.
- Going on hold believing that there will be better times to buy.
We have had more buy-side clients go on hold or cancel completely over clients that are still committed to buying. Again, this is anecdotal but since home sales are not deemed “essential,” this trend for us (and other agents) may continue.
Of the buyers we have that are still firmly committed to purchasing a home, they are now frustrated by the lack of options heading into a normally busy Spring selling season.
Supply is Decreasing
And, that buyer frustration leads me to…supply is decreasing, rapidly.
We are full steam ahead into the busiest season for residential real estate. Last week, new listings began to slow down in a big way and this week has been an even slower drip in terms of supply.
To add fuel to the fire, many active listings are pulling their homes from the market due to health concerns, complying with the Governor’s order, and belief that there will be a much better time to sell in the months ahead.
We have clients that were planning to list their home and have now decided to wait.
The only properties really under consideration to put up for sale are vacant homes or tear-down properties that will sell as-is. And again, do you test the market now and pull it ASAP if demand goes close to zero?
The lack of new inventory this past week was quite shocking and will begin to create dislocations in the market that are impossible to predict.
Next week, we will have hard data from the full month of March. Sales might be slightly impacted, but I do not expect a huge drop off because many properties in escrow were on their way to closing before the “stay-at-home” order.
The most important statistics to watch are twofold:
- New listings
- Pending escrows
If listing and pending escrows drop materially compared to last years numbers, then it will make current and future value a guessing game.
My bet: I expect new listing data to fall off a cliff.
The supply issues will cause sales to drop in the coming months.
And, who knows what consequences will come from that.
What is Next?
For now, agents must work from home and they are getting creative with virtual showings, 3-D tours, and videos.
The California Association of Realtors is petitioning the Governor’s office to adjust his “stay-at-home” order making the real estate agent industry essential work. It cuts both ways…
Here is why:
- Inherently, real estate is an in-person, touch and feel business. However, this has to be eliminated to stop the spread of the virus.
- On the flip side, sellers need access to a marketplace to liquidate their real estate assets and access cash, especially in times like these. Additionally, some buyers are forced to move and find shelter even during uncertain times.
There are no easy answers to this.
But even if you make Realtors work essential, how can you possibly get a listing ready even if a home is vacant?
***Update: On Saturday (3/28), the U.S. Department of Homeland Security Cybersecurity and Infrastructure Security Agency (CISA) updated its essential services list and expressly included residential and commercial real estate services. Governor Newsom’s “stay-at-home” order incorporates this Federal list which, in turn, now deems real estate agents (among others) as essential service providers in the state of California.
Photographers are not deemed essential. Neither are home inspectors. I have even heard of some lenders not taking loan applications in areas that have a “stay-at home” order.
All of this adds up to real estate sales coming to halt in the next month or two.
The decreasing demand and quickly falling supply, albeit anecdotal, is sure to create some price dislocations both up and down.
With that, it is virtually impossible to predict what will happen next in our local housing market.
For now, it is wait and see…