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New South Bay Home Listings Show Some Owners Will Sell at a Loss

As we begin the month of May tomorrow, we can all be hopeful that we are in for more good news than bad.

Tomorrow also marks the end of April, which means I will have fresh monthly data to try and bring some clarity to the market and the continued impacts from the Coronavirus.

While I look at the new data over the weekend, I want to share the latest news from this week and some current listings that will be key to follow.

Important News This Week

  1. The 1st quarter GDP results were officially announced this week and U.S. gross domestic product contracted by 4.8%. Estimates for the next quarter range widely, with experts projecting a drop between 20% and 45%.
  2. NAR reported that pending home sales in March were down 16.3% annually. In the western region, we experienced a 21.5% drop year-over-year.
  3. The Mortgage Brokers Association gave a positive report that mortgage applications to purchase jumped 12% from last week’s report, but volume is still lower by 20% compared to the same week last year.
  4. The MBA also reported that loans now in forbearance grew to 6.99% of servicers’ portfolios as of April 19th. That is up from 5.95% in the last report.
  5. Finally, the Labor Department released first-time filings for unemployment last week which were 3.84 million. That brings the six-week total to 30.3 million for initial unemployment filings.

News Comments

GDP

The 1st quarter GDP numbers are not good at all, but we already knew that. The steepest single-quarter drop in GDP occurred during the Great Recession at 8.38%. As I have mentioned. just like with real estate, we need to wait for more GDP data to really come to additional conclusions.

If we can get a 2nd quarter drop closer to 20%, then that will be “amazing” news. However, if we go down closer to 45%, then it could be catastrophic for a lot of asset classes, including residential real estate. We will continue to wait and see.

NAR Pending Sales

The national of pending sales drop of 16.3% and drop of 21.5% in the western region are bad numbers. But again, if you read this blog a few weeks ago, you already knew that. I am not sure why it takes NAR so long to report.

My blog post on April 2nd titled, “South Bay Real Estate Leading Indicators Suggest Drastic Drop in Sales,” told you that the CRMLS’s pending sales were down 43.8%.

Areas like Manhattan Beach saw pending sales drop by almost 73% and Redondo Beach almost 80%. The Palos Verdes Hill and Hermosa Beach were not spared either with drops well over 50%.

As I stated before, I will be reporting on fresh April data next week. It is likely not going to be as bad as March, but it is still going to be ugly. Expect data from NAR to get worse nationally as California was one of the first regions to react and close its economy.

Mortgage Applications

There is some better news here as we are seeing buyers gain some confidence, however, it is still pretty bleak when we see demand down 20% year-over-year in what should be the busiest time of the year in residential real estate.

California’s numbers are still worse than the national data. The state’s purchase applications are down 34.1% compared to the same week last year. Weak demand like that will not help our local markets anytime soon.

Forbearance & Unemployment

Seeing the forbearance number grow is something no one wants to see. This data is also lagging since it is from April 19th. How high can this forbearance level grow if more individuals are laid off? And, how about if landlords see even less rent paid on May 1st?

Going back to my blog two weeks ago titled, “Rent Collection, Important News, and Where to Look for Deals,” the “where to look for deals” section talks about retail real estate feeling the most pain and the first sector of the real estate market to become distressed.

If we are approaching 7% in residential forbearance, what do the loan numbers look like for large retail real estate? I hope they surprise and are stronger than what many anticipate.

And lastly, unemployment will only contribute to non-payment of rent, mortgage forbearance, and less demand for residential real estate.

Jobs lost in the great recession were 8.7 million. Today, we have lost over 30 million in just six weeks.

The jobs created since the Great Recession were 22.4 million.

We are just 800,000 job losses away from being right back to employment levels ten years ago. It is hard to find a positive light in all of this.

How to Take All of This

It is still anyone’s guess! I wish I could give more guidance than that and put a positive spin on everything. At least some may take confidence that the stock market is roaring back (set for the best month in decades) and preserving wealth for many potential home buyers and current owner.

I just do not see any data here that can really give bullish case for residential real estate in the near term.

What we hope is that Sellers can remain resilient and not lower prices while waiting for a large chunk of buyers to come back into the market.

It is too early, but I think great amounts of caution still need to be taken unless you need to make a real estate move now, and have a longer time horizon where the need outweighs the waiting for certainty.

Local Listings That Could Suggest Lower Prices

The positive side of our local market is that there are still closings happening. And, there have been a few strong sales, and even some record closings. That is great news!

That said, I want to watch for properties that might be going lower than past comparable sales because if that picks up, it can quickly overwhelm stronger closings as I saw back during the Great Recession.

Below is a recent closing and three new listings in our local markets that might signal we are in for real estate prices to go down in the near future…

This property sold in 2016 for $1.375 million.

It resold just last week for $1.365 million.

A home purchased four years ago and selling for $10,000 less than what it was acquired for is not what we want to be seeing. Not only is a bad comp for the local sub-market but it gives buyers reason to offer lower o current listings. Additionally, this Seller loses far more than $10,000 with selling costs and maintenance over the past four years.

This property was acquired in 2018 for $2.34 million.

It relisted this week at an asking price of $2.299 million.

After two years of ownership and failure to sell since it was listed for $2.599 million in October, the owner is willing to come out again asking at a $35,000 loss. It could sell quickly…or sell even lower.

Again, this is not something the market wants to see and destroys wealth for the Seller which has its consequences for the economy if this happens with more and more homeowners.

The home was purchased for $2.8 million in 2013.

It is now asking $2.85 million as a new listing just nine days ago.

I think I am beating a dead horse here but after seven years (Seven years!), the owner is satisfied with just a $50,000 gain and will most certainly lose after selling costs.

We are not even sure if buyers are ready to pay the asking price and could it have to take a discount to get a deal done?

This huge Hermosa home and lot sold for $5.963 million in 2018.

It has aggressively cut its asking price to $6.199 million today.

After coming to market in February and going on hold as the Coronavirus was in full swing in middle March, this listing has aggressive cut its price from the original asking of $6.5 million.

Even if the sellers can make a deal at the current asking price, this one will be a loss after selling costs. And unfortunately, it is hard to imagine that a well-capitalized and sophisticated buyer is not going to demand a further discount with our current health and economic risks.

Conclusion

So, there you have it. As I have mentioned in the past few blogs, the residential real estate market moves slowly and we are seeing constant changes in the local and national data every single day.

It will be important to watch the above listings closely to see how they perform in these uncertain times. If these listings sell much lower, it is not a great sign for our local market. So root for them to sell!

Next week, I will report back with end of month data and also any other significant news updates. It will be a big week for the local South Bay home market. Stay tuned…

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