The perfect storm is on the horizon. As California begins to re-open its economy, the increased demand for housing, coupled with low interest rates, is stirring the waters for a tidal wave of action in the Southern California real estate market.
Mortgage applications to purchase a home rose 6% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Purchase volume was just 1.5% lower than a year ago, a rather stunning recovery from just six weeks ago, when purchase volume was down 35% annually.
All signs point to returning consumer confidence and a steady increase in real estate activity.
In Southern California, there has been an increase in new escrows week over week since the end of March. Homes continue to sell quickly with very healthy buyer demand, and inventory remains low. Home values have not been affected as they have been with the stock market; in fact, home prices continue to remain relatively high.
“We were experiencing one of the best real estate markets in history when COVID-19 hit the world economy,” according to Brian Arrington, CEO, Pacific Sotheby’s International Realty. “With the downturn in the stock market and talk of recession in California, many assume the same thing is happening in the housing market when in actuality, our market has remained active with both sellers and buyers who understand the opportunities available now.”
As a company, Pacific Sotheby’s International Realty experienced a strong first quarter of 2020, with sales volume up over 30% over the first quarter of 2019 despite the global pandemic impacting the last month of the quarter. Moving into the second quarter of 2020, activity has remained strong. Overall, for the month of March, Pacific Sotheby’s International Realty recorded 215 new listings and 242 sales. Closing out April, Pacific Sotheby’s International Realty recorded 133 new listings and 374 units sold for resulting in $421M in sales volume.
“April showed steady progress in the right direction and it has continued into the first week in May,” adds Arrington. “It appears that the bottom of the market for San Diego County hit the week of March 30, 2020.” Data collected from the San Diego County MLS for April 2020 supports this increase.
As inventory remains low and values remain high, sellers are seeing well-qualified and highly motivated buyers confidently making offers now. Less competition in the market combined with lower interest rates are enabling buyers to qualify for more. More loan products, including non-qualified mortgage products, such as bank statement loans, asset depletion loans, and cross-collateral loans and adjustable-rate loans to $5,000,000, are slowly returning bringing additional buyers back into the market.
It’s important for homebuyers to be prepared now for the coming wave in real estate. “Loan qualifications have changed, and pre-approval is key,” according to Linnea Arrington, President of San Diego Funding. “As part of our “new normal” moving forward, many sellers are asking for a pre-approval letter prior to even allowing their homes to be shown.”
The real estate industry as a whole was already positioned to quickly pivot to utilizing virtual tools, allowing business to continue with little interruption. As an international company, Pacific Sotheby’s International Realty already offered a host of virtual and online tools to bring buyers and sellers together and close deals remotely.
According to Wendy Purvey, COO, Pacific Sotheby’s International Realty, “The energy in our company right now is tremendous. Our agents are hustling every day to make deals happen. The collaboration and communication within our entire industry are truly amazing and have resulted in sellers who are eager to keep actively marketing their listings and a new pool of homebuyers who recognize the opportunities of the current market.”
There is no doubt that COVID-19 has created challenges for our industry but demand remains, deals are getting done and our market continues to move in a positive direction. Real estate is essential to the success of our local economy. We look forward to returning to the robust market that we experienced in the first quarter of 2020, and we are excited to continue to use the opportunities this situation has created going forward. From the many advantages of working from home, including having more time to spend with their families, less time and costs spent on daily commutes and increased collaboration and communication with co-workers, one thing is certain, in our new “normal” our homes will become more important than ever.