COVID-19 and the Local Real Estate Market
By Datta Khalsa, Broker
In the face of what has turned into a global pandemic, our reality has become a surreal experience that could hardly have been envisioned 30 days ago. New terms like “self-quarantine” and “social distancing” have entered the lexicon, and elbow bumps have become a thing.
All major gatherings and events have ground to a halt, schools are closed down, many employees are working remotely, seniors have been ordered to stay home, stores have been cleared of essential supplies, and the roads are eerily quiet compared to their usual levels of traffic. It’s as if we woke up in some kind of science fiction thriller somewhere between Outbreak and The Stand.
So what does it all mean for real estate? This remains to be fully played out, but while the retail, restaurant and office real estate sectors have taken a direct hit, the initial indications are that residential real estate continues to be strong across the country as transactions have increased and property values have continued to rise due to short inventory and historically low interest rates.
Similar activity has been reflected in our local residential real estate market by surprisingly high attendance at open houses over the past two weeks, presumably in part due to people not having much else to do on their weekends now that sporting events and other gatherings have closed down. But with the 30-year fixed rate mortgage at the lowest it’s ever been, offers are coming in on our local listings at a higher frequency than they were last month, which is the surest indicator of a healthy market.
A quick look at the MLS numbers for Santa Cruz County shows current inventory of only 87 condos/townhomes and 236 houses active, averaging 68 days on market. There are 210 listings from both categories in escrow, representing a healthy 39.5% of our combined housing inventory under contract. And with 112 sales in the past 30 days, the current number of listings equates to a relatively lean 4.7-month supply, which points to prices staying at their current level or increasing slightly heading into spring.
While this type of robust activity may surprise some in the face of the recent crash in the financial markets, it is consistent with past economic trends, according to a recent article posted on MarketWatch pointing out that the last recession in 2008 was fueled by more by the foreclosure crisis. In fact, national researchers at First American recently examined how the country’s housing market has fared historically and found that, with the exception of the Great Recession, house price appreciation year-over-year existing-home sales growth barely declined in all the other previous recessions in the last 40 years.
That said, the financial markets have certainly set back buyers whose assets are tied up in stocks and RSUs which have significantly declined during the course of the past few weeks, and this could impact our high-end housing market in the short term. But with China reportedly starting to recover, there is cause to hope that we too will weather the storm over the next 60-90 days and things will get back to normal in time for our regular peak summer season.