Last week I posted my assessment of how the Coronavirus MAY impact the Long Beach real estate market. This was a theoretical exercise. At the leading edge of the stock market correction and self quarantining, it was too soon to report any results. Anecdotally, I had not seen escrows fall out. My conclusion however was that overall it would not be a net positive (I know, pretty much stating the obvious). My conclusion is that EVERYTHING would be contingent upon HOW LONG the business SHUT DOWN LASTED.
Six weeks into the stock market meltdown, maybe there is some Real Data. It is obviously to soon to see how prices maybe affected. This would take at least 3-6 months. This can only be done in hindsight. The absolute leading edge of the market is how many homes are on the market. The good news is that inventory is still very low, at only 210 homes on the market. It is not unlikely that quarantining is limiting inventory. This is unlike the lead up to the market crash of 2007. Prior to the 2007 crash, inventory had been building dramatically from 2005 to 2007, from around 200 homes for sale to over 1,000 homes for sale. Just ripe for a correction.
After unsold home inventory, the second phase of the leading edge is how many homes are going into escrow. The MLS (multiple listing service) allows me to track the date the home actually sold. The data from this study does show significant slowing. The graph below shows weekly sales since the first of the year. These sales are based upon closed escrows and pending sales. It is critical to track both categories of properties because property that opened escrow the first week of the year are likely closed, and every sale from early January has closed by now. As we move forward, and sale that opened escrow in the last several weeks is still “Pending”. For this reason the data at the beginning of the chart is going to be more stable, and a certain percentage of the more recent sales may fall out of escrow, further steepening the curve down. For this exercise, however, I will just assume that everything will close. Most transactions do.
New Sales Slowing Significantly
So what do these numbers show. First we should look at these numbers in context. On average there are about 2,200 SFR sales per year in Long Beach. That translates into about 183 sales per month or 42 sales per week. The spring is usually the busiest part of the year, with sales usually building before the summer. Looking at the data this spring time ramp up is confirmed with 30-40 sales per week in January and 32 to 54 sales per week in February. The stock market started its major downturn in the last week of the February. The number of sales in Long Beach started its slide around the same time. Currently our number is weekly sales is running significantly below average. It would be fair to say that our current weekly sales are at about half of what the might normally be.
Supply and Demand Holds the Answers
So will the number of sales translate do lower prices? I say possibly, but this is NOT like 2008’s correction. As I mentioned before, leading up to the 2007 credit crunch, Long Beach unsold inventory climbed aggressively. The number of unsold homes went from 200 homes for sale to over 1,000. At the same time, easy qualifier loans disappeared taking with it maybe 30-50% of prospective buyers. It all comes down to supply and demand. Increase the number of homes for sale by over 5 times and cut the number of buyers by 30-50% and you have the makings for a market crash.
What will be the factors moving forward with regards to today’s supply and demand curve? The number of homes for sale in NOT increasing. So the decreased number of transactions looks like it is a mutual decision, both buyers are sellers are both saying, “Let’s put this move on hold”. Might this be like the September 11th Terrorist Attack? In September 2001, everybody was glued to their television for several months. September, lots of news. October, more developments. November….. “Hey, this news seems to be repeating itself, and Oh yeah, I have a life to live”. The December of 2001 was one of my busiest Decembers. . Might this happen with regards to activity later this year. It is likely. But what about prices.
We simply don’t have enough supply of homes to see prices drop significantly. That is my call. However, I do see buyers incomes taking a hit this year. Some of these buyers will drop out of the marketplace. This will keep prices in check moving forward