So, are you fully stocked up on bottled water and toilet paper? Because that’s apparently what you need to combat the latest scourge. Between Corona Virus hysteria, stock market gyrations, and election jitters it’s been a harrowing couple of weeks. So, congratulations are in order for those of you who survived any, or, all three, especially those of you running for office who cleared the first hurdle in this year’s jumped up primary. Good luck maintaining your sanity over the next SEVEN (7) months until the general. By then the Corona Virus will likely be another of those crisis du jour that didn’t result in mass extermination and will join the Swine Flu, Bird Flu, Mad Cow disease, Alar apples, and Ebola in a long list of things that we miraculously survived. We hope.
But let’s deal with the Corona Virus for a moment as it has had an outsize impact on our economy in a short time. Despite fears and some reports of negative activity, it has not impacted sales in our region. Yet, there are concerns that it might at some point, as it is interfering with international travel, especially buyers from China who are typically one of the largest groups of foreign investors in California housing. That impacts our region far less than some other markets like LA and San Francisco.
Soothsayers who were anticipating a .25% drop by the Fed at their mid-March meeting were surprised by a .5% drop on March 3rd their first unscheduled, emergency rate cut since 2008, and a further reduction to 0% days later. Plainly an effort to calm market uncertainty and stimulate the economy in the face of virus jitters, the move has provoked both positive and negative responses including further whipsaw daily swings of 1,000 points of more in the stock market.
The upside? A further reduction in mortgage interest rates now hovering at, or near, record lows with further drops possible. Sub 3% rates can be found today sparking refinance activity and possibly giving home sales a boost. However, increased insecurity will keep some people out of the market amid concerns of a more protracted economic downturn. So far there are no forecasts of a more dire market scenario but watchers are concerned.
So, what does that mean to us locally? Well, February is generally not a great month for housing, it’s a short month even in a Leap Year, and sales are typically flat or down a bit from January before starting to recover in March. This year February was excellent. Sales were up 9% over January (679 / 743) and up 11% over last February (663). This was the best February on record since 2013. Sales escalated in the last half of the month despite turmoil in the financial market and virus fears. Buyers came out, they bought homes, and they signed contracts driving pending home sales up another 16% coming into March. That’s good.
Median prices fared well also posting a 3% increase month-over-month ($395,188 / $405,560) and up a blazing 8% year-over-year ($372,800). You’ll recall price appreciation slowed during the last half of 2019 and we don’t expect this rate of appreciation to continue, but CoreLogic has recently increased their forecast for California from a 5%-6% increase in 2020 to 9.5%. That may be a bit aggressive but indicates significant market optimism by the firm.
In part, this increased forecast is being driven by ongoing inventory contraction. February inventory of existing resale homes declined to its lowest level since December of 2017. Across the region inventory dropped 7% month-over-month (1,623 / 1,502) and down a whopping 33% year-over-year (2,270) leaving us with a scant 2-month supply. Temecula has just 1.8 months, Murrieta has 1.6 and Wildomar 1.2. This combination of strong demand and weak supply will result in further price escalation as the production of new homes simply isn’t keeping pace, even in our region. You can’t sell what you don’t have.
So, will the buyer affordability battle be enhanced by lower interest rates or will escalating prices and economic uncertainty push more people onto the sidelines? Stay tuned to this channel for updates as they occur.
Meanwhile the best advice for virus fears is to wash your hands like you’ve just peeled a peck of Hatch Chili’s and need to take your contacts out, avoid crowds in public, stay home if you’re sick, support our local small businesses insofar as possible, and keep an eye out for your elderly neighbors. This too shall pass.