2020 just keeps getting weirder and weirder. As if the pandemic and all that entails isn’t enough, we’ve introduced Murder Hornets, Rabid Bats, Chinese Mystery Seeds, and radioactive Chernobyl ants to the mix, among other oddities. And don’t even get me started on the dysfunction that defines Washington D.C. and Sacramento right now, plus factoring in the upcoming election, we’ve taken weird to a whole other level.
Fortunately, the housing market is behaving rationally. Oh wait, that’s not even close to the truth. The housing market is just as weird as everything else right now. Let’s start with sales. We may be in a lockdown but we’ve just posted the 2nd highest sales month of the past decade. Sales were up 17% over June (1,036 / 1,250) and even up 11% over last July (1,107). We’ve only had one stronger sales month in the past 10 years and that was in June of 2017 (1,357), a record year.
Considering the circumstances Realtors® are working under with restricted showings, open house by appointment, and distance and virtual selling, this is an amazing feat. We’re still running about 4% behind last year’s pace year-to-date (6,337 / 6,101), but pending sales indicate that August should also be a strong month whereas last August dropped off. So, we’ll see where that takes us.
What makes it a sellers’ market? Combine strong demand with weak supply and that’s what you get. Our inventory of homes for sale is at the lowest point since mid-2013. The number of homes for sale declined another 13% last month (918 / 799), down a whopping 66% from last July (2,406). The last time we saw inventory this low we were just coming out of the housing crisis/financial meltdown. All the bank owned homes and short sales had been sold but regular sellers didn’t have enough equity to move yet. So we hit a point in December of 2012 where there were only 518 homes for sale across the region. Listings pick up again by mind-2013 and, while we’ve never exceeded a 3 or 4 months supply in the past 6 years, this level is concerning.
We’ve now had two months where sales have exceeded inventory. We’re not even measuring inventory in months anymore, we’re literally down to 2 weeks in some cities! We’re not only selling everything on the market, we’re cannibalizing new listings with an absorption rate of 105%, meaning for every new listing than comes on the market we’re selling 1.05 homes. You can’t build inventory that way. Oh, and they’re selling FAST!! 12.6 days on average last month down from 22 days in June. But you can’t sell what you don’t have!
How about median price? Sellers got to love that too. After a brief stall in June, prices ticked up another 2% into July ($411,606 / $420,701) maintaining a 6% lead over 2019 year-to-date ($381,866 / $407,452). Our housing market has posted ten straight years of year-to-date price appreciation totaling 51% increase, or a little better than doubling your value since 2010. (That means if you bought a house in 2008-2009, you’re almost back to break even. Wait, that’s not funny!) However, that level of equity position has driven distressed properties to an all-time low as a percentage of our market across our region. Nationwide they claim that even in a good economy you can expect a 4% foreclosure rate as people are beset by a range of issues. Our market this month has a distressed property rate of just 1.3% – that’s bank owned AND short sales combined.
Could that figure change over the next few months? You bet. Homeowners who have experience job loss or other hardship due to CV-19 have anywhere from 90 days to a year deferment and/or extension of mortgage payments. How long this economic lockdown continues and what the impact will be on homeowners and lenders is being hotly debated by better minds than mine (I hope!). Of potentially greater concern is the impact on the rental market, both residential and commercial. As our legislature debates extending the eviction moratorium to some date uncertain, with no relief built in for landlords, and with delinquency rates climbing into the high 20% range as the lockdown drags on, this has the potential to have an even more sobering effect on the market and could result in increased foreclosure activity down the road.
Meanwhile, interest rates continue to plumb new depths and buyers seem only too anxious to brave the COVID waters to put a roof over their heads right now. Who am I to disagree?
Gene Wunderlich is Vice President, Government Affairs for Southwest Riverside County Association of Realtors. If you have questions on the market, please contact me at GAD@srcar.org.