While the media’s grim reapers continue to predict catastrophe from the CV-19 pandemic, it’s hard to look at our current housing numbers with anything but optimism. I suppose this could be tempered going forward as the Governor selectively shuts down business that survived his first round of closures and had successfully reopened, but for now we’ll seize on some good news.
As I’ve stated here before, this virus crisis appears to be equal parts science, politics and economics. On any given day, one or the other of those narratives takes the forefront, apparently predicated on which message will drive the greatest compliance from a divided citizenry. In today’s commentary I’ll refrain from addressing the science, which is confusing and contradictory at best, nor will I address politics, because depending on our perspective we’re all too familiar with that already.
So,lets talk about the economy. Despite dire warnings to the contrary, the U.S. economy added another 4.8 million jobs in June dropping the unemployment rate from 13.3% to 11.1%. Still some 3X where it was just a few months ago but improving steadily the past two months. Almost 40% of people who lost jobs during the early pandemic lockdown have returned to work, including low-skilled and lower-wage workers. Nearly all industries have benefitted with large rebounds in leisure and hospitality, healthcare, manufacturing, and non-department retailers like big-box stores and on-line merchandising.
To be sure, there have also been corporate bankruptcies in business sectors like J.C. Penny’s, Hertz and 24- Hour Fitness, and we continue to harbor major concerns about the survival of our local small business base. It is estimated that nationwide as many as 41% of businesses currently closed will not reopen, including 26% of gyms, 35% of retailers and a shocking 53% of restaurants. Assistance and relief provided by federal, state, county and city loan and grant programs provide a lifeline to some, but not all. That will slow our recovery, especially in states like California that deployed a deeper and longer lockdown and has allowed only staggered reopenings followed by staggering reclosures. But I digress.
That positive economic news translated to equally positive housing news in our local market. You’ll recall that pending sales coming into June were up 28% from May. What resulted was a 33% increase in month-over-month sales across the region (695 / 1,036), only off 2% from June 2019 (1,059). Considering that last June we were operating in a ‘normal’ non-lockdown, non-masked, open house environment, this year’s volume is a strong indicator of the resiliency of the market. Some cities posted 40% – 50% gains like Temecula (127 / 203), and Murrieta (125 / 204), but even Canyon Lake, normally selling +/-15 homes a month, put up 42 sales in June, including eight in excess of $1,000,000! Temecula posted nine $1 mil+ sales as well, and Murrieta had three. With pending sales up another 10% coming into July. There is no reason to assume June was a one-off anomaly.
Obviously given the slow start to the year, 2020 will not be a record-breaking year as we had hoped back in January/February. Through the first half of the year, year-to-date sales are running some 7% below last year’s pace (5,280 / 4,851) and 19% behind 2017’s record level (5,986). Politics and science will determine how well we do the rest of the year, but with interest rates breaching new lows, the incentive for buyers to act now is strong.
Median prices continued their apparently inexorable climb remaining some 6% ahead year-to-date ($379,744 / $405,244) in spite of a month-over-month break even. First half prices are up 51% over the decade ($197,894). That’s a steady appreciation averaging 5% a year, the longest run-up in our local market and a sustainable rate going forward, eschewing the 30+% annual increases of much of the last decade.
Of grave concern (again discounting politics and science), is the status of our inventory. Homes on the market declined another 23% in June (1,193 / 918) and dropped 62% from last year’s more robust 2,431. That translates to an inventory of less than 1 month! That hearkens back to late 2012 and 2013 when inventory last dipped below 1,000 units before starting a slow climb. This, more than anything, will constrain future sales because you can’t sell what you don’t have.
Meanwhile, stay safe, stay healthy, and don’t sing in church.
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.