Glen Kangas, from GA Appraisals, inc and Socal Appraisal Vlog…….as well as “the future” here to talk to you about home values during the COVID-19 crisis and what the future may hold.
Some parts of the country are opening up, but here in Southern CA, not so much. Our Governor instituted Phase II last week and for some reason, it looks eerily like the shelter in place with very minor modifications. Of course, the focus is on the virus, but as an appraiser I feel it is important to talk about what that means for home values as we go forward.
What’s Happened to Home Values during COVID so Far?
Let’s start with what has happened so far. In Southern CA, New Listings and Pending sales have been down dramatically, anywhere from 30-80% depending on the city with LA county down almost 50% in new listings and 67% in pending sales for April 2020 vs April 2019.
How have values been affected? Well, as supply has declined, so has demand which means that home values have remained largely unchanged so far. Most cities have only had a few or a handful of homes that listed after Shelter in Place and closed escrow, but market trends in terms of value has been relatively consistent with the market trends prior to COVID-19
What are the main factors to Home Values?
What about going forward? Well it all starts with basic economics and judging by the news anchors I have seen and people’s comments on social media, many people have no concept of basic economics. It’s all about supply and demand, quite simple actually. If supply is low and demand is high, home values go up. If supply is high and demand is low, home values go down. When they are in balance, values remain stable. The general consensus in the industry and with the local agents I talk to clearly indicates that supply will increase as we go back to normal, so the question is, what about demand?
What are the drivers of demand? While interest rates can certainly have an effect, and they are quite low right now, the most significant factor to demand is JOBS!!! The more people are employed and the higher the wages they earn, the more likely they are to enter the housing market as a buyer.
What will happen to Home Values after COVID?
Now, let’s look into the future. Currently, the number of new unemployment claims since the start of COVID-19 is 33 million nationwide and approximately 1.3 million in Los Angeles County. The longer the economy is shuttered, the larger number of jobs that will be lost permanently as small businesses largely drive the economy. We have already seen a number of restaurants that are shutting down for good, and who knows how many gyms, salons, stores and other types of businesses will follow. What is certain, is that the longer we are shut down economically, the more of those businesses that will be gone for good, along with their jobs. And without jobs, the housing market will lose all of those people as potential buyers which will mean…………lower demand. And if the supply is increasing once we do finally open up, there will not be enough demand to keep the market in balance and prices will absolutely go down, it’s just basic economics.
Now, if we open the economy sooner, fewer jobs will be lost and more people will be able to afford a house. If not, well then, people that own rental properties will be seeing higher rents because why? Rental demand will increase at a time when the rental supply is already scarce. Again, basic economics.
So as we discuss the pace and method of opening up economy, I feel it is important to consider the big picture and the lives of every single citizen and how their lives are affected by this crisis.
I post stats about listings, pendings, sales and market trends on my Facebook business page (opens in new window) and LinkedIn (Opens in New Window) page and I will start looking at unemployment numbers and how they relate to home values, so if you are interested in that information and how Southern California real estate is affected, I recommend you follow me on social media.
So until next time, here’s hoping YOU make INFORMED real estate decisions.