A shift into a buyer’s market is possible, but here’s why it isn’t very likely.
Many people have asked whether the coronavirus will be the event that finally brings housing prices down in Southern California, and while none of us have a crystal ball, there are a couple of really basic things we’re seeing that will shed light on this issue.
First of all, back in 2007, we had a very different lending environment from what we see today. Basically, if you could walk, talk, or breathe, you got approved for a loan in 2007—there were really no qualifications. People were 100% leveraged against their homes after having to borrow everything to buy their homes and had zero equity. Sometimes, folks took out second, third, and even fourth loans just to be able to buy a property.
Those kinds of loans do not exist today, and loan requirements have become much more stringent. We’re simply not seeing risky lending practices, and almost everyone today has some level of equity in their homes. Rather than go into foreclosure, many people can simply sell their homes and end up with a big check.
That being said, the current crisis is different in that we’re seeing an overwhelming amount of people laid off or furloughed as many businesses are forced to close their doors. This is obviously tragic and hard for us to stomach, but the good news for the housing market is that we’d have to see a significant amount of people coming to the market before we experienced a dramatic shift.
That brings me to the second reason I believe the market is going to remain fairly strong: Sellers who don’t necessarily need to sell still have the luxury of declining the lower-end offers, and can simply take their homes off the market if they so choose.
“We’d have to see a significant amount of people coming to the market before we experienced a dramatic shift.”
Right now in Los Angeles County, we have 11,387 homes for sale, and in Orange County, there are 5,179. Last month, 3,389 homes sold in LA County and 1,667 homes sold in Orange County. This equates to a 2.2-month supply of homes in LA County and a 2.1-month supply in Orange County—a definite seller’s market (a balanced market occurs when there’s a three- to five-month supply of homes for sale, and a buyer’s market is considered anything from six months and up).
That means we’d have to have three times the amount of current for-sale homes come onto the market in order for it to shift so dramatically that we’d end up in a buyer’s market. Unless we see such a massive flood of homes coming onto the market, I don’t believe we’ll see a drop in prices. In fact, the average sale price in LA County has gone up 5.8% year over year, and 8.4% in Orange County. Real estate is still a solid investment.
If you’re still questioning whether you should sell in today’s market, please give us a call or send an email. We’re still hard at work during these odd times, and we’re here to help.
