Coronavirus And Its Impact On The Los Angeles Real Estate Market
Many of our clients are wondering about the impact of the coronavirus and “stay at home” orders on the Los Angeles real estate market. With the “stay at home” order in place for almost a month and the March data now publicly available, we can see the significant impact of the coronavirus on the real estate market. New listings and pending sales dropped significantly in March in comparison to prior years, and we can likely expect that trend to continue into May. In fact, given that all in-person property showings are expressly prohibited in the City of Los Angeles effective April 1, it is essentially guaranteed that the market will continue to stall. It remains to be seen how this will affect the summer months as previously reluctant sellers and buyers decide to re-enter the market. We predict that this will present an excellent buying opportunity for buyers who are prepared to jump on the market when new listings start to hit the market after the “stay at home” orders are lifted.
Some Properties Were Still Showing And Selling In March, But Showings Are Now Prohibited In Los Angeles
On March 19, California Governor Gavin Newsome issued a “stay at home” order that shut down all non-essential businesses. At that point, it was unclear whether real estate was an essential business (many assumed it was not), and so it was unclear whether property showings should continue, or whether the real estate market was essentially being shut down. On March 28, the federal government clarified that real estate was deemed an essential business, and so property showings could continue.
Despite the essential business classification, the “stay at home” order still had significant implications for how the real estate market operated in March. The California Association of Realtors set forth a series of best practices that all Realtors are required to follow. The guidelines include minimizing person-to-person contact by, for example, conducting property showings virtually and completing document-related tasks electronically. Sellers have been advised that they should not be home during physical property showings (which should be minimized to the extent possible), all persons entering properties must provide a declaration stating that they do not have coronavirus-related symptoms, and open houses are expressly prohibited. A full list of the California Association of Realtors’ best practices can be found here.
Effective April 1, however, all showings are explicitly prohibited in the City of Los Angeles. The Safer At Home Order, originally issued by Major Garcetti on March 19, was revised April 1 and specifically provides under Paragraph 5.(vii).2 that “[o]pen houses and in-person showings of housing for lease and sale are prohibited.”
As a result, the coronavirus significantly limited the manner in which real estate agents conducted business in March, and those limitations will likely play an even larger role in April than they did in March.
How The Coronavirus Impacted The Los Angeles March 2020 Market
With data from March 2020 available, it is now readily apparent that the coronavirus has had a significant impact on the market, and will likely continue to have an impact for at least the next few months. Both buyers and sellers appear to be hesitant to enter the market, as reflected by the data below.
With respect to sellers, it is clear that fewer sellers are willing to put their properties on the market during this time, likely due to concerns about buyers entering the property as well as concerns regarding whether buyers are willing to purchase during this time. The graph below reflects the number of new listings in each month from 2017 to 2020.
The graph reflects a clear pattern in 2017, 2018, and 2019. The number of new listings peaks during the summer months, declines into the winter, and then starts to increase again in January-March (usually with a dip in February). The outlier is the year 2020, which is the only year in which there was a downward trend of new listings between January and March. 2020 is also the only year in which the number of new listings was lower in March than February, or even January for that matter. This reflects a clear unwillingness of sellers to list their properties due to the coronavirus.
Next, we look to see how buyers are behaving in light of the coronavirus. We can do this by looking at the number of “pending” sales in March, which reflects the number of new purchase contracts entered into by buyers (we don’t look to actual sales because those figures are more reflective of purchase contracts created in February). A graph reflecting monthly pending sales from January 2017 through March 2020 is below.
Once again, there is a clear trend for the years 2017-2019, with that trend being broken in March 2020. As with new listings, pending sales tend to peak during summer months, decline during the winter, and pick up again in February/March. March 2020, however, shows a significant decline in the number of pending sales, even below the winter months. This reflects a clear decline in buyer activity in the real estate market.
Predictions For The Future Of The Los Angeles Real Estate Market
Based on the above data, it is clear that the market can expect a significantly below-typical number of sold properties in April 2020, as compared to prior years. Additionally, the decline in activity in March (and likely in April and May) will likely manifest in an increase in supply in later months this year due to the reduction in current new listings and pending sales, thereby potentially dampening the prior significant increases in prices. The below graph reflects months of supply of inventory (which is the measure of how many months it would take for the current inventory of homes on the market to sell given the current pace of home sales) per month for the years 2017-2020.
Once again, March 2020 is an outlier, reflecting a significant increase in the number of months it would take for the current inventory of homes to be sold given the current pace of home sales.
There is of course a significant amount of uncertainty regarding the future of the overall economy and the impact of “stay at home” orders on society at large. However, assuming the “stay at home” orders remain in place until the end of May, we can likely expect the current trend of lower than usual new listings and pending sales to continue. After the “stay at home” orders are lifted, we anticipate seeing a jump in new listings due to increased confidence of previously reluctant sellers. We also anticipate a jump in pending and closed sales as previously hesitant buyers begin to re-enter the market. In the short term, we expect this to put some downward pressure on prices as supply and demand shrink, with some re-balancing toward the end of the summer as the market regains confidence. Of course, this presumes “business as usual” after the end of May.
For now, buyers and sellers can expect a significantly slower-than-usual April and May. It will certainly be interesting to see how the market reacts after the “stay at home” orders are lifted, presumably after May. Overall, we predict that the impact of the coronavirus on the real estate market may present an excellent buying opportunity in the short-term, and we will be encouraging our potential buyer clients to utilize this “stay at home” period to organize their finances, solidify a pre-approval, and prepare to jump on the market as new listings pick up in the summer.
For more information on how Esquire Real Estate Brokerage, Inc. can help you in the Los Angeles real estate market, feel free to give us a call at 213-973-9439 or send us an email at firstname.lastname@example.org.