This week, we observed more encouraging signs in the economy and the housing market. We also saw increasing signs that the pace of the recovery is slowing down some. Things continue to improve, but they are improving slightly slower. We should definitely be encouraged by the significant progress we have made in many areas since mid-April, particularly in the area of demand from homebuyers, but we should also plan for the recovery to play out over months rather than weeks with most forecasts not calling for full recovery until mid-2021 or later.
REALTORS® are seeing improvements in their business: C.A.R.’s weekly survey of California REALTORS® showed its third consecutive weekly gain in the percentage that had a listing appointment (34%) and more of those appointments resulted in homes being listed on the MLS as 29% of respondents actually listed a property last week. In addition, we’ve seen a consistent uptrend over the past month in the percentage of REALTORS® entering escrow during the week (29%) and the percent that closed a transaction during the week (25%).
Buyers save big with low rates: Low rates and softer prices have combined to create tremendous savings for potential homebuyers. After peaking at nearly 5% at the beginning of 2019, rates have fallen consistently and now sit at all-time low levels. Taken together with slightly lower prices, the payment on the median priced home is roughly $300 per month cheaper than it was at this time last year. The decision to buy is always person-specific, but if their job is secure and they can afford the home they want to purchase, then this is an incredible opportunity to save money over the long term.
Homes selling quickly with minimal discounting: Although the economy has been severely impacted, the housing market has seen significant reductions in the amount of inventory being added to the MLS. As such, the homes that are available for sale (particularly as demand has increased over the past month) have been selling quickly—a median of 17 days in May—and sellers got close to asking price in May (99.7%).
Retail sales show consumers coming back sharply: The major macroeconomic indicator released this week was retail sales, which (after stripping away food and autos) rebounded to within 1.5% of its 2019 levels. Auto sales have been slower to come back, so overall retail sales were still down roughly 6% from May 2019, but this marks significant progress from the largest-ever drops recorded in March and April. Especially given that the U.S. economy remains roughly 70% consumer driven, this is a positive sign for overall economic growth recovering.
COVID-19 caused the biggest decline for California home sales ever: Existing home sales in California experienced their third consecutive decline of more than 10% on a year to year basis as closed transactions fell 41% to their lowest levels since the Great Recession. Declines were largest in the Bay Area and Central Coast, but Southern California and the Central Valley also experienced significant declines in excess of 35%. This is backward looking data and things have been improving for several weeks, but the May data reveals how devastating the pandemic was to the housing market in California over the past few months.
Price pressure cools after two weeks of increase, but soft in May: Members reported fewer buyers expecting lower prices last week. Just 54% of REALTORS® said that buyers they spoke with last week were expecting lower prices compared with 67% of REALTORS® the previous week. In addition, only 17% had a seller reduce prices to attract buyers last week compared with 21% the week before. However, prices fell in May by 3.7% statewide and the percentage of closed sales closing below original list price has risen in recent weeks, although the size of the discount has been shrinking.
Unemployment remains high and will take time to heal: The number of new unemployment insurance claims continues to fall, reaching just 1.5 million last week. However, continuing claims remain stubbornly high and will take time to recover fully. In addition, the multiplier effects of these lost jobs and incomes will continue to weigh on the overall economic recovery. Thus, even as things gradually continue to improve, it will take a while for us to reach a full recovery.
Recent rebound losing steam in key areas: Although things continue to improve broadly, the pace of the improvement has downshifted over the past few weeks. The number of homes sold per day in California dipped last week for the first time since the week of May 9th. Pending sales have been growing more slowly the past 3 weeks than they did since mid-April. In addition, new listings have been down in 2 out of the past 3 weeks and were essentially flat the previous 3 weeks.
California’s supply problem rears its ugly head again: Unlike pending sales, mortgage applications, or requests by homebuyers for private showings, the number of new listings being added to the MLS each week has yet to reach pre-crisis levels, let alone 2019 levels. We observed a much bigger pullback on the seller side of the market during the initial shelter in place, and we have seen a much slower rebound than we have enjoyed on the buyer demand side. As such, the number of homes available for sale fell by the largest percentage in many years, which will also limit the pace of the recovery.
More positive indicators were released this week and suggest the worst of the immediate crisis is behind us and that things should gradually continue to improve. However, there are also spikes in new infections in certain parts of the country and we don’t know exactly if or when we might have to clamp back down on a potential outbreak. In addition, the damage that has already been inflicted will take time to heal from as we all work to figure out how to operate safely in a post-COVID world. We can remain encouraged and cautiously optimistic by this week’s economic and market data, but we would do well to emphasize the caution until things have a chance to adjust further.