Here is the latest “Skinny on Real Estate” real-time residential real estate update. The goal of this is to keep you updated on the So Cal market based on information gathered from the major aspects of our industry during this unprecedented time. Most importantly, we hope you and those close to you are healthy and safe!!
After two rough weeks of very little sales activity across the board in So Cal, sales volume positively picked up this week. We had some multiple offer situations in our Westside and South Bay offices in the $1.5M to $3M range. Some of the multiples were solely based on virtual tours without any in-person showings. The market has had such poor inventory for a long time that even under these circumstances, we still have solid buyer demand.
That said, the leverage the seller’s enjoyed pre-COVID-19 has given way to a much more balanced market. The early indications from deals in-escrow with contingencies removed or deals that recently went under contract, home prices are down about 5-10% depending on the price point and location. Properties priced under $1M in good locations are faring the best while the higher end (over $3.5M) is seeing the bigger discounts…but we are still seeing high-end deals closing (Prince Harry and Megan Merkle spent around $15M for a property in Malibu- off-market) and plenty of calls/e-mails inquiring about luxury properties.
At this point (still early to make these assumptions), despite such strong economic turmoil, some real estate economists feel property values won’t take much more than a 10%-12% hit as long as we see shelter In place orders easing in So Cal by the end of May. Under that scenario, a strong 4th quarter of 2020 is projected with home values beginning to inch back up. The combination of continued expected low rates and strong buyer demand for a scarce product are the key factors in this analysis.
A survey of active luxury real-estate agents found about 45% of the respondents felt homes valued above $3M would drop 10-15% in value, 35% state a decline of 5-10% with about 15% stating prices will be similar to pre SIP orders.
A few weeks ago, Compass Westside offices were reporting that new listings were off about 30% compared to this time last year. We have seen that increase to 50%. However, quite a few e-mails are circulating amongst agents about inventory that will hit the market in June and that is when we expect listing volume to dramatically increase.
Interest rates are holding steady on new purchases. 30-year jumbo loan rates are in the low to mid 3% range with the 7/10 year ARM in the 2.55% to 2.85% range.
Be careful when asking for a loan forbearance if you don’t really need one, especially if you may be in the market to purchase a home in the next 12 months or looking to refinance. It could create some headaches for a loan approval. Also, if you have a HELOC and could be using that money in the next few years, you should think about getting that money out. Some banks have started freezing access to that money which could become universal fairly quickly under the current economic environment.
Most of the major lenders are not going above 80% LTV on new purchases.
Nationally, about two million homeowners missed their monthly mortgage payments, a number which is expected to rise further. Approximately 3.74% of home loans were in forbearance Refinance rates are still holding higher than expected due to the backlog of files in the system but we expect these rates to drop.
Loan Article-Mortgage rates drop to 30-year low
New title orders (i.e.- preliminary title reports are typically ordered when a property goes under contract), were down over 50%-60% in the previous two weeks. This was a stronger week with title openings appearing to be off in the 35-50% range.
California is getting closer to allowing virtual notary signings. An announcement on this and the procedures that need to be followed is expected in the next few weeks.
Here are a few links to information/articles you may find useful-
After speaking with colleagues, management, lenders, title/escrow officers along with our own experiences during this turbulent time, I thought it would be prudent to put together a summary of pertinent information on the Los Angeles residential real estate market as of 3/26/20–
*Despite a shut-down of open houses this past weekend and most brokers highly discouraging any in-person showings, 25+ deals went into escrow this week between four Westside Compass offices…quite a few with multiple offers and new to the market. This was surprising to management but also another sign of the lack of inventory we have faced over the past couple of years coupled with low interest rates.
*The vast majority of deals that went into escrow were “entry level” purchases for a neighborhood. For example, homes around $2M in the Palisades or $1.4M in Mar Vista. The “high-end” level of homes are not getting near the attention.
*Across the board in Los Angeles, Compass has had a surprisingly low rate of escrow cancellations. Deals are sticking together but a handful (5%) are seeing some buyers try to re-negotiate the sales price before closing escrow. In some cases the tactic has worked while in others the seller has initiated cancellation escrow instructions with the intent of keeping the deposit. Overall, the deals are making it through escrow with the normal back and forth re request for repairs, though buyers are definitely being sticklers when it comes getting their requests taken care of.
*New listings started decreasing a few weeks ago and are probably off about 70% this week (educated guess), compared to the normally busy spring season. This will undoubtedly be the case until some sense of normalcy is restored. Once that happens, we may very well see quite a few listings between those held off to sell and those forced to sell.
*Preliminarily, our real estate executives are predicting a 10-15% initial price correction. However, this number is shifting on a weekly basis at this point and doesn’t take into account the recent surge in the stock market.
*The big banks which do the majority of loans on Westside/South Bay, are operating as business as usual when it comes to standard purchases. The rates for a 30-year jumbo mortgage are typically around 3.25% and the 7/10 year ARM’s are in the 2.5/2.75% range. However, the secondary loan market has dried up, especially when it comes to jumbo products or loans that are more difficult to qualify.
*The surge in re-finance applications a few weeks back has created enough of a backlog that many lenders have increased their rates to slow down demand. It was described multiple times as a “bit of a roller coaster”. That said, if a homeowner is willing to contact a variety of banks, they will be able to find someone who is beating the market…it literally shifts from day to day.
*Most big banks have agreed to defer mortgage payments for those directly impacted by Covid-19. Article–
*Appraisals are still happening. With many homeowners not wanting the appraiser to enter their home, appraisers are walking the outside of the property, asking to see through windows and then having the homeowner take interior photos and e-mail them.
*Title companies can close escrows electronically but the county recorder office is otherwise closed and is not having any in-person meetings.
*The grant deed and loan docs are still required to be notarized in person. Some states have figured out ways to complete this process electronically by video, but not California. Some traveling notaries are working but people are advised to schedule signings as soon as possible.
Construction – Jobs considered “essential”
*As I write this, Construction/remodeling of homes is considered essential. Most city permit officers are working but at a slower pace so be prepared for delays. Landscaping/gardening/pool service/moving companies are all considered essential.
Here is a link to the city of Los Angeles web-site explaining their eviction moratorium.
We hope you and yours are doing well and are safe during these difficult times. Please feel free to reach out if you would like to further discuss or just catch up…we can chat in-between my attempts at kindergarten and pre-school teaching sessions…:).