Summary

• Southern California’s real estate market experienced a major rebound in sales from May’s low-point, despite still falling short of 2019 numbers
• Overall sales of single-family homes increased by at least 40%, with apartment sales increasing by 60% 
• Active inventory of single-family homes dropped year-over-year across all counties resulting from surging demand and fewer listings from sellers who opted out of the market; active inventory of apartments has remained stable since 2019. 
• Real estate prices rallied to a new record-high in June, with the biggest increases occurring in Riverside and Ventura counties at 7% and 8% respectively; median apartment prices in San Bernardino increased by 24%
• Market activity was strongest in the luxury market, which was less severely impacted by COVID-19, though the non-luxury segment of the market is also showing signs of a gradual recovery

              

Despite troubling market trends in California and across the United States due to the economic impacts of the novel coronavirus throughout April and May, recent indicators have some experts feeling cautiously optimistic about the trajectory of real estate for the near future. 

Southern California’s real estate market posted a massive rebound in the month of June, following record-low sales numbers in May. In its most recent monthly report, the California Association of Realtors (C.A.R.) details the extent of the market recovery. Jeanne Radsick, President of C.A.R., commented on the positive numbers saying, “Home sales bounced back solidly in June after hitting a record bottom in May, as lockdown restrictions loosened up and pent up demand driven by record-low interest rates roared back.” 

While home prices have remained robust in spite of the coronavirus pandemic, the number of closed sales in May fell by 45% year-over-year, as buyers and sellers became reticent about engaging in market activity. The impressive increase in the number of deals closed in June seems to suggest increasing market confidence from both buyers and sellers. What’s more, willingness to purchase homes has markedly increased since 2019, fuelled largely by record-low interest rates, 

The market has not yet fully recovered, however. Home sales in June finished 10-20% below 2019 levels, despite the massive month-over-month improvement. The trend towards recovery is anticipated to continue into Q3 as lockdown measures begin to shift and market confidence returns. 

The data analytics team at Roomvu created a detailed breakdown of market activity in June to assess the performance of different counties in Southern California.

Figure 1. Percentage Change in Sales of Single-Family Home

Figure 1 and Figure 2 show a significant increase in the number of sales compared to May across all counties, with Ventura leading the recovery in both single-family homes and apartments at 71% and 97% respectively. Los Angeles is where the slowest rates of recovery in single-family home sales have occurred, still managing to post a 38% increase over May. With respect to apartment sales, Orange County posted the lowest sales growth among Southern California counties with a 58% increase MoM.  

On a year-to-year basis, home sales were down across almost all counties by 10-20%. The lone bright spots being San Bernardino county where apartment sales actually increased by 14%, and San Diego where overall sales increased a modest 2%. 

Figure 2. Percentage Change in Sales of Apartment/Townhomes

Figure 3. Active Inventory of Single-family Homes

Although sales have not yet fully recovered from their 2019 levels, Figures 3 and 4 illustrate that active inventories have decreased across all counties for single-family homes and remained mostly stable for apartments and townhomes. San Diego, in particular, is showing the lowest levels of inventory at 2.2 months of sales for single-family homes and 2.4 for apartments, as the supply of new listings has trouble meeting the boost in demand. Conversely, in Ventura County, inventory of both homes and apartments remained high at the end of June, at 4.6 and 4.7 months respectively. 

C.A.R noted that the current effect on inventory is due to both increased demand and decreased supply compared to last year. In a poll conducted by C.A.R, there was a disproportionately higher increase in buyers’ confidence in June from 23% in 2019 to 31% in 2020. Meanwhile, sellers’ confidence dropped from 49% to 44%. These results could partly explain lower active inventories, as sellers pull their listings from the market just as demand for new properties begins to recover. 

Figure 4. Active Inventory of Apartments/Townhomes

Price

Home prices in Southern California have remained strong in the face of several COVID-related economic shocks. In fact, Southern California set a new record high in median home prices in June. Real estate market data show that median prices for single-family homes increased between 2-7% across all counties, reflecting growing demand as confidence among buyers and sellers returns (Figure 6). 

In contrast, increases in median prices of apartments have differed dramatically in different counties. Prices for apartments in Los Angeles, Riverside and San Diego have remained more or less unchanged from last year, while those in San Bernardino County increased by a whopping 24% at the median. This is consistent with findings that show San Bernardino is the only county where apartment sales were higher in 2020 versus 2019.

Figure 5. Median Price of Single-Family Homes

Figure 6. Year-over-Year (YoY) Percentage Change in Price of Single-Family Home

Figure 7. Median Price of Apartment/Townhomes

Figure 8. Year-over-Year (YoY) Percentage Change in Price of Apartments/Townhomes

Market experts attribute rising property prices to a lack of supply, as significant numbers of sellers have temporarily exited the market amid ongoing uncertainty posed by COVID-19. This response to the global pandemic has reduced available supply in the market, leading to increases in home prices in spite of the number of transactions being notably lower year-over-year. 

Chief economist at C.A.R., Leslie Appleton-Young, adds that shifting market composition towards higher-price properties has had an impact on the rising median price of homes. In June, C.A.R. reported a 2.5% increase in properties valued at over $1 million and a 4% decrease in sales of properties valued at less than $500,000 with respect to total market sales. 

Appleton-Young went on to explain that this increase in higher-price properties illustrates the disproportionate economic impacts the pandemic has had on buyers in the lower-end of the market. “It highlights the affordability and supply issues created by the uneven impact of the coronavirus pandemic, as the more affordable segments of the state’s housing market are recovering at a lower pace,” she commented in the June report. 

Conclusion

The positive market indicators evidenced in the C.A.R. report should provide some much-needed relief from the doom and gloom that plagued the market in April and May. However, uncertainty and the economic impacts of COVID-19 still loom large over the market landscape and have hampered any possibility of the market catching up to last year’s performance. 

Several market experts agree that there is still a long road to recovery ahead. Norada Real Estate Investment, a California real estate investment firm, predicts that sales volume will decrease by 6% in 2020, with average prices increasing by a mere 0.7%. C.A.R president Jeanne Radsick also voiced caution regarding California’s real estate market moving forward, ““While the momentum is expected to be sustained as we kick off the third quarter, the resurgence in coronavirus cases remains a concern and may hinder the market recovery in the second half of the year.”

In this ever-evolving reality in which governments and health authorities continue to reassess and reevaluate their policies, the only constant is change.

-Photo by Josh Miller on Unsplash