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July 9, 2020

The California and national economies and housing markets continue to show improvement across a broad spectrum of indicators. However, we continue to face both ongoing and new challenges that we, as real estate professionals, need to be aware of to best serve our clients. Business has been improving, consumers are feeling better, and we are still enjoying all-time low interest rates. However, uncertainty has also increased in recent weeks, so we need to continue to hustle and avoid the temptation to celebrate the recent improvements because we still have a long row to hoe in California.

California home sales exceed pre-COVID levels: Despite the short holiday week, home sales in California home sales ticked up last week. On average, 801 homes closed on the MLS each day last week—up from 795 the previous week. In addition, closed sales have now been above the pre-COVID levels of early march for the past 4 weeks consecutively. This largely owes to the rebound in pending sales that began in mid-April.

Labor market recovery continued in June: Last week, the Bureau of Labor Statistics reported a larger than expected drop in unemployment. Although there remain some issues with the classification of temporarily unemployed workers, the decline to 11.1% in June from 13.3% in May represents the second consecutive monthly decline. The payroll survey of employers also showed a second monthly gain with the U.S. economy adding back another 4.8 million of the 20.8 million jobs lost in April.

Buyer demand remains strong: New purchase mortgage applications actually declined last week by 5.3% from the previous week. However, that was solely due to the short holiday week. In fact, last year the 4th of July decline in mortgage applications was much larger such that the year to year increase in new purchase applications surged by 33%—the largest increase since before shelter in place orders were issued. In addition, the growth in buyers requesting showings through ShowingTime.com remains ahead of last years pace by more than 11% as rates remain at all-time low levels.

California REALTORS® saw business improve during short holiday week: 33% of California REALTORS® surveyed over the weekend reported holding a listing appointment last week despite the short holiday week. That was steady from the week before and continues the consistent improvement from 27% in late May. 26% of members listed a property last week—up from 23% the previous week and at its second highest level since May. 32% entered escrow on a transaction last week—a 4th consecutive weekly increase. Finally, 26% of respondents closed a transaction last week—the highest percentage since we began asking this question in mid-May.

Discounted home sales decline for second consecutive week: Last week, 54.2% of closed sales were below their original listing price on the MLS. That is down from 55.1% the previous week and marks the second consecutive decline showing that low rates, strong buyer demand, and a lack of available inventory has prevented significant discounting or price impacts to California’s housing market in the wake of the pandemic.

Many remain on unemployment despite recent improvement: Although labor markets continue to make progress nationwide and in California, many workers continue to face difficulties. Between May and June, the economy added back 7.5 million of the 20.8 million jobs lost in April, but that still leaves U.S. payrolls roughly 13 million jobs shy of the pre-recession peak. Thus, even as things continue to improve, there is still a lot of healing left to be done.

Lack of supply limits momentum of recovery: In addition to ongoing economic fallout associated with job loss, California’s housing market also has to contend with tighter inventory—particularly as demand and sales have grown in recent weeks. The number of new listings being added to the MLS each week has been declining for the past month, which will limit the momentum of the current rebound. Buyers who are still employed are attracted to the market by historically low rates, but a lack of available supply will mean fewer get into homes than would like to.

Buying season appears to be winding down “on time”: One question about the effects of COVID-19 was whether it would extend the buying season due to pent-up demand accumulating as families and individuals sat home under shelter-in-place orders. However, data on both mortgage applications and requests for home showings, while remaining elevated compared with last year, does appear to be showing the typical slowing that is observed in July. Many of the homes that will close between now and the theoretical beginning of the school year are the result of transactions that have gone pending already or will go pending very shortly, and that seems to be consistent in 202 as well.

Recent rise in COVID cases threatens recent progress: The big wild card for the economy and the housing market is the recent surge in new COVID cases. Like many other states, the number of new infections has increased as the economy has reopened gradually over the past month. This increases the uncertainty about how much momentum the nascent recovery will be able to maintain and whether businesses will be able to remain open and the recovery will be able to continue, or whether we see economic activity drop off under another round of more stringent restrictions.

The continues to be many positive signs in the economic data, whether it pertains to the labor markets, consumer confidence and spending, REALTOR® sentiments in California, signs of buyer demand, of the housing market data itself. However, the economy still had a lot of healing left to do even before this recent rise in new infections. For the past few months, we have said that a second wave of the virus would likely result in a slower recovery period and greater impacts to the economy and housing market so we will be monitoring this closely and making any necessary adjustments to our forecast so that we can share them with you. We’ve made tremendous progress so far, but we’ve still got a long road ahead.

 

Past Market Minutes
July 2, 2020 - U.S. pending home sales surged, NAR revised forecast upward
June 25, 2020 - Economic recovery will take time, lower home sales for May but bounce back expected
June 18, 2020 - REALTORS® seeing improvements in business, fewer buyers and sellers with cold feet
June 11, 2020 - U.S. Economy officially in recession, showings rise above 2019 levels



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