Coronavirus And The Real Estate Market

COVID-19 and the San Diego Real Estate Market

A lot of people have been looking for answers, so right or wrong, I took the time to put my thoughts on paper to get clear for myself and hopefully help someone in the process.

Unless you live in a hole (actually not a bad idea right now), you’re well aware of all the ways your life has been turned upside down.

Get ready for more. The social pressure for a full-blown quarantine a la Italy is growing, and we’re rapidly getting there.

What does this mean to you?

Our industry, like many others, will be put on hold. Prepare for it. You’re going to have a lot of time on your hands.

Here’s my advice…

Stay strong and be positive. Focus on what you can control. You WILL get through this and be better because of it.

Be mindful of how much news you watch and read. It can take your mindset down a dark path.

Find the opportunity to serve and stand out to your customer base, community, and peers. Quarantine Convention is a great example from @Andrew Greer doing just that.

Take care of your body and mind. Stick to your routines. If you don’t have routines, get some. It’s easy for bad habits to creep in when you suddenly have free time. Don’t let it happen.

Lay low on the Coronavirus memes. At this point, it’s in bad taste and it will hurt your reputation. A lot of people are suffering…and a lot more people will be suffering soon. I know humor is a way to stay positive through this. I get it. I’m just saying it won’t sit well with a lot of people. We need leaders right now, not comedians.

And finally, don’t squander the blessing of time you’ve been given. Utilize it to work on all those important but not urgent things that you’ve been putting off for so long. I will be circling back next week with some ideas to help here.

I can’t stress this enough…the next “winners” in our markets will be born during this lull, and former winners will disappear.

What does this mean for our market?

I hear a lot of people talking about how this will blow over soon and our market will soon be back to normal…

Don’t count on it.

I believe in being positive, but that doesn’t mean sticking your head in the sand. What we’re experiencing is unprecedented. As China’s economy is already showing us, this will devastate our economic engine along with the rest of the world.

We’re in a recession. I have absolutely no doubt. How big is yet to be seen.

Not only that, but our world will be a different place after all this. We are living through history right now. Major shifts in our collective social perspective are coming.

In just one example, just imagine this. Companies are being forced to accommodate remote work all of a sudden. Many of these companies have been fighting that trend for years now. After this, do you think eyes will be open to the increased productivity and reduced overhead that comes with a remote workforce? What do you think that will do to the demand for office space and the subsequent value of those assets? 🤔

Think about it. Prepare for it. Make the adjustments you need to thrive through it.

Keeping with my theme of the three major influences impacting our single-family market, here is my take so far on the effects of COVID-19 in regards to our San Diego real estate market.

Housing Supply – YELLOW

It’s suddenly a buyer’s market again, despite the historically low inventory. Buyers willing to pull the trigger right now have the leverage.

The general population is gripped by fear. Buying a home is an emotional process. People may back up the decision with logic, but they are making the decision with their emotions. When fear hits the equation, the process halts. Expect that sentiment to linger well after the quarantine passes.

That said, the low inventory in San Diego may be our saving grace from a long term free fall in prices. We’re still not building enough (see the article below for more info on that).

Sellers that need to sell will be more hesitant to allow strangers through their house, so this will likely increase off-market buying activity. Sellers not strapped for time will be more likely to wait until things settle down. Both of these factors will keep on market inventory low and help curb massive price drops.

On the flip side, I expect a surge in distressed sales 6 months from now as a result of all this. A lot of people stretched thin to buy the house they own and live paycheck to paycheck. That’s a recipe for disaster in times like these.

Rates – YELLOW

At this point, mortgage rates don’t matter much for home buyers. After things settle down, they definitely will but I think they need to be below historic lows to really ignite the flurry of buyer we’ve been used to.

It’s yet to be seen how the mortgage bond market will react to all this. Lower yields around the world will definitely put pressure lower on rates, but a lack of confidence from investors in homeowners’ ability to repay may keep rates higher.

Local Job Market – RED

It’s only a matter of time now until we see a wave of lay-offs. The majority of businesses were planning on growth this year. Now they have to survive contraction which means cutting costs and hoarding whatever cash they can to survive.

You can’t shut down the economy and not have massive lay-offs. This is where I see people putting their heads in the sand.

Conclusion

The black swan event hit hard and fast, and it’s still punching. Things are changing rapidly. I reserve the right to look stupid with these predictions…but here it goes.

I’m expecting a quick, sharp dip immediately due to an overwhelming lack of confidence from buyers. I could see a quick bump higher after things settle down to recover some of those losses as buyers jump on good deals.

However, once the reality of the recession and effects of job losses (distressed sales), I see a more gradual trend line to the negative until the global economy finds its legs again. How how long that goes for is hard to say and will likely depend on how aggressively and quickly the government intervenes to support our small businesses and workforce.

Much thanks to Brian Daly for his keen insight and humanity.