Real estate industry experts discuss California’s real estate market. I checked in once again with Compass California President Mark McLaughlin and CoreLogic’s Deputy Chief Economist Selma Hepp. The conversation focuses on the Bay Area and Southern California markets.
In 2018, McLaughlin led the merger of San-Francisco-based Pacific Union International with Compass establishing Compass California, a leader in market share in California. Selma Hepp is executive, research & insights, and deputy chief economist for CoreLogic.
What changes have you seen in the last month?
Mark McLaughlin: We have seen a change in the velocity of the market. Not the demand, but the velocity, in two different ways. Without “broker’s preview tour” or “open houses,” showings are linear in nature and need to be an hour apart. If ten buyers want to see a home, it literally takes 10 hours. In addition, homes are taking longer to prepare for market. One vendor at a time in a home vs. painters, carpet installers, etc. crawling all over each other. We are learning to be patient.
Selma Hepp: Obviously, a lot has happened in the last month. By mid-April, the market seemed to have bottomed out. After that activity picked up as homes began going into contract. In both the Bay area and Southern California, the new listings are primarily in the million and below range. Some higher-priced listings were taken off the market. My numbers show that 40 percent of buyers withdrew offers in the first two weeks of April. While 30 percent tried to renegotiate the purchase price in the last two weeks prior to closing.
What changes are you seeing in how buyers and sellers are reacting to the current market dynamics?
Mark McLaughlin: The demand remains robust. Urban families are looking for yards and suburban properties. Sellers are learning to adjust and make pricing concessions for properties that are not “dialed in” or in optimal locations with excellent schools.
Selma Hepp: In the past few weeks, buyers are more active. They are expecting price discounts. There is a stand-off in the market where sellers are not willing to reduce their asking prices.
How would you describe the current market fundamentals?
Mark McLaughlin: I would say cautiously optimistic. The buyer/seller balance is narrowing. The mortgage market is working through the early stay-in-place (SIP) issues and the redemption issues. If SIP is successful, September will likely feel a little more like what will be the new normal.
Selma Hepp: I am hearing anecdotally that the pent-up demand is strong. What will impact the market is are the buyers who were looking before this still in the market? We know people have lost jobs and seen household budgets reduced. Prior to this, the debt ratio as a percentage of disposable income was at its lowest in 20 years.
Does the Bay Area currently look to recover faster than Los Angeles area markets?
Mark McLaughlin: It will all be a function of SIP success and relaxation of stages 1 – 4. The timing of these relaxations will define recoveries. Seventy percent of our professionals in California in a recently completed survey stated that the interrupted Spring season would be postponed and not lost. The months of July -October could be traditional “Spring” like. So, Bay Area and Los Angeles will respond similarly in magnitude but could be different in timing because of SIP relaxation schedules.
Selma Hepp: I do believe the Bay Area will recover faster than Los Angeles. More counties are opening sooner around San Francisco than in the Los Angles metro area. Los Angeles also experienced a larger jump in unemployment.
California’s real estate market is historically resilient. Let’s see if this downturn is only temporary.