Beach Cities Real Estate Market Update May 2020
To state the obvious, we are in unchartered territory and I’ve never seen anything like we are going through both personally and professionally. And you haven’t either.
I’ll get into the numbers shortly. Here’s the big picture:
Closed escrows are down 50% +/- compared to the same time period last year.
New listings are coming on the market and going into escrow and closing.
Mortgage rates are very low but lenders have tightened their programs and underwriting.
Buyer sentiment is not great but any buyers in the market now are serious and qualified.
No Open Houses, access is limited and PEAD forms are required for showings.
Most of the April closed sales were in escrow prior to 3.19.2020.
So is this a good time to Buy or Sell Real Estate?
It really depends on your personal situation. If you unfortunately lost a job that’s not coming back or had to close your business and you are sitting on a ton of equity, you might consider cashing out and taking that money off the table.
If you are in a position to buy, meaning you are a W2 employee with good credit and at least 20% down, you are in a much stronger negotiating position than you were last February. The pool of qualified Buyers is certainly down so you have less competition and potentially more motivated sellers. Be that as it may, I’m still hearing of properties getting multiple offers.
But there’s no doubt that…..
YEAR OVER YEAR SALES ARE DOWN
Beach Cities April Sales 2016-2020
So while April 2020 sales were lower in every instance than any other April in the last 5 years, historically we have seen other “soft” April sales in Manhattan Beach and South Redondo Beach. Hermosa is the least affected from their normal April run rate and North Redondo clearly the most affected.
The reason we haven’t really seen prices impacted yet is because….
MOST OF THE APRIL CLOSED ESCROWS WERE UNDER CONTRACT PRIOR TO THE SAFER AT HOME ORDER
So we’re looking at sold prices for deals that were negotiated in a different place and time: pre-3.19.2020 the date of the CA “Safer at Home” order.
Manhattan Beach 4 of 23 closed sales in escrow prior to 3.19.2020
Redondo Beach 7 of 40 closed sales in escrow prior to 3.19.2020
Hermosa Beach 1 of 13 closed sales in escrow prior to 3.19.2020
My opinion is that “comps” are meaningless until we have at least 2 months of data of contracts post 3.19.2020. That will be a real indicator of where values are headed going forward. Which leads me to….
THE “OVER-UNDER”
No we’re not gambling here, the stock market is the place for that, I’m referring to how many properties sold over the asking price and how many under during April 2020.
Manhattan Beach: Over 4, Under 17, At List 2
Hermosa Beach: Over 1, Under 11 , At List 1
Redondo Beach: Over 12, Under 18, At List 10
Out of 76 total sales in the Beach Cities in April, 46 sold under the last MLS list price (60%), 17 over and 13 at the list price. And that’s with the preponderance of those sales being in escrow prior to 3.19.2020.
New listings are for the most part coming out at pre-pandemic prices.
With the huge unemployment numbers and reduced pool of qualified Buyers the market may be shifting to be more of a Buyer’s Market for the first time in years because….
INVENTORY IS INCREASING
As of this posting, there are 262 active listings in the Beach Cities: 99 in Manhattan Beach, 52 in Hermosa Beach, and 111 in Redondo Beach. Let’s look at those levels compared to absorption rates of both sold properties and in escrow.
In Manhattan Beach with 99 listings and 23 April sales, that’s over 4 months of inventory. 31 properties are in escrow so that’s a little over 3 months of inventory.
In Hermosa based on the 13 sales in April there is 4 months of inventory and with 13 properties in escrow the same for under contract.
Redondo has a little over 2.5 months of inventory based on April sales and 2 months based on under contract.
So while these numbers are not quite in “Buyer’s Market” territory yet, compared to what we’ve seen over the past few years it is sure starting to feel like it.
THE NEW NORMAL
Yes you can still buy or sell right now but a lot of the protocols are different.
Showings are at a minimum, cumbersome. Expect to sign the PEAD form and have to schedule in advance. At the extreme, some properties are only being shown only upon accepted offer - which has long been the protocol for income multi unit tenant occupied properties.
Many appraisers are doing drive by and desk appraisals only. Lenders have come up with stricter guidelines and if you are a small business owner or self employed, the bar may be a lot higher no matter how strong a borrower you were just a month ago.
Home inspectors are inspecting but may want to have free access to the house without the Buyer or their agent being there.
Open Houses, fuggedaboutit! 3D Tours, IG and FB live and video are the new normal.
How long does this all last? Remains to be seen.
WHAT’S NEXT?
Most of the top economists are not predicting that we are going to be seeing housing prices decline as they did in 2008. For one thing, too many people are sitting on too much equity and as discussed above, inventory levels are a few months of inventory not 6+ months. So anyone who has to sell because of reversals in their earning capacity can still most likely recapture some equity. That’s a good thing.
Inventory rebalancing may become a thing as some smaller landlords, commercial landlords and others look to adjust their investment portfolio.
And homes that have newly desirable amenities - like room for a home office, may increase in value.