The Los Angeles housing market has always been worth watching. Traditionally, home values in this city have risen steadily, and Southern California in general is a high-value market. What has been the effect of the COVID-19 pandemic on the housing market, and will it eventually lower prices?
Effect to Date
So far, the COVID pandemic has not had a huge impact on the housing market. Although California is seeing its fair share of unemployment in line with the rest of the country, that hasn’t scared away the home buyers. After a brief increase in the number of days that homes were sitting on the market on average during the pandemic’s early months, properties are now selling more quickly than in previous years.
There are many reasons for this. First, LA has always been a desirable place to live, and the pandemic hasn’t changed that. From climate to diversity, education, the arts, and more, Los Angeles continues to draw homebuyers from all over the world. In addition, LA’s economy is still sound despite unemployment, and there is plenty of opportunity.
Brisk sales may also be due to an often-overlooked effect of the pandemic in making the home more central to life. People who been working and schooling their children from home for months have a new appreciation for the importance of having a space big enough and comfortable enough to do all that.
First-time homebuyers are driving the current sales numbers, and that’s in large part due to the way COVID is changing lives. Many are looking to move into their own space, planning for the possibility of the next pandemic, or considering a long-term shift to working from home at least part time. Some companies are also now offering their employees a stipend for their home office, allowing them to size up to larger homes or afford a home of their own for the first time.
Prices and Values
When homes are selling fast, it’s tempting to think that’s because prices are falling or home values are declining, but in Los Angeles, that’s not the case. Home values from June of 2019 to June of 2020 rose by around 4%–not a significant jump, but certainly healthy considering the COVID pandemic. The economy still has faith in the LA housing market as a place for sound investment.
As for home prices in general, they have fallen slightly, but that drop is statistically insignificant at this point. However, what has fallen are interest rates. Unprecedentedly low interest rates offer a wonderful opportunity for home buyers, whether those buyers are looking at their first home or want to move up to something bigger and more luxurious. Currently, mortgage companies are regularly offering 30-year loans with interest rates lower than 3%. It’s possible these rates could drop even further, though there are no guarantees, of course.
An Unusual Selling Season
Another reason for the increase in LA home sales this year is quite simple: many who had planned to sell their homes in the spring of 2020 were unable to do so due to quarantine and lockdown. Once things opened up again, the summer grew busy and the housing market got back to work.
Prices generally remain high because demand outstrips supply, and that is the case in LA. While there’s plenty of housing to be had, there has always also been strong demand. In the spring, many sellers temporarily took their homes off the market as they waited for things to go back to normal, further exacerbating that supply/demand crunch and leading to an especially active home-buying season in the summer.
Will COVID Lower Prices in the Los Angeles Housing Market?
The big question for potential home buyers and sellers alike is what the future holds for home prices. Prices in the LA market haven’t fallen significantly due to the pandemic, but could they? The answer is a qualified “yes.” Without a crystal ball, it’s impossible to say what will happen for certain, but there are a few scenarios where it’s likely we would see a drop in prices.
Changes in Federal Policy
When the pandemic initially struck, the federal government implemented policies that kept the housing market stable, especially in the initial months of uncertainty. The question is whether the government will continue that commitment into 2021. A lot of this will depend on the overall financial and job situation nationally, the state of vaccine research and development, the results of the 2020 election, and much more.
The CARES Act, which enhanced unemployment benefits in response to COVID-19 and gave the unemployed extra money to put towards mortgages, expired in mid-summer, and it remains to be seen to what degree Washington is willing to implement further relief. The future of the mortgage forbearance option offered through the CARES Act to those with Freddie Mac, Fannie Mae, or Ginny Mae mortgage remains uncertain. While there’s no expiration date on this particular provision, forbearance is only available for 180 days (with another 180-day extension available). Once that time is up, some may be forced into foreclosure. Many of these forbearances will be expiring in the spring and summer of 2021, and home prices may start to drop at that point.
Changes in Economic Outlook
The longer the pandemic continues, the more damage it does to the financial stability of everyone involved. Businesses suffer, individuals lose their jobs, and stimulus packages run out. It is possible that in the coming year there will be a spike in the number of foreclosures and mortgage delinquencies as job losses and economic downturn speed up.
If large numbers of homeowners finally reach the end of their resources and are unable to make their mortgage payments, this could cause home prices in the LA market to fall significantly. Some of these foreclosures and delinquencies will be due to forbearance extensions running out, but a lot will depend on the overall economic situation in California and nationwide. If the pandemic causes a full-blown depression or a more serious recession than we are currently seeing, some who still have stable jobs now might not in another a few months.
Currently, experts are predicting the price of homes nationwide to fall by 6.6% in 2021, and many are already pegging 2021 as “the year to buy a home.” For Los Angeles, prices aren’t expected to fall that far, but it’s certainly possible that we’ll see a more significant drop than anything in recent years.
There are two things working in opposing directions when it comes to this pandemic. The first is uncertainty in general. Uncertainty causes values of all kinds to drop as buyers are less willing to commit to payments and prices they might have been happy to work with in more prosperous times.
The other issue is the pandemic itself, however, which is making homes more valuable than ever. People are seeing the health (including mental health) value of having their own space rather than renting or living in shared spaces, and this attitude–though also fueled by the uncertainty–has the opposite effect upon home values.
The Bottom Line
In the end, buying or selling a home remains both a personal decision but one that it’s wise to seek expert help in navigating. If you’re considering your next move, consult with Los Angeles’ leading real estate expert, Teresa Mack. Talk with Teresa Mack today to get your questions answered and plan your next move.