Nicole Friedman, a real estate news reporter from the Wall Street Journal recently asked me how the Pacific Beach real estate market is doing, amid the Coronavirus pandemic.
She read my initial prediction and was curious about how quarantine has affected the residential real estate market of Pacific Beach, a neighborhood with many short term vacation rentals.
It turns out that the Pacific Beach real estate market has been on fire recently. In my initial prediction post in April, I stated that I thought in 3-6 months (between July and October 2020) inventory levels would start to increase, escrows and sales would start to see a decrease in volume, and homes would take longer to sell, which would eventually cause prices to decrease.
So far, my prediction has been wrong.
What has the Pacific Beach Real Estate market done in the last 3 months?
May, June and July 2020 numbers show that compared to 2019, a similar number of homes were listed for sale and sold.
For May, June and July of 2019: 227 new listings entered the market and 134 homes sold.
For May, June and July of 2020: 239 new listings entered the market and 132 homes sold.
It looks like the sales that usually occur in March, April and May (comparing 2020 to 2019 and past years) has created a delayed “spring selling season.”
The usual spring selling season didn’t disappear, it was just pushed back a few months.
Have home prices increased since quarantine?
Median home prices have remained relatively constant.
The previous 2020 median house price (through May) was $1,379,500 and (as of August 3rd) has decreased to $1,350,000.
The previous 2020 median condo price (through May) was $585,000 and (as of August 3rd) has increased to $600,000.
The new 2020 median days on market in Pacific Beach is 26 days for houses and is just 19 days for condos!
Homes are selling relatively fast and we will soon see if this causes an increase in home prices in Pacific Beach.
What will happen to the Pacific Beach real estate market in the future?
I think my predictions will still come true, but they have been delayed by the unemployment package, stimulus checks and forbearance.
If the government manages to continue giving out money until unemployment rates are where they were before Coronavirus, then we may never see a decrease in home prices.
But I think that’s unlikely.
We are still months away from the slow moving real estate class reacting to the current unemployment rate. When tenants who are currently getting benefits run out of money, a new clock will start for landlords dealing with tenants who cant afford rent. . .
Why hasn’t the real estate market taken a hit yet?
The stimulus checks + unemployment benefits + forbearance really helped a lot of people.
This includes home owners and tenants.
But how long will the benefits last?
The government assistance may have pushed a ‘potential crash’ back 5-8 additional months. This delay could change depending on future stimulus efforts.
Foreclosures can take around 180 days before they are ever shown on the market. While the foreclosure clock starts ticking after owners miss a payment, the loan is not officially in default until around day 90. This is approximately when owners receive a notice of default. After 180 days, owner’s could receive a notice of trustee sale. About 20 days after the notice of trustee sale, the bank can then set the auction date for the sale of the home.
Most banks will try and work with the owner to avoid a foreclosure, so this can prolong this process.
Forbearance has added an option for home owners to delay their monthly mortgage payments and add those payments to the end of the life of the loan.
So the foreclosure clock is on permanent pause until forbearance ends.
We are still months away from seeing delinquent owner’s homes on the market.
Jamie Dimon (JP Morgan Chase) even mentioned that the number of delinquencies/missed mortgage payments is actually down. Jamie was also preparing for an increase in defaults and prepared reserves for it.
Will Pacific Beach homes become cheaper?
I still think that an eventual correction is coming.
It appears that retail (commercial real estate) is going to take a hit, which will affect some financial products which bundle both commercial and real estate together.
So my initial take (in April) was that in 3-6 months (between July and October 2020) we would start to see my predictions come true, now I’m thinking it will be sometime next year (2021). . .
Who knows tho. . .
It’s pretty crazy to think about how assets have increased in value during all of this. But pushing $3 trillion into the economy will have that affect I guess. . .
Fundamental economics state that there should be a high negative correlation (between -.5 and -1) between unemployment and stock and real estate prices.
If unemployment goes up substantially, financial assets should decrease in value. The GDP and quarterly earnings also show some of the worst numbers in recent history (some exceptions for banks and tech stocks), but stocks and housing prices are increasing.
Real estate may be a safe haven for investors who are trying to battle inflation and potential risk in other asset classes.
Commodity prices, including real estate, tend to go up during inflation. So there is a chance that home prices will continue to rise.
At the end of the day, the golden investing rule holds true: don’t try to time the market.