Five key highlights from this article:
- The coronavirus pandemic has slowed the California real estate market.
- But data show that home buyers are still out there, making purchases.
- Meanwhile, a gradual reopening of the economy will help stem job losses.
- Mortgage rates continue to hover at record-low levels.
- These and other factors will help California’s housing market survive 2020.
Let’s face it, 2020 has been a tough year. And we still have a lot of challenges ahead of us, from both an economic and public-health perspective.
But it’s not all doom and gloom. There are rays of light out there, if you know where to look.
Take home purchases, for example. In mid-April 2020, California’s housing market nearly ground to a halt following a plummet in home-sales activity. Now, we are seeing an increase in home purchases and mortgage loan applications across the state.
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How the California Housing Market Will ‘Survive’ 2020
Analysts have predicted a reduction in home-price appreciation (and possibly a dip), resulting from a broader economic slowdown. That’s to be expected. But that’s not the same as a full-scale real estate market crash, like we saw back in 2008.
This time around, things will be different. The major difference is that the state’s housing market was in solid shape go into this crisis. There are other differences as well.
Here are three reasons why the California housing market will survive the 2020 economic downturn.
1. Home buyer demand is making a comeback.
Another week, another reassuring report from the Mortgage Bankers Association (MBA). As we’ve written in the past, recent reports from the MBA have shown an increase in home-loan applications among buyers in California and nationwide.
The MBA’s latest application survey delivered more of the same, showing an 11% increase in purchase loan volume from the previous week. And once again, California was one of the top-performing states in terms of loan application growth.
According to a May 13 report from the MBA:
“There continues to be a stark recovery in purchase applications, as most large states saw increases in activity last week. In the ten largest states in MBA’s survey, New York – after a 9 percent gain two weeks ago – led the increases with a 14 percent jump. Illinois, Florida, Georgia, California and North Carolina also had double-digit increases last week.”
That’s according to Joel Kan, head of economic forecasting for the industry group. He added that the group expects that positive trend to continue, as California and other states gradually reopen their economies.
Housing reporter Diana Olick noted this trend on CNBC yesterday, writing that “buyers are coming back to the housing market much faster than expected.”
These unexpected but encouraging trends are partly due to education and awareness. People today have a better understanding of how to protect themselves. Terms like “social distancing” have become part of our shared lexicon. And these days, nearly everyone is carrying hand sanitizer and masks.
In short, we are adapting to the public-health situation. And that leads to reason #2 for why the California housing market will make it through 2020…
2. The real estate industry has learned to adapt to the crisis.
Earlier this week, we shared some of the guidelines for real estate professionals during Stage 2 of California’s economic reopening plan. Those common-sense measures are designed to keep people safe, while allowing the housing market and economy to regain footing.
That’s just the latest example of how the real estate industry and the state government have adapted to this crisis. These and other protocols make it possible for home buyers to buy a home in California, while safeguarding their own health at the same time.
We’ve also seen a rise in the use of digital document-signing technology, virtual home tours, and other web-based real estate technologies.
Instead of giving up, real estate and mortgage professionals across California have found ways to adapt their procedures to these challenging times. This, in turn, will help support the state’s housing market and broader economy through 2020 and into 2021.
3. Mortgage rates are expected to remain near record lows.
Here’s another factor that could help the California housing market get through the 2020 doldrums. Record-low mortgage rates.
At the end of April, the average rate for a 30-year fixed mortgage dropped to 3.23%. That was the lowest average in more than 50-years of record-keeping. And while rates have ticked up a bit since then, they are still hovering near that record low.
This week, the research team at Freddie Mac wrote: “Mortgage rates have stabilized at very low levels over the last few weeks as homebuyer demand slowly improves.”
(You’ll notice a recurring theme with all of these third-party quotes. Demand is improving.)
Low rates will probably be around for a good, long while. Recent forecasts from industry analysts suggest that 30-year mortgage rates will stay in the low 3% range, on average, for the foreseeable future.
The forecast snapshot below was issued by Freddie Mac, the government-sponsored corporation that buys loans from lenders. Their economists expect 30-year mortgage rates (labeled as “PMMS” below) to average 3.3% in 2020, and 3.1% during 2021.
Conclusion: A Number of Positive Trends
So we have a few things happening here, simultaneously. And all of them could help sustain the California housing market through the 2020 economic downturn.
Slowly but surely, home buyers are coming back into the market. In addition to supporting property values, this also gives reluctant sellers a reason to re-enter the market. Deals are still being made.
Meanwhile, the real estate industry continues to digitize its workflow. This reduces the need for face-to-face interaction among buyers, sellers and agents. The mortgage industry has also moved toward a more digital and paperless process.
Add to this the record-low mortgage rates we’ve seen lately, and you have all the ingredients needed to keep the California housing market chugging along through 2020. Let’s keep it going!