Aerial view of La Jolla, San Diego, California. Photo: Getty
In April, when Covid hit California’s real estate market hard, I reached out to San Francisco-based Compass California President Mark McLaughlin and CoreLogic’s Deputy Chief Economist Selma Hepp, Ph.D. for their expert insights. Once again, we discuss market fundaments as we move into fall and a presidential election.
California is experiencing a fast and furious housing market like no other in terms of sales and prices. McLaughlin and Hepp offer insider insights. 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 does deep-dive research and number crunching for CoreLogic.
Describe where the California market is right now.
Mark McLaughlin: The California market is experiencing a record "surge" in home buying. This is driven by three variables: the delay of the traditional spring market, the Covid surge of homebuyers seeking interior and exterior space, and record low-interest rates. This combination has fueled a velocity in the market we have not seen maybe since 2006, pre-Great Recession.
Selma Hepp: The market is certainly not what and where we expected it to be. We are seeing strong sales activity following initial declines. In August there was a 15% year-over-year sales activity increase. Overall, I think activity will still be slightly down for the year. I do think it will still be a solid year in sales and prices. Since inventory is down 50% across the state that impacts sales activity. What’s fueling the current demand and sales growth is people are doing more at home so that changes their needs combined with low mortgage rates.
Where do you see the market going as we move into the election?
Mark McLaughlin: Through the first half of 2021 four variables will drive the housing markets in California. It’s my feeling another round of federal stimulus will be required to hold off serious economic hardship. Congress and the Federal Reserve own our current economy and without stimulus, October rents and mortgage payment could experience non-payment. The election, whether you want consistency or change, will create anxiety and volatility. The stock market is not the economy, the economy is in bad shape and owned by Congress and related stimulus.
Finally, a vaccine, or a series of vaccines, once in market for three months, will help to turn the economy around. Until all these variables are seasoned, my outlook is cautious.
Selma Hepp: I’m not sure it will impact the market the month of the election. Usually, there is a slowdown before the election and then the market speeds up afterward. Though there is a small chance it could have an impact on mortgage rates. I am still forecasting rates to remain below three percent for the rest of the year. I still see price gains a year out for the California market.
What advice do you have for homebuyers?
Mark McLaughlin: Focus on "home,” be conservative, and know that real estate, over time is one of the best investments ever. Sprinkle kindness and empathy everywhere.
Selma Hepp: I would say home buyers have a unique opportunity to lock in the record lowest mortgage rates which will help offset some of the affordability challenges seen in the last few years. With potentially more flexibility allowed by employers, homebuyers now also have a possibility to expand their search geographically and entertain areas that haven't thought of in the past. These are unique breaks that buyers in the past may have not had.
As the fourth quarter of 2020 begins it will be interesting to see end of year market dynamics in a year like no other.