California home sales are showing signs of a struggle. 39% fewer homes sold in May 2020 compared to the same month a year earlier. In contrast, homes are being bought up quickly by homebuyers, eager to take advantage of record-low interest rates.
Nationwide, the average home sat on the market for 22 days before reaching “pending” status, down from the 25-day average a year earlier. Here in California, the decrease has been even more pronounced, according to Zillow.
In California, as of the second week of June, the average home sits on the market:
20 days in Los Angeles, down from 28 a year earlier;
23 days in Riverside, down from 31 a year earlier;
13 days in Sacramento, down from 15 a year earlier;
15 days in San Diego, down from 25 a year earlier;
15 days in San Francisco, down from 17 a year earlier; and
20 days in San Jose, down from 22 a year earlier.
However, Zillow cautions the downward trend isn’t guaranteed to continue, as new listings are now up 14% month-over-month in June. Unless the number of homebuyers rises to match the increased number of listings, competition will wane.
A bumpy road ahead
Real estate agents may be tempted to see today’s low days-on-market as a silver lining to the 2020 recession. After all, fast home sales mean demand is outstripping supply, good news for sellers.
But this in no way makes up for the steep drop in transaction volume, which translates to an equally steep decrease in incomes for sales agents. If anything, today’s imbalanced demand will continue to prop up home prices as homebuyers compete for a dwindling supply of homes. But these inflated home prices will not be sustainable.
The only thing that provides long-term support for home sales and prices is access to high-paying, reliable sources of income. In 2020, California has experienced just the opposite, losing 2.6 million jobs from the December 2019 peak, amounting to an historic 14% drop.
first tuesday’s forecast for the economy in the months ahead is that some jobs may be regained, but they will be lost again due to the “dead cat bounce” effect. This is when the economy hits a bottom and rises artificially fast — appearing to possess some life — only to crash down again when whatever artificial supports that exist prove insufficient to sustain it.
A similar phenomenon will occur in the housing market. Home sales volume is currently in free fall, but home prices remain elevated. However, when our state’s lost jobs continue their absence, homebuyers and sellers will gradually become aware that the housing market will follow. Homebuyers, sensing a shift, will wait for prices to bottom, and sellers will see their listings sit for longer and be forced to accept lower prices.
Expect California’s housing market to hit a bottom around 2022, at which point the next recovery will begin.