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Why Aren’t More Houses for Sale in San Diego?

The top real estate story in many parts of the country is the unexpectedly low number of houses that are for sale right now. When COVID-19 hit, the number of houses being put up of sale tanked but so did the number of houses sold. Since then, in some metros, the number of houses being sold has rebounded to near normal levels but the number of houses for sale remains very low. 

Because of that low supply of houses for sale, house prices are unexpectedly strong despite the incredibly steep increase in unemployment. Are mortgage forbearance programs a factor in this low supply? Could we see a rush for the exits and a lot more houses hitting the market when the mortgage forbearance programs eventually end?

Last week Fannie Mae and Freddie Mac pushed the end of their mortgage forbearance programs from July 30 to “at least” August 31. Nationally, about 9% of all mortgages are in forbearance. Of those in forbearance, about 75% are Fannie, Freddie, FHA or VA mortgages.

I’m certainly not an expert on politics but I can’t see how the government ends these mortgage forbearance programs before the November election. After that we’re in December and remember how the media blasted December foreclosures during The Great Real Estate Bubble? It became common for banks to stop all foreclosures and evictions during December.

I think it’s likely we’re looking at January before we start to see the end of mortgage forbearance programs at Fannie, Freddie, FHA and VA.

Oh yeah, after they eventually end their mortgage forbearance – the way it stands now, anyway – mortgage owners may qualify for another 180 days of forbearance.

No Hurry to Sell

As long as you’re in forbearance, you’re in no hurry to sell your house because you don’t have to make your mortgage payments anyway. If you sold your house before forbearance ended, you’d have to rent a place and actually pay rent.

A bigger reason for the low number of houses hitting the market is, of course, the recession. People sell their homes when they take new jobs and move to new cities. There’s a lot less of that going on now.

But the low supply of houses going up for sale may partly be an unintended consequence of mortgage forbearance programs. We’ve never had such programs before and don’t know what their secondary impacts might be.

A Wave of Supply Coming?

Let’s assume that having millions of mortgages in forbearance tends to lower the number of houses being put up for sale and that in turn tends to put upward pressure on house prices.

In this scenario, the upward pressure would continue until the forbearance programs ended. After that — when these homeowners have to start paying their mortgages again — the number of houses going up for sale would be above normal and that in turn would tend to put downward pressure on house prices, or at least remove some of the upward pressure.

Other Explanations?

When I first saw this problem of low supply, I assumed it was caused by home sellers being worried about COVID-19 and not wanting strangers in their homes. But if that was the case, I think we would have seen some rebound by now in the number of houses hitting the market. In Phoenix anyway, we haven’t seen more houses hitting the market. The number of houses under contract to buyers has completely rebounded and is above the level for this time last year. The number of houses being put up for sale, however, is still running at April pandemic levels.

Natural Experiment

If we start to see more and more houses being put up for sale before the forbearance programs end, that would suggest that today’s low supply of houses for sale was indeed caused by seller fears of COVID-19 and having strangers in their homes.

If, however, we don’t see that but we do see a jump in supply soon after mortgage forbearance programs end, that would suggest that the forbearance programs themselves were a significant cause of the low supply we’re seeing now.

In fact, if we do NOT see the supply of houses for sale rebound soon, that would suggest that we will see a significant increase in supply when homeowners in forbearance have to start paying their mortgages again.

Keep these scenarios in mind if you’re planning to sell your house within the next year. The real estate market dynamics might change when the mortgage forbearance programs end. It’s hard to imagine the real estate market being any better for single-family home sellers in a recession than it is right now.

Finally, maybe the low supply is being caused by something else entirely. Even before COVID-19, the number of houses hitting the market in January and February was unusually low. Whatever was driving the low supply back then may have been accentuated somehow by COVID-19 and it’s driving the even lower supply today.


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San Diego County Sees Homebuilding Increase to Start the Year

The first quarter of the year saw San Diego residential building bounce back after a slow 2019.

Homebuilding in San Diego County nearly doubled from last year in the first quarter of 2020 despite COVID-19 closures. 

While a welcome sign for housing advocates it comes with two caveats: San Diego County had the biggest drop in residential construction in Southern California last year so any uptick would look impressive. Also, much of the building in the first quarter was before the virus shut down many businesses.

The county constructed 2,313 homes — including single-family houses, condos and townhouses — in the first three months of the year, said the Real Estate Research Council of Southern California. 

That was a 96 percent increase from the same time last year, and up 48 percent from the last quarter of 2019. 

Murtaza Baxamusa, director of planning and development for the San Diego Building Trades Council, said large residential projects take years to come to fruition and it’s not always possible to pump the brakes — even during a global pandemic. 

“Once you start pouring concrete, your concrete pouring is not stopping,” he said. 

Baxamusa said job and income losses will likely slow the industry but it is too early to speculate how much. He said the first type of building to decrease will be in wooden stick frame construction, mainly for townhouses and single-family homes, but will take longer to filter out to apartment buildings.

He said stick frame operations can quickly slow down, or speed up, depending on demand. Large apartment towers, like the ones going up downtown at the moment, are much more difficult to stop once construction has started. 

Since 2015, San Diego County has typically built 9,500 to nearly 10,000 homes a year. But last year, the county was below that with 8,053 homes constructed. Industry experts cited a variety of issues for the slowdown but it was mainly attributed to a drop in apartment construction after years of intense building and declining rent gains. 

In the first quarter, single-family homes had an increase of 85 percent from last year, with 1,154 homes constructed. Multifamily construction was up 108 percent with 1,159 permits pulled. At this rate, both categories are on track to exceed or meet average building totals for the last few years. However, two statewide forecasts predict a slowdown in building. 

The California Association of Realtors predicts 84,320 homes will be built this year, down 24 percent, and the state Department of Finance predicts 89,315 homes to be constructed, down 19.5 percent. The Realtor organization’s analysts predict a slow economic recovery from the massive job losses of the last few months.

Construction was declared an essential service from the beginning of the quarantine on March 19, allowing it to be one of the industries less impacted by the shutdown. San Diego County unemployment numbers from mid-April show 4,500 construction jobs were lost from March to April, a small fraction of the total 195,000 jobs.

Alan Nevin, industry expert at Xpera Group, wrote in a recent analysis that construction still falls into a “little hurt” category for job losses, unlike “big hurt” categories of restaurants, bars, hospitality, retail and arts, entertainment and recreation. 

In his analysis for the Greater San Diego Association of Realtors, Nevin was optimistic about the home market being strong after companies start reopening. Perhaps encouraging more homebuilding, the median home price in San Diego County in April, $594,500, was up 4.3 percent in a year. 

Building permits for the first quarter included increases in retail construction, but was down for office buildings, hotels and industrial buildings. 

Residential building was up 13 percent for all of Southern California in the first quarter. San Diego County had the biggest annual increase, but was followed by Los Angeles County (up 19 percent), Riverside County (up 16 percent), and San Bernardino County (up 2 percent).

Some areas saw a drop in construction, with the most being Ventura County, down down 42 percent. It was followed by Santa Barbara County (down 40 percent) and Orange County (down 24 percent). 

Data for building permits in the research council’s report is provided by the Construction Industry Research Board, which contacts all 58 counties and 538 cities in California for permit data. It sometimes is different from the widely used Census data that provides estimates and has been criticized for a wide margin of error.


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California Real Estate Housing Update During Covid-19

Light At The End of the Tunnel, but Recovery Will Take Time

The California housing market is showing signs of recovery in recent weeks. Home sales are expected to fall further in June, after declining with the fastest pace since December 2007 in April. However, consistent improvement in housing demand in the past few weeks suggests a solid bounce back in upcoming months. In fact, since bottoming out in early April, pending sales have improved by more than 100%.

Other indicators suggest a stronger performance for housing in the months ahead as well. After declining by nearly 75% from where we started the year, the number of showings booked through increased to just 0.3% below the same point last year. That puts the number of showings up by more than 50% on a weekly basis from where we started 2020 and 13.2% higher than the pre-crisis levels of late February. In addition, new purchase mortgage applications in California finally exceeded 2019 levels for the first time last week, after weeks of decline since the pandemic lock-down. Both represent strong, and consistent, signs that buyer demand is returning.

Tight housing supply could remain an issue though. One reason closed sales may see a slow upward trajectory is that new supply is not rebounding as quickly as buyer demand in California. Pending sales were only down slightly at the end of May, but the pace of new listings coming onto the market has been flat or down for the past five weeks. Thus, even as the economy starts to open and buyer demand starts to return, new supply is desperately needed in order to maintain an uptrend in pending sales so that closed transactions can actually rise.

Home prices have remained fairly stable up to this point, but more discounting recently implies softening prices in the future. The percentage of active listings and closed sales that have been reduced from their original listing price gone up in the last few weeks. However, the magnitude of the discounts has been shrinking and was between a median of 3.5% and 4% over the past two weeks compared with 4% to 4.5% back in early May.

The economic and market data shifted toward a less pessimistic tone at the end of May with many critical indicators showing signs of life. However, real estate remains poised for ongoing challenges over the next few months as the ripple effects of over 40 million job losses continue to play out. We are seeing that light shining at the end of the tunnel, but it is likely still several months out before we truly emerge from the darkness.