California market current - 6 months

[Ray Alvarez]

Hello,

How does everyone think the market is going to be in more expensive California cities like the bay area, Los Angeles, San Diego. I haven't really seen too much of a decrease since COVID19 happened. I think with how good the rates are, a lot of people are actually buying right now. I would hate to buy now just to see the market decrease in a few months.

[Dan H.]

I agree San Diego is economically diversified but those thinking that means San Diego is unlikely to be economically impacted have their eyes closed. San Diego's unemployment rate is at an all time high and above the national average. Ca in the last few days passed New York as having most Covid cases of any state. San Diego is a large STR market and virtually all STR landlords have lost thousands or 10s of thousands of lost rent. Our STRs experienced ~$60k of lost rent. In addition, many LTR LL are not collecting all their rents with few options to ever be able to collect the delinquent rents. Combine this with the recent statewide rent control and there should be a plethora of listings.

So why did San Diego just hit a new high for median house price?   It is because the supply has slowed and interest rates are at all time low.  For the last 4 months listings have been far less than a year earlier.   Corona is causing many would be sellers to wait to sell.  Supply is less, money is cheap. 

The lower listings rate implies that there is likely a backlog of listings.  Combine this with all the other San Diego economic impacts that should result in increased listings and there could soon be a glut of houses hitting the market.  

It is my view that it is easy to explain the increase in home prices. It is also easy to envision an upcoming depreciation cycle. High unemployment, lost STR rents, lost and at risk LTR rents, rent control, increase tenant protections including rent forbearance for who knows how long are all factors that should be pushing prices down if the supply was at traditional levels.

No one knows the future, but those that do not at least see the possibility of an upcoming depreciation cycle are being blind to numerous indicators.