The main takeaway from this Corelogic report is that inventory declines are providing a floor for home prices. Growth in April slowed to 4.7% year over year, down from 5% in March. In other words don’t wait for home prices to drop if you are planning a move. Read the full report below shared from Corelogic - May 22, 2020.

Selma Hepp, Executive, Research & Insights and Deputy Chief Economist

Fewer luxury for-sale listings driving down median home price growth

Understanding the impact of the current pandemic on home prices over the coming years is an important question, yet one that may be difficult to answer until the length of the current pandemic is better understood.

In the year leading up to the COVID-19 outbreak, home price growth has remained solid averaging over 3.5% nationally. According to the latest CoreLogic Home Price Index (HPI®) Report, home prices nationally even started heating up in March with the national index showing a 4.5% increase compared to March 2019.  

Nevertheless, as President Trump declared a national emergency on March 13, and most of the states issued public health orders to Shelter-in-Place (SIP), home buying activity, along with most other economic activities, came to a standstill. On March 19th, public health officials in Los Angeles – which quickly became one of the nation’s epicenters of COVID-19, issued an order, “Safer at Home”, which prohibited group events and gatherings, required social distancing measures and closed certain businesses. Under the initial order, real estate services were deemed “non-essential”. However, the order was revised April 1 to include real estate as an “essential” service. Nevertheless, even after the revision, open houses were prohibited and buyers resorted to virtual tours. Statewide, similar orders went into effect on the same date.

In the analysis below, we take a look at some of the impacts of the coronavirus on the Los Angeles County housing market using the data from the multiple-listing services (MLSs). But first, similar to the national HPI index, Figure 1 illustrates Los Angeles HPI leading up to the pandemic which showed home price growth accelerating in March, recording a 5% year-over-year increase. The acceleration in home price growth began in the third quarter of 2019 after a 16-month period of slowing growth in the region.  

Figure 2 takes a look at recent weekly data and illustrates year-over-year change in median prices of homes sold and homes that entered into pending status, i.e. a contingent offer was signed on the home. Pending sales, which are generally signed about 30 to 45 days before a closing, are a leading indicator for closed sales and hence a preview into possible price changes ahead. Prices of homes sold appear to have remained on average around the 5% growth rate since the beginning of the year. As suggested by the HPI, home price growth accelerated at the end of 2019 and reached almost 8% at the beginning of the year before moderating to an average of 5%. Even in recent weeks, home prices maintained about a 4% annual increase.   

In contrast, median price growth of homes that entered into a pending status starting mid-March have started slowing and show some year-over-year declines in the week ending May 2nd. As a result, the leading indicator value of the pending price trend suggests that prices on sold listings will show some slowing for April. According to Corelogic Pending HPI index for Los Angeles, home price growth in April is expected to slow down to a 4.7% year-over-year increase, from a 5% increase seen in March (see Figure 1).

Nevertheless, since the data in Figure 2 captures median home prices which are subject to varying mix of sales, declining pending prices may reflect more lower priced homes going in contract compared to last year. It may also reflect higher bargaining power that buyers now have as competition for homes has waned down.

Figure 2 also illustrates another housing market indicator - the share of homes that sold below the asking price, and according to latest weeks’ data, the share has picked up from about 37% at the beginning of the pandemic to 50%. And while the increase accounts for closings that were contracted prior to the pandemic or at the beginning of the SIP orders, it may reflect some negotiations that occurred as a result of the pandemic. Last time the share of homes selling below the asking price increased to 50% was in late 2018 to early 2019 when Los Angeles and many other housing markets in California hit a speed bump.

Looking forward, Figure 3 illustrates another price trend worth noting – a year-over-year change in median price of new listings – which suggests that the price growth of newly listed homes has slowed considerably from 8% in mid-March to a slight decline at the end of April. Since again these are changes in median prices, the decline may reflect changing composition of the new for-sale inventory. And, as Figure 4 suggests, availability of higher priced inventory in Los Angeles has declined on a faster rate than lower priced inventory. However, these inventory declines in general are providing a floor for home prices. In other words, the relative strength of home prices is supported by very, very limited for-sale inventory.

Taken together, estimating the impact of the current crisis on the housing market is still a moving target with many moving parts. There are certainly consumers who are forced to make some decisions about their homes, though there are also many others who are waiting for some level of normalization. Most recent market dynamics are not necessarily an indication of what’s to come particularly given the momentum gained in the housing market prior to COVID-19.

According to CoreLogic mortgage purchase application data, millennials were the most active buyers in the market prior to COVID-19 with application rates 20% to 30% higher compared to the first two months of last year (Figure 5). Even through March, the mortgage application rate among millennials exceeded that of last March, up 2%, while the other cohorts saw a notable decline in applications in March. Continued demand from millennial buyers is a positive sign that home sales will bounce back when the economy returns to a “new normal”.