Although the end of California’s statewide shelter-in-place order is unclear, Compass California President Mark McLaughlin is asking the brokerage’s 2000-plus agents to begin thinking of how the real estate market will change once the economy opens back up.
McLaughlin shared on Tuesday the results of a brokerage-wide survey of 756 agents located in Northern and Southern California. Agents across the state came to the same consensus: California will become a buyer’s market.
Agents in both regions said there will be more sellers (41.4 percent NorCal vs. 46 percent SoCal) and fewer buyers (38.2 percent vs. 40.7 percent) when Governor Newsom lifts restrictions on essential and non-essential businesses. As a result of lowered buyer demand, agents anticipate sellers will begin cutting asking prices at all tiers of the market.
More than 62 percent of agents in Northern California expect sellers with homes valued between $500,000 to $2.9 million to slash prices anywhere from 5 to 10 percent, and 55.6 percent of agents in Southern California expect sellers to do the same. However, buyers looking at homes valued at $3 million and above may receive a more substantial discount as agents in both regions anticipate price cuts above 10 percent (48.4 percent vs. 44.8 percent).
Although favorable pricing may draw more buyers out into the market, agents in both regions questioned if buyers could take advantage since tightening lending standards will make borrowing more difficult.
“Before the Coronavirus crisis, the banks were exceptionally well-capitalized, the mortgage markets were fluid, relatively conservative, and our CA real estate market posted the strongest Q1 in my memory,” McLaughlin said in an emailed statement to Inman. “2020 was on track for an exceptional year.”
“What’s happening now has not been seen before, no surprise, right?” he added. “The broad statements from various press podiums about mortgage forbearance on the surface are fantastic for those families that qualify and need the relief. The implications to you and your clients in purchase-money loans are concerning.”
McLaughlin went on to explain that forbearance programs have eliminated “non-banks who ‘make a market’ and then securitize and sell loans to the secondary mortgage market (MBS)” as an option for buyers. Federally guaranteed mortgages (e.g., Fannie, Freddie, Ginnie) may also be shaky, he said, as the Fed is expected to intervene and purchase mortgages in forbearance and new originations.
That leaves large depository banks as the last and only option, which may be out of reach for buyers without high credit scores and sizable down payments.
“The source of funding on mortgages is mission-critical,” he concluded. “Ultimately, who is the lender? Not the originator, but the ultimate lender. If it’s not from [federal government] or [non-banks] until the Fed steps in to cash the check it promised from the press podium, funding might be questionable.”
Beyond mortgages, agents expressed concern about the “post-shelter-in-place behavior” from colleagues who will abandon the Centers for Disease Control’s protocols to prevent the spread of coronavirus.
“Every one of us needs to take responsibility for our actions,” an anonymous Compass agent shared in the survey. “I think it’s important to be reasonably proactive and to do the right thing. I think that we are in that type of business.”
“Post [shelter-in-place] behavior needs to be focused on being cautious,” said another. “This pandemic is not anything we have dealt with before so information from the government and experts has been in a constant state of flux since this began and I doubt that will change with every step forward.”
Although McLaughlin is currently confident about the market’s ability to bounce back with lenders eventually loosening standards and buyers reentering the market in droves by Q4 2020, agents were reluctant to predict a quick and booming comeback.
“My biggest concern is the economic climate overall,” another agent said. “Many people have been negatively affected financially already, and may not be able to afford to buy, sell or make an expensive move.”
“I think there are several cycles we will be faced,” shared another. “There is too much unknown in the financial and job markets. We need to prepare ourselves to adjust quickly and effectively.”