San Diego’s April Market Report from Martin M. Correia

Interest Rates and Lending

Rates are still hovering around crazy historic lows, in the low 3’s. The 30-year, fixed-mortgage interest rate averaged 3.45% in March, down from 4.27% in March 2019, according to Freddie Mac.

The five-year, adjustable mortgage interest rate was an average of 3.16%, compared to 3.83% in March 2019. Mortgage lenders are tightening lending standards by raising minimum credit scores, requiring higher down payments, and checking employment status multiple times up until closing, even calling employers the day before the loan is funded.

A report from the Mortgage Bankers Association (MBA) showed the Mortgage credit ability index shows that the mortgage credit supply fell 16% in March, the lowest it has been since June 2015. There was a reduction in the availability of loans with lower credit scores and higher loan-to-value ratios, and the largest pullback came from jumbo (loans above $701k) and non-QM space, due to a sharp drop in liquidity.

Mortgage credit availability in March fell to the lowest level in five years, according to a survey by the Mortgage Bankers Association. Lenders cite a large drop in liquidity, as investors in jumbo mortgage-backed bonds pull back. As we have neared the end of the month, lenders in the jumbo market are reporting things are going back to business as usual and these loans should be available! Mortgage applications fell by nearly 50% in the second week of April, compared to the 16.5 % it fell in week one of April. Experts predict rates will remain low through 2021, even dropping as low as 2.9%.

Sales and Inventory

The median price in San Diego County for a single-family detached home in March 2020 was $675,000, in 2019 it was $625,000, showing an 8% increase. Attached homes as of March 2019 showed an average price of $420,000, in 2020 it was $451,500, showing a 7.5% increase.

Days on Market (DOM) decreased by about 10 days for detached homes from 36 to 26 and for attached homes, DOM decreased from 35 to 25. In March 2020, there were 2,481 new listings for detached homes (21% decrease from 2019), 1,771 in pending sales (18% decrease), and 1,795 in closed sales showing a 4% decrease from the previous year.

For attached homes, in March 2020 there were 1,327 new listings (10% decrease from 2019) , 841 pending sales (30% decrease), and 960 closed sales (2% increase) compared to March 2019.

March numbers remain strong thanks to the beginning half of the month before shelter in place began. Median prices in all regions increased in March from last year, with the Central Valley up the most at (7.7%), followed by the Bay Area (7.4%), Southern California (7.3%), and the Central Coast (7%).

What have we seen so far in April?

In the first week of April, San Diego saw pending home sales fall by 10%, from the previous week in the second week, pending sales dropped by 27%. Within the last two weeks of April, pending sales have fallen roughly 40%.

April’s year-over-year pending sales decline is the largest since July 2014, when sales decreased 9.1% from the previous year. The quickening pace of pending sales declines provides further evidence that the typically busy spring home-buying season may underperform, primarily due to demand outstripping the supply of active listings, which was 10.5% lower than in April a year ago.

DID YOU KNOW? In China, where property transactions were at or around zero for the three weeks following movement restrictions, had within two months recovered to 50% of the 4-year average.

Construction and Building

Last year, builders put up just under 900,000 single-family homes, shy of the nearly 1.1 million homes considered necessary to alleviate the housing shortage and accommodate the growing population across the nation. “We entered this [new] recession under built rather than overbuilt,” says NAHB’s Dietz.

In San Diego 8,053 homes were built last year, but San Diego needs to build roughly 13,000 new homes annually to maintain a healthy housing market. To put some things into perspective there were 17,306 units built-in ’04 before the crash, which lead to oversupply and not enough demand. As you can see, we are far from having an issue of “over-supply” in our current market. There is still very much demand for homes priced under $1m, and in this price range, it is still very much a seller’s market, with agents seeing multiple offers and homes selling above asking.

Homeowners and Tenants

About two million homeowners are skipping their monthly mortgage payments, according to industry data released last week, a number that is forecast to rise further as more Americans lose their jobs as a result of the coronavirus pandemic. Approximately 3.74% of home loans are in forbearance as of April 5, according to Mortgage Bankers Association data, up from about 2.73% the prior week. Roughly 6% of mortgages were in forbearance as of April 12, according to the most recent data released from the Mortgage Bankers Association.

DID YOU KNOW? Last year marked the 5th consecutive annual increase in the Hispanic homeownership rate, the only demographic with 5 consecutive years of gains according to a new report released by the National Association of Hispanic Real Estate Professionals. Hispanics added 277,000 new households last year, a 31.4% net growth.

CNN reported With nearly 10 million Americans filing for unemployment in March, April 1 was always going to be a difficult day for US renters. Now we know just how difficult: Nearly a third of American renters didn’t pay their rent this month. That’s according to data from the National Multifamily Housing Council, a trade association for the apartment industry. Of more than 13 million units in the US that the report covered, 69% of renters paid their rent between April 1 and 5. During the same period in April 2019, 82% of households paid their rent on time, the report said. And just last month, 81% of renters paid rent by March 5.

If you’re looking for a reference point on how this current crisis compares with past events in history, here are two great articles by and Keeping Current Matters that explain how the current atmosphere of the housing market does NOT have the same characteristics that led up to the crash in 2008 but relates more to 9/11, where the economy was strong before we were blindsided by a horrific event, and ultimately were able to rebound in a shorter amount of time.