Mr. COVID and Real Estate
We are all seeing our “normal” change every day. (No, this is not another policy statement or restatement of the news). How does this ever-shifting “normal” translate into fundamental economic changes that are the cornerstones of our way of life? For example, how are we supposed to make bank deposits if we are concerned about walking into a bank? How do our children get the proper education if they have to practice social distancing in their classrooms? How does our society function if courtrooms are closed? What happens if a person or family must enter into a real estate transaction (death divorce, family addition, job relocation)?
It’s really very simple; technology. Modern technology has provided answers to all of these questions, starting with video conferencing such as Zoom or Skype. Virtual showings, digital signatures and Facetime have all been added to our toolbox as agents. I have to admit, being with a company that prioritized technology from the very beginning has put Lynn and I well ahead of our colleagues in other brokerages. I’ve said many times, “Compass is not a real estate company. It is a high-tech company that happens to be doing real estate.”
Which leads us to the other question; “What effect has Mr. COVID’s visit had on real estate values?” Obviously, one would think it has a depressing effect since volume must be down and personal showings difficult to perform. Wouldn’t that make any buyer a lot more cautious in his decision to purchase, resulting in tougher negotiations and lower prices? Our own history has proven this out. We have opened 5 escrows since the lockdown, and four of the five were discounted from the listing price approx. 10%. Of course, that makes sense.
My first thought was to confirm my gut feeling that prices are lower, but how much lower? We needed some baseline assumptions;
- March 20th was the first day of the governor’s order for a statewide lockdown, so we can analyze decisions made before this date and after this date,
- The data will likely show a wide range of results depending on location, so I chose Beverly Hills, Westwood/Century City, Manhattan Beach and Encino,
- An analysis of the behavior of Buyers and Sellers may or may not make a difference between Single Family Residences and Condominiums so let’s look at both.
First, I took a careful look at Listing Price / Selling Price, broken down by each area, and then split between pre-lockdown and post-lockdown dates (March 20th). My jaw dropped at the resulting averages;
- Beverly Hills – Selling prices (the property value recorded at the close of escrow) up 107.48% over the original listed prices when escrow closed on a pre-lockdown date, and then up even higher 109.42% post-lockdown? Well, maybe because there is so much pent up demand there.
- Westwood/Century City – Selling prices were negotiated down to 96.04% of listing prices in pre-lockdown, which is standard, but amazingly inched up 2.5% to 98.51% in post-lockdown!
- Manhattan Beach – Selling prices before March 20th were at 98.74% of listed prices but post-lockdown prices only saw a 2-3/4% reduction by dropping down to 96.01% as compared to listing price.
- Encino – Essentially no change between pre-lockdown and post-lockdown negotiations between 97.40% pre and 97.34% post.
I was shocked but the figures don’t lie. Which leads me to a different question; did a lot of sellers decide to put their properties on “Hold” status and avoid selling in a very difficult market? (this had to be measured on a per day basis because my data started January 1st and there are 80 days of pre-lockdown and 29 days of post-lockdown);
- Beverly Hills – Daily changes of listing status to “Hold” only happened at the rate of 0.05/day pe-lockdown. But post it rose over 400% to 0.21/day.
- Westwood/Century City – Also a huge increase from 0.01/day pre-lockdown to 0.34/day in post-lockdown.
- Manhattan Beach – Even a bigger increase, from 0.01/day pre-lockdown to 0.66/day in post-lockdown.
- Encino – The trends get stronger, from 0.01/day pre-lockdown to 0.45/day post-lockdown.
What about the number of closings? What was the difference in actual closed escrows, especially considering that we are dealing with (a) a continued historic shortage of inventory, (b) new historic lows in mortgage rates, and (c) the huge increase of properties being removed from the “Active” market by being placed on “Hold”;
- Beverly Hills – With 56 closings January 1st to March 19th (pre-lockdown), Beverly Hills saw a drop to 4 from March 20th to April 18th. That comes to 0.70/day pre-lockdown and 0.14 post-lockdown, or post-lockdown rate of 19.70% to pre-lockdown rate. Wow – a huge drop in actual closings of escrows.
- Westwood/Century City – Not much difference here for 151 closings pre and 5 closings post, which equates to 1.89 closings/day pre and 0.17 closings/day post or a post rate of 9.13% to pre-lockdown daily levels.
- Manhattan Beach – Now we moved the other way at this affluent beach community – escrows closed at the rate of 0.64/day pre-lockdown and then accelerated slightly to 0.76/day post-lockdown.
- Encino – This enclave in the San Fernando Valley reflected Beverly Hills and Westwood, with escrow closings at the rate of 1.78/day in pre-lockdown and 0.17 in post-lockdown, giving the post period a 9.71% daily rate of the pre-lockdown period.
Then something struck me. The data was not robust enough to show a trend or substantiate a conclusion. Post-lockdown closings totaling 4 in Beverly Hills, 1 in Westwood/Century City, 22 in Manhattan Beach and 5 in Encino are too shallow to go swimming in these waters.
I analyzed other data for these periods and areas, such as $/sq ft, Days on Market (DOM), average property prices, and looking at them with the “contract date” as part of the data. That’s the famous “meeting of the minds” date. It’s too early to draw any conclusion. As April moves into May, I will continue tracking this data until we get to May 20th. After 60 days of data, I think we will have a more comprehensive view of the effect of Mr. COVID’s visit to our neighborhood. Stay tuned for next month.
In the meantime, practice safe distancing, wash your face and hands repeatedly throughout the day, remain at home as much as possible and try to self-isolate by avoiding visits from outsiders. We’re in this for the long haul; those who think we can return to normalcy within the next few weeks are kidding themselves. Mr. COVID will continue to revisit us in waves and nothing will return to normal until we find the vaccine. My bet is on the Israelis.
God bless and stay safe and healthy.
“Your health is your wealth.”
— Armond Rogovsky, my grandfather
— Mark Rogo
Compass
(Self-isolated for four weeks, 24 Scrabble games, 5 jig saw puzzles, new daily walks with Lynn, rediscovering my Klein Reve road bike, read WSJ every day, read every weekly issue of The Economist, started two books, complete transfer of data and apps from Lynn’s old tower to a new one, cleaned out my closet, cleaning off my desk and four wonderful weeks living with our daughter Marcie but lonely for Lisa and Anil and their two daughters.)
