Story by Larry Altman
The house on Hobart Boulevard in Los Angeles wasn’t on the market long– less than a week. Fifty groups of people walked through to take a look during an open house. Twelve prospective buyers made offers.
The sale was moving along smoothly for Redondo Beach-based real estate agent Lisa Martini and her client earlier this month until the COVID-19 pandemic and stay-at-home orders hit. A couple of weeks into escrow, the buyer dropped out and Martini scrambled to find a replacement.
“It was because of the coronavirus and the fear and instability of what’s to come,” said Martini, a Movoto agent. “The buyer backed out because of job instability. With the stock market tanking and thousands of layoffs, everyone is kind of afraid to make the move.”
For Martini and the thousands of others in her profession, the future of the real estate market in Southern California is unknown. Experts say it’s too soon to know what will happen to the market and how the pandemic will affect prices.
Realtors say they are completing transactions already in the works, but aren’t sure whether people will continue to buy and sell housing in the coming months, especially as the number of unemployed soars, business can’t be conducted in person and buyers are reduced to looking at video to see the interior of homes they can only drive by.
Stephanie Younger of The Stephanie Younger Group on the Westside said her business is scrambling to adjust to how it operates.
“I am fortunate we have existing business and many clients who still want to buy and sell,” Younger said. “Surprisingly we have clients who saw houses previously and now want to make offers.”
One thing is for certain: Open House signs and flags that dot the landscape across Southern California on Sundays have disappeared. Although Martini found a previously outbid buyer for the 3 bedroom home on Hobart, and that sale has entered a new escrow process, some real estate experts and real estate agents are fearful about their business’ prospects.
Last week, the California Association of Realtors reported that a flash poll of real estate agents taken before the stay-at-home order showed 78 percent expect a negative impact on home sales, up from 53 percent a week earlier.
In that week alone, before people were told to stay home to social distance themselves from others, 54 percent of agents reported having clients who backed out from a home purchase because of the coronavirus, and 45 percent had clients who decided not to sell.
In addition, nearly 75 percent said they expected the pandemic would increase the time a home spends on the market. Realtors also believe COVID-19 will negatively impact housing inventory, pricing, closing, time in escrow and market competition.
Professor Richard Green, the Lusk Chair in real estate at USC’s Price School of Public Policy and Marshall School of Business, said the real estate market is “basically disappearing.”
“Transactions just aren’t going to happen for a while,” Green said. “People are scared. People are afraid if they will have the income in the next six months.”
Sellers, meanwhile, are concerned about having to offer homes to buyers at a discount, or hold onto them to see if waiting a year avoids that, Green said.
Younger said she had three deals collapse recently, but only one of them was because of “concern over a job.” Otherwise, she said, she was still seeing high traffic volume on her website with people looking at listings, perhaps ready to buy a home as soon as the stay-at-home order lifts.
“We are trying to make it work,” Younger said. “There are also opportunities to buy homes without even seeing them. We’ve had a couple people ask if that is really necessary.”
After Martini’s Hobart sale initially dropped, she was prepared to try to make a sale with video posted online. Agents “have to get creative,” she said.
“My client did a video of his house,” Martini said. “He walked through his house and I’m able to use that.”
Martini said she can share the video to other agents and is being proactive, making disclosures about the property and sharing home inspection reports up front. She would rather a buyer see disclosures in advance, instead of entering the sale process and dropping out later since “time is of the essence.”
“All the cards are on the table,” she said.
Some buyers, Younger said, are asking sellers to discount prices five to 10 percent to close now, instead of waiting to see what happens. Those buyers are not worried about moving forward, she said.
Slowing sales will affect realtors’ income and cause a chain reaction. Escrow companies, appraisers, home inspectors, banking loan officers, painters, plumbers and contractors all make money when homes are sold. Some businesses, including banking, construction, plumbing and pest control, are on the essential businesses list and remain open, but other jobs are contingent on the pandemic slowing and stay-at-home orders lifted.
Realtors have added a “coronavirus addendum” to the process, allowing for the 30-day escrow process to be delayed if the stay-at-home orders prevent aspects from occurring, including appraisals and inspections. It also allows buyers and sellers more time to cancel a deal.
Although real estate agents are working with buyers and sellers to close existing deals, some potential buyers might wait to see if the shutdown results in price drops. It’s too early to know if that will happen, Younger said. Once a recovery begins, Younger said she still expects a demand for housing in West Los Angeles. There still will be a shortage, she said.
On the residential rental side, Green said it was too soon to know how that will be affected. He said he was waiting for April 1 to see how many people can pay their rent. Apartments, he said, “tend to be the most stable of real estate” through business cycles and he doubted that the rental market will stop like real estate transactions.
“I think we will know a lot more in a week than we know now. People have to live somewhere,” Green said.
In the commercial office and industrial space rental market, tenants are already asking landlords for help, either making deals on paying the rent or deferring it, but it’s too soon to know how the pandemic’s effect as so many businesses’ have shut down.
More will be known in the coming weeks.
“Most landlords at this point are kind of saying we understand, we hear you,” said Bob Pearson, executive vice president of Madison Partners, a commercial real estate firm in Beverly Hills. “It’s very much a wait and see.”
Many existing deals are on hold and prospective tenant tours of properties are cancelled. Some tenants are telling landlords they aren’t allowed to work in their buildings, so “can you give me the month of April for free?” Pearson said.
“It’s a very fluid situation right now,” he said.
So far, state and local government officials have not told construction companies to shut down projects under way. Construction has been deemed an essential business and workers, handling projects underway during the robust economy, will continue to create jobs, Pearson said.
All sectors of the retail market are watching what happens closely, including stimulus legislation passed by the government and other aspects, including mortgages.
“It’s so early to tell,” Pearson said. “Everybody is on pins and needles, waiting for how long it’s going to last.”
“Martini said everything is in limbo and everyone is fearful of what’s going to happen. Everyone, she said, is taking things day-by-day.”
“In the grand scheme of things, what’s most important is our families’ health and safety,” Martini said. “Your clients become your good friends. You don’t want anything to happen to them. We are all going to get through it.”
Green said there is reason for optimism rooted in history from 1918, when 50 million people, including 675,000 in the United States, died worldwide during the Spanish Flu pandemic.
“The economy did in fact respond back very quickly 102 years ago from a really, really bad disease,” he said.