I can all-but guarantee a sharp V-shape resurgence for Southern California homebuying this spring.
No, I have not joined the chorus of real estate watchers who claim a recent return to some sense of normalcy in local homebuying means a “hot” market in the middle of the coronavirus crisis. Rather, I’m just saying more homebuying in May and June is what happens every year.
Every year, like clockwork, (well, at least, for the 32 years for which I have sales data) my trusty spreadsheet tells me that homebuying rises from the ashes of winter to burst into full bloom come spring.
Certainly, this year is different than any other year as the broad economy — and the housing market — juggled a pandemic and stay at home mandates. In Southern California, closed home sales — the number that really counts — fell to the lowest count in the DQ News/CoreLogic record books for any April. Pending sales data — signed contracts working through the escrow— suggest a nice rebound since.
But this V-shaped bounce is not a sign of some magical resiliency of homeownership. No, ’tis the season: Folks buy homes in a curious cycle often tied to schooling needs for their kids. Let me show you how foreseeable this trend is.
Since 1988, from January to June, total sales closed in the six-county Southern California region have risen on average by 55%. That’s from starting a year with the slowest month (16,899 sales in a typical January) to the busiest one (26,194 for June). Yes, homebuying soars by half from winter to summer.
This springtime surge doesn’t vary much by county: Los Angeles (52%), Orange (63%), Riverside (54%), San Bernardino (42%), San Diego (61%), and Ventura (66%).
And this burst is consistent. Southern California sales have never fallen once in these 32 years during a year’s first six months. The biggest jump was 104% in the boom year of 1988. The smallest increase was 11% in the housing-bubble-bursting nightmare known as 2007.
Now before you say “Jon, doesn’t the size of the spring jump say something?” — let me note that surges don’t just come in hot markets.
Note the second-biggest January-to-June jump was in 1991 (up 82%) when homebuying was falling by 19%. And the third-biggest jump in 2008 (up 81%) came in what became the worst-selling year on record.
History clearly says a springtime sales surge is all-but-guaranteed. And local housing has been fortunate (so far) to have seemingly escaped much of the economic devastation brought by the battle to slow coronavirus’ spread. However, plenty of significant economic unknowns remain.
Look, I understand the need to promote — especially in a bizarre era where going out to shop for many things has become a health hazard. But this is by no means a “hot” housing market.
Homebuying has been out of favor for years as folks choose to stay put longer. Last year was the ninth-slowest for SoCal home sales since 1998. And 2018 had the 10th-fewest sales.
So what might have been a solid selling season in 2020 — before the pandemic pause — finds shockingly few owners putting their homes on the market. Homebuilders have slowed construction. And only a modest number of folks are willing to buy.
Potential house hunters, please ignore the real estate cheerleaders’ overhyped sales data. I’ll even argue the amplified buzz may actually be scaring some potential buyers who fear there’s another bubble brewing.
Homeowner wannabes, focus on the unprecedented boost given to homeownership by the Federal Reserve. It’s not only that interest rates are historically low, but the Fed is also buying up tons of mortgages to keep lenders lending. This is what props up housing, not some illusion of market sales strength.
Housing’s bailout — money so cheap it confirms there are huge economic problems — is the key reason that folks with good credit, solid jobs, and a long-term perspective should be actively house hunting this spring.
Because if I was selling homes I’d hype this: Don’t be a renter if you can afford it. Tenants are deemed unworthy of this kind of government largess.