A Crazy COVID Real Estate Summer
The summer of 2020 has brought its fair share of challenges. Travel has been restricted to several countries, many employees continue to work at home, Black Lives Matter protests and counter-protests fill the streets of many American cities, and even the Nevada County Fair was canceled. The real estate market has also been greatly affected, but in a way most real estate professionals have never seen.
Lack of Listings
The months of April, May, June, July, and August typically bring the largest amount of new homes listed for sale. In 2019, new listings in these four months represented over 57% of the yearly listings in the region. On average, there were 255 listings each month during these months. Fast forward to COVID 2020 and there has been hesitancy for sellers in the Nevada County market. Some would like to sell their home, but are uncomfortable with open houses and tours. Others have put plans on hold to see how employment and the economy recover. Many have decided they are content in their current situation and don’t need to move. Whatever the reason may be, the number of homes listed for sale is down over 25% in 2020 vs the April-August in 2019. This has created a HUGE shock to the housing supply.
Increasing Demand
Similar to new listings, the demand for homes (measured by the number pending sales) is typically highest April through August. Pending sales in these months represented 45% of all pending sales in 2019. So far in 2020, pending sales are up 20% over the pending sales in 2019. In June, July, and August of 2020 within the Nevada County Market, there were over 200 pending sales each of these months with 244 pending sales in July alone. In 2019 the busiest month had 165 pending sales. The Nevada County market is on pace to increase pending sales in 2020 by 21%. This is extremely uncommon considering the lack of listings.
Multiple Offers
With a shortage of inventory and higher-than-typical demand, the Nevada County Real Estate Market is currently very competitive. While it’s pretty typical for the summer months to be more competitive, 2020 has been an anomaly. Overall multiple offers on closed sales are up 7% in 2020 vs 2019. However, 36% of closed sales had multiple offers in 2020 which is 14% higher than in 2019. Prospective buyers should expect competition when submitting offers. All of these indicators point towards a ‘seller’s market.’
Prices
Evidence of price changes are typically the last indicator we can measure. In real time, prices change during negotiations for individual homes but can’t be proven or measured until after homes close. Furthermore, one sale does not prove prices in the whole market have changed. So even though we can see that inventory is decreasing, demand is increasing, multiple offers are becoming more common, there may not be evidence prices are higher. Since 2017, median sales prices per year have shown a slight increase. July and August 2020 show a dramatic increase of 13-28% over years past.
Specifically, since July 1, 2020, average closed sale prices started to become significantly higher compared to average sale prices in 2019.
Looking at every closed sale in Nevada County (in the Metrolist MLS system) there is a trend of increasing prices over the past two years. Linear regression, a mathematical way of measuring that increase, indicates the market has increased 0.5% per month over that time period.
If we are to focus in on just the last 6 months, the rate of increasing prices changes dramatically. From March 1 prices have increased almost 3.9% per month.
That rate of increase seems drastically different than the 2-year trend. Notice on the graph below how some dots deviate from the main cluster. The statistical term is “outliers.” Since July 1 there have been 28 sales over $1M. The highest sale, a 739-acre ranch in South County, just closed at $3.1M. (Check out the photos HERE). If we aren’t very careful in analyzing the data, outlier sales can throw off statistics and show different trends.
A more realistic approach is to analyze the trend where the bulk of sales occur. Over the last 6 months, between the price range of $225k - $900K, data shows the market has been increasing at a rate of 1.5% per month. This seems to be much more realistic and probably more representative of most markets within Nevada County.
Conclusions
Due to several reasons, there have been fewer homes on the market than in previous years. At the same time, demand for homes in Nevada County has increased. If we combine that with record low interest rates, it creates a frenzy where it’s more common to have increased competition when trying to purchase a home. As result, prices have increased and the higher-end markets have several recent sales.
Other Factors
I mentioned record low-interest rates. An appraiser colleague of mine said they were the ‘rocket fuel’ of the residential real estate market. Right now, 30-year fixed-rate mortgages are hovering just below 3% (2.91%) which gives buyers higher purchasing power.
The unemployment rate was 10.6% in July 2020, down from 15.2% in April. This is below the statewide unemployment rate of 13.7% in July.
AB 3088 was signed into law on Aug 31 protects all evictions from occurring until Feb 1, 2021
The overall forbearance rate, or pausing mortgage payment, is 7.2% which is a 4 month low.
DISCLAIMER: All information presented in the Nevada County Appraisal Blog is meant for educational purposes only and is NOT intended for any other use. This information is not considered an appraisal and does not support any specific value opinion or eliminate the need for an appraisal for a specific property. Please give us a call at 530-632-3428 to order an appraisal for an accurate opinion of value for a specific property.
