California’s Economy May Take a Hit
The coronavirus is taking a major toll on most businesses across the country. However, those displaying the most immediate effect are the industries surrounding leisure, hospitality, and retail.
Learn more about how COVID-19 is affecting one group in the hospitality industry: Airbnb Hosts Feeling the Effect of the Coronavirus.
In California, these industries employ 21.2% of the population. This is, however, on par with the national stats. In the US, these same industries make up 21.3% of all jobs nationwide. Experts are forecasting that this impact of the coronavirus alone will have a major effect on the national economy and on state economies. However, relatively speaking, California came in number 29 for state economies that are high-risk in this analysis. The forecast, for now, is that if the spread of the coronavirus in the state is controlled, the economy should be able to recover. The $2 trillion coronavirus stimulus package may also offer some help to keep the economy from taking a major hit. With it, the California real estate market can bounce back as well.
On that note, California landlords can also expect some pressure from their communities and the state to offer relief to tenants. With unemployment growing due to the COVID-19 impact, many tenants are already reporting that they will be unable to pay rent by April 1st. Some California residential landlords are already offering rent-deferral plans and it’s likely that we will see many more follow suit as the California Apartment Association has already urged its members to implement eviction and rent freezes among other measures.
Experts Are Not Forecasting a Recession
CAR has actually not made many adjustments to its California housing market predictions for 2020, even in the face of the coronavirus. Rather, they have stated that they will keep a close watch over the market for negative macroeconomic impacts on housing supply and demand in the coming months and quarters. So as of the time of this writing, forecasts do not include a general recession on the state or national level. Experts believe the economy in 2020 will continue to grow, but not as much as originally expected.
A California Housing Market Crash Is Not in the Forecast
Some are not asking if it will happen, but rather when will the housing market crash in California? When will the California housing bubble burst? These questions naturally arose following the stock market crash. However, there are a few trends that point to the fact that, as things stand now, we will not see a crash in the California real estate market:
#1. Low Mortgage Rates Will Help Minimize the Negative Effects of COVID-19
The Federal Reserve is already putting measures in place to help mitigate the negative effects of the coronavirus on the economy and the US housing market 2020. With the 0% interest rate, mortgage rates are likely to continue dropping. In turn, California real estate investors and homebuyers will find it more affordable to buy a property during this time. Although we are seeing an immediate decline in buyer demand in the California real estate market, it’s likely to be offset due to low mortgage rates and the fact that real estate sales are now allowed to continue during the pandemic.
#2. Data Shows California Home Prices Are “Sustainable”
Experts do believe that the most vulnerable housing markets during the pandemic are those that are “overvalued.” And while you might think that the California real estate market is the first to be grouped into these markets, data shows otherwise.
For one, California home prices were already slowing in appreciation. Although prices were up 4% last year, Fitch Ratings labeled California home prices as “sustainable”. This means that they are not among the most overvalued in the US housing market and that, generally, the California housing market is not at high-risk of a downturn.
#3. Housing Inventory Is Likely to Remain Low
Residential real estate construction has been allowed to continue even with the “stay at home” order. However, local experts foresee other issues arising that could slow down construction. It may become harder to get building materials as a large portion of the supply used by the California Building Industry comes from Asia. If the coronavirus makes it harder to get this supply, materials could become more expensive or even limited. In addition to this, there is a possibility of a labor shortage. Although companies have put COVID-19 measures in place, it’s still possible that workers could become infected. While this would make California’s affordable housing crisis worse, it will ensure prices do not drastically drop all at once, leading to a full-on housing market crash.
For the full article got to: https://www.mashvisor.com/blog/california-real-estate-market-coronavirus/