How COVID-19 Has Affected the Real Estate Market in California
At the end of February 2020, life was mostly normal across the United States, including in California. While COVID-19 was spreading slowly across Europe and Asia, its presence in the U.S. was still largely unknown. Until it wasn’t.
Today, the world is very different than it was a few months ago. All states have issued some form of stay-at-home order, although most states have now begun the process of reopening. The closure of essential businesses has resulted in a spiking unemployment rate and a lot of worried, anxious Americans. As a result, the real estate market has slowed down considerably – even though real estate has been deemed an essential operation in most states.
This isn’t the best news for property investors but there may be bright spots to be found in the market. With mortgage rates dropping and the potential for reduced demand from residential buyers, investors may be on the precipice of a great time to buy.
The Current State of Real Estate
Prior to the rapid spread of the novel coronavirus, the real estate market in many areas of the country was in a stable position, including in California. Investors were able to find many property options to consider adding to their real estate investing portfolio.
However, following California governor Gavin Newsom’s shelter in place orders – the initial order targeted six counties in the greater Southern California area, but this was quickly followed by a statewide lockdown on March 19th – the scene changed rapidly. Non-essential businesses, including restaurants and most retail stores, were ordered to close their doors immediately to in-store guests. Employees who could work from home were ordered to do so, sending a majority of white-collar professionals to do their jobs sans commute. The real estate industry was not spared; operations are permitted to continue, and sales and leasing activities are still seen as essential, but all work must be done remotely.
While video chats are a helpful approximation for in-person meetings, their use complicates the real estate market. Most renters and buyers feel strongly about seeing a property prior to making a decision, and though virtual tours help considerably, it still is making it hard for agents and owners to attract attention. Those looking to purchase new property, sell existing property, or find tenants for vacancies are now finding themselves stuck. Fannie Mae predicts homebuying to drop 15% in 2020.
Those in the middle of a fix-and-flip are also experiencing issues finding contractors to do things like replace kitchens and remodel bathrooms. While these services are generally deemed essential, many small construction and contracting businesses have shut down due to lack of demand.
Further compounding real estate movement is the ever-climbing unemployment rate. So far, 4.6 million Californians have filed unemployment claims, indicating that reduced schedules and subsequent loss of income, layoffs, and furloughs are predicted to ultimately result in a unemployment rate of 25%. And while some companies will bounce back when the shutdowns fully end, others may be too damaged to reopen, leaving hundreds of thousands of potential renters and buyers unable to engage in real estate activities.
The long-term implications of the economic consequences of COVID-19 on real estate prices is thus far unknown. Large scale drops across the industry may be coming, but currently, it is too soon to tell. Some agents believe that prices will temporarily fall, and the market will lag, while others think the restoration of normal life will lead to a sales boom. The latter situation is ideal, providing investors with an excellent opportunity to put fix-and-flips on the market or attract tenants eager to enjoy a nicer home after weeks stuck inside.
Many property investors aren’t solely investors. For some, investing is a secondary activity outside of a primary day job, serving as a nest egg for the future rather than a full-time occupation. Sadly, real estate investors aren’t immune to layoffs and furloughs, which may leave some unable to flip property and strapped for cash. In these situations, a hard money cash out loan can be the perfect way to make use of equity in tough times.
A cash-out loan is a form of borrowing intended to access cash from an owned property. In general, property buyers like to keep mortgage amounts as low as possible to avoid paying any more interest than is needed. However, in some cases, buyers may realize that they need to access the equity in their properties before a mortgage is paid in full. In this case, taking out a loan can be a benefit.
A Cash Out Hard Money Loan is a great option to get cash out from your home while property values are still high. Hard money loans are short-term, around 3 to 7 years, with closing and funding possible in 3 to 7 business days. This makes cash accessible instantly with less onerous qualifying standards of conventional loans. This kind of loan still borrows against the equity in your property but is in addition to an existing mortgage rather than in place of one. This allows for easier access that can be repaid over a shorter time frame, providing investors in need with a realistic and attainable way to access equity. Those considering this option should act fast to take advantage of property values and great rates.
The current state of the world is unstable and uncertain. Without a clear path for how the impact of COVID-19 will play out in the long run, it is hard to understand where the country will be by the end of the year. However, with the real estate market at somewhat of a standstill for most residential buyers coupled with low mortgage rates, investors in a position to buy may be able to secure bargains that would have been previously unavailable. For those with less flexibility, hard money cash out loans can also allow investors to capitalize on the current state of mortgages, allowing affordable access to invested capital at a low price. Despite the challenging outlook, there can be advantages hidden under the pandemic’s mask.
The full extent of the economic fallout from weeks, or potentially months, of business closures is yet unknown, but there are some bright spots for the future. When lower mortgages are coupled with a decreased property demand, investors in California are in the perfect position to buy. For those willing to work through the challenges of remote viewings, negotiating, and closing, this may be the right time to invest in the future.
Scott Clift is a licensed real estate broker with Westpark Loans. He has been in the real estate industry since 1994. His team of seasoned professionals specialize in providing real estate loans for investors and other self-employed individuals. When you are ready to invest in real estate, call Westpark Loans to secure your financing at (844) 574-LOAN or by visiting westparkloans.com.