It seems unlikely, but the coronavirus has created ideal conditions for a dramatic spike in home sales in the Coachella Valley. With so many people working from home — and realizing home can be anywhere — and also avoiding air travel to minimize their risk of exposure, the desert communities are looking more attractive than ever.
“In the midst of a national pandemic, we appear to be in one of the strongest housing markets in over 13 years,” Michael McDonald of Market Watch LLC told an audience of real estate agents during the Palm Springs Life webinar “Sales Are Up…Will It Last?” “Interest rates and inventory are low, and demand is exceeding supply, which means we can expect price gains and bidding wars.”
Seven months into the pandemic, the number of pending sales of single-family homes and condominiums in the Coachella Valley was up 56 percent and 42 percent, respectively, over the same period last year, McDonald reports. The gains were especially significant in Indian Wells (up 131 percent), Palm Springs (128 percent), and La Quinta (86 percent).
“The virus is causing people to want to get out of densely populated cities, and that’s fueling the demand we have.”
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Meanwhile, inventory, at 2,050 units, was at its lowest in more than 20 years, continuing a trend of decline. “The contraction in inventory is a 4.5-year phenomenon, intensified somewhat by the coronavirus,” McDonald says. “The virus is causing people to want to get out of densely populated cities, and that’s fueling the demand we have.”
He emphasized that the conditions are organic, unlike the housing bubble of 2004–2006. “That market was driven by an overuse of variable-rate mortgages,” he says. “When interest rates started going back, we had a reset problem, and the only solution at the time was foreclosures. Now, we have forbearance to keep people in their homes.”
Incidentally, Walter Neil, president and CEO of Franklin Loan Center, reminded the agents in the webinar that forbearance — temporarily suspending mortgage payments — prohibits would-be buyers from borrowing money. “To buy, sell, or refinance, they need to get out of the penalty box,” he says. “There are four options to do this: lump sum payment (reinstatement), payment plan, deferral (most common), and loan modification.”
Brady Sandahl of the Brady Sandahl Real Estate Group at Keller Williams Luxury Homes says three prevailing factors are driving local sales. “First, people have figured out they can work at home, so they’re leaving big urban markets like San Francisco, Los Angeles, and even San Diego and moving to the Coachella Valley. Second, people now want to travel by car to their vacation homes. And, third, investors understand they can make short-term and long-term profits from rental properties in the Coachella Valley. Airbnb named PS as the No. 1 place to profit on short-term vacation rentals.”
The pressure these circumstances place on the local market is driving up prices on both single-family homes (up 10 percent) and condos (5.8 percent), with the steepest gains recorded in the cities of Coachella (up 26 percent) and Palm Springs (16 percent). “It would not be unusual for a situation like this to generate 10 to 20 percent price gains over a year or year-and-a-half,” McDonald says. “That, by the way, would help solve our inventory problem.”
Moreover, Neil adds, “We’re seeing a lot of appraisals come in below the selling price, requiring buyers and sellers to come together and negotiate. That’s going to continue to happen when we’re in an environment where appreciation is rapidly happening.”
But as inventory shrinks, buyers are increasing their offers. Neil encourages the additional spending, projecting values will continue to rise and hasten their return on investment.
“One of the signs of a tipping point is when people are buying because they’re afraid that if they don’t, they’re going to miss out. We’re not anywhere near something like that.”
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How long can the market ride this wave? “No one really knows,” McDonald says. “There are no excesses in this market, none that I see. One of the signs of a tipping point is when people are buying because they’re afraid that if they don’t, they’re going to miss out. We’re not anywhere near something like that. Things are solid here.”
The Market Watch webinar was sponsored by Toscana Country Club, Andalusia Country Club, Franklin Loan Center, California Desert Association of Realtors, the and Palm Springs Regional Association of Realtors.