Real Estate in the Coachella Valley

A residential boom and commercial bust.

October 23, 2020
Story by Steven Biller
desert palisades palm springs
Architect Ray Kappe’s last design is being built in Desert Palisades in Palm Springs.

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 — the desert real estate market is looking more attractive than ever.

“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 in a Palm Springs Life webinar. “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 were 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).

Meanwhile, inventory 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.”

White of the Greater Palm Springs CVB says the region becomes more desirable as people reset their values and priorities amid the pandemic. “It appears the virtual office will be more permanent than originally expected,” he says, emphasizing the silver lining. “We feel it will help our ability to attract more air service on an annual basis.”

Likewise, Wallace of CVEP adds, “Attracting educated professionals and others who can work from home is the single most probable way to upgrade the Coachella Valley workforce in the short term.”

McDonald asserts the market 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 foreclosure. Now, we have forbearance to keep people in their homes.”

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.”

The commercial real estate picture looks much different, as more retail and office spaces become available to a fewer number of businesses with diminishing needs.

“Commercial real estate is going to be facing a demand challenge,” says Wallace, who takes a wider view of the issue. “The same goes for retail as the COVID-19 crisis has accelerated the already-in-motion migration to online shopping. This is a natural progression that will allow us all to have to drive less, which will enable us to emit less carbon into the atmosphere. This phenomenon will help with climate change without negatively impacting our utility bills. It should also give us all more family time.

“The downside is, of course, lower commercial real estate values and the reduced tax base that comes with that. This will be a challenge to commercial property owners and the financial institutions that lend to them.”