The cut-throat Coachella Valley housing market shows precious few signs of easing. But let’s remember: It was careening head-on into the irrational long before COVID-19 gave so many folks a reason to flee their densely populated cities to work and learn in safer, wide-open places like the desert communities.
The pandemic created the second wave of buyers, and the activity has since been fast and furious — with unprecedented effects on the local economy.
Revenue from home sales has doubled over the past two years, according to Mike McDonald of the research firm Market Watch LLC, and the real estate industry remains one of the top employers in the valley. “With revenues at a record high [about $28 million per month],” he says, “it’s also creating tremendous economic impact.”
Those impacts manifest in salaries and sales commissions (dollars largely spent locally on goods and services), construction, landscaping, renovations and remodeling, and pool construction .
But the frenzy has also depleted the supply of homes available for sale, driven up prices, and created a wildly competitive environment where eager, sometimes desperate, buyers transact in cash, forgo de rigueur home inspections and appraisals, and even pay the sellers’ closing costs to seal the deal before a higher offer comes along. (Of course, the lack of due diligence opens the door to undisclosed and unaddressed problems and conditions that could lead to buyer’s remorse or, worse, a lawsuit.)
Forty percent of all residences sold in the Coachella Valley in 2021 were second homes, not primary residences.
Seven of the nine Coachella Valley cities are selling homes at a premium. “Because of multiple bidders or the fear of multiple bidders, the home sales come in above the asking price.”
During the Palm Springs Life Market Watch Winter Webinar, McDonald recapped the residential market’s performance in 2021 and revealed his forecast for this year.
His numbers are staggering — again.
In the past year, the valley’s nine cities saw average price gains greater than 27 percent, with the median attached home price up 22.4 percent ($329,000 in 2020 vs. $402,900 in 2021) and the median detached home price up 18.2 percent ($520,000 in 2020 vs. $615,000 in 2021).
At the top of his presentation, McDonald reminded his audience of agents, brokers, and lenders that 40 percent of all residences sold in the Coachella Valley in 2021 were second homes, not primary residences.
He then launched into an examination of the luxury market, finding the average price of a 4,500-square-foot house in one of the Coachella Valley’s top 15 country clubs rose 18.2 percent over the previous year ($2.3 million in December 2020 vs. $2.7 million in December 2021), with an average of 33 units sold per month, which is 37 percent above pre-pandemic levels. The most active community in terms of sales was Thunderbird Heights in Rancho Mirage: up a stunning 60.3 percent.
Meanwhile, luxury home listings continue to decrease like in all other categories. Before the pandemic, the market was accustomed to
an average of 250 luxury homes available for sale at any one time. That dropped to 124 in 2020 and 32 last year.
“There’s very little to pick from,” McDonald says. “That’s what’s driving prices.”
While the market conditions are hardly unique to the Coachella Valley, the desert’s natural beauty and active lifestyle are especially attractive to newly mobile professionals and affluent buyers of second and third homes. Their combined demand has put relentless pressure on the supply, and bidding wars have become common even for homes that were considered undesirable only a couple years ago.
Speaking a few months into 2022, McDonald expects another year of increasing prices. “Unit sales may decline, but dollar sales should remain high,” he says. “Inventory and months-of-sales ratios are at all-time lows. We’re used to having 3,000 or 4,000 units [available per month]; we’re now at 615 units. The average selling time [days on market] used to be 60 to 70 days. Now, it’s 26.” Therefore, he adds, low inventory will continue to dominate over economic factors such as interest rates, wages, inflation. “These factors may affect the number of buyers,” he says, “but not the upward price pressure.”
New-home construction has doubled over the past couple years; 1,890 new homes were built in 2021, and the outlook for 2022 is the same, according to Market Watch. But supply chain issues, prices for building materials, and labor shortages are hampering construction. “New home construction will not supply the needed inventory,” McDonald says.
Walter Neil of Franklin Loan Center suggests inflation could increase the amount of inventory coming to the market. However, buyers planning to take out a mortgage will want to act before the Fed raises interest rates. “Inflation is out of control,” he says, “and the medicine — hiking the Fed rate — will send us into a recession next year for sure. Stock markets will correct 10 to 30 percent, and more inventory will come to market.”
Some agents, particularly those who represent luxury properties, say the interest rate has little or no effect on their clients.
Meanwhile, McDonald suggests a nudge in the interest rate could at least help harness runaway home prices. “Prices will not decrease amid the continued limited inventory,” he says, noting they’re currently about 20 percent higher than the pre-pandemic levels in almost every city and sector. “However, the increase [of prices] will level off.”
For now, the market favors the seller and the nimble, fast-moving buyer.