In the weeks since the Coronavirus Pandemic has changed daily life in our communities, economy, and market we’ve heard from many of our clients. In this rapidly changing environment, the most pressing question has been “What’s going on in the market?” Experts across the real estate investment community have been speculating on the trajectory of real estate markets in every asset class. Predictions range across a wide spectrum from dire to nonchalant.
Although we can’t claim to know the future, our experience has taught us the best hedge against uncertainty is data. We’ll leave the national economic forecasting and analysis to the economists. There is precious little quality local level timely data on our own real estate market. To that end, we’ve started releasing our market studies on a monthly basis rather than our usual quarterly intervals.
3rd Quarter/September 2020 Update:
As we pass the 6 month mark of the Coronavirus pandemic, surprise continues to be the dominant reaction to developments in the local and national investment markets. Despite the expiration of additional federal unemployment benefits, a lack of clarity on further congressional stimulus measures, a turbulent election season, and a persistent public health crisis, Southern California multi-family property market data has remained remarkably strong. Predictions of an apartment market crash have failed to materialize as tenants have shown an ability to mostly pay the rent, lenders have reopened funding sources, and values remain stable. While single family home markets in most areas have caught on fire, metrics in the multi-family space paint a more steady and measured response from investors. Interest rates are at historic lows, particularly rates for residential loans for the purchase of 1-4 unit properties. In more typical times, rates for 5 unit and above apartments tend to be as much as 100 basis points below investment loans for 1-4 unit properties, yet the spread between these two classes has all but disappeared. As a result, we’ve seen demand for 2-4 unit investment properties pick up considerably,with multiple offers on many listings, shortened contingencies, and bidding wars.
Sales statistics paint an unexpectedly consistent picture. Volume picked up aggressively from the 2nd quarter with an increase of nearly 40% in transaction count, a possible indicator of the comfort level investors are starting to feel as we adjust to life in our new reality. GRM, cap rates, and price per square foot were mostly flat, although the spread of cap rates to market interest rates has risen since last year as interest rates have fallen. Inventory has risen, but only to levels we saw through most of 2019 and still below historical levels.
We expect investors to continue to take advantage of historically low interest rates, the perennial Southern California supply shortage, and favorable prospects for long term growth as we move into the fourth quarter of the strangest year in living memory. We will continue to update our market data on a monthly basis as 2020 comes to a close.
All Market Trends and Market Studies can be downloaded from: “PLANNING AND RESOURCES”