Many indicators continue to show that California reached a bottom across a variety of areas in mid-April and has since begun to regain losses suffered in the immediate aftermath of the shelter in place orders. Significant progress has been made on the virus and the economy has begun to reopen at a gradual pace in many parts of the state. And yet, even as we begin to see this light at the end of the tunnel, it is important to remember that the impacts of this crisis have been severe. It will take time for the economy to heal, and while the direct impacts have begun to die down, the multiplier effects associated with things are likely to continue to play themselves out over the next few months. As such, home sales and prices are likely to get worse before they begin to improve.

New unemployment claims trending downward: The U.S. saw the 8-week total for workers filing for unemployment insurance climb to nearly 37 million last week—roughly equivalent to the number of unemployment claims between 2008 and 2009. However, at 2.98 million, it was the first week since the shelter in place order (SIP) when less than 3 million claims were filed. It is also the 6th consecutive week that new unemployment claims have fallen.

Mortgage applications continue to improve: California has seen the number of new purchase mortgage applications increase for the past 6 weeks consecutively as well. Nationally, mortgage applications are on their 5th week of improvement and the year-to-year comparisons have gone from -35% in mid-April to just -1.4% last week. California also remains just 1.5% below the same period of 2019.

Fewer REALTORS® experience buyers and sellers backing out: The percentage of REALTORS® with buyers that have withdrawn an offer on a home has declined for a 4th consecutive week to 37%. The percentage of sellers with a client that has removed their home from the MLS has also declined since mid-April as well to 47% last week. Levels remain elevated, but measures for buyers and sellers have come down significantly from their peaks of 48% and 57%, respectively.

Showing activity now back to pre-crisis levels: Home showings increased by another 28% last week, bringing the index to within 3% of its pre-crisis levels. The number of showings remains down by roughly 15% relative to the same point in 2019, but consistent growth since mid-April has reduced the deficit from roughly 75% one month after the SIP.

Interest rates remain near historic lows: Last week, the 30-year fixed rate mortgage averaged just 3.23%. That is up slightly from 3.15% the previous week, but interest rates have never been more attractive. In addition to fueling a conventional refinancing boom, it is also driving at least some of the increased activity in new mortgage applications for purchases as well.

Closed sales continued to fall last week after record decline in April: After decelerating during the second half of April, the number of closed sales has fallen again for the second consecutive week. The daily average number of closed sales dipped by 9.1% last week from the week prior. Every major region in the state was down and every price segment also fell from the week before. The monthly figures for April showed the largest monthly decline in California home sales going back at least as far as our data in the late 1970s. However, the weekly data suggests that sales are likely to drop further in May.

Rebound in pending and listings lose momentum: Closed sales are likely still reflecting the steeper declines in pending sales from early- and mid-April as escrows take time to complete. However, the number of properties entering escrow has fallen statewide for the first time in 5 weeks. Much of the recent gains have been retained, but the loss of momentum in the recent rebound suggests that the past month has likely been more catch-up effect from an initial over-correction than the beginnings of a v-shaped recovery.

Another record for retail sales declines: Following a record 8.7% decline in March, retail sales dropped another 16.4% shattering the previous all-time largest decline. On an annualized basis, that represents a nearly 90% retrenchment last month. This caused the Atlanta Federal Reserve’s GDPNow estimate for the current quarter (which factors real time data into an objective, albeit imperfect, model) to -42.8%. That would represent the worst quarter for economic growth and worse than current consensus forecasts of between 30% and 40%.

Discounts on closed sales begin to rise even though listing prices are stable: Listing prices have remained remarkably stable during the crisis thus far. As of last week, roughly 29% of active listings had reduced prices—almost identical to pre-crisis levels. In addition, the median list price per square foot has also been essentially constant. However, we may be entering a phase where closed sale prices are beginning to lead listing prices down as the percentage of closed sales that were discounted increased from 46% the previous week to 51% last week. Many sellers still view the effects of the SIP as temporary and have shown little interest in reducing prices, but more discounts on closed sales suggest that sellers make concessions during the escrow process to keep transactions on track.

California’s economy continues to open up and many indicators paint a less dire picture than in mid-April. Yet, it is important to remember that the effects on the economy and housing market are still being tallied. Just the effects associated with the job, spending, and economic losses that have been reported thus far are the worst on record, with more declines expected in May, June and potentially into July. The ripple effects of these initial impacts will take time to play out. Lost jobs and income take time to manifest in the broader economy, but eventually result in less economic activity with additional multiplier effects. Thus, even as the economy begins to open up and critical data begins to move in the right direction, the environment for sales and prices remains soft for the foreseeable future.