Covid-19 has not only affected the real estate, but the entire economy. The impact of covid-19 on the Californian real estate market has various dimensions. In the first place, it affects the construction sector, one of the most relevant in the USA economy. Therefore, everything that happens in the construction market will have a great impact on the unemployment rate of the American economy. And at this point we must not forget either the impact on the real estate development sector.
Second, home equity is a critical variable for economic policy. And this is not a trivial question, because, the wealth of the middle class depends almost entirely on the value of the house. In fact, in California, housing assets account for more than 45% of the gross wealth of families. Therefore, what happens to the value of the home will significantly affect the consumption of American household. Finally, the links between the real estate market and the financial sector advise closely monitoring the effects that the pandemic is having on the housing market. An analysis is presented below that seeks to provide empirical evidence to analyze how the pandemic is affecting the American real-estate market both in terms of activity, prices and market dynamics.
What is the situation right now?
The construction and housing brokerage sectors have been hit hard by the pandemic. Despite not being at the epicenter of the crisis as in the previous recession, the pandemic has accelerated a downward trend that began in 2019. As for prices, the first indicators point to an intensification of the slowdown that had already begun in 2019 and a considerable increase in the time it takes to sell a property. Most of the assessments related to the economy until the beginning of this year projected a continuation of the growth of the construction and of the real estate market in general, in view of the low interest rates of real estate credit and the expectations for the growth of the economy in high.
However, with the advent of the corona virus pandemic, the symptoms of the instability of the economic crisis began to be felt in the various investment segments, igniting alerts in the real estate market. This fact is confirmed when analysts in this sector projected a 2.9% growth in civil construction GDP for this year. But, with the advent of the pandemic, they project a fall of 3.9%, with a perspective of worsening. The result of the influence of this pandemic associated with the fall in interest rates, which today is at a very low level than was expected at the beginning of the year and which may still fall.
There is an urgent need to distinguish price from value. The price is the translation in money of the value of a thing. The price trend is to actually represent the value of things, when all factors related to this thing approach an average such as: supply balanced with demand, utility not diminished, etc. It is necessary to have the greatest possible balance between the economic factors that contribute to the formation of the values.
The economic crisis, the rise in unemployment and the loss of consumer purchasing power are expected to impact the real estate market. In addition, there was a retraction in the number of properties available, with the launching of the launches by the developers and the sale by the owner in the secondary market giving up. Those who planned to sell a house or apartment ended up giving up either because they believed the price would fall or because visits to properties were suspended. On the other hand, changes in Business property tax California are also major factors that greatly influence the price of the Californian real estate market.