This morning, Los Angeles, along with the rest of California, woke up to a stay-at-home lockdown order. While the list of “critical infrastructure sectors” that are allowed to continue operating does include residential housing construction, real estate agents and brokers are not considered essential jobs under the order by Governor Gavin Newsom.
This means showings and open houses (even virtual ones) will likely come to a screeching halt, resulting in fewer home sales until the order is lifted, although that timeline remains uncertain.
To make sense of the potential long-term effects of the coronavirus on the LA market, we spoke to Naomi Klein, the Estate Director for Compass Los Angeles’ Sports Division, and the creator of @sundaysinthecity_, a go-to resource for homebuyers and entrepreneurs. Here she shares her predictions for the future of the market and breaks down the difference between the housing crisis of 2008 and today.
Photo courtesy of Naomi Klein
A recession is likely on the horizon
“I don’t see how we can’t hit a recession, to be honest, because there are billions of dollars that are going to be lost in business,” says Klein, who estimates that it may take two years for the market to bounce back.
“I do feel that the government will provide a stimulus to those companies that are losing business, but the effect of those employees who are losing their jobs now will not be seen for a few months.” Klein hopes the federal government has learned its lesson from the 2008 bailout of the financial system. “The  bailout was for the banks and the big companies, and you didn’t really hear of the employees being taken care of, and I love that that is being discussed this go-around.”
Buyers will have to grapple with an uncertain future
Coronavirus-related layoffs are already underway, and when the stay-at-home order eventually lifts, would-be homebuyers will be faced with a choice. “It all comes down to numbers,” says Klein. “So when you really work through them, does [buying a home] make sense for you? The difference between 2008 and today is: How secure is your job? That’s an unsettling missing link right now. So if you can afford right now, but you didn’t have a job for a few years, are you comfortable with the downpayment, the mortgage, the property taxes, all of that?”
Deals won’t be as prevalent as they were post-2008
Going forward, buyers may face less competition and could potentially shave five percent off the asking price of an LA home, according to Klein. However, they won’t be able to take advantage of heavily discounted homes as seen during the wake of the 2008 crisis when many Americans could no longer afford to pay their mortgages.
“The majority of buyers in LA and lenders have learned their lesson,” wrote Klein in a recent Instagram post. “Buyers are putting down 20-40% on properties, and are getting 30 year loans at great interest rates or re-financing to great interest rates. Bottom line, owners/sellers have significant equity and their monthly payments keep decreasing with lower interest rates.”
For the most part, Klein says sellers will continue to list their homes due to lifestyle factors — maybe they’ve added a new baby to the family or are relocating to another city for work. “I see sellers being in a must sell situation only if their job has been affected by COVID-19 or any other job lay-off situation. If they’ve gone from a two to one income household and have little cash reserves. But, with a generous government stimulus package even that shortcoming may be temporary.”
We’ll all think harder about what we want in a home
“There’s talk of another baby boom happening,” says Klein, who hints that buyers may want to consider sizing up their current digs. “Now is a good time to see what you really need. It could be, ‘I want a place that has a more open kitchen’ or ‘I want to make sure that I have larger appliances.’”
As you practice social distancing, take inventory of what you want — and what you don’t want — in a future home. “If you’re in a condo, maybe you want to be in a house so that you don’t have to be around as many people or touch elevator buttons,” adds Klein. “I think buyers are really going to have focus when they’re looking and when they purchase. You’re going see a lot of happy homes; a lot of homes with purpose.”