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Bidding Battles, Exorbitant Prices, And No End In Sight In The Scorching Coachella Valley Real Estate Market

The competitive Coachella Valley housing market shows no signs of slowing down. But remember: even before COVID-19 provided so many people a reason to abandon their densely populated cities to work and learn in safer, wide-open locations like desert villages, the world was careening head-on towards the irrational.

The second wave of buyers arrived as a result of the epidemic, and business has been brisk since then, with tremendous impacts on the local economy.

According to Mike McDonald of the research firm Market Watch LLC, revenue from house sales has risen in the last two years, and the real estate business remains one of the valley’s top jobs. “It’s also producing significant economic impact,” he says, citing record revenues of around $28 million every month.

Salaries and sales commissions (dollars spent mostly locally on products and services), construction, landscaping, repairs and remodeling, and pool construction are all examples of these effects.

However, the frenzy has depleted the supply of homes for sale, driven up prices, and created a ferociously competitive environment in which eager, sometimes desperate, buyers pay cash, forego standard home inspections and appraisals, and even pay the sellers’ closing costs to seal the deal before a better offer comes along. (Of course, a lack of due diligence leaves concealed and untreated issues and conditions vulnerable to buyer’s regret or, worse, a lawsuit.)

In the Coachella Valley in 2021, 40% of all homes sold were second homes, not primary dwellings.
Homes are selling at a premium in seven of the Coachella Valley’s nine cities. “Home sales come in above the asking price due to several bidders or the threat of multiple bidders.”

McDonald recapped the home market’s success in 2021 and provided his forecast for this year during the Palm Springs Life Market Watch Winter Webinar.

His figures are mind-boggling once more.

The median attached home price increased 22.4 percent ($329,000 in 2020 vs. $402,900 in 2021) and the median detached home price increased 18.2 percent ($520,000 in 2020 vs. $615,000 in 2021) in the valley’s nine cities during the last year.

McDonald reminded his audience of agents, brokers, and lenders at the start of his presentation that 40 percent of all dwellings sold in the Coachella Valley in 2021 would be second homes, not primary residences.

He then moved on to the luxury market, discovering that the average price of a 4,500-square-foot house in one of the Coachella Valley’s top 15 country clubs increased 18.2 percent year over 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 higher than pre-pandemic levels ($2.3 million in December 2020 vs. $2.7 million in December 2021). Thunderbird Heights in Rancho Mirage was the most active community in terms of sales, with a whopping 60.3 percent increase.

Meanwhile, as with all other categories, luxury house listings are declining. Prior to the epidemic, the market was used to seeing an average of 250 luxury residences for sale at any given moment. This fell to 124 in 2020 and 32 the previous year.

“There’s not much to choose from,” McDonald admits. “Prices are driven by this.”

While the Coachella Valley’s market characteristics are not unique, the desert’s natural beauty and active lifestyle appeal to newly mobile professionals and affluent buyers of second and third homes. Their combined demand has put constant pressure on supply, and bidding wars have become commonplace, even for homes that were formerly considered undesirable.

McDonald’s plans another year of pricing increases a few months into 2022. “Unit sales may fall, but dollar sales should remain strong,” he predicts. “Inventory and months-of-sales ratios have never been lower.” We used to have 3,000 to 4,000 units [available per month], but today we only have 615. Previously, the average selling time [days on market] was 60 to 70 days. Now, it’s 26.” As a result, he continues, low inventories will continue to trump economic fundamentals like interest rates, wages, and inflation. “These things may influence the number of purchasers, but not upward price pressure,” he argues.

According to Market Watch, new home development has doubled in the last two years, with 1,890 new homes produced in 2021 and the same forecast for 2022. Construction is hampered by supply chain concerns, rising building material prices, and manpower shortages. McDonald claims that “new home construction will not provide the requisite inventory.”

Inflation, according to Walter Neil of Franklin Loan Center, might increase the amount of inventory on the market. Buyers who wish to get a mortgage should act quickly before the Fed boosts interest rates. “Inflation is out of control,” he adds, “and the treatment — raising the Federal Reserve rate — would almost certainly plunge us into a recession next year.” Stock markets will correct by 10% to 30%, and more inventory will be available for purchase.”

Some agents, especially those who specialize in luxury properties, claim that the interest rate has little or no impact on their customers.

Meanwhile, McDonald believes that a slight increase in the interest rate could at least help to rein in soaring property prices. “Prices will not fall due to the persistent scarcity of goods,” he says, noting that they’re roughly 20% higher than pre-pandemic levels in practically every city and industry. “However, the [price] increase will level down.”

For the time being, the market favors the seller and the quick-thinking buyer.

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