Coachella Valley real estate market cools slightly, but experts say that might not last – The Desert Sun

The Coachella Valley’s white-hot real estate market has cooled in recent weeks to a slow boil. Two key indicators — median home price and total housing inventory — changed direction for the first time in 2021 late this summer, according to a joint report by Greater Palm Springs Realtors, the California Desert Association of Realtors and Market Watch.

Median home price dipped by 3% to $581,500 in August, according to the report, while total available homes and condos rose to 836 — up from a June low of 654.

While these signs point to a slight cooling in the market, local Realtors say factors such as temporary buyer fatigue and sellers’ atypical willingness to put properties on the market this summer mean a significant slowdown in the coming months is unlikely.

A sustained influx of wealthy urban buyers — driven by a desire for space and ever-extending remote work policies — have created a new paradigm in the market, according to the Realtors. While this phenomenon has been good for high-end home sales, it has led to a shrinking pool of lower-priced homes. 

And unlike the housing bubble a decade ago, Realtors say this mix of better-funded buyers with more equity in their desert homes means this new normal is likely here to stay.

From a sprint to a jog

Housing inventory — and prices — in the Coachella Valley historically have been cyclical. The number of homes on the market, or inventory, tends to peak around March and then gradually dwindle as houses sell and buyers delay new listings through the hot summer months, typically hitting a low point near September. 

This has historically contributed to corresponding dips and rises in the area’s average housing price, with fewer listings leading to higher prices and vice-versa. While the overall trajectory for price has been upward and for inventory has been downward, this cyclical pattern has held relatively constant since the housing crisis a decade ago. 

Last year, that pattern broke, as booming demand for Coachella Valley homes from those fleeing densely populated COVID hotspots like Los Angeles wiped out available inventory. That drove prices to record levels, with most valley cities recording their highest-ever average home prices at various points in the past 12 months.

“(Three years ago) we get into the 4,000-square-foot house and more, couples wanted to downsize, kids didn’t want the house,” said Steven Hannegan, a Realtor with Berkshire Hathaway in Palm Springs. “Well now that’s completely changed.”

Hannegan, who focuses on high-end real estate, said a desire for spacious homes amid pandemic lockdowns drove properties that had typically taken much longer to sell off the market. The high prices and all-cash payments offered by the new cohort of buyers prompted sellers to continue listing homes well past the typical spring peak, according to Louise Hampton, a Realtor and Hannegan’s business partner.

“Typically in the summer, we take our high-end properties off the market because we don’t have an audience,” Hampton said. “Now, even in this ungodly weather we’ve been having, there are still people coming and looking at any high-end house that might be coming on the market.”

Hampton noted that demand for these homes is so high, her team no longer shows houses to anyone who has not first provided proof of funds — a now likely-permanent policy first implemented as a COVID safety protocol last year.

The Coachella Valley saw slight net gains in total homes on the market in July and August for the first time this year, according to the real estate report. While the net increase of 182 available homes is a departure from net losses typically experienced during those months in years past, Hampton and Hannegan said the high number of summer listings mean a return to the seasonal fall and spring inventory surge is unlikely.

Another factor driving the inventory uptick is buyer fatigue, according to Rich La Rue, president of the California Desert Association of Realtors and a broker at HomeSmart in Palm Desert.

“There has been a number of buyers, or prospective buyers, who have pulled themselves out of the market,” said La Rue. “They’re frustrated. They’ve made multiple offers on properties and they haven’t gotten them because they’re in a bidding war with other buyers.”

La Rue, Hampton and Hannegan all described numerous instances of buyers getting beat out by others paying for properties in cash, often above the asking price.

“Maybe they’re well–qualified buyers, but they’re getting a mortgage and they get beat out by someone who is paying in cash and this happens, three, four, ten times — it happens a lot,” La Rue said. “And finally they just say, ‘I’m done. I’m out. The kids are out of school, we’re gonna go play for the next few weeks and we’re gonna start looking again later in the year. Maybe the market will be different.'”

According to La Rue, this group of temporarily frustrated buyers likely contributed to the uptick in available homes — and the corresponding $17,500 dip in median housing price — by exiting the market. He also said their likely return later this year could prevent a meaningful increase in the Coachella Valley’s housing inventory.

“I would bet that what we’re going to see over the next six to eight weeks is an uptick in the number of properties sold,” he said, “and then you’re also going to see that inventory count go down a little bit.”

La Rue compared the likely trajectory of the Coachella Valley housing market to a race with an athlete temporarily slowing to catch their breath.

“We have been at a sprint,” he said. “We might be slowing to a moderate jog right now, but I don’t think this market is going to walk,” he said. “We’re going to slow down to a jog, and then we’re going to pick up speed again. Will it be an all-out sprint like it has been for the last 12 months? A lot of us hope not. That’s not a healthy market.”

No more cheap homes

While upper-end home sales have grown, middle and lower-end sales have fallen in the Coachella Valley over the past 12 months.

More homes worth over $1 million sold in the last three months than homes worth $300,000 or less, according to the Realtors’ report — a trend that has persisted for much of this year.

An average of 129 homes worth $300,000 or less sold each month from June through August of this year, according to the report, down roughly 45% from that same period last year.

“The reason you’re seeing that (drop in sales) is because that product doesn’t really exist anymore,” said Frank Alvarez, a Realtor with Berkshire Hathaway who often represents mid- to low-end home buyers.

According to Alvarez, rising property prices across the Coachella Valley have lifted so much inventory out of the sub-$300,000 price range that there are simply very few homes left to sell in that category.

“I have some clients who relocated here,” Alvarez said. “They wanted to keep the price as close to $300,000 as possible. I took them around, showed them some things in Desert Hot Springs (but, with their baseline requirements), well that doesn’t really exist.

“Now we’re looking at $400,000 (homes). … As a buyer’s agent in this market, it’s really, really frustrating.”

Alvarez said this decline in the lower-end housing market has been particularly difficult for the Coachella Valley’s lower-wage workers.

“Most of the people that were already homeowners weren’t out of work that long,” he said. “The rental availability in this valley is nothing. It’s been wiped out. Even mobile homes have skyrocketed in price.”

Like La Rue, Alvarez said he had seen many buyers give up and decide to “wait out the market,” hoping for better prices after a cooldown — or even a meltdown similar to that which followed the burst of the mid-2000s housing bubble.

“Based on what I’m seeing, that’s just not going to happen,” Alvarez said. “Last time the market went up, people were buying houses with zero down payments. This time, people are paying cash. Those don’t get foreclosed on. People that put big down payments aren’t going to walk away from their equity.”

Here come the millennials

While recent data on home buyer demographics is limited, all of the Realtors said they had personally seen more young buyers — urban millennials in their 30s and 40s — over the last year than they had at any point in the past.

Many of these, according to Realtors, are looking to make the Coachella Valley their permanent remote working home base.

“Last summer what we saw was that an awful lot of people were looking for a place to live because they didn’t see themselves going back to the office for some time,” Alvarez said. “This market, as expensive as it has become, is still one of the more affordable markets in Southern California.”

La Rue said he had seen numerous young professionals from cities such as Los Angeles and San Francisco purchase homes in the Coachella Valley after finding what they considered to be a deal on a spacious desert home.

“I sold a home to buyers who came from San Francisco to work remotely,” La Rue said. “They were in a 600-square-foot apartment in downtown San Francisco and paying something like $6,000 per month in rent. When they moved here they could get a 1,800-square-foot house — two bedrooms, two baths, two-car garage and a pool with a view of the mountains — and paid a mortgage of $2,300 per month.”

Hampton said she had seen professionals from “L.A., San Diego, Orange County, the Pacific Northwest, Chicago” and “a lot from San Francisco and New York,” buy homes in the Coachella Valley over the past year.

“This isn’t just a place for retirement anymore,” she said, “People are buying houses to work here.”

While return-to-office plans by many major companies has left the permanence of these young professionals’ moves somewhat of an open question, the continual extension of remote working policies makes them appear less temporary than they once might have.

Office reopenings last fall were derailed by a spike in COVID-19 cases, prompting many companies to extend remote work plans through this summer. In recent weeks, major companies have again pushed back these plans amid concerns about the highly-contagious COVID-19 delta variant. Google, Apple and Amazon have all delayed return-to-office plans until at least January.

Other major companies such as Facebook, Twitter, business communication platform Slack and online real estate marketplace Zillow have given their employees the option to work remotely permanently — although Facebook employees might have to take a pay cut for the privilege of doing so, according to public statements by those companies.

Growing attention from a new cohort of buyers means home prices in the Coachella Valley have, according to the Realtors, likely reached a new paradigm — possibly one more sustainable than in years past.

“(Before) we would have baby boomers buying probably a second, third, fourth, fifth property, whatever it is,” said La Rue. “But the millennials are buying their first home. They’re digging deep (to fund those purchases), but it’s happening.”

“It’s actually kind of refreshing for the Coachella Valley,” he added.

Median Housing prices in the Coachella Valley

Following are median home prices in each valley city in August, and the change from August 2020:

Cathedral City $473,000 (+$88,250)

Coachella $295,000 (no change)

Desert Hot Springs  $335,000 (+$80,000)

Indian Wells $1,250,000 (+$372,000)

Indio $466,000 (+$109,500)

La Quinta $670,000 (+$80,000)

Palm Desert $575,000 (+$98,775)

Palm Springs $923,250 (+$202,000)

Rancho Mirage $917,250 (+$247,250)

James B. Cutchin covers business in the Coachella Valley. Reach him at james.cutchin@desertsun.com

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