Pegi DiRienzo had just put a Corona del Mar house up for sale when she heard the news that two commercial jetliners filled with passengers had slammed into the World Trade Center in Manhattan.
As a stunned world watched aghast, the Twin Towers collapsed, pancaking into a heap of rubble.
Just as quickly, it seemed, the nation’s housing market collapsed as well.
DiRienzo, an agent with the Douglas Elliman luxury brokerage, had bought the home in the Corona del Mar’s Irvine Terrace neighborhood with a business partner to renovate and flip.
Now it just sat on the market.
Panicked, DiRienzo and her partner jumped at the first offer they got.
The chaos of those early days spread throughout Southern California’s housing market, sparking a sales slowdown that lasted four months. Then, the market woke up, with double-digit sales gains spurred in part by a homeowner flight away from urban centers. It was not unlike 2020, when pandemic lockdowns caused the market to freeze and then suddenly explode.
“Catastrophic events like we saw are frightening,” says Peter Hernandez, the president of Douglas Elliman California. “People want security, and that’s why you see them pouring their money into real estate, whether it’s the uber-wealthy buying $100 million properties or first-time buyers.”
Fleeing the cities
In the months after the attacks, dense downtown centers became unpopular. Quite similar to the coronavirus pandemic, people fled to resort towns and other less densely populated areas.
“People couldn’t get out of town fast enough,” says Ernie Carswell, a luxury agent with Douglas Elliman California. “Palm Springs boomed! Laguna Beach boomed! Santa Barbara boomed.
“People want to be in Ojai Valley on a ranch or in Lake Arrowhead because of the virus.”
Government’s nudge
Another common factor between the two chaotic events 20 years apart was federal stimulus.
In 2001, the economy was in a downturn caused by the dot-com bust. But the ever-resilient Southern California’s housing market would soon recover, experiencing year-over-year sales increases of 15-16%, according to Oscar Wei, the deputy chief economist of the California Association of Realtors.
Just as sales dropped immediately after pandemic lockdowns, sales also dropped slightly in the months after the attacks.
The Federal Reserve in both events stepped in and lowered rates, driving sales up.
“I think once we got over the initial shock of what had happened, it did go back to business as usual,” says Jeff Lazerson, president of Mortgage Grader and a longtime contributing Orange County Register columnist. “We had a big, big refinance boom here in 2002. Then, 2020 broke the 2002 record, and I think 2021 is probably going to come in somewhere in between.”
The average monthly mortgage rate in September 2001 was 6.82%, and the median home price of a Southern California home was $236,000.
Market watchers were unsure what would happen to home sales in the weeks after the attack.
“It’s difficult to predict what effect the tragedy of two weeks ago will have on home sales,” said Mike Ela, president of DataQuick at the time.”Sales will certainly drop short term because of uncertainty and turbulence. But there is a good chance the market will kick back into gear because of steady demand in the region and low mortgage interest rates.”
And they would. Home sales surged in 2002 while mortgage rates fluctuated, eventually dropping to 6% by December 2002.
“It appears that many move-up buyers got back into the market toward the end of the year,” Ela said. “Many of those were buyers who had put their plans on hold after 911. Their activity, along with the regular year-end surge of new home sales, pushed December’s median to a new peak in all Southland counties.”
Twenty years later, the region has experienced a similar dip and rebound. By May 2020, Southern California’s housing market had seen four consecutive months of year-over-year sales declines, with closed deals falling 45%.
“It felt like the real estate market turned off like a faucet,” says Steve High, Villa Real Estate partner and president from his Newport Beach office.”Seeing that the real estate market was slowing down, the Fed dropped interest rates and that along with this mindset of people wanting houses for multi-generational families started this frenzy of buying.”
In December 2020, the average monthly mortgage rate reached a historic low of 2.7%. It’s still under 3%.
House hunters hit the market with a frenzy not seen since the months leading to the Great Recession. By July this year, the median price of a Southern California home hit an all-time high of $681,750, soaring $102,000 over 12 months.
“There were people that needed to change their living situation,” says Billy Rose, a founder and vice-chairman of The Agency. “As we got deeper, people started to see that life could go on and they focused and reassessed what home meant to them. That’s when the boom started to occur. It’s a function of simple supply and demand. There has been great demand and not a whole lot of supply.”
Source: Orange County Register
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