There have been three major disruptions to our national harmony so far this century, which is rapidly one-fifth completed: First, the 9/11 terrorist attacks in 2001, then the financial collapse of 2007-08 and this year, of course, the pandemic.
As it pertains to Malibu real estate, the first two events had opposite effects on local realty values. In 2001, the market paused the final four months after the September terrorist attack, and then resumed with healthy upward price increases in 2002. In contrast, after the Great Recession took hold about 12 years ago, Malibu home values took a deep dive.
How will the 2020 pandemic affect Malibu real estate in the next year or two?
Some more detailed history may be in order. First, a market review before and after the 2001 terrorist attack: The 1990s concluded with an extremely hot bull market, locally. The year 1999 saw the median sale price go from about $800,000 to $1.1 million, a stunning 37 percent increase in one year. Year 2000 saw 13 percent more appreciation. Year 2001 brought a pause, a catch of breath, supplemented by the uncertainty after the 9/11 attacks. Both sales and values dropped during the year—but it was only a pause. The next four years continued Malibu’s most fantastic acceleration of home values, as the median found its way to $2.85 million by 2006. It went up two-and-a-half times during five years. It was double-digit value increases every year, accompanied by 300-plus sales units during 2002-04 (Malibu has not been close to 300 sales units since 2004). In short, the 9/11 attacks had no long-term negative effect on Malibu home prices.
When the Great Recession hit during 2007-08, an opposite spectacle occurred in town. The banking industry had nearly buckled and during 2007 real estate prices were crumbling everywhere. The writing was on the wall for Malibu, which lags nearby environs on price trends. The number of transactions in Malibu dropped to 118 during 2008, a very far cry from four years earlier. Nevertheless, in dramatic contrast from all other signs and indications, Malibu home values went up to an all-time high, with a median of $3,325,000—up nine percent from the year before.
It didn’t make any sense—2008 saw Malibu flying high while there was financial calamity all around. Could it last? Would it last? The answer was no. During 2009, the home values crashed in Malibu by 29 percent! It was by far (and there was never any year remotely close) the most intense collapse of Malibu prices ever.
That brings us to 2020, a year of considerable social disruption and financial uncertainty. You might think this year would’ve brought fewer sales, like both 2001 and 2008, but not at all. The past six months have seen sales units beyond belief. It is like a football game with one team completely outrivaled, and that team is seriously losing by half time, but then inexplicably overwhelms their stronger opponent in the second half for a blockbuster victory. It’s been a pandemic! Yet sales—and especially prices—have gone through the roof.
After a median home value of $3.6 million last year, Malibu will easily top $4.5 million this year, a jump of at least 25 percent. That all happened in the last six months. Through the first half of year, and the first three months of the virus crisis, Malibu real estate was dead—and poised for a breakdown. Then it took off.
The outside influences appear more similar to 2008 than to 2001. The economy is unstable, tortured by on and off disruption. What lingering effects on stock prices, inflation, unemployment and interest rates will the current shut downs have over time? Can this booming real estate market continue?
The vaccines are arriving and 2021 will bring a breath of fresh air and hope after such a miserable year. Everyone can agree on that. Nevertheless, this past year had many similarities to 2008—the year preceding Malibu’s worst price drop ever. Those hoping that we are not repeating the 2008 experience would be property owners whose net worth is dependent on their real estate, who enjoyed the appreciation of this year. Others may be hoping for the opposite: buyers wishing to make a more affordable entrée into Malibu real estate once prices decline.
The 29-percent collapse of 2009 seems quite unlikely in 2021. Will any decrease next year be possible? There are debate points against any such decline, actually.
For one, 2020 had robust sales numbers, unlike both 2001 and 2008. There is momentum in the market.
Also, years such as 2020, with value increases of 25 percent or more, have never been immediately followed with lower prices. At worst, it is just a slower pace of acceleration that immediately follows. For example, as noted, after a 37-percent increase in 1999, prices still went up 13 percent in 2000. When 2004 saw a 31-percent price increase, the year 2005 still bumped up 13 percent.
Looking at more immediate trends, the inventory of homes for sale dropped to 155 in December. That is the lowest since December 2018, when the whole local market went on pause immediately after the Woolsey Fire. Seventeen percent of the inventory had burned down and the disaster scared many other homeowners off the market. Even this year’s high inventory point of 190 in June was more representative of a seller’s market—that is not a lot of houses for sale in a zip code of 15,000 residents.
So, this year of inexplicably higher prices may hold. Or, a lingering weak underbelly in the economy may bring a correction. In any case, a median price topping $4.5 million was completely unexpected during 2020.
Rick Wallace has been a Malibu Realtor for 33 years and has contributed real estate columns to the community for 27 years.