The California housing market moderated for the third month in a row in July 2021. After a busy summer, the state’s housing market continues to stabilize, with both sales and prices moderating as we go into the fall. The overheated California housing market is showing signs of a much-needed cooling, which could indicate waning buyer interest as a result of the rapid pace of home price increases and buyer fatigue. While home sales and prices have dropped from their soaring peaks of the last year, they are still above pre-pandemic levels, according to the California Association of Realtors (C.A.R.).
The supply-demand imbalance has continued to heat the market, with many buyers offering sales bids that are higher than the asking price. Over 70% of homes sold above the asking price in July, marking the tenth consecutive month since September 2020 that more than half of homes sold above the asking price. According to data collected by C.A.R., closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 428,980 in July. On a monthly basis, July home sales fell 1.6 percent from 436,020 in June and were down 2 percent from a year ago, when 437,890 homes were sold on an annualized basis.
The level of sales in July was the second-highest in the previous six years. Despite the downward trend, California home sales have increased by 27.3 percent year to date. Despite the improvement in housing availability, the market is still competitive, with homes flying off the shelves in record time. Following four consecutive months of record highs, California’s median home price fell 1% month over month to $811,170 in July, down from $819,630 in June but up 21.7 percent from $666,320 in July of last year. For the fourth month in a row, the median price in California remained above the $800,000 mark, as reported by C.A.R.
Tight inventory and low mortgage rates, similar to national housing market trends, are fueling the rise in California home prices. While this type of price appreciation has an impact on housing affordability, higher home prices should encourage more sellers to list their homes for sale, slowing the rate of appreciation. However, the rate of increase in home prices appeared to be slowing, as the price fell 1% from June to July. Housing costs have been on the rise in California, which has impacted affordability. Only less than 25% of home buyers can afford to buy a median-priced home in the Golden State.
According to C.A.R.’s Traditional Housing Affordability Index (HAI), the percentage of home buyers who could afford to buy a median-priced existing single-family home in California in the second quarter of 2021 fell to 23 percent from 27 percent in the first quarter of 2021 and 33 percent in the second quarter of 2020. The figure for the second quarter of 2021 is less than half of the affordability index peak of 56% in the second quarter of 2012. C.A.R.’s HAI calculates the percentage of all households in California that can afford to buy a median-priced single-family home. C.A.R. also publishes affordability indices for specific regions and counties within the state.
As of the second quarter of 2021, a statewide median-priced existing single-family home would require a minimum annual income of $150,800.
An effective composite interest rate of 3.20 percent would mean that the monthly payment on a 30-year, the fixed-rate loan would be $3,770 assuming a 20 percent down payment.
In July 2021, housing price gains were widespread with all the 51 counties in the state seeing annual price gains. All regions recorded a double-digit surge in median price, with the Far North (25.7 percent) up the most year-over-year. Nearly all — 49 out of 51— counties tracked by C.A.R. recorded price growth on a year-over-year basis, with 46 of them reporting a double-digit rate increase from last year.
The San Francisco Bay Area had a year-over-year gain of 23.9 percent, with the median price being $1,300,750.
Southern California had a year-over-year price gain of 22.1 percent, with the median price being $760,000.
The Central Valley had a year-over-year price gain of 19.7 percent, with the median price being $451,950.
The Far North had a year-over-year price gain of 25.7 percent, with the median price being $400,000.
The Central Coast had a year-over-year price gain of 10.8 percent, with the median price being $869,500.
The Los Angeles Metro Area had a year-over-year price gain of 23.9 percent, with the median price being $731,000.
Inland Empire had a year-over-year price gain of 26.0 percent, with the median price being $529,000.
California is still a seller’s market and home prices have reached new record-highs across all the regions due to tight supply. Homes are moving nearly 46% faster than a year ago; the median time on the market was 8 days in July. Nearly 70% of homes sold above the asking price in July. New construction can’t keep up with demand in the California housing market. Every major region saw home prices continuing to increase from last year by double digits as buyers competed amid a shortage of homes for sale.
There is an increase in demand leading to bidding wars and subsequent higher selling prices. These trends show us that the California housing market remains very competitive. Growth of sales are prices are driven by low mortgagee rates, buyers seeking more living space, and a perennial shortage of houisng supply. Homes are selling quickly with a minimal price reduction. The statewide sales-price-to-list-price ratio was 103.8 percent in July. If it’s above 100%, the home sold for more than the list price. If it’s less than 100%, the home sold for less than the list price.
High demand across all of California’s sub-markets means that low inventory and lightning-fast market conditions are not going away soon. There just aren’t enough homes listed for sale to satisfy the demand from buyers. Typically, the housing supply rises during this time of year and continues to rise until late July/early August. More new listings were added, but they remained below the pre-pandemic level. C.A.R.’s Unsold Inventory Index (UII) improved slightly from 1.7 months in June to 1.9 months in July but remained sharply below last year’s level of 2.1 months. The index indicates the number of months it would take to sell the supply of homes on the market at the current rate of sales.
Will The Housing Market Go Up or Down in California in 2022?
Each month C.A.R. surveys 1,000 California consumers regarding their sentiments about various aspects of the housing market or the economy that directly impact housing to create a California Housing Sentiment Index. In June 2021, the overall housing sentiment index reached 72 (-2 from last month). The California housing market is showing signs of normalization, as high prices and a competitive, gradually improving economy continue to entice more sellers back into the market.
Furthermore, C.A.R. reported last week that June was another double-digit month in the state for both sales and prices. Mortgage rates, on the other hand, have begun to fall modestly, which may combine with slightly more inventory in the coming weeks to fuel a rebound in potential homebuyers. Encouragingly, the number of new listings being added to the MLS each day has finally started to exceed closed sales and C.A.R. is still forecasting at least 10% growth in home sales this year. If the economy improves, rates could keep rising slowly, but many experts expect borrowing costs to remain low by historical standards throughout 2021. Here’s what consumers feel at this time.
Is it a good time to buy a home in California?
C.A.R.’s monthly Consumer Housing Sentiment Index for July 2021 found that only 17% of consumers believe that now is the good time to buy a home, and 83% think this is not a good time to buy. The consumer sentiment is down by 1% from last month. As a result of continuously rising prices in all the major regions, the housing market sentiment also shows that only 27% of the consumers feel that it will be easier to find a home over the next twelve months (+2 from last month’s survey). 73% said it won’t be easier to find their dream house.
Is it a good time to sell a home in California?
According to the survey, 70 percent of Californians believe now is a good time to sell a home. That’s an increase of +2 over the June 2021 poll. More than half of the consumers (58%) who participated in the survey still feel that home prices will rise in the 12 months. That’s an increase of +3% from the previous month. Less than half of the people are optimistic about the economy’s recovery. Only 40% (-7 from last month) believe that economic conditions will improve in the state over the course of the next 12 months while 60% still have a gloomy outlook.
Infographic Credits: CAR’s July 2021 Housing Sentiment Index
California Housing Market Trends 2021 (Describes July)
Infographic Courtesy of CAR
Here are some of the key points of the California housing market report for July 2021, according to the August 16 release by C.A.R.
Existing-Home Sales
The market remains strong, with sales remaining at the second-highest level for July in the last six years.
However, at the regional level, all major regions posted a dip in sales from a year ago, when home sales began to surge as mortgage rates continued their downward trend in 2021.
Both Far North (-15.2 percent) and Central Valley (-12 percent) experienced double-digit, year-over-year sales declines, while Central Coast (-9.7 percent) dropped nearly 10 percent.
San Francisco Bay Area (-1.4 percent) and Southern California (-1.4 percent) held up relatively well.
More affordable counties within the regions such as Napa (-36.9 percent), Solano (-14.7 percent), and San Bernardino (-13.2 percent) also recorded sharp declines from a year ago.
Nearly three-quarters of all counties — 38 of 51 — tracked by C.A.R. had a year-over-year decrease in closed sales in July, with 26 counties declining by more than 10 percent in sales from last year.
Nearly three-quarters of all counties — 38 of 51 — tracked by C.A.R. had a year-over-year decrease in closed sales in July, with 26 counties declining by more than 10 percent in sales from last year.
Only thirteen counties had a year-over-year sales increase in July, compared to 44 counties in June.
Glenn (57.1 percent) had the largest sales gain from last year.
San Francisco (15.2 percent) and Santa Clara (11.3 percent) also had a double-digit sales growth in July.
California Median Home Price
Median prices in all major regions remained elevated, but only the Far North region set a new record high in July.
All regions recorded a double-digit surge in median price.
The Far North (25.7 percent) is up the most year-over-year, followed by the San Francisco Bay Area (23.9 percent).
Southern California was the third strongest growing at 22.1 percent.
The Central Valley had the fourth-highest price growth rate of all regions with its median price increasing 19.7% year-over-year.
The Central Coast region posted a growth of 10.8 percent.
Nearly all — 49 out of 51— counties tracked by C.A.R. recorded price growth on a year-over-year basis, with 46 of them reporting a double-digit rate increase from last year.
Tehama had the largest price gain of 52.5 percent.
Thirteen counties set new record high median prices in July.
Mariposa (-10.1 percent) and Santa Barbara (-6.9 percent) were the only counties with a price drop from the same month last year.
California Housing Supply
California’s housing supply has continued to improve, with active listings reaching their highest level since October of last year.
Housing supply normally rises during this time of year and continues to rise until late July or early August.
The number of for-sale properties increased 15.4 percent in July from the prior month as more homes were being listed on the market.
Despite an increase in total active listings in July, new listings added in the month dipped slightly for the first time after gaining year-over-year for four straight months.
New active listings inched up from June by 0.7 percent but dipped on a year-over-year basis by 0.9 percent in July 2021.
Nearly four out of five counties reported by C.A.R. declined in active listings from last July, and 28 of them dropped by double-digits when compared to the same time last year.
Marin continued to have the biggest decline in active listings.
Ten counties posted an increase in active listings in July.
The Unsold Inventory Index (UII) improved slightly from 1.7 months in June to 1.9 months in July but remained sharply below last year’s level of 2.1 months.
The index indicates the number of months it would take to sell the supply of homes on the market at the current rate of sales.
Median Days & Sales Price to List Price Ratio
The median number of days it took to sell a California single-family home remained flat from June at 8 days in July but was down from 17 days in July 2020.
C.A.R.’s statewide sales-price-to-list-price ratio was 103.8 percent in July and 100 percent in July 2020.
Looking at sale-to-list percentages can help buyers and sellers get a sense of how to negotiate on pricing. The higher ratio of 100% or above shows a strong market favoring sellers.
The statewide average price per square foot for an existing single-family home remained elevated.
At $394, July’s price per square foot was an all-time high.
The price per square foot was $304 in June 2020.
Mortgage Interest Rate
The 30-year, fixed-mortgage interest rate averaged 2.87 percent in July, down from 2.98 percent in July 2020, according to Freddie Mac.
The five-year, adjustable mortgage interest rate was an average of 2.49 percent, compared to 3.02 percent in July 2020.
California Housing Market – Regional Sales and Price Trends – July 2021
At the regional level, all major regions posted a dip in sales from a year ago. San Francisco Bay Area (-1.4 percent) and Southern California (-1.4 percent) held up relatively well. Median prices in all major regions remained elevated, but only the Far North region set a new record high in July followed by the San Francisco Bay Area (23.9 percent).
Source: C.A.R.’s July 2021 Market Report
These monthly and yearly trends numbers can be positive or negative depending on which side of the fence you are — Buyer or Seller? Home sales rebounded in June 2020 for the first time since the pandemic and California’s median home price reached $626,170, improving 6.5 percent from May and 2.5 percent from June 2019. The monthly price increase was higher than the historical average price change from May to June and, in fact, was the highest ever recorded for a May-to-June change. Factors are businesses reopening, mortgage payments are falling, and some sellers are more ready and eager to sell. Sales remain strong in a traditional off-season and this year looks promising across the region.
It looks like 2021 will end with a new record at home sales and prices. 49 out of 51 counties tracked by C.A.R. reported a gain in median price on a year-over-year basis, with 13 of them reporting a new record high median prices in July. Whether you’re looking to buy or sell, timing your local market is an important part of real estate investment.
For sellers in the California housing market, it is a good time to sell. A low inventory would keep the prices from falling. Sales Price to List Price ratio has been 104.1% in June 2021. 70% of homes were sold above their initial asking prices on MLS. A seller would always prefer this ratio to be close to 100% or higher.
For buyers in the California housing market, it is a good time to buy. Low-interest rates continue to fuel optimism for homebuying. The 30-year, fixed-mortgage interest rate averaged 2.98 percent in June, down from 3.16 percent in June 2020, according to Freddie Mac. Interest rates remain low giving buyers the purchasing power and home prices a boost. Fortunately, new listings have finally started to rise, which could help to sustain a higher level of home sales deeper into summer by providing much-needed supply.
All of these factors have led the market to optimism in homebuyers. Recent forecasts from industry groups like Freddie Mac and the Mortgage Bankers Association have predicted that the average rate for a 30-year fixed mortgage could stay within the low 3% range well into 2021.
Six California Metros Feature in The Top 20 Hottest Housing Markets
Realtor.com takes into account market demand and the pace of the market to determine an area’s hotness. That is determined by the number of unique viewers per property and the number of days a listing is active on Realtor.com’s website. In their latest hottest housing markets report for March 2021, California had six in the top 20, more than any other state.
These hottest markets saw median listing prices 18.9% higher, on average than the national price in March. The report shows that spillover and secondary markets continue to dominate the list as buyers prioritize space while remaining close to major hubs.
Vallejo-Fairfield metro area was no. 3, with the median listing price of $550,000. It had the lowest median number of days on the market, at 11. It has been on the company’s top 20 list for the last several years. Other Northern California cities in the top 20 include Yuba City in Sutter County, which came in seventh place with a median listing price of $427,000.
The Santa Cruz-Watsonville metro area was No. 8, with a median listing price of $1.2 million, and Stockton-Lodi metro area followed at No. 9 with a median listing price of $468,000. The Modesto area came in at No. 12, with a median listing price of $499,000. And in the far northwest corner of the state, the Eureka-Arcata-Fortuna area came in at No. 18, with a median listing price of $439,000.
California Housing Market Forecast 2021-2022 (Latest Projections)
What are the California real estate market predictions for 2021 & 2022? California housing market is shaping up to continue the trend of the last few years as one of the hottest markets in the U.S. The median price of an existing single-family house in 2021 is expected to be $795,600, up 20.7 percent from the 2020 median. That is a $136,000 increase from last year – and an almost $300,000 increase over the last five years.
This year’s home sales are expected to total 444,500, representing a 7.9 percent increase over last year’s total and the biggest total in 12 years. As a result, despite some slowdown in sales in the second half of the year, CAR Deputy Chief Economist Oscar Wei predicts that prices will continue to rise. Active listings were down by at least 40% in the first five months of the year, but they are expected to grow in the summer and fall when home buying slows and housing inventory rises. This will result in “normal” price and sales growth in the future.
Let us look at the price trends recorded by Zillow over the past few years. Since 2012, the California home values have appreciated by nearly 114% — Zillow Home Value Index. ZHVI is not the median price of homes that are sold in a month within a geographic region. It is calculated by taking all estimated home values for a given region and month (Also called Zestimates), taking a median of those values, applying some adjustments to account for seasonality or errors in individual home estimates.
It, therefore, represents the whole housing stock and not just the homes that list or sell in a given month. By this calculation, the current typical home value of homes in California is $654,629. It indicates that 50 percent of all housing stock in the area is worth more than $654,629 and 50 percent is worth less (adjusting for seasonal fluctuations and only includes the middle price tier of homes).
In May 2020, the typical value of homes in California was around $583,000. Home values have gone up 12.5% over the last twelve months. It can be said that California is currently the seller’s real estate market which means that demand is exceeding the supply, giving sellers an advantage over buyers in price negotiations.
There are fewer homes for sale than there are active buyers in the marketplace. Buyer demand remains robust, which has been pushing home prices up by a double-digit rate of appreciation. Although the latest price forecast is not available earlier Zillow had predicted a growth of 10.6% in ZHVI by November 2021.
Courtesy of Zillow.com
Latest Weekly Trends & Forecast From California REALTORS®
CAR’s latest weekly housing data for the week ending August 14, 2021, shows that since the recovery began, housing has been at the forefront of economic growth, but multiple indicators suggest that hot market conditions are driving the market to cool sooner than expected. In recent weeks, REALTOR® optimism in California has also moderated. Nonetheless, home sales remain higher than pre-crisis levels, and buyer demand remains strong—even as the level continues to normalize after reaching 15-year highs last winter.
The percentage of REALTORS® who expected listings and prices to rise this week fell to 29.3 percent and 25.5 percent, respectively, last week. More members expected an increase in sales this week, but overall, optimism in these three metrics is roughly half of what it was in April.
California REALTORS® are not quite positive about the market as we move into the seventh month of the summer homebuying season. Only 25.8% (+5.3% from the previous week) of them expect sales to improve in the upcoming week, while nearly 25.8% believe prices will increase from the prior week. However, with the passing of the American Rescue Plan Act, the economic outlook is more positive than it was a couple of months ago when California was still under a lockdown.
The economy is slowly recovering but COVID cases are rebounding in California. There was strong growth in employment in May & June and a surge in consumer confidence to the highest level in the year. Despite a relatively strong showing in the monthly data, the weekly numbers on new unemployment insurance claims have been on the rise for the past 3 weeks consecutively.
Tight supply, however, remains a concern as it continues to hold back demand and continues to put pressure on affordability. Although the amount of new listings entering the MLS is still below normal levels, more sellers are putting their homes on the market, providing potential homebuyers with more options. The total number of active listings available for sale on the MLS has been steadily increasing over the last few weeks. This means that homebuyers will have more options when conducting their home search, and this trend is likely to be responsible for the slight increase in time on the market and the very slight decrease in competitiveness we’ve seen in recent weeks.
On the flip side, the economic recovery will continue to put upward pressure on mortgage rates. Rates are increasing after falling to a 5-month low. Freddie Mac reported that the typical rate on a 30-year fixed-rate mortgage increased to 2.87% last week from 2.77% the previous week. This coincides with a slight uptick in 10-year Treasuries, which rose to 1.34% last week. However, daily rates show that interest rates are still relatively stable.
With slightly more inventory on the market and an economy that is expected to gradually recover, buyer demand should begin to respond to the increase in purchasing power—especially if inflation fears cause would-be homeowners to fear higher interest rates in the future. In the short term, the 10-year Treasury note continues to support downward pressure on mortgage rates.
For the first time in four weeks, the number of new purchase applications increased last week. This comes on the heels of a brief drop in rates the previous week to levels not seen since early February. However, applications are still 18% lower than they were in the first week of August in 2020. Even though the intensity of demand has eased slightly since the beginning of the year, demand remains above 2019 levels.
Fewer California REALTORS® expect prices and listings to go up in the coming week. The results from the latest C.A.R. weekly survey suggest that nearly 25.8% (-19.4%) expect prices to go up next week. They believe housing demand is still stronger than normal so far in 2021, and tight supply will continue to put upward pressure on housing values.
Survey results also suggest that supply will remain tight as only 29.4% of those who responded to the survey believed listings will increase in the following week, which is 11.3% less than last week. Therefore, price growth will not ease up until some balance between supply and demand is restored. Low-interest rates, which are still low, could give buyers the purchasing power and home prices a boost.
California’s housing market forecast for 2021 is on the positive side but things could vary a bit, given the seriousness of the ongoing pandemic. Here’s a rundown of the latest market trends.
All parties involved – buyers, sellers, and agents – agreed that home prices will likely remain on their upward trend in the short term.
25.8% (-19.4%) of California Realtors® feel prices will rise in the coming weeks.
25.8% (+5.3%) think that sales will grow in the coming weeks.
An average of 717 daily closed transactions was reported in the past week. That is down 18.1% week-over-week.
An average of 817 contracts was signed per day in the past week. That is down 18.1% week-over-week.
Seller’s optimism continues to dip in the latest weekly trends. An average of 842 new listings per day was reported in the past week, which represents a decline of -18.9%.
About 29.4% (-11.3%) of California Realtors® think listings will be up next week.
Interest rates always fluctuate, just as the real estate market does.
We don’t see huge changes ahead in the coming months.
They could fluctuate as more economic data become available throughout the year but the average 30-year fixed-rate average will likely stay close to 3 percent in 2021.
A few months back, Zillow had predicted that home prices will rise by 10.6% until November 2021.
Most California sub-markets saw big home-price gains in 2020.
The same trend is being seen in 2021.
49 counties tracked by the association reported a gain in median price on a year-over-year basis in July, as tight supply and heated market competition continued to put upward pressure on home prices.
An ongoing shortage of supply is the main reason for price appreciation.
With the cost of borrowing at historic lows, buying a home makes more sense than renting for many first-time buyers.
For repeat buyers, there is an increasing desire for a larger second home.
Affordability is at the Lowest Level Since Mid-2018, according to C.A.R.’s Traditional Housing Affordability Index (HAI).
A highly competitive market fueled by low-interest rates and a tight supply of homes for sale pushed the state’s median home price nearly 34 percent higher than a year ago.
The percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California in the second quarter of 2021 dropped to 23 percent from 27 percent in the first quarter of 2021 and from 33 percent in the second quarter of 2020.
A minimum annual income of $150,800 was needed to make monthly payments of $3,770, including principal, interest, and taxes on a 30-year fixed-rate mortgage at a 3.20 percent interest rate.
Thirty-seven percent of home buyers were able to purchase the $585,000 median-priced condo or townhome. An annual income of $108,000 was required to make a monthly payment of $2,700.
The C.A.R.’s 2020 Annual Housing Market Survey finds that 39 percent of REALTORS® who responded said their buyers are opting for a bigger home.
This trend is likely to continue in 2021 as well.
35 percent said buyers are opting for a property with more rooms.
37 percent said buyers are opting to live in a suburb rather than a city.
26 percent said buyers are opting to live in rural areas rather than cities or suburbs.
Source: Q2 2021 Housing Affordability Index By C.A.R.
Here’s a rundown of the forecast released by CAR on April 27, 2021.
This year, the California Association of Realtors’ economic forecast looks at several scenarios in predicting whether home prices and sales will rise or fall in 2021. Low mortgage interest rates and pent-up demand will bolster California home sales in 2021.
The housing market still doing unseasonably well in 2021.
Lots of buyer demand amidst all-time low rates.
Time to get serious about supply & new construction impacting much more than just the real estate market.
2nd worst Jobs-to-Construction ratio in the nation.
2nd worst state for overcrowded housing.
Ominous trends for the population and economy.
In the previous forecast released in October 2020, the sales figure was projected to be 4.5 percent lower compared with the pace of 397,960 homes sold in 2019.
However, the California housing market data closed unexpectedly above 2019’s figures.
Existing sales YTD were +3.5% above 2019.
$717,930 record-setting median price in December.
The CAR’s latest forecast points towards an increase in existing single-family home sales by 11.2 percent in 2021.
The California median home price is forecasted to edge up 8.0 percent in 2021, following an 11.3 percent increase in 2020.
Low mortgage rates are expected to continue to fuel price growth.
The average 2021 rate for a 30-year fixed-rate mortgage will be 3.0%, down from 3.1% in 2020.
Housing Affordability Index is projected to be 27%, down from last year when it was 32%.
Affordability will prevent many from achieving ownership.
Courtesy of Car.org
Impact of COVID-19 on The California Housing Market (Summary)
Before the coronavirus outbreak, the declining interest rates bolstered February home sales and prices in the California housing market. The no. of home sales in February went up 6.6 percent from the 395,700 level in January, marking the first time in three months that sales jumped above the 400,000 benchmarks. February also marked the eighth consecutive month of year-over-year sales increases, according to the CALIFORNIA ASSOCIATION OF REALTORS®.
According to a United States Department of Commerce report, the median price nationwide for a home sold in February was $345,900, up 6.3 percent from January. As the coronavirus pandemic hit the country, the sales activity in the California housing market took a sharp decline. Many buyers backed out of purchase due to coronavirus concerns. Due to the Covid-19 outbreak, the new California home sales also began to drop from March onward. Here’s the review of the California real estate market from March onward.
Impact of COVID-19
The immediate impact of the coronavirus pandemic on the California housing market was that realtors canceled their open houses and half of all agents reported a drop in buyer interest. A flash poll conducted by C.A.R. between March 14-16 found that 54% of realtors had buyers who backed out from buying a home because of the coronavirus, and about 45% had sellers who backed out from selling a property. The pandemic further impacted the buying or selling of a house as California issued a statewide ‘stay at home’ order on March 19 to slow the spread of the coronavirus.
All non-essential businesses were essentially shut down. The real estate industry and many businesses that support it have been deemed non-essential. Real estate transactions like home buying, title research, residential leasing, and renting were allowed to continue. So were things like building maintenance and cleaning. Home construction was typically allowed to continue, as well. This meant that people could continue to live in their apartments and call the property manager to get the plumbing fixed.
Home sales and purchases already begun could be completed. However, it became much more difficult to arrange open houses or take photos of a property for sale. Some realtors adapted by setting up virtual showings of properties, whether it was via cell phone video, high-resolution photos, or drone. However, photographers can’t travel to properties, while stagers and appraisers can’t travel to homes that owners want to sell.
This froze the housing market for the most part due to shelter-in-place orders. Financial services were considered essential; this included banks and mortgage lenders. Unfortunately, the shutdown of up to 80 percent of the country means many are afraid to take out a home loan even if they still have a job. That is why mortgage applications fell by 30 percent in the last quarter of March 2020 while unemployment applications hit a record three million.
The U.S. Initial Unemployment Insurance Claims are that over 40 million people have already lost their jobs.
As new coronavirus cases were detected in California and the ‘shelter-in-place’ mandate was extended, a sharp sales decline increased unsold inventory – leading to a balanced real estate market. The COVID-19 pandemic kept both buyers and sellers on the sidelines in the California housing market. Many potential sellers delayed putting their homes on the market, which led to fewer new listings. Some buyers were excited and decided not to enter the market due to their weak financial condition. California home sales experienced the worst month-to-month sales decline in more than four decades.
According to C.A.R, home sales dropped sharply in April from both the previous month and year as the housing market began to feel the full impact of the state’s stay-at-home order.
This was because of a decline in open houses and home showings that are impossible to hold in such conditions. Existing, single-family home sales totaled 277,440 in April on a seasonally adjusted annualized rate, down 25.6 percent from March and down 30.1 percent from April 2019. Additionally, sales in escrow were also delayed by the closure or limited availability of all the essential services related to a home sale.
The statewide median price remained above the $600,000 benchmark for the second consecutive month in April, price growth showed clear signs of softening when compared to the past six months. The April statewide median price of $606,410 for existing single-family homes in the state dipped 1.0 percent from March, and the 0.6 percent gain was essentially flat from April 2019, when the median price was $603,030. The year-over-year price gain was substantially smaller than the six-month average gain of 7.8 percent recorded between October 2019 and March 2020.
California home sales fell to the lowest level since the Great Recession as the housing market suffered the full impact of the coronavirus pandemic in May, according to a June 16 release by CALIFORNIA ASSOCIATION OF REALTORS®. As housing demand in California fell sharply in May, home prices also took a dip. The median home price fell below last year’s price for the first time since February 2012 and breaking the state’s 98-month year-over-year price gain streak.
All major regions dipped in sales by more than 35 percent from last year. The Bay Area and Central Coast dropping the most at -51.1 percent each. Southern California home sales dropped by -45.6 percent, and the Central Valley by -36.6 percent. Existing single-family home sales were down by 13.9 percent from April and down by 41.4 percent from May 2019. May’s statewide median home price was $588,070, down 3.0 percent from April and down 3.7 percent from May 2019. Year-to-date statewide home sales were down 12.9 percent in May.
Median prices continued to dip in May from last year in the Central Coast and the Bay Area but inched up slightly in the Central Valley region. The median home price was virtually unchanged in Southern California. The unsold inventory index jumped to 4.3 months in May from 3.4 months in April and was up from 3.2 months in May 2019. Total active listings continued to decline on an annual basis for the 11th consecutive month.
The 34 percent year-over-year decrease in listings was the biggest drop since March 2013. The median number of days it took to sell a California single-family home dipped to 17 days in May from 18 days in May 2019. C.A.R.’s statewide sales-price-to-list-price ratio was 99.7 percent in May 2020, up slightly from 99.3 in May 2019.
After the California real estate market suffered its worst month in 13 years, California’s Realtors and landlords saw a big rebound in June. The housing markets in Los Angeles, San Francisco, San Jose, San Diego, and Sacramento saw the biggest recovery. Home Sales were up 42.4 percent from May and down 12.8 percent from June 2019. The luxury market suffered the most with more than 50% drops in sales. Sales Price to List Price Ratio of 99.5% in June means homes are selling very close to their listing prices.
June’s statewide median home price was $626,170, up 6.5 percent from May and up 2.5 percent from June 2019. Throughout the state, single-family home prices rose 6.5% to $626, 170, or a rise of $38,000 from the previous month. Sales grew 42.5% from May. California condo prices rose 4.6% and month-to-month sales increased by 68.5%. Condo prices have risen 4.6% YoY while sales slumped 16.2%.
The return in the COVID-19 cases remains a concern across the nation and California, and it may hinder the housing market’s recovery in the second half of 2020. Meanwhile, the lowest ever mortgage rates have been able to increase buyer activity, which in turn may help to sustain the rise in sales in the coming months.
After falling to the lowest level since the Great Recession, continued to improve in August as home sales climbed to their highest level in more than a decade. The median home price broke last month’s record and hit another high, according to the September 16 release by C.A.R.
Existing, single-family home sales totaled 465,400 in August on a seasonally adjusted annualized rate, up 6.3 percent from July and up 14.6 percent from August 2019. August’s statewide median home price was $706,900 up 6.1 percent from July and up 14.5 percent from August 2019. Year-to-date statewide home sales were down 6.8 percent in August.
The California housing market outperformed expectations in September, breaking a record high median price for the fourth straight month. Existing, single-family home sales totaled 489,590 in September on a seasonally adjusted annualized rate, up 5.2 percent from August and up 21.2 percent from September 2019.
September’s statewide median home price was $712,430 up 0.8 percent from August and up 17.6 percent from September 2019. Year-to-date statewide home sales were down 3.7 percent in September. The home price exceeded the $700,000 mark for the second consecutive month.
Existing, single-family home sales totaled 484,510 in October on a seasonally adjusted annualized rate, down 1.0 percent from September and up 19.9 percent from October 2019. October’s statewide median home price was $711,300 down 0.2 percent from September and up 17.5 percent from October 2019. Year-to-date statewide home sales were down 1.3 percent in October.
Existing, single-family home sales totaled 508,820 in November on a seasonally adjusted annualized rate, up 5.0 percent from October and up 26.3 percent from November 2019. November’s statewide median home price was $699,000 down 1.7 percent from October and up 18.5 percent from November 2019. Year-to-date statewide home sales were up 1.3 percent in November.
Existing, single-family home sales totaled 509,750 in December on a seasonally adjusted annualized rate, up 0.2 percent from November and up 28 percent from December 2019. December’s statewide median home price was $717,930, up 2.7 percent from November and up 16.8 percent from December 2019. For 2020 as a whole, sales of existing statewide homes were up 3.5 percent from last year.
Existing, single-family home sales totaled 484,730 in January 2021 on a seasonally adjusted annualized rate, down 4.9 percent from December and up 22.5 percent from January 2020. January’s statewide median home price was $699,890, down 2.5 percent from December and up 21.7 percent from January 2020.
Existing, single-family home sales totaled 462,720 in February 2021 on a seasonally adjusted annualized rate, down 4.5 percent from January and up 9.7 percent from February 2020. February’s statewide median home price was $699,000, down 0.1 percent from January and up 20.6 percent from February 2020, according to C.A.R.
Existing, single-family home sales totaled 446,410 in March 2021 on a seasonally adjusted annualized rate, down 3.5 percent from February and up 19.7 percent from March 2020. March’s statewide median home price was $758,990, up 8.6 percent from February and up 23.9 percent from March 2020. Year-to-date statewide home sales were up 17.1 percent in March.
Conclusion
The most important thing to remember is that it is a health crisis – not an economic one. This pattern differs from a standard economic recession, which is a situation in which economic activity falls for 6-18 months and then recovers more slowly. A wave of job losses nationwide will create many distressed home sellers in the California real estate market. Yet this is a buying opportunity for investors who have financing.
The slowdown in what is normally a busy season will cause some realtors to go out of business. Mortgage brokers and lenders will experience a boom in business since record low-interest rates cause a spike in mortgage refinances. We’ll also see a flurry of activity in the California real estate market as people pick up where they left off. For example, those who wanted to move before school starts in the fall aren’t going to wait another year to see what the housing market is going to do.
They’ll rush to showings and try to close on a property, as long as their personal financial situation is stable. We can expect the summer of 2021 to see record activity in the California housing market due to the standard spike in real estate transactions before the school year starts.
On top of this are the young graduates and couples that want to buy their own homes. Plus there will be long-term renters who recognize the opportunity that low mortgage rates represent, searching for homes once they can be pre-approved for a mortgage and visit properties.
There will be a slower economy for a while, but several ongoing trends aren’t going to reverse themselves. Millennials will want to move out of their parent’s homes and into their own. We can’t say there will be a coronavirus-led baby boom, but many families having been stuck inside with their kids will decide they want a larger home, yard, or both.
We can talk about the many people who’ve moved out of California to other states. Yet the state continues to attract immigrants from around the world. And young native-born Americans flock here for high-paying jobs, as well. That isn’t going to change due to the virus. Tech giants expanding to Seattle or Portland haven’t relocated their development hubs out of Silicon Valley.
Furthermore, the demand for rentals in the California housing market remains strong. This is why we don’t expect to see a decline in monthly rents, though housing prices may fall significantly before shooting back up. A secondary effect of the coronavirus outbreak is that it has crimped supply chains around the world and slowed down construction.
This will drive up the value of both new and existing properties in the California housing market since the supply of new and redeveloped properties has been stifled. And there is certainly the possibility the California housing market will see bidding wars on the few available and desirable properties by people who have more margin thanks to historically low mortgage rates.
We can expect a few shifts in the California housing market long-term. Realtors will probably continue to utilize 3D virtual tours, using 360 cameras to capture images of every room in the house. This helps them sell the home 24x7x365, whether or not everyone is stuck at home.
While appraisers, stages, and construction crews can’t work remotely, we can expect far more back-office work in the real estate industry to be done remotely because that’s become commonplace. We can also expect online contract reviews and digital signatures to become the norm because it allows real estate transactions to move forward through some of the participants are at home.
Demand for housing was very strong before the coronavirus hit the U.S. This pandemic is not expected to last nearly as long as the United States subprime mortgage crisis, which was a nationwide financial crisis, occurring between 2007 and 2010.
The sharp sales drop in May was the steepest we’ve seen but there are encouraging signs that show the market is recovering and should continue to improve for the remainder of 2020.
Some of the realtors saw no decline in their businesses even during the peak of the pandemic. According to them, the real estate sector was really active even in the pandemic. The way of operating business has changed. People are working from home. They are using applications like FaceTime to show buyers homes instead of traditional open houses.
Lenders experienced a surge in demand as opportunistic buyers move to take advantage of low mortgage rates. Brett Jennings, the founder of Real Estate Experts, writes, “our market is still thriving” in Santa Clara County, seeing only a few cancellations despite shelter-in-place conditions and the fact that “we have one of the highest counts of active COVID-19 cases in California.”
According to Dr. Svenja Gudell, the chief economist of Zillow Group, when they examined pandemic histories ranging from the 1918 flu epidemic to the 2003 SARS outbreak, they noted that economies “snapped back quickly once the epidemic was over.”
Residential real estate is likely to fare far better than the commercial real estate sector. Sometimes, you have to take advantage of these market disruptions to see that many investors will pump the brakes on investing out of fear and other illogical emotional reasons, while others see the opportunity of having access to more real estate inventory, possibly better pricing, and still historically low-interest rates.
References/Data Sources
https://www.car.org/
https://www.car.org/aboutus/mediacenter/newsreleases
https://www.car.org/marketdata/data/countysalesactivity
https://www.car.org/marketdata/marketforecast
https://www.car.org/marketdata/marketminute
https://www.car.org/marketdata/interactive/housingmarketoverview
https://www.zillow.com/ca/home-values
https://lao.ca.gov/LAOEconTax/Article/Detail/265
https://sf.curbed.com/2020/3/23/21188781/sf-housing-market-coronavirus-covid-19
https://www.washingtonpost.com/business/2020/02/27/mortgage-rates-head-back-down-coronavirus-fears
https://www.cnbc.com/2020/03/18/weekly-mortgage-applications-drop-over-8percent-as-interest-rates-jump.html
https://www.usnews.com/news/business/articles/2020-03-25/business-fallout-companies-in-china-see-delays-in-reopening
https://www.dallasnews.com/business/real-estate/2020/03/25/homeowners-who-cant-pay-their-mortgages-are-getting-help
https://www.wfsb.com/news/businesses-considered-essential-under-stay-safe-stay-home-policy/article_53f8e0d0-6d17-11ea-a04d-57ecbb72c518.html
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