Housing Perspective Q3 2020

Blog Post Image
Real Estate

The housing market is a rare bright spot in an economy that is slowly recovering. Despite a poor performance in the first half of the year, home sales bounced back from a dismal second quarter with a quarterly increase of 62.7 percent in the third quarter, as the number of existing single-family home sales reached the highest level recorded in over 10 years. With pending sales remaining strong in September, momentum will likely be carried forward to the last quarter of the year. With motivated homebuyers eager to take advantage of record low rates, home sales in the second half of 2020 are on track to log in a near double-digit gain from a year ago.

Assuming that a vaccine or a cure for COVID-19 will not be available for mass distribution until early 2021, the economy will continue to be in recovery mode and interest rates will remain near historical low levels for most of next year. A favorable lending environment will continue to benefit the housing market and fuel housing demand further as economic conditions improve. Tight supply will put a cap on sales growth, however, as homes sold in California are expected to rise modestly by 3.3 percent in 2021.

Home prices have been experiencing robust gains so far in the second half of 2020 and will continue to have a solid growth for the rest of the year. With housing supply being tighter in more affordable markets and the economic downturn having a bigger adverse impact on lower-priced segments, the mix of sales will continue to skew towards higher-priced properties and push median prices upward in the last quarter of 2020. While the imbalance between supply and demand will be less intense as the market transitions into the off-season, the statewide median price will continue to rise on a year-over-year basis in the fourth quarter and will reach a new annual median high in 2020.

Further price increase is expected in 2021, but the pace of growth will be more moderate. The normalization of the mix of sales as the economy recovers, an increase in foreclosed properties as mortgage forbearance is lifted, a shift in housing demand to more affordable suburban areas as remote working policies are more widely adopted, and an increase in sales of rental properties due to heighten concerns in recent eviction policies, are all reasons that will keep prices in check and prevent the statewide median price from rising too fast next year. The lingering effect of COVID-19 and the wearing-off of the government stimulus could also add more downward pressure on prices. As such, while supply constraint and low rates will continue to provide support to home prices, the statewide median price is projected to increase only slightly in 2021.Ā 

brokerktr@gmail.com C: (760) 774-0477