As we close out 2020 and reflect back, it is clear that despite losing roughly two months of the spring homebuying season, the housing market was strong in California this year. And, although the housing market has cooled during the final week, there are still many reasons to be optimistic about home sales and prices in 2021. First, ‘cooling’ is relative and the market remains well ahead of 2019 levels. All indications are that rates will remain relatively low and the economy should heal as the public health crisis abates next year. This means that we can expect more demand for homes in 2021, not less. However, this crisis has also exacerbated California’s long-standing structural issues, and it has become absolutely imperative that we find real and immediate solutions to the supply crisis. If we don’t, California’s economic challenges are only just beginning.
Buyer Demand Cools, from Boiling to Just Really Hot: Perhaps due to the holidays, uncertainty about the relief efforts that were ongoing last week, the recent rise in unemployment claims, the newly imposed stay at home orders, or some combination thereof, buyer demand cooled sharply over the past week. Last week, C.A.R. reported that mortgage applications were up by more than 26% on an annual basis and that private showings were running 200% + ahead of 2019 levels. But this week, private showings slowed to only 60% ahead of last year’s pace. In short, California is still seeing much more buyer demand than is typical for a year-end.
Next Round of Relief On Its Way: This week, the President signed into law the latest round of coronavirus economic relief. This package extended critical support programs for workers, small businesses, and households. It will also provide some rental relief, which should help both renters and landlords alike. There is still significant financial distress and work do be done (particularly on rental relief), but this is an important step in providing the bridge to more normalized economic activity once the vaccine has been broadly distributed some time in the second quarter of 2021.
Rates Hit Another New All-Time Low: Interest rates remain the accelerant in the market through year’s end as the 30-year fixed-rate mortgage hit its 15th all-time low again last week. According to Freddie Mac, the typical rate during the holiday week was just 2.66%. That is down only 1 bps from the week before, but rates have now been below 3% for 22 consecutive weeks providing a tremendous boost to purchasing power for consumers. This is also likely resulting in more competitive offers driving up home prices as well.
Stay At Home Orders Extended as Medical System Strains: The State of California extended its stay at home order until late January this week as the number of new infections, deaths, and critically, hospitalizations, increase dramatically after the holidays. The vaccines have begun to roll out in earnest to front line healthcare workers and vulnerable populations, but we are still several months out from the widespread vaccination that are needed for ‘herd immunity’ to allow for more normal economic interactions.
Sobering California Population Data Released Recently: C.A.R. has long been advocating for more housing supply, arguing that a lack of affordability and persistent homeownership gaps could ultimately lead to problems with housing demand in California. And, while population growth has been slowing dramatically in recent years, 2020 was the first year in more than 100 years where the Census reports that California saw its population decline. Additional estimates from the Department of Finance show that outmigration accelerated this year and outmigration was larger than foreign immigration, so new births were the only net increases we experienced. This creates tremendous economic challenges moving forward and underscores the need for real housing supply solutions right now—particularly as increased flexibility and remote work become, at least partially, a permanent feature of the labor markets.
Article is contributed from CDAR