The California housing market will continue to rebound from the economic shock of this year’s coronavirus pandemic, thanks to lowest mortgage rates and strong property demand, Realtor economists forecast on Tuesday, October 13.
But persistent economic uncertainty, persistent unemployment and a lack of housing on the market will help contain this rebound.
And that’s assuming there isn’t a major resurgence of COVID-19 cases next year.
The California Association of Realtors’ economic forecast for this year examines several scenarios to predict whether home prices and sales will rise or fall next year.
In CAR’s “most likely” scenario, median prices for existing homes, which represent two-thirds of the market, will rise 1.3% next year, reaching $ 648,760, according to forecasts.
Sales – which have declined over the past three years – are expected to increase 3.3% to 392,500 single-family transactions. Even at this rate, sales would still be 1.4% below 2019 levels.
âWe are in a recovery. We’ve definitely seen an improvement, âCAR chief economist Leslie Appleton-Young said at the trade group’s annual convention, held online this year. âBut the momentum has slowed down. â¦ There is still a large group of people who need support.
The most likely scenario assumes that a COVID-19 vaccine will be available in the first half of 2021, and just a modest increase in cases over the coming winter.
But things will be much different if the vaccine is slow to arrive or if there is a new resurgence of cases.
The worst-case scenario would happen if there were also an increase in foreclosures, zero economic growth, and Congress remained deadlocked on federal economic stimulus plans. If these things happened, the forecast would drop to a 9.8% drop in home sales and a 16.4% drop in the median home price.
“If that comes to pass, it looks like an environment where sales continue to decline this year and next year as well,” said Jordan Levine, deputy chief economist of CAR.
Despite this, low mortgage rates should continue to fuel price growth. CAR predicts that the 2021 average rate for a 30-year fixed-rate mortgage will be 3.1% next year, up from 3.2% this year.
The number of homes on the market – down 50% in 2020 – is expected to remain low over the coming year, putting more upward pressure on prices.
Southern California will likely experience a trend similar to the statewide trend, Appleton-Young said.
This year’s median home price – or the price in the middle of all sales – is expected to rise 8.1% from 2019, in part due to strong sales of more expensive homes, pushing up overall averages. .
While home values ââhave increased in all price segments this year, the strongest price growth has occurred in the top 20% of the market, Appleton-Young said. That’s because professionals and other high-income people haven’t been hit as hard by the pandemic as tenants and people working in the restaurant, hotel and hospitality industries.
CAR economists also do not predict that the economy will regain full strength next year, even in its most likely scenario.
U.S. GDP will grow 4.2% in 2021 after an expected 5% decline this year. Jobs in California are expected to increase 0.5% in 2021, following a forecast loss of 12.7% this year. And the state’s unemployment rate will still be 9%, down from the projection of 10.8% this year.
âEven in our baseline scenario, we still have a lot of healing to do,â Levine said.
Foreclosures are also expected to increase next year, but not as much as they did during the Great Recession.
For example, CAR economists have predicted that bank-owned homes will account for between 5% of next year’s listings in the best-case scenario to 30% in the worst-case scenario.
By way of comparison, 60% of homes sold in early 2009 belonged to banks, with price discounts of around 60%. The worst-case scenario for next year is 40% discounts for foreclosed homes.
Ultimately, the housing market ends 2020 in a much better shape than expected, Appleton-Young said. For example, home sales went from a 41% drop in May to a 15% increase in August, according to figures from the CAR.
âThe return that is coming back has been absolutely stunning,â said Appleton-Young. “There’s just a lot of uncertainty, so we tend to be conservative looking at next year.”