In times of economic uncertainty, home buyers are often reluctant to move forward with their purchasing plans. Right now, all across the Golden State, many would-be buyers are asking the same question:
Is now a good time to buy a house California?
A Good Time to Buy a Home in California?
Below, we’ve outlined five reasons why it could be a great time to buy, followed by two areas of potential concern for California home buyers.
On the plus side, borrowers are currently enjoying some of the lowest mortgage rates in history. Also, the real estate market has held up well under the enormous stresses of the past six months, and will likely continue to show strength.
On the downside, the state is still experiencing a high level of unemployment coupled with low housing inventory. These are very real concerns for some home buyers.
Let’s start with the positive factors. Here are five reasons why it could be a good time to buy a home in California.
1. Mortgage rates are ridiculously low right now.
This week, the average rate for a 30-year fixed mortgage loan dropped to 2.91%. The average rate for a 15-year fixed mortgage fell to 2.46%. That’s based on the weekly survey conducted by Freddie Mac.
Those are ridiculously low interest rates for a long-term mortgage loan. In fact, they are currently hovering near a 50-year historical low.
According to a statement from Freddie Mac’s research team, published earlier today:
“This year has been anything but normal and as the uncertainty lingers, mortgage rates remain near record lows. These rates continue to incentivize potential buyers and the home buying season, which shifted from spring to summer, will likely continue into the fall.”
Industry forecasters, including those at Freddie Mac, expect rates to remain low for the foreseeable future. So there doesn’t appear to be a sense of urgency here, in terms of locking in a low rate.
The takeaway: Home buyers in California who buy a house during the last few months of 2020 have a chance to lock-in some of the lowest mortgage rates we’ve seen in 50 years. That’s one reason why now could be a good time to buy a home in California.
2. The housing market has help up through the pandemic.
Back in April of 2020, when the coronavirus pandemic was exploding within the United States, real estate sales in California ground to a halt.
But a lot has changed since that. During the months that followed, home-buying demand surged all across the country. Apparently, a lot of people still want to buy homes in California and nationwide.
According to Rubeela Farooqi, chief U.S. economist at High Frequency Economics:
“Home sales continue to see a bounce reflecting low mortgage rates as well as stronger demand as more and more people work from home and opt for larger spaces.”
An August 2020 report from the California Association of REALTORS® (C.A.R.) also showed strong demand among buyers. It revealed that single-family home sales in the state rose by nearly 29% in July 2020 compared to the previous month. Sales were up by 6.4% year over year.
Similarly, an August 26 report from the Mortgage Bankers Association showed that purchase loan applications (from buyers) were “33 percent higher than the same week one year ago.”
These and other indicators show that home-buying demand remains strong across the nation.
Home prices have also held up surprisingly well in California, despite the economic effect of the coronavirus pandemic. We’ll talk more about that below, under item #4.
The takeaway: The real estate market continues to show surprising strength, at a time when other aspects of the economy have faltered. It’s another reason why now could be a good time to buy a home in California.
3. You can choose a home that supports a modified lifestyle.
Most of us have changed the way we live and work in response to the pandemic. For example, there are a lot more people working from home these days.
The remote work “revolution” could continue for the foreseeable future. Many high-profile companies (including Twitter) have stated they have no intention of going back to a normal office-type environment anytime soon.
We’ve also seen evidence that some home buyers are shying away from crowded cities in favor of suburbs and rural communities. That’s a byproduct of the social distancing world we find ourselves in today.
When buying a home, you have an opportunity to choose a property that supports a new or modified lifestyle. It gives you a chance to “reboot” and start over in a new place, ideally one that will serve you well going forward.
The takeaway: A change of lifestyle often requires a change of residence. And with mortgage rates hovering near a historic low, now could be a good time to buy a home and make that change.
4. Home prices will likely hold up through the pandemic.
It’s rarely wise to make a home purchase at a time when prices are dropping. In that kind of scenario, homeowners can lose equity from day one — maybe even find themselves upside down in their mortgage loans. This is a legitimate concern during times of economic turmoil.
But we haven’t seen that within the California real estate market.
In fact, the opposite is happening. Home prices in most cities across the state are still rising, whether you measure it month-to-month, or year-over-year.
Granted, there are a few cities where prices appear to be leveling off and might even dip over the coming months. But they’re an exception to the rule, and any downturn will likely be short-lived.
For most cities across California, home prices are still climbing even months into a global pandemic. It’s hard to believe, but true.
According to the C.A.R. report mentioned earlier:
“California’s median home price reached $666,320 in July , jumping 6.4 percent from June’s $626,170 and 9.6 percent from $607,990 in July 2019. The monthly price increase was higher than the historical average price change from June to July and, in fact, was the highest ever recorded for a June-to-July change.”
Nearly all counties in California posted a year-over-year price increase in July. Twenty-three of those counties saw a price increase of more than 10%, which is pretty incredible when you consider the times we are in.
This is further evidence that the California real estate market is holding up well, despite a shakeup in other areas of the economy.
The takeaway: From an investment standpoint, now could be a good time to buy a home in California. House values in most cities are still rising, and current supply-and-demand conditions could bolster them going forward.
5. You’ll probably pay more if you wait a year or two.
Mortgage rates are incredibly low right now. We’ve covered that. But there’s no telling how long they will stay that way.
Eventually, the U.S. economy will start to gain ground again. And when that happens, the Federal Reserve will likely increase the federal funds rate it has held near zero for the past few months.
Granted, Federal Reserve policy does not affect mortgage rates directly. But it certainly has an indirect influence. The short version is that mortgage rates tend to follow the up or down movements of the federal funds rate, which is controlled by the Fed’s policy team.
Home prices are a different story.
As noted above, house values across much of California are still climbing as of August 2020. And they’re expected to continue rising over the coming months.
That brings us back to the question at hand. Is now a good time to buy a home in California? Buyers who postpone their purchases until next year will likely pay more for a house, due to ongoing appreciation. They could miss out on historically low mortgage rates as well.
The takeaway: No one can predict future economic or housing-related conditions with certainty. But the way things are going, it seems that the best deals are to be had now — not down the road.
Areas of Concern: Unemployment and Inventory
It would be a disservice to focus on all of the good news while avoiding the bad. So let’s look at a couple of areas of potential concern for home buyers in the Golden State.
High unemployment and low housing supply could affect many California home buyers through 2020 and into 2021.
1. Unemployment still a problem for many Californians.
COVID-related shutdowns imposed by the government have shaken up California’s economy and led to significant job losses. That’s the bad news. The good news is that the state’s economy added jobs from May to June of this year.
As the Employment Development Department wrote earlier this month: “California’s unemployment rate improved to 14.9 percent in June as the state’s employers added a record 558,200 jobs.”
(There’s a data lag with these types of reports, hence the June reporting cutoff above.)
Granted, double-digit unemployment is nothing to brag about. But any positive trend is worth celebrating at this stage.
Most home buyers in California use mortgage loans to finance their purchases. That means they need some form of income to keep up with their monthly mortgage payments.
Which brings us back to that key question: Is now a good time to buy a home in California?
This will largely depend on your employment and income situation. If you feel that you have a stable income situation now — and a reasonable expectation for continued employment and income — now could be a good time to buy. You’ll certainly benefit from today’s low interest rate environment.
2. Tight supply could make house-hunting harder.
According to the C.A.R. report mentioned earlier, California is experiencing even more of a housing shortage now than it was before the coronavirus crisis.
In this context, we’re talking about the number of homes for sale relative to the number of buyers who are actively seeking them. The short version is that there aren’t enough properties listed for sale right now to satisfy the demand from buyers.
This is not necessarily a dealbreaker, from a home-buying perspective. It’s just something buyers should be aware of, going forward.
Due to current low inventory levels, home buyers in many housing markets across the state could have a hard time finding the right house at the right price. So it’s important to be open-minded and flexible when house hunting.
So there you have them: five reasons why now could be a good time to buy a home in California, along with two areas of concern.