Key highlights from this housing report:
- Home prices in most California cities have risen during the pandemic.
- The state’s median home value hit a record high of $706,900 in August 2020.
- These trends are largely the result of low inventory and strong demand.
- The outlook for California home prices suggests this could continue into 2021.
If you looked at the current California real estate market and nothing else, you wouldn’t know there was still a pandemic dragging on.
In many ways, the California housing market is behaving as if COVID-19 never even happened. Sales are up, year over year. The statewide median home price recently hit another record high. And in some local housing markets across the state, buyers are competing fiercely for scant inventory.
But let’s zero in on home values, in particular. What’s the outlook for house prices in California? Will they keep rising in 2021, as they are now? Or will they level off over the coming months?
Home Price Outlook for California: Into 2021
While no one can predict future economic or real estate trends with complete certainty, one thing seems almost certain. Home prices in California will likely continue to climb for the foreseeable future.
A sharp imbalance between housing supply and demand is putting upward pressure on house values statewide. And that probably won’t change any time soon.
To be clear: This article mostly deals with the median and average home price for the state as a whole, both of which are rising. But there are a few cities in California where prices have leveled off, or even dipped, during 2020. In most of the state, however, house values are currently climbing.
The general-consensus outlook for home prices in California is that they will continue to climb through 2020 and into 2021. Beyond that is anyone’s guess.
But with the current supply-and-demand imbalance across much of the state, it appears likely that California home prices will continue along their upward trajectory through this year and into next. As a result, an ever-growing number of would-be buyers could get priced out of the market.
On September 17, the California Association of REALTORS® (C.A.R.) published a housing market report with two surprising data points:
- By their estimation, the state’s median home price climbed to a record high of $706,900 during the month of August 2020.
- The median price for that month was 14.5% higher than August of 2019.
It’s hard to believe that home values across the state are showing this kind of strength, months into a pandemic that has shaken other aspects of the economy.
But the numbers don’t lie. House prices in California are climbing steadily, for the most part. And the general outlook suggests a continuation of this trend for the foreseeable future.
Driving Factors: Low Inventory and Low Rates
According to C.A.R. Chief Economist Leslie Appleton-Young, low mortgage rates and tight supply conditions are playing a role in the ongoing rise of home values:
“Low rates and tight housing inventory are contributing factors to the statewide median price setting a new record high three months in a row from June to August.”
On the inventory front, housing supply in most local markets across California has dropped since the start of this year. C.A.R.’s Unsold Inventory index (UII) is currently sitting at its lowest level in the last 15 years. The UII fell from 3.2 in August 2019 down to just 2.1 months in August 2020.
Meanwhile, home-buying demand across most of the state remains robust. Data and anecdotal reports from Realtors suggest there is still a high level of demand within the housing market, despite COVID-19.
In their September 17 mortgage rate report, the research team from Freddie Mac wrote:
“Despite the recession, the very low mortgage environment has spurred many first-time homebuyers to jump into the real estate market. In August, first-time homebuyer activity rose 19 percent from July to the highest monthly level ever for Freddie Mac.”
San Francisco Bay Area a Standout
At the regional level, the San Francisco Bay Area has experienced the biggest home-price gain over the past year or so. The Bay Area was also a standout in terms of real estate sales, which is partly why property values keep climbing.
Here’s a region-by-region summary from the C.A.R. report:
- The median home price in the already-expensive San Francisco Bay Area climbed by 18.7% in August 2020, compared to a year earlier.
- Home prices within the Central Coast region (which includes Monterey, Santa Barbara, Santa Cruz and Ventura) rose by 16.4% over the past year or so.
- The Southern California region posted a 12.9% year-over-year increase.
- Home prices in the Central Valley region (which includes Bakersfield, Fresno, Sacramento and Stockton) climbed 12.2% from August 2019 to August 2020.
All but two of the California counties tracked by C.A.R. posted a year-over-year increase in median home price. In 33 of those counties, the median rose by more than 10%. Mono and Glenn were the only counties with a price drop in August, declining -6.7 percent and -2.4 percent, respectively.
Refinancing Still an Option for Many Homeowners
With mortgage rates hovering near a record low, and home prices in California still rising, many homeowners are now in a good position to refinance.
Depending on the mortgage rate you have right now, refinancing could save you a significant amount of money going forward.
According to a recent report from the mortgage data company Black Knight, more than 19 million homeowners across the U.S. are in a position to reduce their current mortgage rates by at least 0.75%. But a lot of homeowners don’t realize the good position they’re in.
Having equity in your home is one of the key requirements for refinancing. And with prices rising across California, more and more homeowners have moved into that “bracket” of eligibility.
Disclaimer: This story includes a home price outlook for California and other forward-looking predictions. Economic and housing-related forecasts are the equivalent of an educated guess and should be treated as such.