California Housing Market Expectations for 2021

Posted on January 4, 2021May 31, 2021 by Jason Somers

If you’re thinking about searching for a new home in California, it’s important to understand the current real estate market and what the expectations are for the housing market in 2021. In 2020, the housing market was very strong, which was due in large part to the ongoing COVID-19 pandemic. Around the beginning of March, many market analysts were predicting that the housing market would soon crash as a result of the negative effects of the pandemic. At this time, housing inventory was dropping significantly alongside home sales. Despite the early warning signs that flooded the market, things quickly turned around as interest rates dropped significantly, which resulted in many buyers being pushed back into the real estate market.

A top reason for the healthy market in 2020 was the passing of the CARES Act in late March, which introduced the mortgage forbearance program. This program involves the lender for the mortgage allowing homeowners to reduce their payments or pause them for a specific period of time, which helped to provide some relief to homeowners who were suffering financially from the pandemic. Since then, demand has risen sharply and has surpassed the supply of homes. Because of the increase in demand, home prices have also continued to rise. While the low interest rates are beneficial for the buyer, the higher home values are better for the seller, which means that the market is advantageous for both parties.

Unemployment rates are decreasing as well, which means that many of the homeowners who have used the mortgage forbearance program will take themselves out of forbearance and resume the original mortgage payments. The improving employment rates indicate that the housing market is becoming healthier. Because of the high demand that’s currently taking place within the housing market, new construction is prevalent across the country. While the effects of COVID-19 caused some short delays with the provision of the necessary permits for new construction projects, these delays have become much less frequent over the past few months. When you send in a building permit application to the LADBS, you can expect a relatively quick response. This article provides a detailed overview of 2021 expectations for the California housing market.

Key Takeaways:

• The housing market for 2020 was extremely strong and helpful for both buyers and sellers, but not great for renters.
• The COVID-19 pandemic was eventful because it lowered mortgage interest rates immensely.
• If the economy continues to deteriorate the way it has been in 2020, the housing market for 2021 will continue to be successful for buyers and sellers but renters will struggle due to lack of income.

Buying a House in 2021

The buying market for 2021 will likely continue to be healthy. For the majority of 2020, the COVID-19 pandemic caused mortgage interest rates to be reduced significantly to historic lows. Even though the continued distribution of the vaccine throughout 2021 should lessen the need for exceedingly low interested rates, it’s believed that these interest rates will remain in place for 2021. Towards the end of 2019, the average interest rate for a fixed-rate mortgage with a 30-year loan term was right around 3.99 percent. Last month, the average interest rate for the same mortgage was set at 2.67 percent, which is the lowest average in 50 years.

As a buyer, low interest rates mean that the monthly payment on your mortgage will be lower as a result of you needing to pay less interest on the mortgage. The increased number of new homes that are being created across the country and within California also indicate that now is a great time to buy. The only downside to purchasing a home is that demand currently outstrips supply. The majority of markets are considered to be advantageous to the seller, which means that the seller will have more control over what the home is priced at.

If you’re searching for areas where homes will be relatively affordable, likely the best places to look are the suburbs. Many homeowners within dense urban settings are choosing to move to suburban locations as a result of better home pricing, more space, and an increased number of options for housing. Real estate agents and companies believe that the ongoing pandemic has accelerated the need that many buyers have to leave the city and make their way to the suburbs.

While it’s believed that sellers will continue to have the overall advantage throughout 2021, most buyers should still be able to find the home of their dreams. In the event that the economy doesn’t worsen, interest rates could increase by half a percentage point by the end of the year, which lessens the advantage that sellers will have. If you want to purchase a home and believe that you are financially secure enough to do so, the interest rates are likely at the lowest that they’ll be for many years.

Selling a House in 2021

The main reason why demand for new homes is higher than the number of homes that are on the market is because many homeowners are choosing to keep their homes while the COVID-19 pandemic is ongoing. Since virtual schooling and remote work are necessary for many families, an ample amount of space is needed to accommodate these tasks. Even though low interest rates are mainly beneficial for buyers who want to obtain a mortgage on a new home, low rates also benefit homeowners. When owning a home, it’s possible to refinance a mortgage at a lower interest rate than before.

It’s also important to understand that sellers are typically choosing to turn around and purchase a new home, which means that the real estate inventory doesn’t effectively increase. Despite these reasons to keep a home, selling a home in California is easier than ever. Since interest rates are at historic lows, there are many potential buyers who are searching for the perfect home. Increased buyer competition in the market means that you can dictate pricing for your home and should be able to get it off the market in a short period of time.

In 2020, the average price for a home has increased by around 7.6 percent. In 2021, it’s believed that prices will continue to increase by around 5.7 percent, which means that you should be able to make a substantial profit off of your initial investment. Keep in mind that these averages are based on national predictions and expectations. In California, the average price for a home has increased by more than eight percent. Expectations for 2021 are set to an increase of 5-6 percent. Keep in mind that there’s still a possibility of a minor recession, which could make potential buyers wary to enter the market in 2021.

Renting in 2021

When compared to selling and buying a home, the rental market is faring much worse. Because many restaurants and retail stores have shut down throughout the country, many tenants have lost their jobs and are unable to afford their rent. Just over 75 percent of all apartment households made their December payments in part or in full. At the moment, temporary restrictions have been placed on evictions on the state, local, and national levels. These restrictions will invariably lift in 2021 even as people will continue to struggle to pay rent. While an additional relief package was signed into law in late December, the monetary relief and unemployment assistance were only minor.

Despite the financial struggles that may hurt the rental industry in 2021, many additional rental households will likely be created to meet the rising demand for rental units. This demand will likely continue to increase as a vaccine for COVID-19 is distributed. Keep in mind that the increase in at-home work throughout the pandemic has caused many rental units to expand the common spaces within their communities, which extend to lounge areas, pools, and rooftop decks.

Construction and Development in 2021

The construction and development industry is expected to be healthy throughout 2021 and beyond. Because of the lower interest rates, more buyers are entering the market even though the inventory isn’t high enough to meet demand. To answer this demand, builders are being tasked with constructing a large number of new homes, which equates to much more work for these individuals. While this trend began in 2020, it’s expected to continue in 2021. In November alone, more than 1.5 million homes entered the initial phases of construction.

Since the same time in 2019, the number of newly constructed homes has increased by upwards of 13 percent. For 2021, it’s believed that an increase of nine percent will occur for new home builds. Despite this increase, buyer demand will likely continue to outstrip supply. A core focus when building these homes is to account for home-office space. Private outdoor space is also a primary request among many buyers. Since a large number of buyers are moving to the suburbs, it’s believed that builders will focus on constructing single-family homes throughout 2021.

Final Thoughts on the CA Housing Market for 2021

Expectations for the California housing market in 2021 are relatively strong in all areas. For buyers, the interest rates will continue to be at historic lows, which means that now is a great time to buy. While you will likely need to contend with an increased amount of competition as other buyers search for the right home, the slight increase that’s expected for interest rates in 2021 should reduce the competition slightly. As for sellers, 2021 is looking to be just as advantageous as 2020. The high demand among buyers means that you should be able to price your home higher than you otherwise would be able to. Since numerous buyers will likely make offers on your home, you have an ample amount of control over price negotiations.

While the buyer and seller markets are looking to be healthy for 2021, renters should be wary of the effects that the COVID-19 pandemic will continue to have on the ability to pay rent on time. However, the vaccine will be distributed more widely among the population throughout California and the country as a whole, which means that job opportunities should increase and make it more likely that you will be able to make your rental payments on time very month.