California housing market. Are we in another bubble?
All I can say is wow! The housing market continues to out perform itself month over month. But can this continue? What housing predictions do we have for the California, and San Diego, North County San Diego Housing Market? Here’s your monthly housing market update. I’m Tristen Campanella, your local, top producing realtor, here to help you understand all things real estate and San Diego!
According to the Cheif Econonmist for Core Logic – Dr. Frank Nothaft “Lower-priced homes are in big demand and short supply, driving up prices faster compared to their more expensive counterparts. First-time buyers seeking a starter home priced 25% or more below the local-area median saw prices jump 15.1% during the past year, compared with the overall 11.3% gain in our national index.”
COVID-19 Impact on Home Prices
As consumer confidence rebounds and the job market picks back up, the 2021 spring homebuying season is on track to outpace trends seen in 2019 and 2018. Millennials lead the homebuying charge with older millennials seeking move-up purchases and younger millennials entering peak homebuying years. As we look towards the second half of the year, further erosion of affordability may dampen purchase demand as prospective buyers continue to compete for the severely limited supply of for-sale homes. A pick-up in construction and an increase in for-sale listings as more people get vaccinated may help moderate surging home price growth.
Will we have a housing crash like 2008?
According to Yahoo Finance: Today’s housing fundamentals — including supply, demand and overall financial conditions — are markedly different than in 2008, and current conditions are largely sustainable.
- Housing supply is extremely tight — arguably the one factor most dramatically different today from the 2008-era market, when a wave of foreclosures following years of robust homebuilding pushed supply well ahead of demand and led prices to collapse.
- Demand will stay strong as the large millennial generation continues to age into homeownership, and more inventory is expected to soon hit the market — bringing more balance to the market and creating a smoother experience for everyone.
The great reshuffling in housing that began roughly a year ago at the outset of the pandemic — and the heightened housing demand, elevated home sales activity and rapid price appreciation that came with it — is only just beginning, and will not simply end as the pandemic slowly begins to recede. Housing demand will stay strong, sales volumes will continue to grow and more balance between home buyers and sellers will help ensure sustainable health in housing for years to come.
Those with an eye on recent history can’t be blamed for thinking current market conditions are nearing their endgame, with rapid price appreciation and fierce competition for homes eerily reminiscent of the late stages of the mid-2000s housing boom. March marked the largest one-month increase ever recorded in the more than 25-year history of the Zillow Home Value Index — surpassing even the housing run-up preceding the Great Recession — and the 10.6% rise from March 2020 was the largest annual increase in 15 years.
But that view ignores the fact that the housing market doesn’t operate in a vacuum, and is driven by the interactions of a number of relatively simple but critically important fundamentals — including supply and demand, financial conditions and technological advancement. And the state of those fundamentals in 2021 is ultimately far healthier, and that health far more likely to be sustainable over the longer-term, than the out-of-whack fundamentals from a generation ago.
Demand for housing has steadily grown in recent years, driven by a number of factors that are fundamentally different from 2008: longer-running demographic shifts, continued recovery from the Great Recession, and recent pandemic-related housing considerations and low mortgage rates that have pushed demand into overdrive.
Millennials are aging into their prime home-buying ages & overcoming obstacles
Unlike 2008, when a large portion of demand was driven by somewhat artificial factors that ultimately turned out to be unsustainable, including easy access to cheap mortgage financing, demand today and going forward is driven by several largely healthy and durable trends we expect to continue for years.
The first factor driving demand is a huge demographic shift that has been steadily unfolding for the past several years. The massive millennial generation — some 72 million strong in 2019 — the oldest of whom are approaching their 40s, is aging into their prime career-building, family-starting and home-buying years. The median age of first-time home buyers is generally in the early-mid thirties, and there are tens of millions of Americans at or approaching that threshold.
The combined numbers of millennials turning 34 over the next decade — the median age of first-time home buyers in 2019 — is roughly 46 million, the largest such number expected to reach that age in a single decade (The previous record prior to the Millennial generation was in 1989, when there were about 43 million 25-34 year old Boomers). And as millennials age, there are millions more of their younger peers in Gen Z behind them waiting in the wings. It adds up to millions of potential new buyers in years to come — representing “built-in” demand that is extremely unlikely to fade even if market conditions change in coming years.
The pandemic sparked a Great Reshuffling that is in its early stages
In addition to this demographic-driven demand, the coronavirus pandemic itself drove housing demand even higher. Suddenly, many Americans who were no longer commuting and were instead spending almost all of their time at home were left with an entirely new set of criteria when considering what they wanted their home to be.
But rather than acting as a one-time demand stimulus, there are ample reasons to believe these reshuffling and reconsideration trends have only just begun. An overwhelming majority (95%) of experts recently surveyed by Zillow said the consumer preference for working from home at least part-time will be an enduring legacy of the pandemic. Prior Zillow research found that almost 2 million U.S. renters that currently can’t comfortably afford to buy an entry-level home in their current metro area could potentially afford the nation’s typical starter home if they took advantage of increased telework options and moved to a less-expensive locale. As more companies consider making more-flexible work-from-home arrangements permanent, the future boost to demand could be significant.
Historically low mortgage rates boost buying power
This wave of buyers already in or soon-to-enter the market do face challenges given the limited number of homes available to buy (more on that below) and cutthroat competition. But buyers today who can qualify for a loan, save an adequate down payment and find a home to buy do enjoy some advantages over buyers from previous generations — namely, historically low mortgage interest rates, which help stretch buyers’ budgets by keeping monthly payments relatively affordable.
It’s likely these low interest rates pulled some demand forward in 2020 — bringing buyers into the market sooner than they might have otherwise planned so they could lock in a low rate and avoid the possibility that rates would be higher if they stuck to their original timeline. But rather than serving to boost demand today at the expense of tomorrow, the pool of current and coming millennial and Gen Z buyers is very likely more than deep enough to ensure that won’t happen.
Looking ahead, these dynamics working to keep inventory low appear to be changing for the better. More than two-thirds (69%) of a panel of real estate experts and economists recently surveyed by Zillow said they expect inventory will begin to grow in the second half of this year or the first half of 2022, for a number of reasons. Homeowners representing eight million households say they’re more likely to move and sell their home as a result of the pandemic. And widespread coronavirus vaccine distribution will make homeowners in 14 million households feel comfortable moving who don’t necessarily feel that way now.
This shift may already be underway. While the early weeks of 2021 were marked by a scarcity of new home listings as sellers stayed on the sidelines in the face of an uptick in COVID-19 cases and a string of harsh winter weather, our data indicate they are starting to come back. New listings nationwide rose by 30% in the four weeks between late February and late March. A rapid pace of sales meant total inventory continued to decline in March, but the 1.1% monthly decline from February was the smallest since July 2020, and follows much larger monthly drops of 7.5% and 8.1% in February and January, respectively. Locally, inventory was actually up month-over-month in March in 19 of the nation’s 50 largest metros – no large metros experienced monthly inventory gains in February.
Builders, too, are doing their part and ramping up activity to levels not seen since prior to the Great Recession. Home building is not a particularly fast-moving process, and it will take time for builders to fully make up a years-long building deficit — especially as the costs of land, labor and especially lumber and other key materials keeps rising. But builder confidence is near all-time levels, the permit pipeline for future projects is strong and sustainable housing demand is a big reason for this change in fortunes.
All of this adds up to a market that is resting on well-developed, and largely sustainable fundamentals. Just because the headline statistics around rapid home value growth appear the same, rest assured that 2021 will NOT end up as a repeat of 2008. Demand will stay strong, and more inventory will soon hit the market — bringing more balance to the market and creating a smoother experience for everyone. Distressed homeowners and would-be buyers have more of a safety net today than in 2008, and the economic recovery that took years to materialize a generation ago is already underway as vaccines roll out and businesses reopen.
We’ll follow up with a FREE “home seller consultation”. During that you’ll discover: – Exactly what you could sell for (in today’s market) – How you would stack up (against the homes not yet sold) – If doing any repairs or slight modifications could possibly help you net and walk away with more money, or if you how much you could net (and walk away with) if you were to sell. And as a bonus i will send you some off market coming soon homes to help you find your dream home!