Since the start of the pandemic, I have been sharing details from the excellent reports provided by the California Association of Realtors (C.A.R.). Their data is very dependable, and it helps me see real estate with a little more breadth beyond just the South Bay.
There were three recent reports released by C.A.R. in the past week that are worth sharing.
- September Home Sales and Price Report
- C.A.R. 2021 Forecast with Leslie Appleton-Young
- Coronavirus “Week 33” Notes/Data
Although all real estate markets are local, I think it is worth taking some of the broader data into account when assessing our real estate market.
September Homes Sales & Price Report
The absolute biggest news from the C.A.R. September report was the statewide median price surge.
Median home prices reached a record $712,430 this past month, which is up an incredible 17.6% from September 2019, when prices were sitting at $605,680. That is simply incredible.
If you think the beach cities and Palos Verdes markets are tough, try being a buyer in other areas of the state.
Year-to-date statewide sales were down just 3.7%. I find that very encouraging considering the low inventory and the fact that sales plummeted for two months during the stay-at-home order.
The President of C.A.R., Jeanne Radsick, quoted: “…with many employers allowing the flexibility of working remotely, homebuyers now also have the option of searching in less expensive areas where homes are more affordable and buyers can get more home for their money.”
That is being highlighted in the data for “resort communities” where migrating San Franciscans have pushed South Lake Tahoe sales up by triple digits (up 105.4%). Right now, we also have Manhattan Pacific agents in San Diego presenting offers from northern California buyers on homes down south.
C.A.R. Chief Economist, Leslie Appleton-Young quipped: “…with the shortest time on market in recent memory, an alarmingly low supply of homes for sale, and the fastest price growth in six and a half years, the market’s short-term gain can also be its weakness in the longer term as the imbalance of supply and demand could lead to more housing shortages and deeper affordability issues.”
I am a huge proponent of watching affordability numbers, but if interest rates stay this low, prices will have to climb even higher before lack of affordability starts to take hold.
For now, it seems California real estate is not showing any signs of slowing down.
C.A.R. 2021 Forecast with Leslie Appleton-Young
The funny and quick-witted Leslie Appleton-Young shared the C.A.R. team’s yearly forecast.
First off, Leslie shared a photo of someone blindfolded and throwing darts at a board. Ha! That said, she did say that they have a lot of data analytics that go into making these forecasts. It is impossible to predict, but they probably have the best tools to make an accurate forecast.
How do you forecast a pandemic? And, how do you forecast in a current pandemic?
Simply stated, the Coronavirus is the biggest wildcard for 2021.
Appleton-Young and her team shared a lot of data and I am happy to send you the 100-page PDF report if you would like to view it. To make the forecast digestible here, I will share their base case forecast and assumptions…and, some worst case numbers, so you can protect yourself to the downside if you’re conservative with your portfolio or purchases.
Base Case (Mort Likely) Forecast:
- Sales up by 3.3% in 2021, but below 2015 – 2018 sales numbers
- Median price will continue to climb but at a more muted pace of 1.3% (whereas they are projecting 2020 prices to finish up by 8.1%)
- Housing Affordability Index will stay in line with the past two years of around 31%
- 30-Year mortgage rates in 2021 will be even lower at 3.1%, compared to 2020 at 3.2%
Key assumptions for the base case:
- Vaccine available in the first half of 2021
- No COVID-19 surge this flu season (just a modest rise)
- GDP growth rate of 4.21%
- Interest rates hold at incredibly low rates around 3.1%
- Same lower inventory levels
- Foreclosures stay at low levels (< 8% of sales in 2021)
Worst Case Forecast:
- Sales down by almost 10%
- Median prices slip by 16.4%
- Housing Affordability Index to 41% (Richard’s side note: this high number historically indicates an amazing time to buy)
- 30-Year mortgage rates at 3.2%
Key assumptions for worst case:
- Vaccine not available until second half of 2021
- COVID-19 surge during flu season
- California shut down for two months+
- No new federal stimulus in 2021
- Inventory increases by 20-25% from 2020
- Foreclosures come back to Great Recession numbers of 30% of sales
I think most of those assumptions are highly unlikely, and if all of those things happen, then a 16.4% drop in prices is a fairly good result considering the horrible circumstances in the assumptions for worst case.
All in all, forecasts are tough. As always, you will have my annual forecast at the end of the year with much less scientific data and more gut/boots on the ground feelings.
The whole C.A.R. team is of course bullish on California over the very long-term…but, aren’t we all on California real estate?
Coronavirus “Week 33” Notes/Data
C.A.R. puts out weekly notes and numbers during the pandemic to help us navigate this interesting market. Weekly reports are tough to gauge deep insights, but it helps to give us “feel” on if the winds are changing, even if ever so slightly.
Fewer Mortgage in Forbearance
After peaking at nearly 9% of all residential mortgages in the summer, the MBA now estimates that 6.81% of mortgage are in forbearance. There are still 3.3 million households in forbearance, but nearly 1 million fewer are now not skipping payments.
These numbers are never a good thing; however, it is a lot better from where we were.
Weekly Market Data Slowing
The statewide market was unseasonably strong through September, but the average daily closed transactions fell by 15.4% from the previous week. Southern California daily closed transactions fell by 18.7% and new listings and pending sales were trending down as well.
Maybe we are finally getting back to normal seasonality and slowing heading into the winter?
Serious Delinquencies Rising in CA
Despite the better forbearance numbers, the amount of serious delinquencies remains elevated in California. According to data from the MBA, 6.83% of Californians were delinquent by 30 days or more. That translates to 350,000 homeowners behind on payments statewide.
With a foreclosure moratorium in place, foreclosure starts just won’t happen soon, but this could be a medium term risk. I remain skeptical with the large amounts of equity in California homes and strict underwriting standards on loans since the Great Recession.
Worst case scenario, owners can just sell and pay-off the mortgage.
See you next week!