After falling three years in a row, sales of existing single-family homes are forecast to rebound 3.3% in 2021, according to the California Association of Realtors. The median California house price will rise 1.3% to $648,800, the forecast says.
The California housing market will continue to rebound from the economic shock of this year’s coronavirus pandemic, thanks to rock-bottom mortgage rates and strong homeownership demand, Realtor economists forecast Tuesday, Oct. 13.
But continued economic uncertainty, lingering unemployment and a lack of homes on the market will keep that rebound in check.
And that’s assuming there’s not a major resurgence in COVID-19 cases next year.
The California Association of Realtors’ economic forecast this year looks at several scenarios in predicting whether home prices and sales will rise or fall next year.
Under CAR’s “most likely” scenario, median prices for existing houses, which make up two-thirds of the market, will rise a modest 1.3% next year, hitting $648,760, the forecast said.
Sales — which have declined for the last three years — are forecast to rise 3.3% to 392,500 single-family transactions. Even at that rate, sales still would be 1.4% below 2019 levels.
“We are in a recovery. We definitely have seen an improvement,” CAR Chief Economist Leslie Appleton-Young said during the trade group’s annual convention, held online this year. “But the momentum has slowed. … There’s still a large group of people who need support.”
The most likely scenario assumes a COVID-19 vaccine will be available in the first half of 2021, and just a modest rise in cases in the coming winter.
But things will turn out far differently if the vaccine is slow to arrive or there’s a new resurgence in cases.
A worst-case scenario would occur if there’s also a rise in foreclosures, zero economic growth, and Congress remains deadlocked over federal economic stimulus plans. If those things were to occur, the forecast would shift to a 9.8% drop in house sales and a 16.4% drop in the median house price.
“If that comes to fruition, it looks like an environment where sales continue to fall this year and next year as well,” said Jordan Levine, CAR’s deputy chief economist.
Even so, low mortgage rates are expected to continue to fuel price growth. CAR forecast the average 2021 rate for a 30-year, fixed-rate mortgage will be 3.1% next year, down from 3.2% this year.
The number of homes on the market — down 50% in 2020 — are expected to stay low in the coming year, creating more upward pressure on prices.
Southern California likely will see a similar pattern to the statewide trend, Appleton-Young said.
This year’s median house price — or price at the midpoint of all sales — is projected to rise 8.1% from 2019, due in part to strong sales of higher-priced homes, pulling up the overall averages.
While home values rose in all price segments this year, the biggest price growth was in the top 20% of the market, Appleton-Young said. That’s because professionals and other high-income earners weren’t hit as hard by the pandemic as were renters and people working in the restaurant, hotel and hospitality sectors.
CAR economists also don’t foresee the economy getting back to full strength next year, even under its most likely scenario.
The U.S. GDP will rise 4.2% in 2021 after a projected drop of 5% this year. California jobs are forecast to increase 0.5% in 2021, following a projected loss of 12.7% this year. And the state’s unemployment rate still will be 9%, down from this year’s projection of 10.8%.
“Even in our baseline scenario, we’ve still got a lot of healing left to do,” Levine said.
Foreclosures also are projected to rise next year, although not nearly to the degree they did during the Great Recession.
For example, CAR economists projected bank-owned homes will make up between 5% of next year’s listings in a best-case scenario to 30% in a worst-case scenario.
By comparison, 60% of homes selling at the start of 2009 were bank-owned, with price discounts in the 60% range. A worst-case scenario for next year foresees discounts of 40% for foreclosed homes.
Ultimately, the housing market is ending 2020 in much better shape than anyone expected, Appleton-Young said. For example, house sales shifted from a 41% drop in May to a 15% gain in August, CAR figures show.
“The recovery coming back has been absolutely stunning,” Appleton-Young said. “There’s just a lot of uncertainty, so we tend to be conservative looking at next year.”