In this topsy-turvey world we’ve been living the past year, we’ve seen our economy and our lives tossed into turmoil. Record low unemployment rocketed to near-record peaks in a matter of weeks. Record GDP performance was followed by one of the steepest quarterly declines in history. A President who presided over both extremes was booted from office amidst demands for more, or less, of everything.
Our housing industry was certainly not immune to these gyrations. Following the lockdown and dismal Q2 sales, 2nd half demand pushed our region to the highest sales volume of the past decade. Record low interest rates and record low inventory lead to record high sales volume and record high price appreciation.
Since the dawn of this Century the housing market remains in uncharted waters. Some of you may recall that Riverside County led the nation in price appreciation between 2003 – 2008 with the median price of a home soaring some 155%, or 30% every year. Of course, that was followed by the great melt-down which saw owners equity evaporate by 2/3 in just 18 months. Nobody was buying and the glut of bank-owned homes threatened to blight the market forever.
We’re now entering our 11th consecutive year of gently appreciating prices, an unusual phenomenon in California where we average a boom and bust cycle about every 7 or 8 years. The key to maintaining this one has been the nature of the appreciation, averaging a sustainable 5% – 6% a year over the past decade.
That has allowed homeowners to gradually build back equity in their homes while avoiding the temptation to refinance every 6 months to squander their cash reserves. That equity cushion is also what will (hopefully) provide the difference between the foreclosure crisis of 2009 – 2010 and the aftermath of what we’re experiencing today.
So, let’s look at some numbers. After finishing 2020 with landmark December sales, as anticipated January volume dipped by 29% (1,149 / 815). However, lest ye despair, January 2021 sales were 17% stronger than January 2020 (679 / 815). That’s a good start and pending sales are up indicating February should remain strong. Realtors continue to report extraordinary activity surrounding new listings with stories of 15 – 20 offers being submitted within hours.
With the recent Fed indication that interest rates will remain low for the foreseeable future, don’t look for demand to decrease anytime soon. Record low interest rates = record demand.
Part 2 – record low inventory = record price. The median price of a home in our region surged 17% over last January ($395,188 / $466,065). Meanwhile inventory continued to shrink – again not unusual for January, but this year it dropped to unprecedented levels. I’ve been tracking statistics since 2004 and the 552 homes for sale in January is less than anything in my trusty spreadsheet – even lower than the 581 for sale in December 2012.
With the drop in sales, ‘months inventory’ notched a tiny increase over the previous month, but still stood at 3 weeks (.7/mo) and marked the 8th consecutive month where sales exceeded inventory. Homes were flying off the market in just 7.1 days, on average.
People that get paid for this kind of stuff are forecasting that inventories will start to expand around mid-year as pandemic fears decline and vaccine efficacy becomes measurable. As sellers worry less about a horde of strangers wandering through their home, more people will be motivated to sell to either move up or move away.
More homes on the market will reduce upward price pressure some even if demand remains at its current level. One hopes that new home construction will also pick back up after a pandemic induced decline. Of course, new homes will also come at a higher price since the cost of raw materials has nearly doubled in some cases, supply lines have been disrupted, and minimum wage increases are pushing labor costs ever higher.
What happens in Sacramento and D.C. will also impact the market in ways yet unknown. Ongoing eviction moratoriums provide relief to tenants but not much help for landlords (yet). Forbearance and deferral programs will (probably) be ending by mid-year and how banks respond to that may provide additional opportunities. Or challenges.
Keep your fingers crossed for sound reasoning to prevail. Yeah, that could happen.
Gene Wunderlich, Vice President of Government Affairs Southwest Riverside County Association of Realtors® SRCAR® . . . the trusted resource for REALTORS® 951-205-1911 – http://srcar.org/