3 Reasons Southern California is Definitely Not in a Housing Bubble

According to statistics from the California Association of REALTORS®, statewide median home prices reached $717,930 in December 2020, up 16.8% from December 2019. With home values appreciating so rapidly, some are concerned that we may be in another housing bubble like the one we experienced back in 2008. However, let’s review three simple reasons why this market couldn’t be more different.

  1. There’s a housing shortage

The basic principles of supply and demand set the price of everything, including real estate. If supply is low and demand is high, prices naturally increase. Across Southern California, that’s what we’re currently experiencing, also known as a seller’s market. During the last housing bubble, it was a buyer’s market with an overwhelming amount of inventory.

According to Trendgraphix data as of January 2021, we have just 1.1 months of inventory across SoCal, and yet pending and sold transactions are remaining strong with tons of buyer demand. For comparison, between 2006 and 2008, the supply of inventory shot up from just over 5 months to 11 months of inventory! Low inventory is just one of the reasons why the real estate market is booming right now.

  1. Homebuyer demand is real and strong

In the last housing bubble, there was unfounded market optimism, but not true homebuyer demand. The mortgage industry fed into the frenzy by making home loans available to just about anyone with subprime lending practices. The stock market (S&P 500) lost over 40% from its year 2000 peak to 2003.  Many stock investors were fleeing the market and artificially driving up real estate prices. Today, demand is real with historically low rates are encouraging buyers to enter the market.

Millennials are officially ready to enter the housing market and, according to the latest National Association of Realtors (NAR) Profile of Buyers and Sellers, they make up the largest segment of homebuyers. The average millennial turned 32 last year, coinciding with the median age of a first-time homebuyer, which is 31. The pandemic has also fueled a desire to own, trending away from big cities and toward suburbs, making Southern California an even more desirable location.

  1. Homeowners are equity rich

According to the latest ATTOM Data Solutions U.S. Home Equity Report, 17.8 million residential properties were considered equity-rich, meaning that the combined estimated amount of loans secured by those properties was 50% or less of their estimated market value. In fact, California was among the top five states with the biggest equity gains, where equity-rich homeowners rose from 39.7% in the third quarter of 2020 to 46.1%.

The housing market is nothing like 2008, with no bubble in sight. With low supply and high demand, the Southern California real estate market is healthy and strong, presenting great opportunities especially for home sellers in 2021. Reach out for a free consultation if you’d like to explore how much you stand to gain from a home sale.

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