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2021 Southern California Housing Market Predictions

First Team Real Estate

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December 23, 2020

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Despite the global pandemic – and nearly everyone’s expectations – the housing market has been booming amid COVID-19. Driven by market conditions of low supply and high buyer demand powered by record-low mortgage rates, home prices have hit all-time highs as motivated house hunters compete for limited inventory.The question is: What will happen in the 2021 Southern California housing market? Will the current seller’s market continue? Will the housing shortage ease up and provide more opportunities for eager buyers? Based on expert opinions and our local expertise, here’s what we predict the 2021 real estate market has in store for buyers, sellers, and homeowners.Home Sales Return to NormalHome sales have reached a frenzied level this year, so going into 2021, we expect sales activity to slow just a bit and return to the usual seasonal schedule. The surge we saw in the fall and winter of this year was driven by our halted spring season when the lockdown and quarantine kept buyers from purchasing and taking advantage of low mortgage rates. In 2021, home sales are expected to return to normal, seeing a spike in spring and summer, and tapering off in fall and winter.

(Slowly) Rising Home Values

Southern California CRMLS data shows that home sold prices have risen 14.6% year-over-year! For comparison, home sold prices rose only 4.1% year-over-year from 2018 to 2019.

Chart showing average selling prices and average sold prices for Southern California real estate, November 2019 to November 2020.

We expect the momentum of home price growth to slow as more sellers feel comfortable listing their homes for sale and mortgage rates have a chance to normalize, and potentially even inch up in 2021 as the economy continues to stabilize. A large number of buyers still in the market will keep the upward movement on home prices, but an increased number of home sellers should lessen the skyrocketing appreciation we saw in 2020.

Slightly More Inventory

The entire country is experiencing a housing shortage that likely won’t be remedied within the short term. Inventory fell to new lows in 2020, in part because of the lockdowns from the coronavirus in the spring when sellers decided to hold on listing their homes. But inventory has been lagging since the Great Recession, with home builders remaining cautious since the market crash and building fewer homes every year.

Chart showing number of homes for sale, sold, and pending in Southern California CRMLS from 11/1/18 - 11/30/20

So while we expect more homeowners to gain confidence and list in the new year now that the presidential election is over and a vaccine is being rolled out, inventory will remain tight for some time. California also passed Proposition 19 which experts say could spur 30,000 more people next year to move, freeing up some inventory and increasing sales by about 12% among older homeowners.

Foreclosures in 2021?

Just because the economy is in the midst of a recession doesn’t mean that the housing market will tank in 2021. The CARES Act has provided foreclosure and eviction protections in 2020, but once forbearance protections run out, the fear is that we will experience another financial crisis as we did in 2008. However, if you look at the amount of equity that homeowners have in their homes, you will see that we’re in a much different place today than we were in 2008.According to a recent report from CoreLogic, U.S. homeowners with mortgages have seen their equity increase by a total of $1 trillion since the third quarter of 2019, an increase of 10.8%, year over year. Additionally, mortgaged residential properties with negative equity decreased by 18.3% from 2 million homes, or just 3.7% of all mortgaged properties, in the third quarter of 2019. Historically, economic recessions do not always lead to declines in real estate values. So while we will see a bit more distressed homes in 2021 once the forbearance period ends, it will pale in comparison to the Great Recession. Our market conditions of low supply and high demand will ensure home values remain strong.

Advice for Home Buyers in 2021

If you’re waiting for the right time to buy – this is it. Based on the supply and demand we’re seeing across Southern California, the longer you wait to purchase, the more home values will appreciate. Additionally, rates aren’t expected to drop any lower in 2021 so if you can afford to buy right now, there’s no reason to continue putting your life on hold. Your home search will take some time, so the best time to start is now.We admit the current housing market is a frustrating place for house hunters, but it’s not going to get much easier for buyers any time soon. The local market is saturated with buyers, especially for the most affordable places to buy Orange County, but it would be unwise to wait and not take advantage of record-low rates and lower home values. Will Rogers once said, “Don’t’ wait to buy real estate. Buy real estate, and wait.” Now more than ever, this advice holds up!

Advice for Home Sellers in 2021

Sellers will continue to have the upper hand in 2021. Home prices are expected to hit new highs, although the pace will slow. Strong demand fueled by low mortgage rates will continue to supply a healthy pool of qualified buyers, but sellers will still need to set reasonable expectations for price in order to have a timely sale. Many homeowners were scared away from a sale in 2020 due to the pandemic, but more and more Southern Californians will be ready to put their homes on the market in 2021. So the sooner you list your home, the less competition you’ll have.