California’s housing market began the 2021 year on a positive note. The state’s favorable trends continued from December into January, as we recorded the highest sales level since 2009. January saw a seasonally annualized rate of 484,730 closed escrow sales for existing, single-family detached homes in California (according to the California Association of Realtors, or C.A.R.). That rate illustrates how many homes will be sold in 2021 if the January sales pace sustains over the course of the year. It’s up 22.5% from January 2020 and plays a major role in the momentum shift of the housing market. But why the California housing market carries 2020 momentum into 2021 is a multi-faceted issue. Let’s explore all the ins and outs:
“Despite an economy that’s slow to recover, the momentum from late last year continued into January, driven by strong growth in California’s core housing markets…Home prices continued to power through the traditional slow season in January with the largest annual price gain in nearly seven years.”-C.A.R. President Dave Walsh
A Bright Outlook
Multiple factors are contributing to the thriving housing market, including multiple COVID-19 vaccines, another fiscal stimulus relief package likely on the way, and historically low-interest rates. The median time on market for California single-family homeowners illustrates a huge shift from 2020 to 2021. In January 2020 the median time on market was 31 days, while January 2021 saw just 12 days on market. Homes are flying off the shelves, which makes it a great time to be a seller.
The other reason it’s a great time to be a seller is the median price increases happening across the board. Every major regions’ median price increased YTY by double digits:
- SF Bay Area 20.2%
- So Cal 15.0%
- Central Valley 14.5%
- Central Coast 18.6%
- Far North 10.5%
That price hike bodes well for California single-home sellers as we make our way through 2021. Whether those numbers sustainable or not remains to be seen.
The Unsold Inventory Index
One area of concern in the current housing market is the unsold inventory index (UII), which remains extremely low at 1.5 months. For comparison, the index was 3.4 months in January 2020. This index means it will take 1.5 months to sell the supply of homes on the market at the current rate of sales.
The other negative aspect of C.A.R.’s analysis is the active listings percentage. Active listings have dropped 53.4% from last year and continued to drop more than 40% on a year-over-year basis for the eighth straight month.
The incredibly low unsold inventory index is also happening because houses simply aren’t being built quickly enough. According to Stan Smith, Director of C.A.R., “It is estimated that we need 180,000 new units of housing every year, just to meet demand…at best, we’re getting maybe 90,000. We’re only adding half of what we need every year, so the deficit continues to grow. That puts pressure on the existing housing stock and causes prices to go up.”
The dearth in inventory also translates to a flood of offers on every property. For example, under normal circumstances, a hot property is likely to receive 4 offers. In today’s market, sellers are inundated with 20+ offers on their property. Consequently, one-third of all listings are now selling for more than their original asking price.
As the vaccine rollout continues, the coming months should be nothing short of intriguing for California real estate agents, sellers, and buyers. Only time will tell whether the momentum from December and January will continue further into 2021.