ORANGE COUNTY, Calif. — If a pandemic couldn't slow down Southern California's housing market, what do you think would happen to the market when a vaccine is out and things may return to normal?
Housing experts say to expect the Southern California housing market to continue its torrid pace in 2021.
Low housing supply across the region, record low mortgage rates, and new work from home policies will fuel the region's housing market in 2021, housing experts said.
Southern California is still a place where people want to live despite others leaving the state, "whether it's the silver tsunami or unhappy people with the state's politics," said Aaron Norris, vice president of market insights at PropertyRadar. "With more people working from home and looking for more space, I don't expect a slowdown next year."
The Southern California housing market hit record milestones last year despite the coronavirus pandemic, high unemployment rate, and statewide and local shutdown orders. When the coronavirus pandemic began in mid-March, Orange and Los Angeles counties' housing market initially stopped buyer activity.
In Orange County, demand tanked by 60% year over year from 1,630 pending sales in April 2019 to 1,060 pending sales in April 2020, according to Reports on Housing, a data company specializing in analyzing Southern California's housing market. In Los Angeles, demand dropped 55% during that timeframe from 3,051 pending sales in mid-April in 2019 to 2,479 in 2020.
That all changed in May when mortgage rates began dropping. In May, the 30-day mortgage rates fell to 3.23%, the lowest since 1971 when Freddie Mac began tracking rates. In comparison, in May 2019, the mortgage rate was at 4.14%.
Buyers began to reemerge, and demand for housing increased, Steven Thomas, the chief economist at Reports on Housing said in his monthly newsletter. In just four weeks, pending sales increased by 74% in Orange County and 79% in Los Angeles.
"Despite COVID-19, the record-low mortgage rate environment was the rocket fuel that rocketed the Orange [and Los Angeles] County housing market to its hottest levels in years," Thomas said.
As of December 24, the 30-year fixed-rate mortgage was 2.66%.
"For proper perspective, at the end of 2018, just two years ago, mortgage rates reached 5%," Thomas said. "A $700,000 mortgage at 5% has a monthly payment of $3,758. Today's 2.66% rate has a monthly payment of $2,824, a $934 per month savings."
According to Thomas, low interest rates are making homebuying affordable and boosting demand.
"It is no wonder buyers are still flocking to purchase even with home values rising to record levels," he said.
According to the California Association of Realtors, the median home price sold in Orange County was $930,000 in November 2020, an increase of 13% from $822,000 in November 2019. In Los Angeles, the median home sold jumped 11% year over year from $594,000 in November 2019 to $664,000 in November 2020.
According to Redfin, the median home sale price increased nationwide by 14% year over year to $320,000, and pending home sales jumped 34% from the prior year.
"Going into the new year, it will truly be out with the old because there will be very few homes from 2020 left on the market," said Redfin chief economist Daryl Fairweather in a news release. "So those who resolve to buy a home in 2021 may need to wait with bated breath for sellers to list their homes. Redfin's forecasts suggest the new year will bring many more new listings, but they will likely be snatched up quickly. So if you are a homebuyer, now is a good time to get preapproved for a mortgage, and come up with your wish list, so you can act quickly when your dream home hits the market."
Thomas expects demand to continue into the new year for Southern California.
Additionally, Thomas said low housing supply in the region has many buyers gobbling up homes at a quick pace.
At the beginning of 2020, Los Angeles had 8,025 homes listed, only the third time it fell below 9,000 active listings since 2012, according to his report. Currently, Los Angeles has 8,096 homes heading into the beginning of 2021.
Orange County has fewer homes listed. At the start of 2020, Orange County had 3,692 homes on the market and peaked at 5,044 homes in May. At the end of the year, the inventory has fallen to 2,675 homes.
Thomas called it "an unprecedented, low level of homes to start 2021."
The expected market time, the period when a home is listed for sale to escrow, is currently 37 days in Orange County. It began the year at 82 days.
In Los Angeles County, the expected market time is at 49 days. At the beginning of 2020, it was at 80 days.
Both counties also hit a record number of luxury home sales. There were 5,100 luxury home sales of $1.25 million or more in Orange County in 2020, compared to 4,021 in 2019, according to the report. In Los Angeles, there were 7,700 luxury home sales of $1.5 million or more, compared to the previous record mark of 6,700 in 2018.
"The 2020 record [in Los Angeles] was achieved despite COVID-19 taking a major bite out of closings from April to through June," Thomas said.
Additionally, another tinder fueling the region's housing market was the number of people who began working from home due to the state-mandated shutdown orders to slow the coronavirus spread.
Nonessential businesses were required to have their employees work from home. Inadvertently, some of those employees fled the dense city life and began to seek out larger pastures, Norris of PropertyRadar said.
Many of those workers fled to the suburbs of Orange County, Riverside, and San Diego.
"A $2,300 rent in downtown L.A. can get you into a very nice house in Riverside," Norris said. "If your employer is only going to require you to come in only once or twice a week, all of a sudden, you can take the train, and you can make that work. You can afford to buy a house and plant some roots and have extra income. That's life-changing."
Norris said he's heard from other realtors of people who work in the Bay Area tech scene, where the average home price is $1.6 million, and leaving for homes in other counties with lower housing costs.
"Some are going to San Diego and Orange County where there are major international airports, and the median price of a home is half of the Bay Area's," Norris said. "Even if you hop in and out of a plane twice a month [to go to the office], you're still saving money."
With the coronavirus vaccine being administered next year, Norris said one of the most significant issues to watch is if employers will continue to allow their employees to work from home post-pandemic. Many employers such as Facebook, Microsoft, and Twitter have already announced they would allow their employees to work from home post-pandemic. Others, such as JP Morgan, are embracing a hybrid model of letting workers work from home and come into the office a certain amount of days per week.
"I think people are rethinking their living situation and for jobs that won't allow remote work, that may end up being a job killer," Norris said. "People are deciding to plant roots and rethinking of their living situation."
But it's not to say that downtown commercial business districts are going to go away, according to Norris.
"There's always going to be a market of people wanting to live in the city and downtown areas," he said.
Thomas said in 2021, with the housing supply and interest rates low, housing demand would continue to be hot.
"It will be a hot seller's market from the start of the year through the summer market," Thomas said. "Multiple offers and bidding wars will be the norm for homes priced below $1.25 million. Once again, the market will heavily favor sellers, and buyers will have to pack their patience to isolate their piece of the American dream and take advantage of record-low mortgage rates."