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Signs Of The Housing Market Normalizing August 2021


Signs Of The Housing Market Normalizing August 2021

“We are shifting our tone on the housing market based on our analysis of proprietary data showing early signs of a cool down”

The California housing market is starting to show signs that is beginning to shift away from a complete seller's market.

The median house price for 2021 still will be up nearly 21% and sales will show an 8% jump over 2020 levels, thanks to the first half’s white-hot home-buying frenzy, California Association of Realtors economists said Wednesday, July 28.

By year’s end, the 2021 median price of an existing single-family home is forecast to be $795,600, up 20.7% from the 2020 median. That’s a gain of $136,000 from last year – and a gain of almost $300,000 over the past five years, surpassing the pre-crash price run-up to 2007.

The median is the midpoint of all sales, with half the homes selling for more and half selling for less.

This year’s house sales are forecast to reach 444,500 transactions, up 7.9% to the highest tally in 12 years.

Underpinning the buying frenzy during the first half of 2021 were record-low mortgage rates and a drop in the number of homes on the market, CAR economists said.

For sale listings were down by at least 40% during the first five months of the year, CAR figures show, but they are projected to increase over the summer and fall when home buying typically slows and housing inventory typically rises. That will translate into “more normal” price and sales growth going forward.

“We do see the market as normalizing,” CAR Chief Economist Jordan Levine said.

The average person would be tired if you put in 15, 20 offers and are getting outbid by the competition. Even under normal conditions, the buyer-broker relationship has aspects of a therapy session, with buyers projecting their hopes and dreams on a house and agents trying to translate and temper those desires. These feelings only become heightened when large sums of money are involved. But brokers are doing extra hand-holding these days as buyers get their hopes crushed and lose faith.

Levine said the COVID-19 pandemic was a key driver of the past year’s housing boom, dividing the job market into two segments.

“I think we're beginning to start seeing some of that reversion back to norm, because quite frankly, you can't see sales increasing 25% a year or home prices going up 20% a year”

Workers in restaurants, retail, leisure, and hospitality sectors saw jobs drop from 42%-77% during the pandemic. On the other hand, those in the information, health care, manufacturing and professional and technical segments of the economy saw job gains in the 45%-86% range. The logistics sector saw employment nearly triple, thanks to the expanded reliance on online shopping.

Demand grew for bigger houses, with the average size of a sold home jumping from a pre-pandemic average of 1,755 square feet to 1,859 square feet during the summer of 2020.

First-time buyers accounted for much of this year’s buying frenzy. CAR figures show 38.4% of homebuyers in 2020 were renters, the most in a decade. Levine noted, however, first-time buyers tended to be more affluent long-time renters with “remotable” jobs.

For example, a third of buyers last year had enough cash to pay a 20% down payment, compared with a fourth paying 20% down during the housing boom of 2006, a survey of Realtors showed. And just a 10th of home buyers purchased a home with no down payment vs. 40% in 2006.

Some changes caused by the pandemic are here to stay, Levine said. Remote work and online shopping will continue to be higher than before the pandemic.


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