State and local real estate experts say California's housing market is still robust, but caution that the situation is not sustainable. Home shoppers are getting discouraged by skyrocketing prices and the market could soon show signs of homebuyer fatigue.
C.A.R. Vice President and Chief Economist Jordan Levine recently informed Silicon Valley that there is a lot to be optimistic about economically - the pandemic threat has lessened as vaccinations increase and incidences of Covid have decreased. Jobs are coming back quickly.
Housing still continues to lead the recovery. California's median home price reached $818,260 in May, a year-to-year increase of nearly 40 percent, and an 86.7 percent year-to-year increase in homes sold. Home sales are increased in every region of the state, especially in the coastal regions. Seven out of 10 homebuyers continue to pay above asking price.
Aculist Senior Product Marketing Manager Michelle Ronco highlighted the robustness of the local housing market. Santa Clara County's May median home price was $1,675,000, up 2 percent from April, and San Mateo County's median was $2,075,000, up 4 percent. Prices continue to increase in many cities. They rose 8 percent in Los Gatos and to a high of 23 percent in Saratoga.
Ronco said in both counties, month-over-month home sales have fallen 9 percent and 3 percent, respectively, but this is not unusual given the scarce inventory. Homebuyers are still paying 110 over list price. There are also impressive gains in the common interest market.
The housing boom is the result of a "perfect storm for housing demand," said Levine. While demand has always been high it became more so as the home became more important during the pandemic. High income workers, largely insulated from business shutdowns, could still afford to buy. Work-from-home, flexible work schedules, less time and money spent on commuting led to more demand for larger homes outside urban areas. First-time buyers, many of whom are high earning renters, took advantage of record low interest rates, raising the share of this group to the highest level in 10 years.
Levine noted homebuyers have not given up on cities. "All that made these cities popular are still there and is being translated to buyers putting down roots in California's core cities, where the action is."
The C.A.R. chief economist does not see signs of an impending crash. He noted homeowners have lots of equity in their homes. Many have opted for a steady 30-year fixed-rate mortgage. Though cash-out refinancing has increased, so far there are not many mortgage delinquencies. In fact, 66 percent of those in forbearance have either resumed payments, paid off their loan, or never missed a payment. Only 15 percent may be at risk.
While the forecast for this year is for double-digit growth in prices and sales and there appears to be less potential for snowball effects, the market is not immune.
"Be optimistic, but don't be overconfident," Levine told Realtors. He explained that increasing home prices have upped the amount of systemic risks. "Forty percent increase in home prices is not sustainable."
Ronco agreed a downshift is likely. She indicated signs of a softening market are price reductions, a decreasing sales-to-list price ratio, increasing days on market, a decrease in new listings and decreasing median prices.
Headwinds are starting to crop up as buyers losing on multiple bids are experiencing fatigue. This highlights the need to get serious about supply, said Levine. Prices are up because supply is at an all-time low.
"We need supply and demand to kick back in. If we don't build it, we can't sell it and we can't put people in homes," said Levine.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
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Variations of this article have appeared in local area newspapers.
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