Soaring house prices in the Golden State: here’s why
LOS ANGELES, Calif. – It’s no secret that California real estate is quickly outperforming its middle-class and low-income residents.
Home prices in California were hit by a pandemic in April 2020, falling more than 30%. But a year later, median home prices topped $ 800,000 for the very first time, according to a report by the California Association of Realtors.
Why is this happening?
A shortage of homes for sale in California fueled the price hike in April, according to Oscar Wei, the association’s senior economist. Prices were further boosted by increased demand from high-income residents of the state who were able to take advantage of low mortgage rates during the pandemic, Wei told Patch.
“It’s been up and up pretty quickly,” Wei said of the median home price. “Supply is certainly one of the main factors. … In terms of active ads, for example, [supply] fell about 50% from last year. “
Home sales fell in the uncertain first months of the pandemic. But high-income Californians whose jobs were unaffected by the coronavirus-related shutdowns began to navigate the market again in the second half of 2020, Wei said.
Sales increased the most in the San Francisco Bay Area and along the Central Coast, where many residents have moved after realizing they can live anywhere while working from home, Wei said. .
“The Bay Area businesses started letting people work from home, so some people actually started buying homes in other areas that are not in the Bay Area and taking advantage of it. affordability of housing in other areas, ”Wei said.
Meanwhile, interest rates for 30-year fixed-rate mortgages fell to an all-time high of 2.6%, from 6.5% in 2006 and 2007, Wei said.
“We’ve never seen this before,” Wei said. “That’s why people were rushing to the market.”
According to Investopedia, low interest rates often lead to changes in the housing market.
The real estate group released a report on Monday finding that home sales climbed as expected in March and April compared to last year, when the pandemic shutdown in the spring triggered a drop in home sales, according to the association. . So far this year, monthly home sales have increased for three consecutive months.
Prices have gone up all over California.
- The median price of an existing single-family home in the Los Angeles area rose to $ 725,000 in April, an increase of $ 45,000 from the previous month. The median price of homes in the Los Angeles area was $ 550,000 just a year ago.
- The San Francisco Bay Area saw its median home price climb to $ 1.328 million in April, from $ 1.225 million in March.
- Orange County saw its median home price rise to $ 1.1 million in April, from $ 1.025 million in March. It was $ 861,000 in April 2020.
San Bernardino County turned the tide by posting a drop in median home prices to $ 405,000 in April from $ 412,000 in March.
Statewide, April home sales rose 2.6 percent in April to 458,170 from 446,410 in March, the association said. That was a 65.1 percent increase from the 277,440 homes sold a year earlier on an annualized basis.
The measures are bad news for low-income Californians and even for middle-class residents looking to buy a home.
“Soaring house prices not only threaten already low levels of homeownership and make it more difficult for those who do not yet have one to buy a home, but it also calls into question the sustainability of this cycle. market, ”said Jordan Levine of the association. vice-president and chief economist.
Housing affordability statewide is at its lowest level since mid-2018, the association reported last week. The percentage of buyers who can afford to purchase an existing, median-priced single-family home in California in the first quarter of 2021 has fallen to 27%, from 35% in the first quarter of 2020, the association said.
Wei predicted that house prices could remain high for the remainder of 2021 due to a housing shortage. And the state is unlikely to see a big enough jump in housing development to close the gap, Wei said.
As the economy reopens, low-cost housing may start to return to the housing market, Wei said. But interest rates can also rise.
“At some point, interest rates will start to rise, especially as the economy will start to recover,” he said. “The pace of growth will probably be a little slower in May or in Juen.”
The California Association of Realtors has over 200,000 members and is based in Los Angeles. Read his full report here.
City News Service contributed to this report.