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November 19, 2020

California’s housing market remains on an unseasonably strong tear as home sales and prices remain elevated in October. In fact, C.A.R. is likely to revise its recent projection for 2020 even higher based upon the outlook for closed sales in the final two months of the year given a shrinking percentage of transactions falling out of escrow. The amount of uncertainty impacting the market has also been shrinking over the past three weeks as fewer buyers and sellers back out of deals. Meanwhile, the macroeconomic progress continues while rates remain near all-time lows and buyer demand remains strong as 2020 appears poised to end on a high note for housing.

Buyer demand remains unseasonably strong: Whether measured by either mortgage applications or by requests for showings, homebuyer demand continues to remain at least 20% ahead of 2019 levels. In addition, PEAD form data shows that viewings were up more than 18% in October from September despite the end of the traditional homebuying season.

Closed sales jump another 19.9% in October: Existing, single-family home sales jumped 19.9% from October 2019 levels despite an ongoing pandemic and elevated levels of unemployment. Importantly, this brings the state just 1.3% shy of its cumulative total of home sales through the first 10 months of 2019 despite suffering 30-50% declines during the first few months of the crisis. Sales rose by double digits in every region of California, except the Central Valley, which rose 9.9%. Sales also rose in every price segment except homes prices below $300,000, with growth progressively larger at higher price points.

Retail sales and other macro data improves in October: Last month set a new all-time high for retail sales, which have been above pre-crisis levels for the past 5 months consecutively. In addition, housing starts were up nearly 5% last month to a 1.5+ million-unit pace—driven almost entirely by an increase in single-family construction. Homebuilder optimism hit its highest level in decades as well. And yet, even as housing remains the largest economic bright spot during the second half of 2020, other macro indicators like industrial production, unemployment claims, and small business optimism are all on the rise or holding steady. 

REALTORS® sounding decidedly less upbeat in recent weekly surveys: Despite a strong report for October home sales and prices, there are signs that the robust and unseasonably strong housing market that we’ve enjoyed since the market began to recover is being hampered by a lack of available inventory. C.A.R.’s weekly survey of California REALTORS®, fewer reported doing listing appointments, entering escrow, or closing a transaction last week. In addition, fewer are optimistic that listings or sales will improve in the coming weeks despite expecting ongoing price growth.

Luxury demand is there, but buyers aren’t paying top dollar: Sales growth remains most robust at the top end of the market in October. However, the market appears to be less price-competitive than the entry level—in part because the supply of $3M + homes his rising in contrast to the rest of the market. As a result, the percentage of $3M + homes selling below original asking price is not falling the way that it is for homes priced below $1M and homes priced above $5M have been taking longer to sell in the last 4 weeks.

The market continues to outperform expectations, but there are signs that the robust market is due to pent up demand that was able to be fulfilled with existing inventories, but the lack of new supply coming back onto the MLSs across the state to replenish that inventory will mean that growth moving forward will become more difficult, though not impossible, to achieve. Buyers want the units, so if the state can generate some new listings, there is the potential that 2021 could be even stronger than currently expected.

 
WE 2020-11-16
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