SAN DIEGO REAL ESTATE MARKET UPDATE – JANUARY 2021
The story about the real estate market hasn’t changed much since last Summer – extremely high demand, extremely low inventory, low interest rates, rapidly rising prices and a seller’s market that is on fire – homes selling in a matter of days with dozens of showings and multiple offers. This is par for the course at this point, and it looks as if this will continue to be the case throughout 2021 – with projections (source) for a 7-10% home price increase on average in Southern California this coming year, after a 10.1% increase on average from December 2019 to December 2020.
The demand we are seeing may have happened regardless of the pandemic due to population charts showing bulges in the number of Americans of home buying age, but with higher wage workers relatively unscathed by the economic impact of the pandemic, the timeline and need for many homebuyers has been accelerated. These homebuyers are benefiting from stimulus actions such as deferred student loans, record-low interest rates and direct cash-payments as well as a bolstering of their savings due to restrictions on travel and a trend away from eating out in addition to more time to house hunt while working from home.
• LOW INVENTORY
All of this demand is occurring during a time when – even before the pandemic – we were experiencing very low home listing inventory. This inventory shortage has only been exacerbated by the pandemic forces. Inventory has been low as people have chosen to refinance and remodel rather than move-up and stay put rather than allow strangers to traipse through their home for showings. These factors combined with the fact that fewer new homes are being built due to zoning restrictions, high-density, high lumber costs, sporadic lockdowns and construction labor issues due to immigration legislation is compounding an inventory issue with few solutions in sight.
• LEGISLATIVE CHANGES
Possible factors that could begin to shift our inventory shortage include changes to state and national legislation such as California’s Prop. 19, which we discussed in our last newsletter, as well as the possibility of President Biden making changes to the Capital Gains tax structure – both of which may cause homes to be sold rather than kept as income properties, particularly when inheritance is involved. There is speculation about an increase in foreclosures when mortgage forbearance plans expire, however with equity rising as quickly as it is, at least in Southern California, this is unlikely to come to fruition.
• LONG DISTANCE MOVES
So what are homebuyers to do? Trends are showing that many are making longer-distance moves. People are in need of more space and more community in these times. With ever-rising home prices, many of them need those things at a lower price than their current hometown can provide. With remote work becoming nearly ubiquitous, big moves are more possible than ever. This, along with other factors such as homebuyers seeking a community that aligns with their political values, a need to be near family in order to juggle pandemic restrictions on travel and gatherings as well as the need for childcare and an overall realignment of values that families and individuals are discovering within themselves as they have had time to turn inward and assess their priorities is causing a major change in demographics across the whole of the US. We’re seeing high-income workers from places like the Bay Area, Seattle and Los Angeles flocking to San Diego for comparatively lower-priced housing and desirable lifestyle aspects while we see many longtime San Diegans flee the state for lower prices, lower property tax rates and more business-friendly environments.
As always, we will be here to continue to provide you with updates about the housing market and answer any and all of your questions. Feel free to reach out to us anytime.