CoreLogic Deputy Chief Economist Selma Hepp,
Selma Hepp
The real estate markets in Northern and Southern California have never been hotter. Multiple offers and bidding wars define them. Compass West President Kamini Lane and Selma Hepp Executive, Research & Insights, and Deputy Chief Economist at CoreLogic (the Irvine-based data analytics company) lend their insights and perspective on these dynamic real estate markets.
EP: What are the differences between Northern and Southern California markets right now?
Kamini Lane (KL) The markets are more alike than different right now. Both have experienced low inventory, all-time high prices, bidding wars, and a record number of sales. In short, both Northern and Southern California markets are booming.
In Southern California, home sales have increased rapidly in coastal and suburban communities as compared to other close-in communities. Luxury condo sales lagged behind single-family home sales in Northern and Southern California but are starting to pick up again. Demand for more space, which was a large trend observed last year, has remained high throughout the state as many Californians move to homes with more office and outdoor space.
Selma Hepp (SH) While most markets across the country, including California markets, continue to see strong home buyer demand and rapid price acceleration, the main difference between NorCal and SoCal is the inventory. Currently, SoCal markets continue to see inventories below pre-pandemic rates (March 2020). Los Angeles County is about 12% below the levels seen last March.
On the other hand, NorCal markets are seeing more inventories of homes for sale compared to last year’s levels, particularly for condos in San Francisco, although South Bay areas are also seeing higher inventories. East Bay continues to see declines. Nevertheless, despite higher inventories, Bay Area markets see a lot of velocity as buyers are trying to scoop up the newly available inventories which may be priced more favorably than before the pandemic.
EP: As we move into Q2 2021, which is traditionally a strong Spring buying market, do you see any changes in market dynamics?
KL: Throughout California we have seen one continuously strong market since last May, spurred by tremendous demand. Inventory has been slower to come to market as many sellers work to determine their next move and some are hesitant to sell their homes amid the pandemic. The inventory that does enter the market is typically selling very quickly.
It’s likely that this market dynamic will continue throughout the spring and bring with it a very strong spring buying season. Since nothing about 2021 has been normal compared to sales cycles of earlier years, we don’t expect to see traditional market seasonality, but it is possible that summer may cool off, as buyers are able to travel again. Continued work from home and flexibility has slowed the full return of the urban center markets and could continue to affect the commercial market as homebuyers continue to work remotely and reside in more suburban communities.
SH: The spring home buying market will be interesting this year especially as we tend to compare housing market trends to what was a year prior. Given that the housing market came to almost a full stop in April and May, it’s important to keep that in mind when comparing year-over-year trends. Nevertheless, pending trends suggest that home buying demand will remain strong and will even outpace trends we saw in the Spring of 2019 and 2018. There may be some buyer fatigue as buyers see themselves bid out their offers, but we should still have a very strong home buying season and continuation of strong home price acceleration at least through the second half of this year.
EP: What market takeaways do you have for buyers?
KL: This market requires the expertise of a qualified agent who can educate you on the market in your neighborhood, so you have confidence when making decisions and an expert in your corner. Patience is so important. Buyers should put their best foot forward when writing offers. It is important to be prepared when considering a home purchase due to the competitive nature of the market.
Obtaining pre-approvals and having a small surplus of cash on hand for pre-inspections prior to making offers are very helpful. Be prepared to get creative with your offers and have your agent get insight into the terms that will be most attractive to the seller.
SH: I’m sure buyers are feeling frustrated with having to compete with so many others in the market. I think buyers may see fewer bidders as mortgage rates rise and there are more homes on the market – which is something we do expect as more people are vaccinated and baby boomers feel comfortable putting their homes on the market. Also, buyers may want to think about looking at properties that need some renovation as fully renovated homes may be selling at a premium.
EP: How sustainable is the current market climate in both Northern and Southern California?
KL: Demand has typically exceeded the supply in many Northern California markets over the last few decades. And, Southern California has traditionally been one of the most desirable markets in the country. So, it’s likely that both markets will continue to be strong. That said, I believe we will see less of a frenzy in the market towards the end of the year as people feel more grounded socially, physically, and emotionally.
California is always going to be a popular choice with buyers due to its wide range of employment opportunities including tech and entertainment, paired with its natural beauty and ideal weather.
SH: While rapid home price appreciation may be concerning and resembling pre-Great Recession era, current market demand is driven by a large cohort of millennials whose timeline may have been accelerated by the pandemic but who would be interested in home purchase anyway. In Northern California, demand has also been bolstered by strong income growth and positive gains in the equity markets which generally tend to drive demand for luxury homes.
As our home price forecasts suggest, price acceleration will slow in the second half of the year as more buyers are priced out of the market and more inventory is available for sale. Also, local price statistics suggest that home price growth varies across the regions as buyers relocate from denser areas to low-density, suburban areas thus already reflecting interactions between demand and supply.