COVID-19 cases continue to decrease and it is projected all U.S. adults will be eligible to receive a vaccine by the end of May. Even as it becomes safer for people to interact in office settings, we anticipate that working remotely, is here to stay. We expect demand for housing to remain high for years to come. With less uncertainty around the future, we will see mortgage rates slowly increase. Let’s take a look at how how our local real estate market will be effected.
Key Topics and Trends in March
After the 2008 financial crisis, housing didn’t truly begin to recover until January 2012. During the nine-year period from Q1 2012–Q4 2020, homes in California, on average, increased in price over 80%! Of those homes, those in major metropolitan areas saw greater price appreciation. During the same period, per capita income increased around 40%, and mortgage rates averaged 3.87%.
Interest rates have an interesting effect on affordability, but income level, has the most influence. According to the California Association of Realtors (CAR), the minimum qualifying annual income has increased 129% for single-family homes since the first quarter of 2012. Currently, 27% of Californians can afford to purchase a home. That number will likely decrease over the next year as home prices are increasing ahead of income levels.
Over the last 12 months, mortgage interest rates fell, hitting all-time lows in December 2020 at 2.66%, and demand skyrocketed. Typically, if all other factors are equal, a 1% drop in interest rates allows a buyer to afford a 13% higher price in terms of monthly payment.
Conversely, although quite low, mortgage rates are starting to rise. Affordability decreases as mortgage rates increase, as a 1% increase makes a home 13% less affordable on a monthly payment basis. Usually, demand would also decrease, which it is likely to do, to some extent; however, California is so undersupplied that it won’t matter.
We may be at the start of an unusual dynamic of rising rates and rising home prices, which will drop affordability further. The environment is right for demand to outpace supply. In the short term, we may even see a demand spike as those able to buy try to purchase before rates rise higher. We anticipate a competitive landscape for buyers over the course of this year.
March Housing Market Updates for the East Bay
Year-over-year, single-family home prices rose considerably in both Alameda and Contra Costa counties. Single-family home inventory remained low through 2020 and has dropped even further in 2021. Demand is still high in the area, and we expect prices to continue to appreciate throughout 2021.
In summary, the data show that housing has remained consistently strong through this period. Inventory for single-family homes will likely decline further this year, and fewer sellers will likely come to market, potentially lifting prices higher. The housing market has shown its resilience through the pandemic and remains one of your strongest assets.
Now is an exceptional time to sell your home. Low inventory means multiple offers and fewer concessions. Sellers are often selling one home and buying another, which makes working with Arrive Real Estate Group even more important.
As always, we remain committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home.