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May 17, 2021

With mortgage rates near historic lows and buyers’ interest remaining high, the California housing market is showing robust sales gain and record-breaking price as we move into the second month of the spring home buying season. As the pandemic situation further improves and the reopening continues, economic fundamentals will remain favorable, and the market could continue to grow. The shortage on housing supply, however, will likely remain an issue in the coming months, and that could curtail demand as affordability continues to deteriorate in today’s highly competitive market.

California Median Price Breaks Record Again in April: The state housing market reached another peak in April as its median price soared to $813,980, according to the latest monthly sales and price report released by C.A.R. All 51 counties tracked by the association reported a gain in median price on a year-over-year basis, as tight supply and heated market competition continued to put upward pressure on home prices. More high-end homes being sold in recent months also contributed to the jump in the statewide median price.  Nearly a third of all homes were sold at or above $1M in April 2021, as compared to less than one in six a year ago.   

Market Remains Heated: Imbalance between supply and demand continues to create fierce market competition in California. In the week ending May 15, REALTORS® reported that nearly a quarter of homes sold received ten or more offers. Many homebuyers offered sales bids over the asking price, with more than two-thirds of homes sold above their list price in April, the highest level since 2008. Active listings in the state were flying off the shelf with a record median of seven days before opening escrow in April.

Affordability at the Lowest Level Since Mid-2018: The percentage of home buyers who could afford to purchase a median-priced home in California in the first quarter of 2021 dropped to 27 percent from 35 percent in the first quarter of 2020, according to C.A.R.’s Traditional Housing Affordability Index (HAI). It was the largest decline in a 12-month period since early 2014. The decline was primarily due to the surge in home prices, despite mortgage rates being lower than last year and household income growing modestly from a year ago. The monthly housing payment – including principal, interests, insurance, and taxes - for a typical home in California increased 15.1% to $3,280 in Q121. 

Retail Sales Unchanged in April: After surging to the second largest monthly gain on record, retail sales remained flat in April. Despite sizable fallbacks in clothing and general merchandise stores, spending continued to rise in both the auto and food services industries last month, which helped offset weaknesses in other areas. With the CDC loosening its COVID-19 guideline in recent weeks, sales at the leisure and hospitality sector, including restaurants, will improve and drive broader retail sales higher in the coming months.   

Rates Dip Again but May Start Climbing Soon: Mortgage rates have been trending down since the average 30-year FRM reached its recent peak at the end of March. The U.S. weekly average reported by Freddie Mac declined again to 2.94% in mid-May but could start climbing shortly as inflation concerns prompt rates to hike again. Rates are still below last year’s level though and they should remain so for the rest of May. The margin between this year and last year, however, is narrowing and we could begin to see interest rates rising above last year’s level starting in June if inflation remains elevated in the coming weeks.

Builder Confidence Holds Steady: Despite worries over supply shortages and rising cost of building materials, U.S. homebuilders’ confidence remained unchanged. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index was at 83 in May, the same level as in April. Low mortgage rates, a growing demographic of prospective homebuyers, and a lack of resale inventory are factors that keep builder confidence from falling. The rising cost of material, land, and labor, while its impact on homebuying activities may not be obvious right away, could eventually have a negative effect on affordability.   

 
 
 

Weekly Data for Week Ending 2021-05-15


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