Home prices have risen higher than ever, putting homeownership further out of reach for many Americans.
Several national housing records were broken during the 4-week period ending March 21, 2021, according to Redfin. These national-level trends include:
- the median home sale price, which increased 16% over the past year to a record high;
- the percentage of homes selling above list price increased to a record 39%;
- the share of accepted offers of homes that went under contract in under one week are at 45%, up from 33% a year ago;
- the share of accepted offers of homes that went under contract within the first two weeks on the market also broke records at 58%, up from 46% a year ago; and
- the average sales-to-list price ratio increased to a record 100.2%.
Notable lows are being met as well, including:
- active listings, which fell 42% from March 2020 to a record low; and
- new listings of homes for sale were down 12% from a year ago.
Here in California, some of these record-breaking figures are even more extreme than the national average. According to data from Redfin, as of the week ending March 21, 2021, the year-over-year median sale price increased:
- 21% in Sacramento;
- 20% in Riverside;
- 17% in Bakersfield;
- 16% in Los Angeles;
- 13% in San Diego; and
- 10% in Orange County.
In terms of how quickly homes are selling in California, the metro areas seeing the fastest home sale times include:
- San Diego, with 74% of homes reaching a pending status within two weeks, up from 64% a year earlier;
- Sacramento, with 77% of homes pending within two weeks, up from 69% a year earlier; and
- Bakersfield, with 63% of homes pending within two weeks, up from 56% a year earlier.
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Why home sales are breaking records during a recession
Although there are multiple factors affecting home prices, there are three underlying reasons why home sales are breaking records in 2021.
The Federal Reserve (the Fed) alongside bond market investors pushed interest rates to historic lows in 2020, in turn boosting buyer purchasing power. Coupled with a low inventory of homes for sale, the result has been inflated home prices.
The second reason home sales are breaking records is the lack of distressed sales hitting the market, despite high levels of mortgage delinquencies. The federal foreclosure moratorium has kept servicers from beginning the foreclosure process on delinquent homeowners who have lost jobs during the ongoing recession.
An estimated 10 million Americans and 1.35 million Californians lost their jobs during the 2020 recession as of March 2021, when compared year-over-year. Compared to the pre-recession December 2019 peak, jobs are down 1.7 million in California.
The foreclosure moratorium has allowed jobless homeowners to defer mortgage payments throughout 2020 and into 2021. But when the foreclosure moratorium expires, currently scheduled for June 2021, jobless homeowners won’t be able to resume mortgage payments. A flood of distressed sales will occur when the foreclosure moratorium lifts and lenders resume foreclosures.
Finally, a shrinking level of residential construction has led to a supply-demand imbalance that continues to build. Construction of single family residential (SFR) homes was 24% below one year earlier in the second half of 2020. As for multi-family construction, the number of new units constructed was down a significant 41% from a year earlier during the second half of 2020.
Despite the high prices we see homes fetching on the market today, a decrease in home prices is expected soon. When foreclosure sales become a drag on home prices again, they will pull down prices. Without further extensions of the foreclosure moratorium, expect this phenomenon to begin in 2022.
After 2022, home sales won’t improve until jobs return, whether they come in the form of government-sponsored programs or an organic resurgence of lost jobs. Regardless of how it takes shape, the return of jobs is the essential aspect dictating stability in the housing market.
firsttuesday forecasts that a recovery is not expected to begin until 2024, depending upon the extent of government-sponsored job creation, any further foreclosure moratorium extensions and government stimulus programs.
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Letter to the editor: Why are prices still rising even though we’re in a recession?
