Homebuyers are snatching up homes left and right, pushing multiple listing service (MLS) inventory to historic lows.
California’s exceptional housing market has continued its outsized trends into 2021. Homebuyers are racing to buy homes in a market where demand has increased, but supply is limited. Home sales volume continues to climb, at 38% above a year earlier as of April 2021. Further, days-on-market are falling dramatically across the country, especially in California’s major metros.
As of February 2021, homes are selling quickly, on average in less than five days, according to Zillow. Here in California, the share of homes reaching a pending status after just one week on the market is:
- 55% in Sacramento;
- 44% in San Diego;
- 38% in Riverside;
- 26% in Los Angeles-Long beach-Anaheim and
- 23% in San Jose, according to Zillow.
Homebuyer patience is growing thin as homes are being snatched up before homebuyers can even get in to see them.
And yet, homebuyer demand continues to outpace inventory for sale, the root cause coming down to a supply-and-demand imbalance. Here in California, inventory is lowest in Riverside, with inventory 32% below a year earlier as of April 2021. In contrast, inventory has increased the most in San Francisco, with an annual increase of 51% compared to last year.
When inventory begins to bounce back across the state — expected towards the end of 2021 and into 2022, the result of the expiring foreclosure moratorium – homes will end up sitting for longer on the market, resulting in price cuts.
Inventory will shift
Inventory is expected to begin to grow again later this year and heading into 2022, in part due to the expiration of the foreclosure moratorium, which is currently in effect through June 30, 2021.
2021 remains a standstill year which the whole nation seeks to end with the vaccine to the rescue. But, contrary to popular belief, the pandemic is not responsible for all our current market forces. While the housing market is currently being pushed by the pandemic, in reality, an economic recession underlies the pandemic response, and was in fact building long before the pandemic arrived.
With the coming expiration of the foreclosure moratorium, 2022 is expected to be a year of foreclosures and proportionately a growth in inventory. The release of the buildup of distressed sales will drag down prices too. Thus, today’s sales volume boost is only temporary.
Another factor underlying today’s historically low inventory is years of a worsening construction shortage. Current construction trends for multi-family housing starts show a significant annual decrease of 25% as of March 2021. The forecast for construction trends remains low for multi-family housing. One major obstacle of concern to future construction starts is the historic job loss of 2020, which will take years to recover. California alone is still 1.7 million jobs below the pre-recession peak, as of March 2021. As job numbers continue to fluctuate, we likely won’t see a consistent jobs recovery begin until around 2024-2025. Until then, builders will remain cautious.
In the meantime, once prices begin to drop, homeowners in financial distress will sell their property for lower and lower amounts, leading to short sales for those who purchased within the past year or so, when prices were near their peak. These homes will fall under the ownership of mortgage lenders, becoming real estate owned properties (REOs). The lenders will then sell the REO property to minimize their losses. Conventional seller listings will diminish for lack of equity.
Then, 2024 to 2025 will gradually see a return to stable home sales volume and price growth, and construction will increase to meet homebuyer demand. The years following will be a good time for brokers and builders, and a more stable time for homebuyers and sellers.
