What portion of your listings sell above the listed price?
- 75% or more. (64%, 46 Votes)
- 25% or less. (19%, 14 Votes)
- Around 50%. (17%, 12 Votes)
Total Voters: 72
Home prices continue to defy recessionary expectations, having increased to new heights in 2020.
Nationally, 22% of homes sold above their list price as of September 2020, according to Zillow. Here in California, the share of homes selling above list price was:
- 33% in Los Angeles, up from 21% a year earlier;
- 33% in Riverside, up from 16% a year earlier;
- 35% in Sacramento, up from 23% a year earlier;
- 34% in San Diego, up from 16% a year earlier;
- 49% in San Francisco, up from 43% a year earlier; and
- 43% in San Jose, up from 30% a year earlier.
Notably, San Francisco had the highest share of homes selling above list price compared to all other U.S. metros. Here, homes sold on average 8.8% above their list price. In nearby San Jose, homes sold for 7.5% above list on average. Nationally, the average home that sold over list was 4.9% above list price.
There are two major factors pushing homes to sell above their list price.
The first is historically low interest rates, which have increased buyer purchasing power, allowing homebuyers to qualify to purchase more expensive homes without increasing their mortgage payment. In fact, the annual increase in buyer purchasing power is positive 10.6%, while California’s average annual home price increase is 9%-11%. Thus, the interest rate decrease alone may fully account for the price increase.
However, a lack of multiple listing service (MLS) inventory has also fueled a supply-and-demand imbalance. With not enough inventory to go around, homebuyer competition continues to rise, with plenty of fuel from 2020’s ever-lower interest rates.
Prices at their peak
While home prices have risen rapidly throughout 2020, the recession is quickly catching up, with firsttuesday forecasting prices to decline in 2021.
Consider the flip side of the 2020 situation which saw prices rising alongside dropping interest rates. As interest rates have reached a bottom, homebuyers will see their purchasing power flatten in the coming months, causing the wind to quickly go out of the sails. Moreover, 2020’s price bump is contrasted by flat-to-down sales volume and struggling incomes, thus the price increase is unsustainable.
Home prices will trend down in 2021-2022, the result of 2020’s historic job losses and rising 90+ day mortgage delinquencies. These pressures will lead to a wave of distressed sales when the foreclosure moratorium lifts, currently scheduled to occur in the first quarter of 2021. With no more support from falling interest rates, home prices will bend quickly to the pressure of rising foreclosures, not to recover until the jobs market has entered a sustainable recovery, likely around 2023.
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