Will 2021 continue to see soaring home sales in Southern California, or is a reversal coming? It’s anyone’s guess.
I figured why not let you, my audience, do the heavy lifting in this coronavirus-vs.-economy debate by constructing a do-it-yourself home-price forecasting tool.
Please note the six-county median selling price averaged 8% appreciation in the 12 months ended in November vs. just 1% in the previous year, according to DQNews/CoreLogic data. And since 1988, the region’s prices rose 5% in a typical year.
My forecasting questionnaire involves grading 10 leading characters I think will define 2021’s housing market.
Your chore is to score each character’s impact on the region’s homebuying market on a scale from plus-10 (huge positive force) through zero (no impact) all the way to minus-10 (major negative factor). Grades in between the extremes are highly encouraged.
Let’s get busy …
One thing I’m confident about is the real “V” economy — the ups and downs of the virus and its vaccines — will set the tone for housing and the broader business climate.
Now, granted, that’s tricky. Good health news could dampen the urge to buy homes at almost any price. Yet disappointing pandemic-fighting progress — think of the current California surge — could scare more folks into a buying or relocating mood.
Score how well you think the medical community will manage the pandemic and what that impact may be on homebuying … remember, from plus-10 (big help) to minus-10 (big challenge).
2. Central bankers
For starters, the Federal Reserve in 2020 pushed interest rates to historic lows, a huge gift to homeownership.
Then the central bank became a major buyer of mortgages, further lowering what borrowers have to pay each month for their homes.
Do you expect central bankers to be as generous in 2021? How much will their actions boost or cool the market?
How did housing have a good 2020 when unemployment hit record heights?
Well, the folks who lost jobs were decidedly not homeowners — think of the region’s large number of low-paid, hospitality workers.
A big 2021 question mark is will employers be able to keep and create good-paying, white-collar positions? Will the job market be good or bad for homebuyers in 2021?
One subplot of 2020 housing was the refusal of homeowners to sell.
Who wanted strangers walking through their homes for viewings? Some lost jobs and couldn’t think about selling. And cheap rates meant refinancing and remodeling for others.
This meant the Inland Empire was one of the nation’s fastest-shrinking markets with the number of homes for sale slashed in half.
So in a Southern California market starved for homes to buy, will the attitude of current owners change? And will that thinking be a positive or negative force in 2021?
Bankers did well in 2020 — and they had plenty of help.
The Fed kept the mortgage machine well oiled and various government agencies helped to prevent a foreclosure problem with generous forbearance programs.
This kept lenders largely in a lending mood. But for how long? Will the industry remain accomodating to troubled borrowers?
Now translate lender psyche to homebuying, for better or worse.
New homes may only be roughly a tenth of local homes sold — but when there are few options for house hunters, the region’s builders may gain outsized clout.
Homebuilders are in an enviable position – they can sell just about anything they produce. However, years of conservative management means they have little unsold inventory. Plus, it’s a reasonable assumption that they’ll be cautious about building market-changing levels of product.
Score how builders will do in 2021 in terms of being a positive — or a problem — for the market.
The business of renting housing was pretty crummy in 2020.
Pandemic job losses hit the tenant community hard. Meanwhile, wealthier renters decided to become homebuyers. It meant for the first time in a decade, vacancies in Southern California jumped and rent discounts became the norm.
But that discounting also means a house hunter’s rent-or-buy math may be altered. What will competition among landlords for tenants mean for homebuying – hurt, help or somewhere in between?
Unlike the Great Recession, housing has gotten significant and quick help from legislative policymakers in the pandemic era.
A prime example was California and federal moratoriums on foreclosures and evictions designed to keep folks housed. These moves also limited market disruptions though it also kept troubled owners from selling and cost landlords some income.
So will lawmakers — state and national — help or hurt housing in 2021?
9. Executives and educators
One of 2020‘s biggest changes was the quick pivot to remote work and schooling.
This created a need for more living space — a key boost for house shopping — and allowed some families to look at distant communities — a boon for Inland Empire ownership, for example.
But it’s hard to see educators and CEOs sticking with schooling and working from home if coronavirus becomes a distant memory. How would any significant returns to classrooms and offices impact housing — plus or minus — in 2021?
It was fascinating to watch the real estate industry quickly switch from complaining about various homebuying challenges — notably “affordability” — to becoming avid salespeople once the pandemic threatened to take down the market.
Perhaps there’s a lesson in the market’s quick rebound, but this industry booster effort may have helped overheat the market. Local selling prices have risen so swiftly that much of the “affordability” created by low rates has been wiped out.
Will the industry buzz be more muted in 2021? How much of a factor — helping or hurting — will the new tone be?
Next, add up your 10 grades. Then, let’s toss in emotion.
If you think the market will overreact to the ebbs and flows of 2021, double your score. (It’s perfectly fine to think the market will be sane … and don’t adjust!)
Finally, divide your adjusted grade by 10. That result, in percentage-point terms, is your 2021 price forecast for Southern California.
Let me walk you through how I scored the key characters.
Scientists will help the housing market, a score of 7. Next, central bankers can’t do much more. That’s a 2. Employers? Won’t be a good year. Give them a minus 3. And homeowners aren’t moving. Tight supply is a 6.
Lenders? They’ll stay the course. Zero. Builders? They’ll build, somewhat. Say 4. Landlords? Expect discounting, so minus 5. Politicians: I see gridlock which could be bad. Minus 6. Executives and educators? Flexibility wanes. Minus 3. Boosters: Modest hype. So, 4.
And emotion? Yes, we’ll overreact! So, double the sum.
That adds up to a total of plus six, doubled to 12. Finally, it’s divided by 10.
My 2021 forecast? SoCal home prices to gain 1.2%!
Source: Orange County Register