This is the question everyone is trying to answer as we are seeing the light at the end of the tunnel of the pandemic. Before making assumptions for this year, here is a recap of where the market currently stands:
In spite of all odds, the real estate market has proven to be extremely resilient in Santa Clara County in 2020. Single-family home median prices were at about $1.4 million which shows that our County remains a very strong real estate market. Q4 was the strongest quarter of the year in terms of sales and the market recovered quickly from a weak Q1 and a dire Q2.
The pandemic changed the traditional real estate seasonal cycles as Q4 sales and price levels are normally seen in the height of the spring season, not in the traditionally slow months of the year. But as we will approach the end of the coronavirus pandemic and a return to in-person schooling and regular holidays, we are likely to see at least some return to seasonality, hopefully later in 2021.
Inventory is currently pretty tight, especially given the high number of home sales in November and December. The expected rise in inventory will be another positive sign on the road to normalcy. However, if we reach a point where the inventory levels rise without a concomitant rise in sales, it might be reflective of out-migration. We will also need to see if Proposition 19 has reached its goal of creating some turnover in the housing market for inherited homes. For more information on proposition 19, please read this article.
It also remains to be seen what will happen when pandemic-related foreclosure moratoriums and mortgage forbearance programs come to an end at the end of June for borrowers with mortgages backed by Fannie Mae and Freddie Mac. Will this lead to a spike in foreclosures which could negatively impact the selling price of other properties? I don’t think so as the number of these possible short sales and foreclosures should remain way under the 2008-2012 levels.
For the housing market to stay afloat until the pandemic has passed, we need to see more inventory, low mortgages rates and reduced inflation. A persistent housing shortage will likely keep home prices elevated, while new and existing home sales will continue to rise as record-low mortgage rates and a work-from-home trend give housing markets a boost.
Low mortgage rates are key against higher prices. On 1/27/2021, the Fed announced that it will keep its benchmark interest rate anchored near zero to keep interest rates low. As you may know, mortgage rates are helping housing affordability balance against rising home prices.
Inflation expectations have been on the rise and are currently at the highest level since May 2019. If inflation rises faster than the Fed expects, interest rates will go up and the cost of borrowing will follow.
Overall, the evolution of the real estate market will be tied to the economic factors mentioned above but also to the successful deployment of the COVID-19 vaccine campaign to get the pandemic under control.
Sources: https://bit.ly/2YJPfqz - https://bit.ly/3aE6cbv