#1. California Home Prices Will Continue Rising
Data reveals that California home prices continued to rise in the last half of 2020 from July to November. But if we look back at August 2020, we will see something even more astonishing – the California Association of Realtors (C.A.R.) reported that the Golden State’s home prices surpassed $700k for the first time, keeping that pace for 3 months in a row.
The house price trends over the past few months are clear – prices are continuing to grow, despite COVID-19. And many experts believe that, due to low inventory and growing demand (two upcoming California housing market predictions on this list), home prices will continue to rise in 2021.
Looking at Zillow’s California real estate market forecast for home price appreciation, it predicts that values will go up by 5% from now through August 2021.
A few experts weighed in and they also predict growing California home prices in 2021:
“The outlook for home prices in California is that they will continue to climb through 2020 and into 2021. With the current supply-and-demand imbalance across much of the state, it appears likely that California home prices will continue along their upward trajectory through this year and into next. As a result, an ever-growing number of would-be buyers could get priced out of the market”. -Matthew Martinez, a luxury and investment real estate broker in the S.F. Bay Area
“Despite a triple terror of ongoing COVID-19, worsening wildfires, and a fractious presidential election, California’s housing market is marching on…So it’s estimated prices and property values will continue to rise in this seller’s market, and the supply-and-demand imbalance is lowering affordability for many would-be buyers.” -Karen Condor, a real estate expert from Pasadena, CA, with ExpertInsuranceReviews.com.
At the same time, it’s important to mention the California wildfires and the possible effect they may have on prices. Ashley Baskin, a licensed real estate agent who serves on the advisory board for HomeLife Digest, pointed out that: “As for the wildfires, we are expecting to see home prices drop in the affected areas. However, places untouched by the fires will remain competitive.”
#2. Low Mortgage Rates Will (Somewhat) Help with the Affordability Issue
It’s true that increasing home prices will make buying a house in California even less affordable for many residents. 2021 will likely see even more buyers priced out of an already pricey real estate market.
However, the mortgage rate forecast for 2021 is generally a positive one – mortgage rates are expected to remain low. Even as the market began to recover at the end of May, Fannie Mae forecasted that mortgage rates would remain low and drop even further come 2021. Their mortgage rate forecast calls for an annual rate of 3.2% by the end of 2020, with rates dropping as low as 2.9% in 2021.
So even with rising prices, some buyers may find relief with this California housing market prediction, according to Ethan Taub, CEO of Loanry: “One prediction I have for the housing market that will make a lot of people happy is that I think that mortgage rates for houses in the area will hover in the area that they are in now, which is around the rate of 3.5%. With this in mind, more people will be able to afford a mortgage in time, meaning that with this combined with more houses going on the market, we will see the housing industry booming in California in 2021.”
#3. Home Sales in the California Real Estate Market Will Increase
One of the reasons home prices are going up in the California housing market is the increase in homes sales. Although sales dropped during the first major wave of the coronavirus, they began to quickly bounce back. C.A.R. reported that existing home sales went up 6.3% in August from the month prior, a 14.6% year over year (YoY) increase.
It’s true that we still have a few months left in the year. But there are several signs pointing to the fact that a safe California housing market prediction to make is the rise in home sales. With lower mortgage rates and prices continuing to climb, buyers will likely continue to flood the market, hoping to take advantage of the new-found affordability before prices go any higher and future real estate appreciation.
#4. Inventory Will Remain Low, But May See a Gradual Increase
As seen from Mashvisor’s September data, the inventory of homes for sale continues to drop. While those statistics are based on the California homes for sale in our vast database, C.A.R’s data supports this trend. Their Unsold Inventory Index (UII) (a metric that represents how many months are needed to sell all the houses for sale on the market based on the current sales pace) dropped to 2.1 months in August. They reported a drop in active listings in most major regions across California, with the Southern California housing market being among the regions with the highest YoY drop – 52.4%. While there are a few different reasons for this drop (the wildfires, for instance), a major one is the pandemic. Not only did COVID-19 slow down general construction activity but many sellers have chosen to wait it out before returning to the market.
While it’s not likely 2021 will see a huge boost in housing inventory – enough to meet the growing demand and home sales – some experts do see a gradual increase in the California housing market’s future.
“Personally, I think one of the biggest predictions that we will see in 2021 in California is a gradual rise in inventory levels. With more people choosing not to put their homes on sale during the pandemic, we should see the number of homes on sale rise in 2021, hoping that the pandemic is long gone and behind us. In about a month, a C.A.R. poll showed that the people willing to sell right now has gone up 4%, which is a big increase in the grand scheme of things. The mindset is changing and therefore those sales will start popping up”. -Emily Deaton, a financial journalist at Let Me Bank
#5. The California Housing Market Will Remain a Seller’s Market in 2021
If you were wondering “Will the 2021 California housing market be a buyer’s market or a seller’s market?”, the last few predictions have probably answered your question.
This year was a seller’s market and 2021 is likely to also be a hot seller’s market. With low mortgage rates driving demand and tight inventory, sellers are likely to see value gains and continue to have the upper hand in the market.
#6. California Home Insurance Will Become More Expensive
One overlooked California housing market prediction for 2021 is the clear impact of the wildfires on the cost of home insurance. Karen Condor provided some insight on this: “Thanks to the impact of the wildfires and the buildup of homes in foothill communities, the rise in housing prices is also including a premium rise in California home insurance. Incredibly, California used to be the second-cheapest state in the U.S.; Oklahoma, Kansas, and Texas took the lead due to their severe storms, with the highest amount of claims for wind and hail, followed by water damage and freezing. But the skyrocketing industry loss ratio seen with California home insurance due to the number of wildfire-related claims has insurance companies not only raising rates, but decreasing coverage and even carrying out non-renewals. So while California regulators battle it out with the insurance industry over price spikes and reduced coverage, homeowners in fire-prone areas are experiencing sticker shock, either with their current carrier or when they have to scramble for a new one.”
#7. The California Housing Market Will Not Crash in 2021
With COVID-19 came talks and fear of the impact of an economic recession on the housing market. Early forecasters thought the housing bubble would bust in California and a housing market crash was bound to happen before the end of 2020.
However, all of the market data and trends prove that the California real estate market is recovering. And with trends continuing on this trajectory, it’s highly unlikely that a California housing market crash will happen in 2021. This is thanks to the fact that demand continues to surge, despite rising prices and inventory shortages.
#8. Suburban and Rural Towns Will Be Hot for 2021
Due to the fact that California is showing signs of a generally “healthy” market with no crash in sight, you might be wondering where to invest. We have a few predictions for this, based on different factors.
The first is that you might want to consider investing in California real estate in suburban or rural areas in the state. A few of our market insiders spoke of this trend: “A suburban migration within the state from San Francisco and the Bay Area to more suburban areas like Sacramento may see an urban exodus of sorts taking place but will invariably boost home sales in the Golden State.” -Rostislav Shetman, Founder of 9Kilo Moving
Looking at investment data for the Sacramento real estate market, it is looking positive for rental property investors, making it a good place to invest in California:
- Median Property Price: $437,135
- Price per Square Foot: $280
- Price to Rent Ratio: 24
- Traditional Rental Income: $1,518
- Traditional Cash on Cash Return: 2.1%
However, Ari Rastegar, a real estate developer in the Sun Belt, including Southern California, and the CEO & Founder of the Rastegar Property Company warned that renters may actually leave the California housing market in favor of more affordable areas. With the pandemic and wildfires both raging on, Rastegar is seeing California renters ditch their overpriced apartments for vintage multi-family apartements in smaller, Sun Belt cities like Austin, Tulsa, and Salt Lake City. This is an important prediction to keep in mind when choosing a location for buying rental property in California.
#9. These Are the Best Places to Invest in Real Estate in California for 2021
Continuing with our predictions of the best places to invest in California, here’s a look at the data. The cities on this list were selected because they each provide real estate investors with good cash on cash return in 2020 and are likely to continue to do so in 2021:
- Median Property Price: $334,307
- Price per Square Foot: $182
- Price to Rent Ratio: 18
- Traditional Rental Income: $1,526
- Traditional Cash on Cash Return: 3.1%
#2. Cathedral City
- Median Property Price: $401,543
- Price per Square Foot: $223
- Price to Rent Ratio: 17
- Traditional Rental Income: $1,930
- Traditional Cash on Cash Return: 3%
- Median Property Price: $383,462
- Price per Square Foot: $181
- Price to Rent Ratio: 19
- Traditional Rental Income: $1,645
- Traditional Cash on Cash Return: 2.9%
- Median Property Price: $341,754
- Price per Square Foot: $215
- Price to Rent Ratio: 21
- Traditional Rental Income: $1,388
- Traditional Cash on Cash Return: 2.9%
#5. Chula Vista
- Median Property Price: $572,649
- Price per Square Foot: $361
- Price to Rent Ratio: 18
- Traditional Rental Income: $2,591
- Traditional Cash on Cash Return: 2.8%
While it isn’t perfect by any means, the overall outlook for the California housing market in 2021 is positive. If you can afford to, buying a California investment property could mean that you enjoy real estate appreciation and cash flow next year.