The financial pain of the pandemic failed to slow the Bay Area housing market and real estate economists forecast an even stronger 2021 with more sales, higher prices and greater demand.
The new year could bring good news for suburban sellers, as buyers embrace remote work and look for space, space and more space in their new homes. The anticipation of near record-low interest rates and the re-opening of large sections of the economy provide the foundation for economists’ optimism.
Jordan Levine, chief economist with the California Association of Realtors, expects demand for homes to remain strong. More buyers and sellers will return to the market as Covid-19 vaccines get distributed widely and more people go back to work.
Levine believes the pandemic may have created a long-term shift in the housing market: buyers less concerned about daily commutes and more focused on bigger homes. “The needs for the house changed fundamentally,” he said.
Pandemic restrictions severely curbed Bay Area home showings and sales in March and April. But the market rebounded quickly in the summer after restrictions were lifted, driven by low interest rates, a strong stock market boosting tech professionals’ income, and the demand for more home offices and outdoor family space.
Existing home prices in eight Bay Area counties hit $982,000 by October, the most recent available data, with fast-selling suburban and luxury homes fueling a 15 percent increase from the previous year, according to a CoreLogic analysis.
Zillow senior economist Jeff Tucker said demand for suburban properties should continue, driven by at least two key factors: remote work schedules and the arrival of millennial homebuyers from urban apartments and condos. The pandemic has sped up decisions by young professionals to leave cities like San Jose and San Francisco, he said.
Zillow also expects a record 20 percent jump in national home sales, largely a function of sluggish activity in spring of 2020 and a burst of demand from buyers and sellers now waiting out the pandemic.
Despite housing costs that remain among the highest in the nation, the Bay Area saw slower appreciation in prices than did most major cities in 2018 and 2019. Tucker said today’s lower interest rates — making monthly payments more affordable — appear to be a vital factor spurring Bay Area buyer demand and lifting prices.
Tucker and many economists were surprised at the resiliency of the residential real estate market during the pandemic. “We’ve just seen the housing market speed up,” he said.
Economists expect interest rates to stay near 3 percent in 2021, a slight bump from the historic lows in 2020. Interest rates on a standard fixed, 30-year mortgage are now 2.7 percent, according to FreddieMac. The low rates will allow buyers to expand their budgets next year while keeping monthly costs manageable for their incomes.
Redfin chief economist Daryl Fairweather expects Bay Area home prices to grow more slowly in 2021 than the predicted growth of 5 percent in the U.S. market. She said Bay Area median prices could be dragged down by sluggish condo markets in the Bay Area’s urban hubs.
The remote work trend, coupled with high Bay Area prices, means the outward migration should continue. For a long time, Silicon Valley has been able to attract new residents simply with good tech jobs, she said.
But if housing prices remain high, Fairweather said, “that’s not going to be as true moving forward.” She believes high-cost cities will need to invest and market more quality-of-life features like restaurants, theaters, and walkable commercial districts that make cities more livable.
The Bay Area, she added, still has plenty going for it.
A new measure approved by California voters in November, Prop. 19, could also increase the number of Bay Area homes for sale. It allows older homeowners to sell their properties and move elsewhere in California without losing favorable Prop. 13 property tax treatment.
Levine said it could also open opportunities for developers to build more communities for older adults.
But the health crisis has also driven up prices for building supplies, increasing construction costs and lengthening the shadow over the state’s overall housing deficit.
It worries Levine, despite the overall strength of housing market. “So far,” he said, “we’ve been able to succeed despite our challenges.”
