Low mortgage interest rates and pent-up demand will bolster California home sales in 2021, but economic uncertainty caused by the coronavirus pandemic and a continued supply shortage will limit sales growth, according to a housing and economic forecast released Tuesday by the Los Angeles-based California Association of Realtors.
CAR is forecasting a modest increase in existing single-family home sales of 3.3% next year to reach 392,510 units, up from the projected 2020 sales figure of 380,060. The 2020 figure is 4.5% lower compared with the pace of 397,960 homes sold in 2019.
The California median home price is forecast to edge up 1.3% to $648,760 in 2021, following a projected 8.1% increase to $640,330 in 2020 from $592,450 in 2019, according to CAR.
“An extremely favorable lending environment and a strong interest in homeownership will continue to motivate financially eligible buyers to enter the market,” said CAR President Jeanne Radsick, a Realtor in Bakersfield. “While the economy is expected to improve and interest rates will stay near historical lows, housing supply constraints will continue to be an issue next year and may put a cap on sales growth in 2021.”
The CAR forecast projects growth in the U.S. gross domestic product of 4.2% in 2021, after a projected loss of 5% in 2020. With California’s 2021 nonfarm job growth rate at 0.5%, up from a projected loss of 12.7% in 2020, the state’s unemployment rate will dip to 9% in 2021 from 2020’s projected rate of 10.8%, according to CAR data.
The average for 30-year, fixed mortgage interest rates will dip to 3.1% in 2021, down from 3.2% in 2020 and from 3.9% in 2019, remaining low by historical standards, CAR economists say.
“While home prices rose sharply in 2020, driven by strong sales of higher-priced properties and a limited inventory of homes for sale, the pace of price growth will be more moderate in the coming year,” said Leslie Appleton-Young, CAR’s senior vice president and chief economist.
“The uncertainty about the pandemic, sluggish economic growth, a rise in foreclosures, and the volatility of the stock market are all unknown factors that could keep prices in check and prevent the statewide median price from rising too fast in the upcoming year,” Appleton-Young said.
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