Q3 2021 Southern California Real Estate Market Update
The following analysis of the Southern California real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere Real Estate agent.
REGIONAL ECONOMIC OVERVIEW
The job recovery in Southern California continues to be quite the roller-coaster, with solid monthly gains followed by significant drops. In the first quarter of the year, more than 326,000 jobs returned, but that was followed by a less-than-stellar 8,300 increase in the second quarter. The latest third quarter numbers (most recent data is from August) showed that the Southern California region has added more than 27,000 positions, but this is still underwhelming.
The COVID-19 Delta variant is impacting the job market, and a lack of available workers isn’t helping. In aggregate, the region has recovered 1.31 million of the 2.02 million jobs that were shed when the pandemic hit, but this means Southern California is still down more than 700,000 positions. The region’s unemployment rate in August was 8.2%, down significantly from 14.2% a year ago. The most recent data shows the lowest jobless rates were in Orange (6%) and San Diego (6.6%) counties. The highest rate was again in Los Angeles County, where it was 9.7%. Although the current pace of the job recovery is muted, I hope it will pick up in the not-too-distant future, but the likelihood of reaching full employment anytime soon appears to be unrealistic.
SOUTHERN CALIFORNIA HOME SALES
❱ In the third quarter, 50,313 homes sold in Southern California, representing a 0.1% drop from the same period in 2020 and 4.7% lower than in the second quarter of this year.
❱ Pending home sales, which are an indicator of future closings, were 4.5% lower than in the second quarter of this year, suggesting that the final quarter may also be down.
❱ Year-over-year, home sales rose in Los Angeles County, but pulled back in the remaining markets covered by this report. Compared to the second quarter, sales pulled back in all markets other than San Bernardino, where sales rose 6%.
❱ The issue is not demand, rather a lack of supply is holding the market back. Listing activity is down 22.3% from a year ago, and this is impacting sales. That said, listings were 17.1% higher than in the second quarter and, with more choice starting to emerge in the market, we could see sales volumes pick back up.
SOUTHERN CALIFORNIA HOME PRICES
❱ The average price of homes sold in the region was $971,184. This was 19.1% higher than a year ago, but 1.4% lower than in the second quarter of 2021.
❱ Mortgage rates remain remarkably competitive, even if they are off the historic low of last December. Also of note is that jumbo mortgage rates are remarkably competitive—an important factor in expensive markets such as Southern California.
❱ The region saw double-digit price growth across all counties contained in this report. Year over year, prices were up more than 19%, but they were down 1.4% from the previous quarter.
❱ As stated in last quarter’s report, I believe interest rates will rise slowly, which is likely to bring out more buyers. With inventory levels starting to tick up, I am expecting the regional housing market to trend higher, but likely not until the spring.
DAYS ON MARKET
❱ In the third quarter of the year, the average time it took to sell a home in the region was 17 days, which is 16 fewer days than a year ago and 2 fewer days than in the second quarter of 2021.
❱ Three counties saw the time it took to sell a house drop compared to the second quarter of this year: Riverside, Los Angeles, and Orange. Market time was static in San Bernardino County and rose by one day in San Diego County.
❱ Homes in San Diego County continue to sell at a faster rate than other markets in the region. In the third quarter, it took an average of 14 days to sell a home there—9 fewer days than it took a year ago.
❱ With it taking an average of a little more than two weeks for a home to find a buyer, the market remains very tight. That said, with inventory levels rising, it is possible that days on market will start to creep higher, especially as affordability constraints potentially limit the number of qualified buyers.
CONCLUSIONS
This speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors.
The third quarter was quite a mixed bag, with rising inventory levels but lower sales and prices compared to the second quarter. When I look at list prices, which is a leading indicator, as opposed to sale prices, which are a lagging indicator, I notice some softening in San Bernardino, Los Angeles, and Riverside counties. Although not a cause for concern, it may suggest that the market is about to start to cool—albeit modestly.
As such, I have chosen to move the needle a little more in the direction of home buyers, although sellers still have the upper hand.
ABOUT MATTHEW GARDNER
As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.
In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.
10 Mistakes to Avoid When Buying a Home
Whether you’re a first-time homebuyer or have purchased a home before, the same mistakes can rear their head at any point in the buying process. By working closely with your agent, you can identify these pitfalls ahead of time and adjust accordingly. Mistakes in the buying process can lead to higher costs, added stress, and even terminated contracts. Here are ten common mistakes to avoid when buying a home.
10 Mistakes to Avoid When Buying a Home
1. Not getting pre-approved
Getting pre-approved is a key component of the early stages of the buying process and will help to maximize your chances of getting your offer accepted. Getting pre-approved will give you a concrete idea of how much you can borrow, how much house you can afford, the estimated monthly costs of your mortgage and its corresponding interest rates. It also communicates to sellers that you are a serious buyer.
2. Not identifying your price range
Pursuing listings you can’t afford is a surefire way to start your home buying process off on the wrong foot. Buying a home that’s outside your budget will put added pressure on your finances and increases your chances of foreclosing, should your financial situation take a turn for the worse. Use the general rule that your house payment should never be more than 25-30% of your take-home pay, and as you prepare for talks with your lender be sure to account for all the expenses you will incur, including private mortgage insurance (PMI) if applicable.
3. Taking on new credit
Opening new lines of credit at any point in the home buying process will slow things down and can affect your chances of getting a home loan. Adding another credit card to your collection or taking out a loan will change your credit score, causing a ripple effect that can bring the buying process to a halt. Because new credit changes your debt-to-income ratio, lenders will likely want to review your mortgage approval and your risk of non-payment. This forces sellers to wait around for your application while competing buyers speed ahead of you in line.
4. Not purchasing adequate homeowner’s insurance
It’s understood that a home is a valuable asset that needs to be protected, but it is still all too common for homeowners to be under-insured. A homeowner’s insurance policy covers your home, your belongings, living expenses and injury or damage to others that occur on the property in the event of a disaster. Work closely with your insurance broker to make sure you have adequate coverage for the most common risks in your area like flood, earthquake, and more.
5. Not looking for other loans
With a little resourcefulness, you can tap into new sources of financial support that will help to ease the burden of making a home purchase. VA Loans can be a lifesaver for active service and veteran personnel, offering zero down payment and lower-than-average mortgage rates. Other government loan programs such as USDA and FHA loans can greatly aid homebuyers with favorable loan terms. Be sure to thoroughly review the qualifications of these loans before applying.
6. Misunderstanding the down payment
When it comes to down payments, it’s not twenty percent or bust. Granted, with a twenty percent down payment your lender won’t require you to purchase mortgage insurance; but even if you’re short, there are a number of alternatives to private mortgage insurance (PMI) available to you, such as Lender-Paid Mortgage Insurance and a piggyback loans strategy. Work with your agent to identify trusted lenders in their network that can help you secure the right loan.
7. Not working with a buyer’s agent
A buyer’s agent will help you to identify which homes you can afford, work with you on formulating a competitive offer and preparing for negotiations with sellers and listing agents. Buyer’s agents will also handle the paperwork when it comes time to close the deal. A home purchase is an intricate transaction with many moving parts and having an experienced professional by your side who can navigate each step is invaluable. Typically, the buyer’s agent splits the commission of the sale with the listing agent, which is paid by the seller, so generally their services come at no additional cost to you.
8. Underestimating repair and remodeling costs
Regardless of whether you’re buying a fixer-upper or a home that needs a few simple upgrades, you can usually expect some repair and remodeling expenses once the home is yours. Before you start swinging hammers or tearing up drywall, take time to assess the scope of the projects and whether you can do them yourself or need a professional. Talk with your agent about which remodeling projects have the highest resale value for comparable homes in your area.
9. Buying a home without an inspection
Buying a home without having it inspected opens the buyer up to added risk. Without a home inspection, you forego the ability to negotiate repairs and concessions with the seller. Getting a home inspection is a small investment and alerts you of any potential home disasters that may be on the horizon. However, this mistake comes with an aside. In a seller’s market where a high number of buyers are competing for a limited number of available listings, waiving the inspection contingency is a common tactic for buyers looking to make their offer stand out. Work with your agent to figure out what’s best for you and your situation.
10. Forgetting about moving costs
It’s easy to get so focused on the purchase of the home that you forget about what it will cost to move there. Moving expenses can add up quickly, especially if you’ll be traveling across state lines or across the country. If you’re buying and selling a home at the same time, there’s also the question of where you’ll live in between closing on your current home and closing on your new one. If these costs aren’t accounted for, you can quickly be over budget before you set foot in your new home.
For more information on how to make the buying process smoother, read about how you can Increase Your Buying Power.