2021 Market Forecast


It was about this time last year, that I was predicting 2020 would be a pretty average year for our local real estate market. I expected interest rates to remain around 4 percent, home values increasing maybe 5 percent and the number of residential sales about the same or slightly less than 2019. My yearly forecast included the continued migration of Millennials to cities, pushing up rents and home prices in urban areas. I was less optimistic about rural home values. The escalating cost and availability of fire insurance, increasing land use regulations, and distance to shopping and restaurants was less attractive to folks moving from the Bay Area who consider El Dorado Hills rural. My non-real estate prognostications included the 49ers would win the Super Bowl, President Trump would easily win re-election and the economy would continue its record expansion.      

Although, my prediction about the 49ers winning the Super Bowl didn’t happen, the 2020 real estate market, started out much as I had anticipated. Two months into the new year, the county’s median selling price of $495,000 was comparable to 2019. In January, the previous year’s GNP was released showing a 2.3 percent growth. That was slightly less than economists had predicted but this was an election year and typically national elections are good for business. Consumer confidence was running high and nothing appeared on the horizon that would change much of anything. It was exactly what I had predicted.  

Our world began to change when in late February some obscure virus in China spooked investors. The Dow Jones Industrial Average and S&P 500 lost 12 percent of value in one week. It was the worst weekly performance since the financial collapse of 2007, which triggered the Great Recession and 8 million foreclosures. The sudden turnaround in the equity markets and uncertainty of the coronavirus, stunned the real estate market.

In times of uncertainty, we often look to our spiritual and political leaders for calming assurance and leadership. What we received was the governor’s executive order closing churches and a daily broadcast of the coming Armageddon. The  mandatory lockdown in mid-March and selective closing of many small businesses, spooked both buyers and sellers.

Home sales in April and May fell to a three-year low and the median selling price fell 20 percent below 2019 levels. The percentage of cancelled sales during April and May doubled from the previous year. Many escrows were postponed indefinitely. Housing economists that were predicting a robust real estate market a few months ago, were now unsure what effect 40 million folks out of work would have. Facing a worldwide pandemic, massive unemployment and revolutionaries burning cities, wasn’t thought to be a positive environment for real estate but those predictions was wrong also.

Between June and September, sales increased 40 percent over the same period in 2019 and the median selling prices jumped to a new record high of $535,000. This last year sales ended 28 percent higher than 2019.

The stream of Millennials who had been flowing into cities searching for social connectivity and job opportunities, reversed course and began their migration back home living with parents or to the suburbs. Rents in San Francisco dropped 25 percent and the number of homes currently listed is the highest in the last four years. In contrast, rural counties like El Dorado experienced a sell out of listings and  property values shot up 14 percent.   

 

One of the many standard agent disclosures is a “Market Condition Advisory.” It puts their clients on notice: “It is impossible to predict future market conditions.” That’s good advice for my  following 2021 market forecast.

The continued demand for single-family homes will increase county property values another 8 to 10 percent. County home prices remain a bargain compared to the state’s $700,000 average.    

Assuming a successful vaccination program and provided the governor allows us to leave our homes, expect a huge increase in the number of residential listings this spring and summer. A record number of families will sell their equity rich homes and relocate out of state.    

Mortgage rates will slowly increase, hitting 3.5 percent by the end of this year.

The number of county sales will decline from 2000. Last year’s 3,350 residential sales was a county record, up 27 percent from 2019. Despite the expected increase in listings this spring and summer, we don’t have enough inventory now or in the next few months to hit those numbers again.

Working from home is the new normal. Working from home has increased in popularity from 15 percent in 2001 to about one-third today. Office and retail buildings will continue to lose value while homes with a “home office” will attract more buyers and higher prices.

Look for more multiple-family and multi-generational living arrangements in single-family homes. Accessory Dwelling Units will gain in popularity.

More large companies will exit California along with their key employees.    

Opportunity for buyers. This spring and summer will provide the best selection of county homes in three years and very low mortgage rates. It won’t get much better.

The price of new construction will jump 20 percent. Labor, materials, and regulatory costs will force builders to up prices. 

Through future recessions, elections, and pestilence, Americans will still believe “There’s no place like home.”

Ken Calhoon is a real estate broker in El Dorado County. He can be reached for questions and comments at ken@kencalhoon.comType your paragraph here.